Is there a business case for CSR?

The DTI’s Corporate Social Responsibility Report 2002 stated “The Government has an ambitious vision for corporate social responsibility: to see private, voluntary and public sector organisations in the UK take account of their economic, social and environmental impacts, and take complementary action to address key challenges based on their core competences – locally, regionally, nationally and internationally.” What are the implications of such a statement on timber companies and can they live up to these expectations?

Until the leading DIY retailer B&Q was asked, “How much Tropical Timber do you stock” no one within the company had considered the impact of their business on tropical forests worldwide. Today B&Q have a leading timber buying policy that encourages customer confidence in its timber products.

What is CSR?

Corporate Social Responsibility (CSR) is about the impact of business on society. The term is used to describe a range of commitments towards society that business organisations are expected to acknowledge and to reflect in their actions. The following definition from the World Business Council for Sustainable Development encapsulates CSR well.

CSR is the commitment of business to contribute to sustainable economic development, working with employees, their families, the local community and society at large to improve their quality of life

CSR policies include the fair treatment of employees, customers and suppliers; respect for human rights; responsible behaviour towards the communities in which they operate and conservation of the natural environment.

For the UK timber trade the main CSR issue is illegal logging (hotlink here to illegal logging page) because of its negative impact on the environment, economies, society and people. Traders that buy timber from verified legal sources in countries where illegal logging is a problem can have a positive impact on society.

Why bother with CSR?

On the one hand businesses are under increasingly competitive pressures from the global market-place and from shareholders for short-term results. On the other hand, public opinion, the media, NGOs and the government are calling for greater corporate social responsibility and there is a long-term business case emerging from studies of relationships between stakeholders.

Two bits of recent evidence:

1. A recent study of the FTSE 350 index undertaken by the Institute of Business Ethics found above average financial performance for companies with CSR policies.

2. A study by Innovest Strategic Value Advisers, published in June 2003 assessed 29 forest product companies and found that company stock with above average environmental ratings outperformed by 43% those companies with below average ratings in the last 4 years. The same companies outperformed on operating profit margin, net profit margin, return on equity, return on assets, price/earnings ratio, and other financial parameters. They concluded that there was “strong evidence of financial merits of sustainability leadership to the value placed by the market on the shares of top performing firms”

Some other business drivers

• Increasing litigation – seen in the case of Greenpeace ordering an injunction against a Brazilian mahogany importer.
• Increasing awareness of environmental issues – as Internet access and telecommunication facilities are improving across the globe it is getting more difficult for companies to conceal their environmental impacts.
• Consumer pressure – this is one of the driving factors behind the current development of a government procurement policy for timber. In 1999 a poll of 25,000 citizens across 23 countries on six continents showed that 17% of consumers were likely to be influenced by ethical considerations when making purchasing decisions, with another 5% regularly taking account of a business’s ethical performance when shopping.
• Globalisation pressures of competitiveness – as companies expand abroad, issues of fair trade and ethical policies have been highlighted giving a competitive edge to companies that address these issues. The growth of the fair trade coffee market is a good example of this.
• NGO pressure from their expanding globalised networks – Greenpeace action of stripping mahogany doors from the Cabinet Office at Whitehall affected the reputation of individual timber companies and the industry as a whole
• Socially responsible investment – institutional investors are now actively screening out unacceptable shares from their portfolios or selecting companies on such grounds as superior social or environmental performance or long-term sustainability. Equally, shareholders are voicing their concerns through AGM resolutions for example, BP and Rio Tinto.
• Government regulation of business – changes were made to the 1995 Pensions Act in July 2000 requiring pension funds to disclose the extent to which they take social, environmental and ethical issues into account when investing money.

But a word of Caution

It is not just about words. As Stephen Timms MP, UK Minister for CSR says, “The key for corporates is that this activity is seen not as PR,… not as philanthropy, but as mainstream to the business – justified not just by altruism but on sound business grounds.”

The implications of the above business drivers on the timber trade are to question whether company values tie in with business practice. Is there any occasion where your company reputation might be undermined? Do you know where all your timber comes from? Are you aware of how your purchases impact local and international communities? Have you assessed the risks associated with your business? Or identified ways to enhance the positive impacts of your company?

What is the TTF doing about it?

Since January 2003 TTF has been undertaking some research into CSR in the timber trade with funding from the UK Department for International Development (hot link to study summary page). The study is due to be completed in June 2004 and will include guidelines on best practice and policy advice to government.

We have been revising the TTF Responsible Purchasing Policy as a core element of a timber traders CSR policy (hotlink to appropriate page).

We have been actively developing work in Indonesian and Cameroon on sourcing legal timber, and have helped initiate a European timber trade Action Plan to source legal timber into the EU (hotlink to illegal logging page).

Further reading

Business and Society DTI CSR Report (pdf)
Business for Social Responsibility Issues Brief
EC Communication on CSR 2002 (pdf)
European Council Resolution on CSR

CSR in the UK Timber Trade

Business for Social Responsibility Issues Brief

Corporate Social Responsibility Study

CSR Links

DFID Illegal Logging and Associated Trade programme

Annex 1: TTF Memorandum of Association

Annex 2: A Study of Corporate Relationships in the UK Timber Trade

Annex 3: Confidentiality and Mutual non-disclosure agreement

EC Communication on CSR 2002 (pdf)

European Council Resolution on CSR

Summary of CSR SCM

TTF CSR Study timetable