1

“Understanding CSR for Business Sustainability”

Mr Lee Swee Seng
Day 3 : CRT Expert Seminar Series
12th September 2007 . Kuala Lumpur
Introduction 2

• Promotion of good corporate social

responsibility is essential especially in enhancing
the Malaysian capital market.
• Profit maximisation is not longer the sole
consideration in business sustainability.
• Stakeholders are now becoming discerning
especially with regard to the impact of
businesses products and services on the
environment, the local communities as well as
the relationship with their employees.
CSR

• Companies now have to take into account:

• A) the shareholders
• B) the stakeholders
• C) society

• CSR is nothing new

• It is about doing good
• More than just doing good
CSR

• More than charity, more than philanthropy

• It’s about doing the right thing

• Not something incidental to business

but Infused through and integrated into
business
What CSR means to Bursa 5

• “CSR is open and transparent

business practices that are based
on ethical values and respect for
the community, employees, the
environment, shareholders and
other stakeholders. It is designed
to deliver sustainable value to
society at large.”
• www.bursamalaysia.com
CSR focal areas in Bursa 6

• Environment
• Workplace
• Community
• Marketplace
Bursa Securities framework 7

• Set of flexible guidelines for those who wish

to practise CSR.

• All criteria do not apply to all companies.

• PLCs may choose and prioritize

Why CSR matters

• Top 10 environmental issues facing humanity

• A) Climate change
• B) Energy
• C) Water
• D) Biodiversity and Land use
• E) Chemicals, Toxics and Heavy Metals
• F) Air pollution
• G) Waste management
• H) Ozone layer depletion
• I) Oceans and Fisheries
• J) Deforestation
• Source: From Green to Gold
Competitive advantage vs Compliance 9

• Legislation or regulatory intervention was not

needed in encouraging companies to adopt
CSR.
• SHELL MALAYSIA – companies like
sustainable development not because
legislators force them to but rather that they
aware that they have to ensure their long-term
livelihood
UK’s Approach

• Encouragement rather than

compulsion
• Their aim is to encourage
but not compel business
and local communities to
work together to create a
transparent and equitable,
and therefore better and
more efficient business
environment.
CSR as key to business sustainability 11

• Adoption of sustainable criteria has key

business benefits:-

• improving financial performance

• enhanced brand image and reputation

• attract and maintain quality workforce

CSR as key to business sustainability 12

• Reduced long term cost

• Attract more investors

• Better client and customer satisfaction

• Improve employee satisfaction

Brand reputation 13

• The perception of brand can influence

customer loyalty, lenders and investors
scrutiny.

• Strong brands will allow companies to

compete effectively in global market.
Quality staff 14

• Employees are major stakeholder of companies

• Employees are given chance to speak up and
demand that companies to carry out more
meaningful activities.
• Companies with bad CSR record will have
difficulty in recruiting and retaining their staff
compared with companies with good CSR
records.
The link between competitive advantage and CSR

• Harvard Business Review 2006– Strategy and

Society : The Link Between Competitive
Advantage and CSR – Michael Porter & Mark
Kramer
• Successful corporations need a healthy society.
• Education, health care and equal opportunity are
essential to a productive workforce.
• Safe products and working conditions can also lower
internal cost of accidents.
• Efficient utilisation of land, water, energy and other
natural resources makes business more productive.
The link between competitive advantage and CSR

• Toyota’s Prius, the hybrid electric/gasoline

vehicle, is the first in the series of innovative
car models that have produced competitive
advantage and environmental benefits.
• Hybrid engines emit as little as 10% of the
harmful pollutants while consuming only half
as much of gas.
• Credit Agricole, France’s largest bank, has
differentiated itself by offering specialized
financial products related to the environment.
The link between competitive advantage and CSR

• Microsoft’s Working Connections partnership

with American Association of Community
Colleges (AACC)
• The shortage of IT workers is a significant
constraint on Microsoft’s growth : Currently
there are more than 450,000 unfilled IT
positions in US.
The link between competitive advantage and CSR

• Therefore, Microsoft sent employee volunteers

to colleges to assess needs, contribute to
curriculum development and create faculty
development institutes.
• Microsoft has achieved results that have
benefited many communities while having a
direct and potentially significant impact on the
company.
CSR reporting 19

