Perspectives in Responsible Sourcing

Carbon Footprinting: Just one aspect of a robust climate change strategy, PART 2

Editor's Note: This is a two-part article by Michael Kelly of KPMG, discussing his firm's climate change strategy.  Part one of the article, which provides details of the KPMG program, appeared last week and is available at http://cscc.typepad.com/responsiblesourcing/2008/06/carbon-footprin.html.

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Some of the challenges

The scope of what we are measuring is not the entirety of our foot print and takes no account of the embedded carbon in our buildings or vehicles. If you really adopt a life cycle costing methodology then you will want to know whether changing a vehicle to a newer more efficient one will reduce your overall carbon footprint or if the carbon cost of producing it outweighs any savings in revenue terms. Likewise measuring the embedded carbon in a building new or old is in the ‘too difficult’ box at the moment. Further scope issues arise in terms of such as commuter travel to work and the impact of suppliers providing the business with goods and services.

As the systems have developed we have added additional dimensions and coupled these with programmes to address behaviour change. For example we previously ran a suggestion scheme with environmentally focused prizes open to all staff, suppliers and clients as well – challenging them to suggest how we might change for the better. Internally our Responsible Consumption programme is now in its fourth year. This looks at all aspects of office life and in recognition of any environmental (and financial) savings shares the benefits with the staff selected charity. All of these programmes need constant refreshment and targeted innovative communication if they are to remain at the front of peoples mind and help embed change.

The Future

It will not be too many years before all of the emerging standards and systems in this area come together and there is a common global standard. This will help us all to understand our own businesses’ performance more clearly and challenge ourselves more robustly to achieve more.

We are due to occupy a new head quarters building currently under construction in Canary Wharf in 2010. At that time we will know whether all of the environmental strategies adopted will operate as planned. It is designed to exceed all current regulations and to be future proofed for the medium term. Our people can now talk about tri-generation as an energy strategy and the benefits or otherwise of a sedum roof. We do not yet know what the market will be for recyclates but by thinking it through now we will be better prepared when that day comes. Increasingly our clients expect it and our people whether potential employees or alumni do so as well. Our current employees are all part of that journey.

Finally it is expected that a global agreement on targets for emission reductions will emerge in Copenhagen before the end of next year. With this the long term framework within which we all operate will have greater certainty and that will support longer term investment decisions. This will drive the environmental technologies market and carbon foot printing will be one of the parameters used in such decision making.

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Michael Kelly is the Head of Corporate Social Responsibility for KPMG Europe. 

Mike leads KPMG’s CSR programme in KPMG Europe and contributes to its developing programme across Europe, Middle East and Africa.

Reporting directly to the Europe Board he is responsible for the policy development and implementation of environmental management and community engagement across all activities of the firm.

Under his direction KPMG has been ranked 1st for Giving Something Back by The Sunday Times for the last two years and 1st for Corporate Social Responsibility by the Financial Times.

Additional activities include Chairman of the Corporate Responsibility Group, main Board member of Business in the Community (BITC) and Director and Trustee of Missionfish – delivering charitable giving capabilities for E-Bay. He is also a Visiting Professor in Finance and Accounting, Strathclyde University, Glasgow Scotland.

He can be reached at michael.kelly@kpmg.co.uk.

Carbon Footprinting: Just one aspect of a robust climate change strategy, PART 1

Editor's Note: This is a two-part article by Michael Kelly of KPMG, discussing his firm's climate change strategy.  Part two of the article, which summarizes of the challenges and future outlook of the KPMG program will appear next week.

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KPMG in the UK has had a pro-active approach to environmental issues for a long time - our environment policy was first placed in the public domain some 8 years ago. This long term commitment to addressing issues of consumption patterns, resource use and of course climate change means that we have been measuring and managing our environmental footprint for a long time before it became fashionable to do so. Our work has influenced investment decisions, particularly around our new Head Quarters building being constructed in Canary Wharf and our management systems; we are still the only professional services firm to have all of its UK offices certified to the International Management Standard ISO 14001.

We do consider it is important to know what our carbon footprint is and how to influence it, however there are a large number of steps to be taken before a professional services firm focuses on the carbon footprint itself. The detail below deals with carbon foot printing but it would be wrong not to flag up the need to take a much more strategic approach to all environmental issues, one aspect of which would be the reporting mechanism and methodologies. If the purpose of measuring the businesses’ carbon foot print is to consider how best to reduce it then that should be part of a wider discussion around the whole environment strategy.

