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Agenda Global trends in Corporate Responsibility 2

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0 Strategic Approach to Corporate Responsibility.
Michal Dzoga Sofia, 30th October 2008

1 Agenda Global trends in Corporate Responsibility 2
CR development evaluation Deloitte’s approach to CR strategy building process Benefits for a company

2 Global trends in Corporate Responsibility

3 Basic reporting extended with CR issues
Triple Bottom Line Environmental Obligations Develop processes and technologies to protect natural resources Develop innovations to reduce environmental harm Develop, improve, or sustain infrastructures in local communities Engage in waste management/ recycling Social & Ethical Obligations Serve the best interests of the human assets Develop innovations to improve standards of living Provide resources and support to local communities Engage in global events Provide resources and support to global stakeholders Financial Obligations Maximize shareholder wealth Ensure long-term profitability Communicate strategy, vision, and financial performance to shareholders Provide tax revenue for state and federal government Support the economies of local communities Regulatory Obligations Abide by the law and industry regulations Provide full disclosure of financial information Comply with stock exchange regulations

4 Business approach to Social Responsibility
Stronger influence of intellectual capital on company’s real value Increasing requirements of financial markets, stakeholder groups and global trends Increasing number and international reporting standardization of extra financial business performance Integration of Social Responsibility with business strategy Evolution of Social Responsibility in the direction of Corporate Responsibility and Sustainability Number of reports by type Number of sustainability reports Source: Source:

5 Corporate Responsibility standards
International standards and guidelines Global Reporting Initiative Rules for determining report content Materiality Shareholders interest Sustainability Completeness Rules for ensuring high report quality Balance Comparability Accuracy Timeliness Transparency Reliability Standards used in CR audits ISO 14064 AA 1000 ISO 14001 OHSAS 18001 ISO 9001 ISO (in preparation)

6 Global trends concerning stock exchange investments
More and more companies are being measured by more than just financial performance – leading to the creation of a number of indices focused on environmental, social and economical performance. Dow Jones Sustainability Index (DJSI, Nowy York – World index) FTSE4Good (Londyn – World index) Johannesburg Stock Exchange Socially Responsible Investment Index Sao Paulo Stock Exchange Corporate Responsibility Index Ethibel Sustainability Index (ESI – European index) Business in the Community (Great Britain) 2005 Environmental Sustainability Index (Yale Univeristy and Columbia University) Jantzi Social Index (JSI - Canada)

7 Investments in environment friendly companies International organization Carbon Disclosure Project (CDP) In 2003, Institutional investors issued GHG emissions disclosure requests to FT500 largest companies CDP provides a coordinating secretariat for institutional investors with a combined $57 trillion of assets under management. On their behalf it seeks information on the business risks and opportunities presented by climate change and greenhouse gas emissions data from the world's largest companies: 3,000 in 2008. Estimation

8 CR development evaluation

9 The trust building Framework
Trust is achieved through behavior and transparency and is a key success factor for the business to operate, innovate and grow. Standards And Guidelines Stakeholders needs and expectations Benchmark to others Own needs – what’s good for Business Licence to operate, innovate and grow Clear value & principles, objectives, governance structure and “walk the talk” Transparent reporting on values, management practices and performance Get Independent Assurance through a phased approach with external reporting and assurance

10 General companies’ approach to CR – level of engagement
Strategic approach Organizations at this level focus not only on value protection, but also on innovation that will benefit both society and the company’s own competitiveness. At this level of engagement, corporate responsibility is a business imperative that informs the overall corporate strategy and is seen as a value creation mechanism. Responsive approach Businesses act as corporate citizens and work to actively mitigate risks and reduce negative impacts arising from their activities. The goal for these companies is value protection. Philanthropic approach Companies approach corporate responsibility as an exercise in establishing goodwill by making charitable contributions. The underlying assumption is that goodwill or reputational enhancement is the only return in investment to be derived from such actions. Non-engagement Companies at this stage view corporate responsibility at a distraction or impediment to their primary goals value creation. Beyond legal requirements they do not engage in environmental, health, safety, community or governance issues.