• CSR reporting was made compulsory in

Budget 2006, requiring all PLCs to report on
their environmental and social responsibility
performance.
• Our prime minister in our Budget 2007 speech
announced the requirements for PLCs to report
on their CSR initiatives.
Budget 2007 20

• To encourage companies to participate in CSR

program, the Government proposed that the
ceiling for tax deduction on contributions by
the private sector to charitable organisations be
increased from 5% to 7% of aggregate income.
• The Government also proposed that this tax
deductions be extended to sport activities.
Bursa Securities Listing Requirements 21

• CSR reporting will be mandatory in respect of

annual reports of listed companies with
financial years ending on or after 31 December
2007.

• 14 Dec 2006 Bursa media centre

Appendix 9C Bursa Securities Listing Requirements 22

• Contents of annual report

• (29) A description of the corporate social
responsibility activities or practices undertaken
by the listed issues and its subsidiaries and if
there are none, a statement to that effect.
Non-compliance of the BSLR

• Section 11 of the Securities Industry Act 1983

provides that :
• Where any person fails to comply the rules of stock
exchange, that person has committed a breach.
• If a person has committed a breach, the Securities
Commission may take one or more of the following
actions:
• A) direct the person to comply with, observe, enforce
or give effect to those rules;
Non-compliance of the BSLR

• B) impose a penalty in proportion to the

severity or gravity of the breach but not
exceeding RM1 million
• C) reprimand the person in breach
• D) require the person in breach to take steps as
the Commission direct to remedy the breach.
Breach of BSLR

• Para 16.16 BSLR

• In the event of breach of LR by a listed issuer
or its directors, the BSLR may, after
consultation with SC, take or impose such
actions or penalties as it considers appropriate.
UK Companies Act 2006

• S172 Duty to promote the success of

company
• A director of a company must act in the way
he considers, in good faith, would be most
likely to promote the success of the company
for the benefits of its members as a whole and
in so doing having regard to –
• (d) the impact of the company’s operations on
the community and the environment
Global trends

• Growth potential for SRI funds is tremendous with

interest in such funds increasing globally.
• In the US, a total of US$2.16 trillion in assets was
identified as using one or more of the three SRI
strategies namely screening, shareholder advocacy
and community investing.
• More than one out of every nine US dollars under
professional management in the US in 2003 is
involved in socially responsible investing.
• www.sc.com.my
Exporting to CSR-aware markets

• Green To Gold by Daniel C. Esty and Andrew S.

Winston
• Sony Playstation 3 (“Cadmium crisis”)
• In 2001, The Dutch Government was blocking Sony’s
entire European shipment of Playstation game
stations because a small but legally unacceptable
amount of the toxic element cadmium was found in
the cables of the game controls.
• Sony rushed in replacements to swap put the tainted
wires.
Exporting to CSR-aware markets

• Four lessons from Sony’s experience:-

• A) even the best companies can be surprised
by environmental issues
• B) it can cost businesses real money
• C) real benefits can come from seeing things
in a new light
• D) Smart companies seize competitive
advantage through strategic management of
environmental challenges
Exporting to CSR-aware markets

• The Star – 5 September 2007

• Mattel recalls 800,000 toys worldwide because
of lead paint.
• This was the third major recall of chinese-
made toys because of excessive amounts of
lead paint.
• Mattel’s last recall announced on Aug 14
covered about 19 million toys worldwide.
Exporting to CSR-aware markets

• New York Times – Aug 13

• The head of a Chinese company that was
behind the recall of about a million Mattel toys
committed suicide over the weekend.
• The NYT goes on to report that many chinese
factory owners often under intense pressure to
lower production cost cut corners in making
products and regularly use cheap and illegal
substitutes.
Exporting to CSR-aware markets

• Bloomberg – Aug 13
• Chinese toothpaste distributed to hotels
worldwide by a US company has been recalled
because it may contain a chemical used in
antifreeze.
Exporting to CSR-aware markets

• USATODAY.com
• Natural Balance pet food recalled
• The industrial chemical melamine has been
found in pet food.
• Melamine is believed to have contaminated
rice protein concentrate used to make pet food.
• CSR practices in Malaysia
British American Tobacco (BAT) 35

