Developing Company Policy – an Overview Process

A CSR/Sustainability Policy does not exist in a void; it should exist as part of a fully integrated Policy Framework within a company.

This discussion follows from (or leads to, actually) the example CSR/Sustainability Policy Statement that I provided yesterday, and introduces Policy (and the Policy Framework). This is only an introduction, there's lots more, and feel free to contact me for more information on the topic of development, introduction, monitoring and updating of policy, defining responsibilities for Policy, and delegations of authority to develop, approve, introduce or alter policy.

Development of policy should be done in consultation with, and obtained agreement with representatives of Risk Management, Information Services/Technology, Human Resources, Communications and Finance among others. Senior management should review and approve the policy framework and high-level policies for submission to the Board of Directors for approval.

What is Policy

Each company’s Policy (formal and documented or informal) reflects its own culture. Fundamentally, Policy provides the guidance and boundaries for all managers and staff to enable achievement of company objectives. Policy can be a high level set of goals or objectives, or a set of directives and mandatory performance or behavioural requirements.

Policy should include objectives, responsibilities, and accountabilities and should include an identification of the owner of the policy. They should be clearly determined, setting the tone, values and governance of the company. Each policy should also include a statement of principle or prescribed general (rather than detailed) course of action, with application appropriate to the level of the policy.

What does Policy do?

• Policy provides the boundaries within which employees achieve the strategic direction of the company, as set by the Board and the Senior Management Team.
• Policy contributes to the setting of accountabilities for specific tasks in the organisation, and provides guidance to managers and staff as to how to achieve the strategic direction. Policy helps to drive behaviour.
• Policy provides cohesion and congruence to the various parts of the company, ensuring that all parts are moving in the same direction.
• Policy provides focus to address areas which are either of importance to the achievement of the company’s strategic objectives, or matters which are of considerable risk to the business.

CSR / Sustainability Policy

With that quick overview, lets return to the example CSR/Sustainability Policy statement. In that Policy, there is clear definition of ownership and responsibility, without attempting to define day to day functions of individuals. Think about the Policy Statement itself. It lays out "who we are, what each of us is responsible for doing, and what the company provides to enable us to meet our obligation".

The rest of the example policy provides context and is designed to help individuals in interpreting their responsibilities, and in providing guidance and direction, and importantly who or where to go when in any doubt.

CSR/Sustainability is not the responsibility of the CSR department, marketing or any other area. It is not the responsibility of a CSR coordinator or director of sustainability. It is part of the fabric of the company, and as such, needs to be integrated into the overall Policy Framework of the company.

Example of a CSR / Sustainability Policy

Most companies already have policy frameworks in place, with policies covering a range of business activities. Sometimes policy is developed at a micro-level determining just who can spend exactly how much, on what and when (as one example). I have also worked with companies to develop their policy frameworks and to create the set of “high level” policies under which detailed policies can be ‘attached’. My clients found this to be an effective way of creating the link between the Vission/Mission and individual and business behavior at a detailed level.

For your reading pleasure, A CSR / Sustainability Policy. Note that the ‘Interpretation’ and 'Specific Responsiblities' secions set out the responsibilities of various business units and functions at a high level, but at a level “below” the policy statement. This provides the bridge between “who we are” and “how we do it”.

The Policy Statement itself contains a three elements - Who we are, What individuals are responsible for, and what is provided to enable achievement.

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Background

Throughout our history we have sought to achieve our business objectives while at the same time acting as a good corporate citizen in all our communities, and across those elements of our supply chain that we have been able to directly influence. It is the intention of the company to continue to be a good corporate citizen. The assumptions of what good corporate citizenship entails have been evolving, and it is our intention to continue to evolve our business practices as such assumptions evolve.

Recent years have seen the growth of the concept of Corporate Social Responsibility and Sustainability. While neither of these is a new concept, the importance of these to effective business operations has been demonstrated from the perspective of enhancing business performance and the potential negative public relations impacts where a company fails to demonstrate these principles in action.

While we are proud of our heritage and confident that we embody these principles in our business practices, this policy statement has been developed to provide clear guidance in understanding our obligations and expectations. This policy statement is effective from xxx date xxxx and is applicable to all company divisions, Strategic Business Units (SBUs), and to our commercial relationships will all suppliers and customers.