11 Company’s CR partners - stakeholders grouping
Customers Investors Build reputation and brand of the organization. If loyal to the company, create stable grounds for increasing income. The group most interested in sustainable development and dynamic growth. It includes Corporate Governance issues. Company Business Strategy Risk Management Brand & Reputation Corporate culture Employees Suppliers Their engagement, satisfaction and loyalty impacts company’s perception and determines its economic success. The quality, reliability and solidity of their products and services influence credibility and high standards of the company Communities Environment Social groups e.g. disabled people, local communities, institutions like schools and hospitals influence public opinion and media approach. Ignorance of natural environment protection issues may result in serious threat for the business from public opinion and legal regulations others: Government / Regulator Customer organizations Competitors Stakeholders engagement is becoming crucial in: defining and developing sustainability reporting system aligning the performance reports with new business strategy - 11 -

12 Preliminary recognition of CR activities – issues to be dealt with
Customers Quality management systems Health & Safety Suppliers On term delivery To keep official secret Environment Environment investments Green supply chain Green footprint Energy consumption GHG emissions Corporate Responsibility fields Organizational culture Mission, Vision, Key Values, Code of Conduct, Ethical program Shareholders Corporate Governance Improve communication with financial market participants Internet transmission from stockholders meeting (ASM) Employees Recruitment and development Employee voluntary service Social actions Restructuring Trade Unions Reporting Environmental report Environmental protect report Usage of international standards Local communities Relations with organizations Charity cooperation (Ngo) Social programs National culture patronage

13 Consistent Deployment of CSR Strategy Balancing Stakeholder Interests
Most important challenges in strategic approach to Corporate Responsibility Consistent Deployment of CSR Strategy Decentralized Strategy Generally, corporations do not have well defined strategies to holistically address CSR as a strategic objective. Many responses have been limited to cosmetic solutions such as PR and media campaigns Disconnected Efforts Some corporations perform a number of unrelated CSR activities that address the needs of disparate stakeholder groups and do not focus on a corporate wide approach to strategic stakeholder groupsa Resource Constraints: Many organizations have identified financial and staff resource constraints as a major obstacle to the strategic planning and development of CSR activitiesb Balancing Stakeholder Interests Balance Corporations have difficulty balancing the primary interests of shareholders and remaining stakeholders to relieve the tension between achieving financial goals versus social and environmental goals Short-term focus The primary focus of corporations has been to maximize shareholder profit by addressing easily measurable short-term financial performance goals Shareholder Interests In the UK, 57% of financial analysts and 41% of investors claim that they do not pay attention to social, ethical and environmental issues when making investment decisionsc Stakeholder Interests Communities, employees, and customers express more interest in the long-term strategies such as corporate governance, social responsibility, and sustainability that do not produce immediate financial results Measuring Results Quantifying Returns Measuring results of CSR programs has been identified as the greatest challenge to corporations Although about 50% of companies see more potential business opportunity than risk to their organization they are struggling to find ways to capitalize on programs in the marketplace 71% of companies report publicly on citizenship and sustainability performance, but have difficulty communicating value to stakeholdersa 70% to 80% of market value comes from hard-to-assess intangible assets such as brand equity, intellectual capital, and goodwill, organizations are especially vulnerable to anything that damages their reputationd Source: a. Michael E. Porter and Mark Kramer, “Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility”, (Harvard Business Review 2006); b. David J. Vidal, “Reward Trumps Risk: How Business Perspectives on Corporate Citizenship and Sustainability Are Changing Corporate Board Survey” (Corporate Board Action Series 2006); c. Leslie Stones, “Forget the Bottom Line, Watch the Managers” (Business Day 2006); d. Robert Eccles and Scptt C. Newquist “Reputation and its Risks” (Harvard Business Review 2007).

14 Deloitte’s approach to CR strategy building process

15 CR must be incorporated into existing strategic planning processes.
Corporate Governance Communication of CR issues to the board is critical in the development and evolution of the CR strategy The board’s demonstration of desired behavior is critical to the implementation of the CR strategy Raise CSR issues to the board Business Strategy Implementation of the CS agenda Corporate Responsibility (CR) Strategy CR Agenda Environmental Awareness Local Outreach International Outreach Internal Development CR Management Practices Communication of Expectations Rewards and Recognition Role Model Behavior Consistent Global/Regional Deployment Monitor and Control Employees The deployment of CR management practices will drive employee engagement and build a sense of individual and collective ownership of the CR Agenda Management practices need to address differences across regions, lines of business, business units, and geographies. For example, interpretation of CR differs for a business unit located in the US versus Europe and prioritization of CR issues differ for lines of businesses such as financial services or healthcare in the same corporation.