Calculating our carbon footprint

The carbon footprint for KPMG is reported to the Board regularly and in a form that enables all Board members to quickly identify where our environmental impact is lightest and broken down geographically as well as by sources of carbon. The engagement at Board level means that the discussions on specific environmental strategies are grounded in the reality of the business strategies and integrated into decision making – rather than an add on or after thought. It takes a cross-functional team to put together the numbers for the Board and the role of the CSR function in the process is that of ‘collator’ of information rather than ‘owners’. This has two explicit benefits; the individual functions and disciplines own their aspect of the carbon footprint of the Firm and the decisions on actions to mitigate or adapt are made as business decisions by those with the ability to make them happen – which is not the role of the CSR function.

Carbon Management

The first decision to be made is what is to be measured; this might seem obvious but there are no global standards in this area, they are under development but there is guidance from National Government as well as the EU and specific industry and sector standards. The boundaries of responsibility and the existence or otherwise of measurement systems generally dictate what is to be measured. For instance the carbon foot print of the supply chain is not something that is generally captured by existing management information systems but the expenditure on business travel is.

For KPMG the first cut in 2001 included energy in buildings we occupy as well as business travel by car. The energy data, gas, electricity and oil, was needed as part of a broader project to look at the efficiency gains of procuring these goods from a single supplier rather than simply measuring for measurement’s sake. At that time the UK Government was introducing the climate change levy and as part of our broader approach our electricity tender asked for the comparative pricing from sourcing electricity from renewable sources. We did find that the information most valued by potential suppliers was our ability to forecast when and how much energy we would be drawing from the grid; rather than simply the financial size of the contract. Our own use of that data allowed us to benchmark comparable buildings and look for further efficiencies in the way in which the buildings were run as well as consider specific investments We now have a Utilities Steering Group (which includes water management) chaired by our European Head of Facilities and including attendance by two key suppliers who address all aspects of our performance. This ranges from the changing needs of the IT Functions through to the comfort of our people at work. We know that a well managed office environment supports our people and poor conditions impact on efficiency and productivity as well as increasing our environmental impacts.

The taxation authorities' guidance around mileage allowances and the alignment with the carbon emissions of the vehicle mean that it is quite a simple exercise to map financial spend across to the carbon load from this mode of travel. It is also a very good time to promote car sharing for environmental, economic and societal reasons. None of our clients would expect a team of 4 to arrive on site in 4 separate cars nor would it in any way add to the strength of the client relationship. Additionally by incentivising drivers to take passengers we have avoided between 600,000 and 800,000 miles of travel a month.

Since that first iteration we have worked across the different business functions so that now we can report on our impact from air travel and the carbon equivalent emissions from the waste we send to landfill. This latter aspect is frequently overlooked but is a significant proportion of the foot print for any office based service business.

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Michael Kelly is the Head of Corporate Social Responsibility for KPMG Europe. 

Mike leads KPMG’s CSR programme in KPMG Europe and contributes to its developing programme across Europe, Middle East and Africa.

Reporting directly to the Europe Board he is responsible for the policy development and implementation of environmental management and community engagement across all activities of the firm.

Under his direction KPMG has been ranked 1st for Giving Something Back by The Sunday Times for the last two years and 1st for Corporate Social Responsibility by the Financial Times.

Additional activities include Chairman of the Corporate Responsibility Group, main Board member of Business in the Community (BITC) and Director and Trustee of Missionfish – delivering charitable giving capabilities for E-Bay. He is also a Visiting Professor in Finance and Accounting, Strathclyde University, Glasgow Scotland.

He can be reached at michael.kelly@kpmg.co.uk.

Event Summary: 2008 Ethos Conference, Sao Paulo, Brazil

As many of you know, the Ethos Conference is one of the largest CSR events in Latin America.  This year, CSCC was able to send one of our research associates, Rishi Arora, to the event to take in the activities and discourse.  We recorded an interview with Rishi where he talks about what is hot in the Latin American CSR world based on his time at the conference.  We now share this experience with you, in case you were not able to make to Sao Paulo yourself.

Click here to download the podcast.
To stream the podcast, simply left-click your mouse on the link. To download the file on to your computer for listening at a later time, right-click your mouse on the link and choose the "Save Target As" option.

Eu criticizes US 100% cargo scan requirement

The European Commissions has recently issued a critique of the US requirement to scan 100% of cargo destined for the US (the Homeland Security Bill came into force in August 2007, requiring that all US bound cargo by scanned in the ports of origin by 2012). The EU has repeatedly expressed opposition to the concept of a unilateral requirement to scan cargo destined for the US in ports of origin. 