Policy Statement

We are an ethical company dedicated to ensuring that we use only those resources required to achieve our legitimate business objectives, while doing what we can to conserve existing natural resources such as to ensure that there will be sufficient resources for future generations, while also contributing to our communities and the communities in which we and our suppliers and customers much live.

It is the responsibility of each employee of the company to ensure that these principles are upheld across our business operations and commercial relationships, and that each employee serves as an ambassador for the company in all our communities.

As a company dedicated to this vision, we will make available the tools and resources required to be this company, and will support each employee as they live this policy.

Interpretation

The Company’s Policy Manual sets out specific policies covering all HR policies. These policies have been developed to provide a foundation for each employee’s behavior and the behavior of the company. These policies must be followed at all times by all employees.

The Accounting and Finance Policy Manual sets out specific policies for the allocation and application of the financial and capitol resources of the company.

As an element of demonstration of adherence to our policy, and to communicate our achievement against our policy, we produce an annual consolidated CSR/Sustainability report, providing in that report all information required to comply with and meet the reporting spirit of the standard that we use (*for example, the Policy might be to meet the reporting requirements of both the UN Global Compact Communication on Progress elements and a GRI - Global Reporting Initiative - index, ISO26000, CDP - Carbon disclosure Project -  or another standards).

Specific Responsibilities

The Board of Directors (BoD) is responsible for approval of the CSR/Sustainability Policy, and to ensure the principles of the policy are included in the company’s strategic plan and statement of business objective. The BoD also monitors for compliance with the policy via review of regular briefings from the CEO.

The Chief Executive and Senior Management are responsible for implementation of the policy, and to ensure the business plans and projections are built taking the policy into consideration.

Risk Management is responsible for identification and communication of the risk environment related to CSR/Sustainability, including economic, social and environmental risk, and to provide guidance senior leadership and SBU leadership on country and regional risk. Risk Management also provides the systems and processes for the estimation, monitoring and reporting against regulatory mandated reporting (excluding SEC or other financial regulator reporting).

Corporate Communications develops the company’s annual CSR/Sustainability report. Corporate Communications works with Finance and the CFO’s office to ensure that all reported information has been reviewed and that assurance has been provided over such information. Corporate Communciations may seek guidance and support from other functions in determining approriate content for such reports and communication. Corporate Communications, in consultation with Senior Leadership, will determine the most appropriate standards to use for such communication.

SBU Presidents (Managing Directors) are responsible for implementation of all company policies, including all CSR/Sustainability policies. SBU leadership is also responsible for provision of accurate and timely CSR/Sustainability reports at defined levels of data granularity, as required by the Office of Sustainable Business Practices.

Commercial Managers and Contract Managers are responsible for ensuring that all corporate CSR/Sustainability policies are accepted by all suppliers, and built into all future contracts.

The Office of Sustainable Business Practices is responsible for the development of specific sustainability metrics, the compilation of reports based on information provided by SBUs, and management of the relationship with the CSR/Sustainability Assurance provider (until such time as such assurance is incorporated into annual and regulator reports).

Human Resources maintains an inventory of social programs and the resources provided by the company in support of such programs.

Supporting Materials

The Operational Policies Manual for each SBU and Corporate include specific CSR/Sustainability metrics and standards.

Budgeting and Performance reporting templates have been (or will be) updated to identify additional budget estimates and reporting required to achieve CSR/Sustainability mandates.

Supporting Unit

Any questions regarding this policy should be directed to the Office of the Corporate Council, or to your local Risk Management or General Council’s office. Consult your local director for contact details.

SEC's Climate Change reporting guidance released

Last week the SEC commissioners voted to release an interpretive guidance on companies including Climate Change issues in their files (annual reports to the SEC and investors).  The release is entitled "Commission Guidance Regarding Disclosure Related to Climate Change".

The guidance includes discussion of reporting requirements for US listed companies and for Foreign companies that list in the US and report to the SEC. That includes thousands of companies around the world.

