Collaborative capitalism - can traditional companies compete?

Monday, April 02, 2012

18:00 - 20:30

For the past 20 years, the most successful companies have been driven by external shareholders looking to maximise ROI. It has produced impressive economic growth, but often without regard for the impact on society or the environment.

But with growing public animosity towards key sectors such as banks, utilities and retailers, are things changing? Strategies that recognise other stakeholders, particularly employees and society, may be starting to perform better see recent trading from Fairtrade, the Co-op Group and John Lewis Group.

At the same time, a handful of leaders and companies starting to behave like social agitators. Paul Polman has asked speculators to leave the commodity markets, Richard Branson wrote Screw Business as Usual, and Ben and Jerry's are funding the Occupy Movement. Our panel led a debate on the strengths of these trends and the implications for business strategies:

  •     Nick O'Donohoe, CEO of Big Society Capital, on why we are entering a more collaborative version of capitalism.

  •     Jean Oelwang, CEO of Virgin Unite, on transforming existing businesses to put people and planet at the core.

  •     Ruth Girardet, CR and Communities Director, Tesco, on why Tesco is seeing a switch back from environmental to social issues.

  •     Cliff Mills, expert on co-operative structures, Mutuo, on the dramatic revival in the fortunes of the co-operative movement, and whether corporates can collaborate.

Speakers

Cliff Mills Mutuo

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Jean Oelwang Virgin Unite

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Nick O'Donohoe Big Society Capital

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Ruth Girardet Tesco

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Round Tables

Built Environment

Should companies be investing in green or socially beneficial property instead of what makes strict commercial sense today?

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“Should companies be investing green or socially beneficial property instead of what makes strict commercial sense today”
This was the question that a diverse range of business people attempted to answer on the ‘Sustainable Built Environment’ table on the Monday, 24th April. The group decided to focus on the aspect of green property from the viewpoint of a corporate seeking commercial premises or a commercial landlord (investor landlord) with multi-tenanted offices. We did not fully consider the investment case for socially beneficial property.

The discussion started by thinking about the why investment should happen and why is was not and then looked at the barriers/challenges before considering solutions and ending with some examples of those that were investing in green property.

'Why would a company invest?'
Reasons include the following, amongst others; Cost savings / operational efficiency; “Feelgood” factor for staff; as well as health and wellbeing outcome and reputation enhancement.

'Why it does not?'
Many companies only seek green premises for their plc HQ, not their not back offices. Staff don’t know plc targets and ask for these standards. Green buildings are considered more expensive and can retrofitting can be disruptive so budget constraints and timelines get in the way.

'Challenges to overcome'
Those discussed included; disruption to business operations; tenants not asking for it (even with a strong CSR programme in place); success is dependent on partnership between tenants + landlords; Government legislation to incentivise 'action' – actually tends to create distortions and consensus economics; also non-experts investing in technologies they do not understand e.g CHP, leads to bad press creating false impressions of effectiveness of certain solutions.

'Solutions'
Some of the barriers and challenges included; better transparency on total occupancy cost and impacts of implementing actions to make the property more sustainable ie cost benefit analysis. Need to seek a demand for green buildings, whereby clients ask landlords for green refurbishments / or a green premises. The group cited construction and property firms such as Skanska and Lend Lease who occupy green buildings. Other companies were those that had large footprints such as cement companies, and the retail superstores were cited for their activity in establishing sustainable stores.

Supply Chain

What is the latest thinking on strategies for managing labour and other social issues in the supply chain?

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The table concluded that it is typically easier to measure environmental indicators than social, as environmental impacts are more objective whilst social impacts can be seen as subjective. For the majority around the table social impacts were also seen more at the level of compliance than embedded with the company. At this level companies need to careful of adopting a checklist mentality when approaching social responsibility issues, as there is a danger of focusing on the things that can be counted rather than the things that count.

'RED FLAGS’
-Choice editing, Do consumers drive choice and change? Over the last 2 years electronic manufacturers have faced a a number of allegations of mismanagement of social aspects of their supply chain ie. Apple and Foxconn, yet consumers still want the latest products.
Are social impacts seen as more as compliance driven than being truly integrated within a business?

‘SOLUTIONS’
- Certification
- Social KPI
- Reporting across all suppliers
- Tendering processes to incorporating social aspects.
- Leadership and communication to embed social indicators into company.

‘CHALLENGES’
- Which standards to adopt; ISO 26000, SA 8000, UN Global Compact and the GRI
- How to build the business case for social impacts

‘EXAMPLES’
- Timberland - work in North Thailand developing supplier
- TUI working with three big hotels looking at social and economic impact indicators
- GSK delivery of free medicines to Africa.