• Environment
• Developed and implemented an integrated
management system to propel employees
toward higher productivity and quality
standards.
• Afforestation – to reach carbon neutrality
• Waste management
British American Tobacco (BAT) 36

• Community
• Providing opportunities through education
• Social responsibility in farming

• Workplace
• Open two way communication channels are
made to employees at all levels
British American Tobacco (BAT) 37

• Marketplace
• External stakeholder engagement
• Internal stakeholder engagement –
• a) listening to employees
• b) responding to employees
Shell Malaysia Social Investment 38

• Youth and Education

• In 2000, 129 new scholarships were awarded.
• Shell also sponsored 21 students and teachers
to the 2nd APEC Youth Science Festival in
Singapore in July.
Shell Malaysia Social Investment 39

• Environment
• nature camps in Bintulu and Miri for students,
staff and their families in collaboration with
NGOs and Government agencies, a RM 461,000
sponsorship for the construction of the Danum
Valley Education and Interpretation Centre and
a grant of RM1 million to Yayasan Bosama,
(Borneo, Sarawak, Malaysia Foundation) for
environmental conservation initiatives.
Shell Malaysia Social Investment 40

• Community
• A) culture of sustainable development
• Employees reaching out to communities in need
• Project better world
• Running for environmental education
• Planting trees in support of sustainability
• Promoting environment through art forms
Shell Malaysia Social Investment 41

• B) employees community service & voluntary

fund
• Employee community service fund – eg. donation
of RM 2,000 from EP community service fund to
Women's Institute of Bario Asal Longhouse for
the purchase of chairs for their community hall.
Shell Malaysia Social Investment

• Shell employees voluntary fund – eg.

donation of RM 20,000 to the Miri Charter
of the Malaysian Red Crescent Society
towards the purchase of a mobile blood
bank van.
Banking perspectives : HSBC

• To ensure the approach to lending and investment

reflects our business principles and values, sensitivity to
society’s expectations and an assessment of risk, HSBC:
• have adopted the  Equator Principles - a set of voluntary
guidelines developed to address the environmental and
social issues that arise in financing projects - in
September 2003.
• have published five sector guidelines & policies to
complement our Environmental Risk Standard published
in 2002.
• www.hsbc.com
Banking perspectives : HSBC

• are looking to develop sustainability-focused business in

a number of areas, particularly low carbon energy, water
infrastructure, sustainable forestry and related
agricultural commodities. We also provide a range of
sustainable & responsible investment (SRI) funds.
• avoid certain types of business, such as financing
weapons manufacture and sales, dealing with countries
subject to international sanctions, and transactions that
might be used to evade tax or to launder earnings from
crime.
• www.hsbc.com
Banking perspectives : HSBC

• HSBC Group Investment Businesses are

signatories to the United Nations Principles
for Responsible Investment. These commit
institutional investors to incorporate
environmental, social and governance
considerations into investment analysis,
decision-making and ownership practices.
• www.hsbc.com
Aims of HSBC

• Making HSBC one of the leading brands

• By going beyond the accepted corporate
governance standards, HSBC gains
competitive advantage and theirs efforts to
be transparent, responsible and accountable
to their shareholders have been recognised.
Government initiatives

• THE PRIME MINISTER’S CSR AWARDS

• The Awards represent the nation’s highest
recognition of corporate organizations that
have had a significant and positive impact on
the lives of people around them.
• There are 6 categories in the Prime Minister’s
CSR Awards: Community & Social Welfare,
Education, Environment, Culture & Heritage,
Small Company CSR and Best Workplace
Practices.
Government initiatives

• The most outstanding of the six category

winners will take away the prestigious Prime
Minister’s award for the Best Overall CSR
Programme.
• In addition, there is a special award for the
best Media Reporting.
Conclusion

• CSR can make our business more

competitive.
• Companies should be encouraged to
assimilate CSR values into their business
strategies and goals.
 50

“Understanding CSR for Business Sustainability”

Mr Lee Swee Seng
Day 3 : CRT Expert Seminar Series
12th September 2007 . Kuala Lumpur