You can read the guidance here: http://sec.gov/rules/interp/2010/33-9106.pdf

Yes, Climate Change does matter, says the SEC

On January 27th, the SEC commissioners voted to approve an interpretive release requiring companies to discuss the potential impact of Climate Change related legislation on their business. This is a very important announcement by the SEC, but falls short of anything that should cause any concern to any reporting company. This release by itself certainly should not create or cause additional work. From the SEC's point of view (and I certainly agree) companies should already be providing this information.

In her opening remarks, Chairman Schapiro said:

...the Commission is not making any kind of statement regarding the facts as they relate to the topic of “climate change” or “global warming.” And, we are not opining on whether the world’s climate is changing; at what pace it might be changing; or due to what causes. Nothing that the Commission does today should be construed as weighing in on those topics.The Commission is also not considering amending well-defined rules concerning public company reporting obligations, nor redefining long-standing interpretations of materiality. These rules and interpretations have served investors well for decades, and provide both the framework and flexibility necessary to apply to changing facts and circumstances. If something has a material impact on a company then it is something that needs to be disclosed — that has always been the case.

What is most important here is that she has said that the SEC is not taking a position on climate change, that is for the scientists and politicians. The SEC is simply reminding companies of their responsibility to provide full disclosure of risks to investors. She went on to say:

It is neither surprising nor especially remarkable for us to conclude that of course a company must consider whether potential legislation — whether that legislation concerns climate change or new licensing requirements — is likely to occur. If so, then under our traditional framework the company must then evaluate the impact it would have on the company’s liquidity, capital resources, or results of operations, and disclose to shareholders when that potential impact will be material. Similarly, a company must disclose the significant risks that it faces, whether those risks are due to increased competition or severe weather. These principles of materiality form the bedrock of our disclosure framework.

Again, reinforcing that this is the type of reporting and disclosure that companies should already be making. While I would have liked to see something much stronger, such as mandating reporting along the lines of the CDP (Carbon Disclosure Project), or even a variation on the GRI (Global Reporting Initiative) G3 standard, this is a good first step to providing investors with information that is important and relevant, with a Climate Change perspective in mind.

It remains my view that Reg S-K already provides the basis for requiring significant additional reporting on Climate Change risk, and in fact on the range of Sustainability issues. The requirement already exists to discuss all "known trends" and "uncertainties" that could impact liquidity or operations. Climate Change and Sustainability issues, regardless of one politics or belief system, are accepted by enough scientists, politicians, governments, companies and individuals to rise to the level of being a "known trend". If however an individual simply says "No, I do not accept that...", then those issues rise, due to the otherwise wide acceptance, to the level of an "uncertainty" and therefore must be discussed.

In his statements, Commissioner Louis Aguilar said:

Over two years ago, the Intergovernmental Panel on Climate Change concluded that it is "unequivocal" that the Earth's climate is warming. In October of last year, 13 federal agencies and departments published a coordinated annual report to Congress that reached the same conclusion. It is expected that climate change, if unchecked, will result in severe harm to ecosystems and people around the world.

Finally, Commissioner Aguilar also said:

As the Supreme Court has explained, doubts about materiality will be "commonplace," but these doubts should be resolved in favor of investors. Similarly, previous Commission MD&A guidance clearly requires disclosure of known trends, events, or uncertainties where materiality is uncertain.

It is great to see the SEC take the first step, now hopefully this will allow and encourage them to take the next.

The SEC talks Climate Change: 27 January 2010

Yesterday in the notice of upcoming meetings, the SEC (Securities and Exchange Commission, the US regulator of listed companies) announced that they would be talking Climate Change. Well, actually they said they would be talking about two items, and Climate Change came in second.

The SEC says that:

Item 2: The Commission will consider a recommendation to publish an interpretive release to provide guidance to public companies regarding the Commission's current disclosure requirements concerning matters relating to climate change.

This could be very big news, or it could be very bad news. No question that the results of this meeting will be seen as good by some and very bad by others. The notice can be found here:

http://www.sec.gov/news/openmeetings/2010/ssamtg012710.htm

My hope is that they will determine that indeed Climate Change does rise to the standard of a "known trend" that will have a direct impact on businesses, and therefore companies will be required to specifically comment in their Management Discussion and Analysis (under Reg S-K).I believe that Reg S-K already provides adequate justification to require such reporting, and have written such before. A detailed discussion can be found here.

So, I'm looking forward to next week with anticipation.