Carbon Strategies

Is social the new green?

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At Green Monday this month we talked about whether ‘social’ was eclipsing the environment as the key sustainability issue. We first discussed the degree to which we felt environment had dominated the agenda, and then whether social was gaining a higher priority. The view of the table participants was that social issues had remained a concern even while environment was the hot topic, but that social issues were coming to the fore to an extent.

We then discussed whether we, as a table of primarily environmentally focused professionals, felt that we had the skills to tackle the social agenda. There was a mixed view, but certainly it was the case that a number of us felt ill equipped and unsure about how to make the social business case. We theorised a continuum ranging from Philanthropic Activity on the one end, to Corporate Activity on the other, and we felt that social issues lie further toward the philanthropic end than environmental issues. Accordingly, we felt that it was hard to make a business case for social as it lay further from core business activities.

‘RED FLAGS’
- Be sure that your sustainability team has the expertise to address the social agenda
- How to overcome the challenge of measuring social impact value

‘SOLUTIONS’
- Understanding where the value lies
- Appointing a CSO who has an overview of green/social/ economic
- Holistic supply chain review - environmental - social
- Find measurable social metrics
- Collaborative consumption measurements

‘CHALLENGES’
- Is the remit of the CSO clear enough?
- How do we measure social?
- Are we equipped to deal with social?
- Do we need to nuance what social means?
- Perhaps it's easier to align business objectives to socal than environmental

‘EXAMPLES’
- BskyB - Bigger picture, full sustainability (including social)
- Loreal, body shop, real collaborative consumption
- Unilever (social!)
- Cause marketing: 'pampers', talking beyond philanthropy

Finance & Corporate Sustainability

How should companies respond if they are ahead of their investors on the issue of sustainability?

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There are a range of ways that companies can influence investors: they are suppliers of investment opportunities, they influence their pension funds, their employees and other customers of the investment chain, some of them can enter the industry as disruptive competitors, or they can help shape the investment environment as opinion formers. This table focused on the supplier role ie. investor relations.

This table brought together CSR and investment professionals. Key points made included (a) explain the sustainability strategy using the language of corporate profit and value creation (b) senior corporate executives must tell analysts why this is an important business issue – it’s about who says this as well as what is said (c) some CSR sustainability professionals are placing their desk within the Investor Relations function and participating in general investor road-shows – the next step is to get IR professionals to deliver the sustainability message (d) share investment-relevant information eg. if you are a bank, say how many clients you have in sensitive sectors from a lending risk perspective – this is actionable information that can help them to appreciate how they may be lagging behind in their own assessments.

‘CHALLENGES’

- Leaders don't like to head the debate up mainstream analysis
- Find the disruptors in the company to challenge and bring CR/Sustainability from outside that team
- Disclosure of sustainability performance
- How to fund without investment institutions in the middle
- Impression not what city analysts want to hear - If CEO's say important, analysts will listen
- How is info being used and perceived - need to know and share this info
- Incentives have to be aligned through the whole company
- Do not presume the present is the future
- Language of CR seen as value destroying - change incentive
- Bring more businesses together to explore collaboratively, need to create the context

‘EXAMPLES’

- HSBC
- Old Mutual - CR sitting with investor team
- M&S

Communications

Should companies be increasingly communicating values over products or services?

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In a typically lively discussion, we kicked off with the question 'Is it actually what you DO rather than the way you do it that counts?' Citing the examples of the nuclear industry, tobacco and much of the financial sector as indicative of flaws in the product/service – but backed up with well-resourced, credible values-based CSR. The group thought it was interesting when a business's 'WHAT' was neutral (using a mountain/hiking equipment business as an example, or perhaps telecoms), then values became more important. The table felt leadership was vital, pushing and pulling consumer demand, driving innovation and technological improvement within an organisation, and influencing their own sector and well beyond into the supply chain e.g. Interface. The 'sweetspot' is when business, community and wider societal benefits align (as suggested by Coca-Cola). It was also felt that creative disruptors (like TOM's shoes) had to shout more about values than established players in mature markets (like Nike) in order to get attention…even if Nike is arguably doing as much/if not more than TOM's on CSR. There was argument about choice-editing, consumers leaping at ethical choices like FairTrade when price/quality were the same – the 'no-brainer' position. But the table still felt that influencing consumer choice was an important part of corporate responsibility. The key point for pioneering sustainability businesses is 'when you do it first it's for your customer, when you do it second in your sector – you're doing it for yourselves'. Let's lead!"


