Sustainable Development and Corporate Responsibility

1. Sustainable Development and Corporate Responsibility FCGI Forum for Corporate Governance in Indonesia Elmar Bouma

2. Corporate Responsibility and Sustainable Development • Debate about the role of companies • in society • companies as ‘money machines’ for shareholders (Economist) • companies as corporate citizens

3. Companies can do a lot of good for society by just being ‘money machines’ for shareholders • - training of personnel, OHS • environment and efficiency • development of suppliers • sponsoring • Still a lot can be done in Indonesia

4. Should companies take responsibility for the effects of their actions beyond what the law requires? • socio-economic impact, employment; • environment; • culture.

5. Should it go further? • Donate to charity; • Build public schools, health care facilities, infrastructure.

6. What is Sustainable Development? “Sustainable Development is development which meets the needs of the present without compromising the ability of future generations to meet their own needs”. UN Commission on Environment & Development, 1987 Sustainable Development takes into account the economic, environmental and social impacts and performance of an organization and its products. Sustainable Development is a part of a Company’s Corporate Responsibility

7. Corporate challenges • Money Machine • Labour standards, OHS • Narrow environment (materials, energy , waste and water use reduction, community issues) • Customer goodwill • Efficiency and financial performance • Sustainable Development • - Climate change • - Biodiversity and land use • Human (and indigenous) rights • Gender & diversity issues • Corporate Responsibility • - Business ethics • Bribery and corruption • Charity

8. Why Sustainable Development and Corporate Responsibility and why are Stakeholder Issues important

9. Why should we be concerned about SD and CR? • Because : • Governments and investors increasingly are concerned • Foreign, and increasingly local, buyers are • Civil society is • Employees are • In other words : Stakeholders are • The risk of not engaging in the debate are. • Disadvantageous legislation • Fines and penalties • Poor financial market ratings • Reputation loss • De-motivated employees • Lack and loss of market penetration

10. Corporate Social Responsibility, Responsiveness, and performance • Important developments in society: • Entitlement Mentality • Rights Movement • Victimization Philosophy • Business is being asked to assume broader responsibilities to society then ever before, and to serve a wider range of human values

11. SD/CR : it’s not all about costs SD/CR is not just a “cost centre”. It is also about investment in the future. Brand leadership and recognition Cost savings and operational efficiencies Improved workforce morale Better quality recruitment Improved access to supply chains Enhanced Risk Management, etc

12. Stakeholders • The stakeholder focus adopted for SD/CR purposes is wider than that normally dealing with the for conventional Corporate Governance and Financial Reporting • Internal • Employees and Managers • Owners • External • Investors and other providers of finance • Local communities • Governments and regulators • Civil Society / NGOs • Customers • Suppliers • Shareholders / Financial Analysts

13. Stakeholders • Stakeholder : “Any individual or group who can affect or is affected by the actions, decision, policies, or goals of the organization” • Stakeholder identification is an unfolding process over time • Every company has (or should have) its own stakeholder map

14. Stakeholders Shareholders Government Regulators Owners Employees Managers Company Investors Financiers Customers Suppliers Civil Society Local Communities Environment Consumers

15. Stakeholders Engagement • Five Key Questions • Who are our stakeholders ? • 2. What are our stakeholders’ stakes ? • 3. What opportunities and challenges do our stakeholders present to our company ? • 4. What responsibilities (economic, legal, ethical and philanthropic) does our company have ? • 5. What strategies or actions should our firm take to manage stakeholder challenges and opportunities ?

16. Stakeholders Engagement Issues • Engaging with stakeholders is not without problems • Who are the stakeholders? • How powerful are they? • How active are they? • What risk does non-engagement/non-responsiveness pose? • How do we engage them? • Can we be responsive to all their concerns? • How do we prioritize or balance their concerns? • How do we deal with stakeholders: • reactive, proactive? • directly or indirectly? • accommodate, negotiate or resist? • How do we demonstrate that we have integrated their concerns both operationally and strategically?

17. Stakeholders Engagement Approaches

18. Stakeholders Engagement Issues Consumers

19. Consumers Consumer rights (J.F. Kennedy) • Right to safety • Right to be informed • Right to choose • Right to be heard • Clear information • Accurate information • Adequate information

20. Consumers • Correct information • Ambiguous Advertising, may mean several different things • Concealing facts • Presenting fact in such a selective way that a false belief is created • Advertising abuses are not quickly forgotten by consumers • Establish effective Consumer Affairs Office

21. Stakeholders Community

22. Community • Community involvement must be planned and organized with the same care and energy that are devoted to other parts of the business • Same measure of cost effectiveness • Corporation should capitalize on its talent and resources • Employees should be involved in community programs • The corporation should get involved in the communities it knows • Not all action should originate in company • Helps others help themselves

23. Stakeholders Environment

24. Environment • Many anecdotes about firms making money from their environmental programs • Research studies exploring the systematic relationship between environmental add financial performance had been conducted by the mid-1990s, and although the result were not conclusive, many found this relationship to be positive • 1991 study comparing the financial performance of 84 companies with their environmental rating by a nonprofit consumer group found that those firms with the highest environmental ratings had a 2.24 percent higher return on assets than those with lower environmental rating

25. Stakeholders Government

26. Government Stakeholders Engage Early On Engage Constructively Present Thorough Analysis and Reliable Facts Take Public Interest and Public Policy Perspective Be consistent Unbundle and De-Politicize Issues Seek Industry-wide approach Seek Coalitions

27. Stakeholders Engagement • Engagement with stakeholders builds trust, identifies important issues and can affect the organization favourably at many different levels : Morale, Market Rating, Co-operation, Light touch regulation, etc. • Engagement takes many forms : • Focus groups • Questionnaires • Participative action • Advisory panels • Feedbacks on reports • Transparency

28. Stakeholders Engagement • Seek assistance from a third party that can work on your stakeholder management from within but also from outside • Much potential for improved competitiveness and profitability: • Efficiency • Marketing • Training and Quality • Supplier Development • Better Risk Management

29. Thank you FCGI Forum for Corporate Governance in Indonesia c/o Indonesian-Netherlands Association Gedung Menara Jamsostek-Tower A Lantai 20, Ruang 2002 Jl.Jend.Gatot Subroto no.38 Jakarta 12710 Tel : 021-5290 2177 Fax : 021-5290 2178 Email : fcgi@fcgi.or.idhttp://www.fcgi.or.id