According to the article:
• "The unilateral US initiative imposing 100% scanning in European ports of US bound containers is a high cost option compared to alternative approaches that would produce benefits to security." 
• "It would tend to divert scarce resources from other essential measures and might create a false sense of security and complacency." 
• "It would call for a shift of European resources away from European security requirements."
• "It could have serious repercussions for EU-US maritime transport and trade, and on transport organisation within the EU and worldwide, without any clear benefits in terms of enhanced security." 

The article offer the following interesting data on the 100% cargo scanning pilot project carried out at the Southampton port of Felixstowe.
• "In Southampton, three Radiation Portal Monitors, one Advanced Spectrographic Portal and one X-ray scanner (NII) were used…The total cost is estimated at $18 million for scanning around 5,500 US bound containers over a period of six months." 
• "In the case of Southampton a simple calculation of total cost relative to the number of scanned US bound containers gives an average cost/container that exceeds $500." 
 
In terms of impacts on other EU ports, the article mentions the following considerations:
• "The US legislation does not contain any financial clause or spending authorization for equipping foreign ports." 
• "The presence of multimodal incoming container traffic needing increased handling (unloading, transporting, and reloading) and transhipment would pose tough challenges for 100% scanning in many ports."
• "…changes (required by the scanning equipment) would often require expansion into nearby land side areas that would be very expensive or unavailable."
• "The share of containers scanned ranges from 0.1% in bigger ports to 3% in smaller ones." 
• "[Regarding transhipment]… resources would have to be readily available to perform the scan near the vessels, or the US bound containers would have to be stacked in extra storage area, and wait for the scan, raising costs significantly."
• "….scanning transhipped containers is likely to lengthen the average waiting time significantly.  The need to secure the scanned containers until they are loaded on the final carrier vessel adds extra costs.  Preliminary feedback from large EU ports offers cost indications in excess of $300/container for moving stacked containers to scanning stations,"

Lastly, the European Commission highlights these policy issues associated with the requirement::
• "In addition, 100% scanning would tend to divert transport flows towards those ports –mostly the larger ones- with the necessary financial leverage and container traffic volume to amortise the additional 100% scanning costs." 
• "An additional "transaction cost" to international trade would raise transport prices and depress growth (via reductions of imports/exports) without offering any real security benefit."
• "In many less developed countries [which handle approx. 66% of container traffic] 100% scanning would hinder the development of freight container operations in domestic ports and of the related shipping, logistics and trading sectors."
• "Finally, the US 100% scanning initiative assumes compatibility with WTO rules which is not established."

The final point appears to indicate that the European Commission may consider pursuing this matter further at the World Trade Organization’s Dispute Settlement Body, based on the argument that the cargo scanning requirement represents a new barrier to trade. As developments occur, CSCC will continue to update readers about developments along with analysis on the issue.
For a copy of the full text of the article, click on the following link:
1. http://www.americanshipper.com/PDF/comments.pdf

Ruggie's Recommendations

In the world of corporate social responsibility, there are two primary schools of thought on how to approach corporate compliance with human rights standards.  One approach is to push for legislation meant to enforce these standards; a second approach is to use market-based incentives as a means of encouraging corporate compliance with these standards.  On April 7, 2008, John Ruggie, the Special Representative to the UN on business and human rights, issued his draft report on how to conceive of business and government roles in upholding accepted human rights standards going forward.  The framework for his recommendation is rooted in a well-established international law concept: protect, respect, fulfill (or remedy, in Ruggie’s terms).

1. The State has a duty to PROTECT against human rights abuses by third parties, including business – this is a legal stipulation;
2. There is a corporate responsibility to RESPECT human rights – this is a societal expectation;
3. There is a need for more effective access to remedies – this need to FULFILL is a functional necessity.

Ruggie states that “there is no single silver bullet solution” to bridge the gap between law and practice, asserting that everyone involved “must learn to do things differently.”  He takes pains to distinguish his approach from that of the failed UN Norms, whose demise he attributes to a delineation of rights to be upheld rather than, as he proposes, the assignment of roles in upholding all rights. 

An Argentinian group (CEDHA, Center for Human Rights and Environment) issued a commentary on Ruggie’s latest piece and stated, “Ruggie again (as in previous reports) clearly steers the UN away from pressing for binding legislation, which was once conceived under the … UN Norms…” And Ruggie does use different language for States (who have a DUTY) and businesses (who have a RESPONSIBILITY).  He also states that corporations should not have the same duties as states and encourages states to “support and strengthen market pressures on companies to respect rights.”