‘RED FLAGS’
- Credibility gap. Greenwashing and inconsistency. Do you really believe what you say?
- ‘Fauxlanthropy' (but does it work?)
- Unrealistic challenges/claims to embody values
- What we think is important (and what customers do) but there is a big gap.
- Values must be core to the business (even if the activities/products not)

‘SOLUTIONS’
- Does it matter if yout initiative doesn’t connect with core biz? E.g sky ride, Tesco
- Don't need to shout if you're doing it (e.g NIKE)
- Differentiation - Creative disruptors need to shout to get attention in crowded mature markets
- Influence - Engaging supply chain…still worth doing even without customer awareness/demand
great products or services bring values to life? Making it customer relevant

‘CHALLENGES’
- Trust…People don't like being fooled
- Austerity & Recession are values (beyond price/affordability) a distraction
- Why wouldn’t I buy it?
- Where is the line of how important 'what' you do is 'how' you do it
- Leadership - doing it first is for customer, doing it second is for you

‘EXAMPLES’
- Fairtrade businesses & Alignment e.g Mountain Equipment Co-op
- Innocent drinks, Unilever
- Co-op bank, M&S Plan A

Technology

Is the Green Deal the best "green" policy that the UK Government has in its hand?

 

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Conclusion of the table – NO

Concerns were raised about how customer demand would be generated BUT despite worries some consensus that it can be made to work if the right incentives are in place.

- Better to raise energy prices or use grants (though one thought politically impractical the other unaffordable)
- Increase the price of carbon to a level that impacts on behaviour
- De-carbonise the grid to make all electricity low carbon
- Operate Green Deal with large savings in first 3 months the revert to normal to incentivize
- Make it a “no brainer”

Energy Effeciency

What types of companies should be outsourcing their energy management instead of building their own energy teams?

Corporate Strategies

What does sustainabiliy mean to the CFO, and how will it change over time?

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Sustainability is starting to knock on the doors of the finance department as organisations look to integrate CSR / sustainability into the rest of the business as a credible part of profitable corporate activity. Some tentative steps are being made with stories of finance directors getting involved in specific initiatives and starting to think about the linkages to financial value. The crux of building this relationship is the challenge of developing effective, robust and credible measurement techniques that can be supplied with reliable data. This is no mean feat as many of the value outcomes (employee satisfaction, brand enhancement, risk management) are difficult to measure, let alone quantify in financial terms. A common theme emerging is that a tailor made approach for each organisation will probably be required, building up gradually from some of the easier challenges. Some examples of the different approaches that might be relevant are:
- asking the finance team to get involved in a project to collaborate with suppliers on sustainability.
- quantifying the broader socio-economic impact of the supply chain. This could include collaboration with the government to share data on impact quantification.
- establishing both intra and inter company competition on sustainability achievements.
The fact that both competition and collaboration are seen as routes to success proves that a tailored approach is crucial! Progress starts with effective dialogue - work out your own pathway and try to build on some early examples of success. The journey is probably going to seem quite tricky but the destination - evidence to support the value-add from sustainable business - is surely worth the effort.


‘SOLUTIONS’
- Employee satisfaction metrics (but needs to be valued)

‘CHALLENGES’
- Establishing a common understanding of value from sustainability
- Effective brand/reputation measurement techniques
- Robust measurement

Energy Policy & Strategy

Should the CRC Energy Efficiency scheme be scrapped or reformed?

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This roundtable discussed whether or not the CRC Energy Efficiency Scheme should be scrapped. Attendees included both public and private sector participants, highlighting the different challenges that such a variety of participants creates under the current rules. As a result, a wide range of possible changes were discussed from the treatment of academies to scrapping the scheme completely. A key theme was that the financial incentives that Government is creating to encourage carbon reduction should be streamlined so that they are easier to understand and have a predictable, transparent impact on business cases.

‘RED FLAGS’
- Continually measuring carbon does not in itself reduce emissions - simplify reporting
- Continued uncertainty and changes in the structure around the scheme.
- Equivalent carbon reporting for all is bad

‘SOLUTIONS’
- Have organisations report their investment and spend on energy efficiency in their yearly financial accounts/statements
- Sector/participant type (public v private) segregation in league table/ and scheme?
- Clear labelling of carbon content of electricity you purchase
- Clarifying integration of various pieces of legislation. Would help clarify business case

‘CHALLENGES’
- Local authorities have responsibilities for academies. This needs to be clarified
- Government not sure what they do. Need to decide and stick with a plan
- Different scheme for public sector and corporates. One size does not fit all
- Combining carbon abatement and energy efficiency in a clear way
- Administrative burden for companies need to be looked at
- Maintain pressure on private and public participants to act but is it the most efficient way
- Allowing for carbon abatement by using removable energy

Resource Efficiency

How should companies be factoring a future of water stress into their strategies?