16 Methodology of implementing strategic approach to CR
Phase I Preparatory Phase II Implementation Phase III Operational 1st Stage Pre-audit of Corporate Responsibility procedures and activities 3rd Stage Determination of communication rules with stakeholders 5th Stage Support CR system management 6th Stage Sustainability Report audit 2nd Stage Development / adjustment of Corporate Responsibility policy 4th Stage Establishment of formal CR function

17 Deloitte’s CR tools Tools used by us were developed on the basis of Deloitte’s experts experience gained over the years as well as international best practices: The Deloitte Sustainability Scorecard – gives the indications on the way of preparing the report, content of the report and form of the final report. It allows for a overall view and captures all CR areas and issues based on the 6 categories that include 30 indicators. Deloitte’s Good Practice Model – allows for the analysis and assessment of current CR area’s situation at the same time identifying these activities that require improvement. ERA (Deloitte Enterprise AssessmentTM) – this is a methodology that allows to identify and assess risk in organizations. It facilitates prioritizing of CR areas in regard to organization's business strategy. Deloitte Sustainability Assessment Model – enables the organization's quality assessment in regard to social responsibility and sustainability. Allows for identification of the competitive advantage areas as well as those of the poor quality.

18 Deloitte’s global network of CR&S services
More than 200 practitioners in more than 20 countries world-wide (70 practitioners in Europe), led by Eric Hespenheide, partner US. Focus on Assurance lead by Preben J. Soerensen (Partner, DK) Focus on GHG services lead by Pat Concessi (Partner, CAN) Engineers and auditors, environment and sustainability experts Yearly international conference of CR&S network Firenze 2003, Paris 2004, Toronto 2005, Madrid 2006, Copenhagen 2007 Intense representation internally and externally Member of World Economic Forum Member of World Business Council for Sustainable Development Signatory to the Global Compact Member of the Global Reporting Initiative (GRI) Board of Directors Strong collaboration with audit, risk and management consulting, and corporate financial services to offer innovative, multi-disciplinary service

19 Benefits for a company

20 Potential companies’ features that influence CSR
Companies with negative brand image PKN Orlen, TP, Provident, PZU, Kompania Węglowa, Tesco, Jeronimo Martins (Biedronka), J&S, Prokom, Microsoft Organizations conducting „sensitive business” exposed to social disapproval (tobacco) BAT, Philip Morris, (military) Bumar, International Technologies, (alcohol) Grupa Żywiec, Kompania Piwowarska, Sobieski, Polmos Companies with the dominant market share e.g. former state owned entities PZU, TP, KGHM, PKP, Telewizja Polska Enterprises conducting mergers, transformation or rebranding Bosh-Siemens, Alcatel-Lucent, Nokia-Siemens, PEKAO (BPH part), Polpharma, Companies with comparable products and services difficult to promote or with advertising limitations (energy) RWE Stoen, PSE, Vattenfall, PGE, Tauron, (pharmaceuticals) Bayer, Polpharma, GlaxoSmithKline, Polfa, Novartis, Servier Companies acting on highy competitive and price sensitive market (mobile) Polkomtel, PTK Centertel, PTC, (financial advisory) Expander, Open Finance, (banks) Polbank, PKO BP, PEKAO, Millenium, BRE, Eurobank, Provident Companies with environment sensitive products or activity (fuel) Shell, PKN Orlen, Lotos, BP, Statoil, (energy) Vattenfall, Elektrownia Kozienice, (chemicals) Zakłady Azotowe Puławy, Ciech International corporations entering foreign market with imported CR strategy – not adjusted to local business environment - 20 -

21 Implementing strategic approach - advantages for companies
Business Risk Reduction Anticipation and counteraction of legal, personal, environmental, corporate image and operational risks Well managed CR activity influences customers trust and employees loyality CR is no longer a single PR activity but perceived as long-term investment became the dynamic developing philosophy of conducting business in modern world Long-term stable growth Investors are more likely to invest in companies with long-term strategy based on system of values that secures sustainable development and reduces business risks Following FTSE4Good and Dow Jones Sustainability, different stocks create new indexes designed to measure the performance of companies that meet globally recognized corporate responsibility standards and to facilitate investment in those companies Increase in company’s value Obtaining competitive advantage Obedience to CR values will definitely transform from company’s competitive advantage today into obligatory standard tomorrow - 21 -