Clearly, Ruggie supports market incentives for actors to uphold human rights, but does his framework preclude binding legislation, or does it allow for such legislation conceived of in a format different from the UN Norms?  At the national level, he refers to reporting requirements, redefining fiduciary duties and socially responsible investment as incentives.  Is he being politically astute in not mentioning alternative binding frameworks, or does he genuinely believe there are no such options?  An interview with Ruggie in Ethical Corporation Magazine reveals that he thinks the time is not right for a binding international treaty as there is not sufficient buy-in from stakeholders.  However, I felt he could have provided more ideas on state level legally-binding solutions to drive this process forward.

A recent development regarding the Central American Free Trade Agreement (CAFTA) demonstrates the delicate interplay between a standard-setting approach and an incentive-based approach to enforcement.  The law firm of Sandler Travis has reported that the AFL-CIO has filed the first ever labor rights complaint under CAFTA, in part to protest the U.S.-Colombia Free Trade Agreement.  The complaint cites fives cases in Guatemala where local labor laws were not upheld and the U.S. government failed to implement CAFTA labor provisions to remedy the situation.  The AFL-CIO’s chief international economist cites the incentive structures of free trade agreements as problematic stating that “once the U.S. approves a free trade agreement the partner country no longer has any incentive to make labor rights improvements.”  The U.S. government evidently responded by claiming that at least free trade agreements allow the U.S. to investigate the labor violation allegations.

This situation highlights the “governance gaps caused by globalization” that Ruggie refers to and shows why an incentive-based structure is so important to facilitate compliance with labor standards.  But an incentive-based structure, while important, is not sufficient.  At present, Ruggie points to a disincentive to uphold labor standards through bilateral investment treaties because “… treaties … permit… investors to take host States to binding international arbitration, including for alleged damages resulting from implementation of legislation to improve domestic social and environmental standards…”  So clearly, the national level legislative component is important and must not be negated by the incentives created.

The AFL-CIO complaint also highlights the third prong of Ruggie’s framework, the need for effective remedies.  Clearly, the right to investigate referred to above does not equate with fixing the problem.  The NAFTA labor rights component has faced similar criticisms of inefficacy.  Unless there are remedial mechanisms, judicial and non-judicial, as Ruggie alludes to, it seems unlikely that these provisions will be enforced at all in any trade agreement. 

The way forward will not be easy – Ruggie’s framework seems to be based largely on the good faith of the relevant actors to subject themselves to measures that would enforce their respective duties and responsibilities, if only through market mechanisms.  Relying on the good faith of these actors hasn’t worked so far, and there’s no indication it will work going forward.

If you have questions and comments about this blog, please contact Lara Blecher at lblecher@intlcompliance.com

Podcast with Michael Kobori (Levi Strauss & Co.) and Carrie George (CSCC)

The responsible sourcing world has been abuzz this past year with talk of increased collaboration among brands and their supply chain partners, NGOs, and other industry associations in the monitoring and remediation of “sweatshops”.  In the era of new media, CSCC has turned to podcasting to explore the issue of brand collaboration with Michael Kobori, Vice President of Supply Chain Social and Environmental Sustainability at Levi Strauss & Co., and Carrie George, Client Service Manager at CSCC.  The podcast is a frank and open dialogue on the benefits and challenges of increased collaboration in fighting exploitative labor conditions.

Download brand_collaboration_podcast.wav to your desktop.

CSR and the ABA

The American Bar Association (ABA) held a meeting in New York from April 1-4, and CSR figured prominently on the agenda.  Even in sessions not specifically geared toward CSR, it was mentioned either as a trend to be seriously accounted for in the future or as an issue to be addressed in current decision-making.

The first session of relevance covered the Alien Tort Claims Act (ATCA).  What was interesting about this ATCA meeting that I haven’t heard at others was a discussion of where lawyers thought ATCA litigation was heading.  The consensus from lawyers on both sides of the issue: it isn’t going away.  Most notably, Owen Pell of White and Case law firm believes that even if the US Supreme Court cuts back on the scope of the ATCA, the nature of the filings will change, but the litigation will continue.  Also of significant note, the panelists pointed out that while the ATCA is a unique tool globally, the EU and individual European countries have developed or are developing alternate tools aimed at corporate accountability and corporate legal liability.  For instance, Mr. Pell pointed to the European Convention of Human Rights as a basis of CSR litigation in Europe.