Plenary roundtable - 1

What are the different ways that companies can collaborate with society to build better businesses?

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Our conversation covered a lot of areas, but the connecting challenge that all the solutions we discussed were seeking to resolve was the difference in Return On Investment (ROI) between “business as usual” and businesses that have a social aim. No-one at our table felt that, for today at least, it is fair to characterise social business as having as high an ROI as “normal business”.
That presents a real problem, and a lot of our discussion looked at the role of the external investor who typically wants to maximise the return on his investment. So long as a management team believes that their principal stakeholder is the shareholder, it is going to struggle to move towards more socially-focused business models.
That said, we did see some glimmers of hope....

'CHALLENGES'

- Social business has a lower ROI than business as we have known it in recent times
- Management teams are most focused on meeting the expectations of their shareholders
- Some management teams want to go further than they feel that investors will let them, for fear of being considered an under-performer
- Who is to determine what is good for society? If a mining company invests in local infrastructure, who is that to say it is good for society.
- How do we measure social purpose – we are much better at measuring financial value
- This is really hard business are, and they don’t teach it in MBA courses
- You need to get social thinking into core business – it doesn’t work as a side show
- How do we get businesses to listen more with society? In most privately-owned business, society is a fringe stakeholder
- Societal models seem to struggle to go to scale.

'SOLUTIONS' (i.e. different business models we discussed)

- Co-operatives have a more natural link with society than PLC’s. As the owners are the employees, they are more likely they will go the extra mile to find socially beneficial outcomes. Such as organic, European-grown tobacco.
- Creating a Foundation that acts as a link with society, and which consults to the business to build (e.g. of Virgin Unite)
- Several examples were cited of regulations forcing companies to accept lower ROI’s – particularly in order to win local authority contracts
- Having your headquarters occupied by protesters can focus the mind of senior management on societal issues. However, this will only be effective if they do not feel beholden to their investors

'EXAMPLES'
- Virgin Unite
- M&S – Plan A has improved environmental performance whilst adding financial value
- Patagonia – a company built on environmental purpose
- Grameen Bank – micro finance, that has generated $10bn in revenues
- Lockstep – waste rice husks used to create energy, created a “husk university”

Ecosystems & Natural Capital

What solutions are companies adopting that align communities with environments?

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Overall there was a tendency to focus on global initiatives rather than UK community initiatives. Water was noted as a particular area where communities and companies could work together and derive mutual benefit, and instances of this were noted. Nonetheless there was overwhelming agreement about the difficulty in companies gaining project scale in a world where supply-chains are highly disperse. Furthermore where scale is possible, environmental ‘markets’ were seen as the most effective mechanism through which communities and corporates can work together and share environmental assets. Several examples of this were given, particularly around forestry and water assets.


‘RED FLAGS’
- Relative scarcity - water as an issue of neutrality
- Pricing goods linked to broader nature products e.g pollination.

‘SOLUTIONS’
- Funding training centres with a with a view that one day they might become their suppliers - - long term thinking
- Example of B&Q and timber - choice editing with FSC
- Corporate - united utilities cleaning water before it enters their supply rather than alter.

‘CHALLENGES’
- Pricing of maintaining natural capital may be high relative to service offered
- Most of natural capital is unpriced (e.g pollination)
- Rising population doubling food requirements
- Loss of aesthetic value
- How to make things integral to doing business
- Barriers/cost in the move to drip integration
- Pricing: things get really expensive when they get really scarce
- Is sustainable more expensive? Some companies find it difficult to do choice editting
- Time patience required to develop relationships with communities to convene benefits
- Local vs global water neutrality vs very local issues carbon neutrality
- Social unrest/ need to work with community

‘EXAMPLES’
- United utilities - Yorkshire water - investment in water use and recovery
- EPA - Water
- Virgin holidays conservation - locally owned lodges and hotels
- B&Q no premium on sustainable timber - guilt free pay the same
- Lush
- MARS

Venue Detail

Bank of America Merrill Lynch: King Edward Hall

King Edward Hall | 2 King Edward Street | London | EC1A 1HQ

Directions

Bank of America's offices are a very short walk from St Paul's tube station (Central Line). Exit the station at Cheapside/Newgate Street. Go past the BT centre, with it on your right-hand side and take the first available right down Edward Street. Continue down this road for 80m and the entrance to the venue is on your left-hand side.

Do not go to the main reception desk at their offices when you arrive. You are looking for an entrance that leads you directly into the King Edward Hall.