22 Implementing strategic approach - advantages for companies
Professional CR strategy increases employee satisfaction, loyalty and motivation in more effective way with non-salary factors Better reputation positively affects recruitment process (EU open labor market makes it more challenging for employers in CEE countries) „Desired” employer Corporate image advertising campaigns based on and CR policy are being implemented by many companies in order to strengthen brand perception Growth in the affluence of the Polish society makes the customer choice less price sensitive in favour of brand awareness Better and cost effective marketing Fair judgment External and professional assurance guarantees balanced and reliable assessment as opposed to the „flattery” internal reports Expansion benefit Companies with professional CR strategy and reporting are better perceived by external environment (authorities, media, partners) while acquiring new markets as well as conducting mergers and acquisitions Meeting industry requirements Companies with no professional CR regulations are excluded from cooperation with companies that obey CR values at all levels (partnerships, supply chain) - 22 -

23 O Deloitte „Deloitte” to marka, pod którą pracują wspólnie dziesiątki tysięcy profesjonalistów w niezależnych od siebie firmach na całym świecie, świadcząc klientom usługi audytorskie, konsultingowe, doradztwa finansowego, zarządzania ryzykiem i doradztwa podatkowego. Firmy te są członkami Deloitte Touche Tohmatsu, podmiotu prawa szwajcarskiego („DTT”). Każda firma członkowska świadczy usługi na określonym obszarze geograficznym i podlega przepisom prawa oraz regulacjom branżowym kraju lub krajów, na terenie których działa. DTT wspomaga koordynację działań firm członkowskich, ale sama nie świadczy usług na rzecz klientów. DTT i jej firmy członkowskie są odrębnymi i niezależnymi podmiotami prawnymi, które nie mogą podejmować zobowiązań za siebie nawzajem. DTT i jej firmy członkowskie ponoszą odpowiedzialność wyłącznie za własne działania i zaniechania, a nie za działania i zaniechania innych firm członkowskich. Każda z firm członkowskich DTT ma indywidualną strukturę organizacyjną, odpowiadającą przepisom prawnym, regulacjom, praktyce zwyczajowej i innym czynnikom kraju prowadzenia działalności, i może świadczyć usługi profesjonalne na jego terytorium za pośrednictwem spółek zależnych, stowarzyszonych i/lub innych podmiotów gospodarczych. O Deloitte w Europie Środkowej Deloitte Central Europe to regionalna jednostka działająca w ramach Deloitte Central Europe Holdings Limited, członka Deloitte Touche Tohmatsu w Europie Środkowej. Usługi świadczą spółki zależne i stowarzyszone z Deloitte Central Europe Holdings Limited, które stanowią odrębne i niezależne podmioty prawne. Spółki zależne i stowarzyszone z Deloitte Central Europe Holdings Limited to jedne z wiodących firm świadczących usługi profesjonalne; zatrudniają łącznie ponad 4000 pracowników w ponad 30 miastach w 17 krajach Europy Środkowej. O Deloitte w Polsce W Polsce usługi na rzecz klientów świadczą: Deloitte Advisory Sp. z o.o., Deloitte Audyt Sp. z o.o., Deloitte Doradztwo Podatkowe Sp. z o.o. oraz Deloitte Business Consulting SA (wspólnie określane mianem „Deloitte Polska”), będące jednostkami stowarzyszonymi Deloitte Central Europe Holdings Limited. Deloitte Polska jest jedną z wiodących firm doradczych w kraju, świadczącą usługi profesjonalne w pięciu głównych obszarach: audytu, doradztwa podatkowego, konsultingu, zarządzania ryzykiem i doradztwa finansowego za pośrednictwem ponad 1000 profesjonalistów z Polski i zagranicy. Więcej informacji można znaleźć na polskich stronach internetowych: W przypadku projektów w skali regionalnej oraz przedsięwzięć wymagających wsparcia na poziomie regionu usługi świadczy Deloitte Central Europe Limited, firma stowarzyszona Deloitte Central Europe Holdings Limited. Deloitte Central Europe Limited jest jedną z wiodących firm świadczących usługi profesjonalne w dziedzinie doradztwa podatkowego, doradztwa gospodarczego, zarządzania ryzykiem i doradztwa finansowego.

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