Who is Your Audience (CSR/ESG reporting)?

This article is a response to an online e-mail discussion askingIs there any point putting together a CSR report?" The resounding answe ris "Yes, provided you communicate with your intended audience"

It is all a matter of defining your audience, and in particular, the audience for you CSR / sustainability / ESG report, which I'll collectively refer to as the CSR report.

Lets think about a few primary audiences, because each has different needs:

1. General public / retail customers
2. Supply chain partners
3. Investors
4. Employees
5. Regulators

1. General public / retail customers

There is a growing and general acceptance that retail customers will purchase based on the perceived social conscience / "green" credentials, as long as the produce is also competitively priced. That is especially true today. This means that it is important for a company to burnish its CSR credentials through any medium possible, and that include the CSR report.

There is also the need to be seen to be pro-active, just in case they are "caught out" by some bad PR. When (if) that happens, the company is then ready to pull out all its good works, and make the appropriate noises about how they are doing everything to make certain is does not happen again.

2. Supply chain partners

This includes both their customers and their suppliers. Customers want to know that the company is following sound business practices, acting in a sustainable manner, and fundamentally reducing risks that may travel upstream. After all, when the bad stuff hit the fan, it get spread far and wide. So CSR / Sustainability / ESG reporting that provides comfort to commercial customers focuses in demonstrating how the business is also protecting its customers from potential PR risk. It also demonstrates that sustainability practices are being applied to drive down costs, thus being able to deliver future cost advantages that competitors may not be able to deliver.

Equally, effective reporting sends messages to suppliers about expectations, and gives suppliers key messages about what might endanger the existing business relationship, especially any potential situations in which a suppliers PR problems might impact the company. Clearly stated supplier CSR policies put suppliers on notice that they will need to maintain the highest CSR standards themselves in order to retain their position as suppliers, or to gain an advantage by becoming preferred suppliers. WalMart's actions recently are a great example of establishing expectations in their supplier community.

3. Investors

Investors, including the actual shareholders (the owners) and the investor community (those that advise existing and potential owners) are a legitimate audience. They want metrics; detailed information that will support and enable investment decision making. They want comparative information that is multi-year, and that can provide insights into the company's performance against other key players in the same industry. Frequently reports that focus on the first two audience groups fail to provide adequate information for this audience, and are dismissed as "fluffy bunny bullshit" by the analysts. Analysts want tables of information that span multiple years, and that clearly show future objectives and how those objectives will be achieved.

Recently the DVFA (the German Institute of Investment Analysts) release a set of KPI (Key Performance Indicators) for ESG. This set of KPIs is broken out by major industry groups, but also contains a core set of KPIs that that they expect to see regardless of the industry.

4. Employees

Sometimes the primary audience is right there in front of you, the employees of the company. CSR / Sustainability / ESG reports for employees are and should be focused on what the company is doing, and the role of employees in individually making it happen. There reports are motivational, and should serve to bring employees together for the effort. They also provide an opportunity for communication of changes that might otherwise be buried in a staff bulletin, or not communicated at all. A classic example was came from the results of the "Talk Back" process at New Zealand Post some years ago. One mail centre specifically spoke about the quality of lighting. This lead to a review, and improvements in overall lighting, improving both performance, quality of work environment, and costs.

5. Regulators

Finally companies communicate with regulators, both directly and indirectly through public messaging. The use of the CSR / Sustainability / ESG report to communicate support for and compliance with various standards is one such way. Reading the CSR reports for the building industry tends be like reading a prose version of how the reporting company is ensuring compliance with various health and safety legislation, or preparing itself for compliance with incoming GHG emissions standards.

In in the United States, the ability to demonstrate a strong legislative compliance program, complete with effective risk management processes, can be used as mitigating factors in sentencing for any crimes that the organization might be accused of being involved in. Communication of these programs in CSR reports is one way that companies, in effect, are using CSR reporting to communicate indirectly with regulators.

Summary:

Before judging a company's CSR report, consider what primary audiences are being addressed. As a company, before creating a CSR report, carefully consider who you want to be speaking to, and what are the key messages that you want that audience to take away. Finally, companies might consider creating multiple CSR reports, targeting specific audiences.

I hope this is helpful in addressing the question in the subject line of this e-mail stream.