The second session dealt with how well the Universal Declaration of Human Rights has been implemented in the 60 years since its creation.  One of the four panelists was from Realizing Rights, the business and human rights NGO created by former UN High Commissioner for Human Rights, Mary Robinson.  This panelist spoke specifically to the portion of the International Covenant on Social, Economic and Cultural Rights that covers work rights and the role of non-state actors, mainly corporations, in promoting these rights.  She referred to CSR as not only a significant movement but as a significant business, and asked for further efforts to implement a legally-binding framework. 

Although the first two sessions covered CSR, the third session was specifically targeted at CSR and was, not surprisingly, titled CSR and Human Rights.  The opening comments were in line with the tone of other sessions: globalization is increasingly creating an environment where human rights are taking a legal and reputational toll on corporations.  The first speaker asserted that expectations for companies have altered toward addressing systemic change as it becomes increasingly clear that full compliance is not possible.  As a result, companies are being asked to take on social obligations before they become legal.  The second speaker emphasized that it does no good to have a policy that cannot be enacted or enforced and pointed to the emerging issue of corporate complicity as a reason to demonstrate policy implementation.  The third speaker stressed the importance of recognizing that CSR means different things in different countries and contexts.  And the fourth speaker wondered how CSR can become more predictable.

Finally, the panel asked the question: at what point does corporate responsibility start and end?  What is clear from the ABA conference is that CSR no longer starts and ends with business.  The ABA had a whole day of sessions addressing the topic, and while CSR might not be legal in the sense of legislative standards (in the U.S. anyway), it is increasingly subject to a range of legal tools that should factor into company decision-making and policy considerations.

For questions on this blog or others by Lara Blecher, please contact Lara at lblecher@intlcompliance.com

CSR: The Need for Proactive Management of Legal Risk

Multinational corporations have reason to pay close attention to current trends in the field of corporate social responsibility, especially given recent developments in U.S. courtrooms.   In cases under both the Alien Tort Claims Act (ATCA) and general tort law, companies are being held accountable to human rights standards established in international law.  Beyond the potential of ultimate liability, litigation can have significant costs in terms of legal defense fees and associated opportunity costs, but is also costly in terms of the reputational damage caused to companies both by initial allegations of poor human rights practices and by lingering perceptions that companies are indifferent to such accusations. Given the wide range of social and political contexts that surround their operations, companies should not hide from or cover up the unfortunate fact that human rights abuses may occur.  Rather, companies should develop business policies meant to leverage both their abilities to prevent such abuses and their capacities to respond proactively and responsibly when they do occur. 

CSR in Practice – Developing Policies

When developing human rights policies and associated codes of conduct or operational guidelines, companies should seek to close the gap between stated goals and commitments and actual business operations.  These statements, in addition to providing a set of operating principles that can guide company operations, also provide platforms for dialogue with both employees and external stakeholders.  They also provide for a consistency in approach that facilitates both daily operations and crisis management.  Therefore, companies should take the time to develop policies that work for them and that address the actual issues that come up in their business operations.  Boilerplate language can get in the way of developing effective guidelines that manage actual risk.  Companies should see the development of effective policy guidelines as key components to risk management and therefore should approach the task with seriousness of purpose and time for reflection.  It is a reality that not all companies will wish to be industry-leaders in terms of commitments to best practices and relevant voluntary standards. Corporate counsel can provide advice on the nature, scope and implications of specific commitments, standards and guidelines so that company executives can make informed internal determinations before making public statements. 

CSR in Practice – Implementing Policies

As companies draft policies, it is important to be mindful of the challenges of implementation.  Commitments should not be made by corporate social responsibility officers alone.  Moments of crisis are not the time to determine that senior executives don’t know or understand what statements the company has made -- everyone needs to speak the same language.

Companies should also take the time to benchmark their current practices against the relevant standards and guidelines reflected in their policies.  Benchmarking will add significant substance to the future analysis of the auditing and monitoring efforts that are required to ensure that company commitments are being met.  With regard to monitoring and auditing, companies should have dedicated personnel who are tasked with verifying the proper implementation of company policies.  Companies are well-advised to work with external monitors as well.

When entering into contractual relationships, companies should consult with counsel in determining to what extent company policies should be explicitly incorporated into standard contractual language.  Assessments should be made as to what should be specifically required of contractors and suppliers at each level of operation. Entering into these relationships involves difficult tradeoffs between maintaining the independence of third parties and ensuring that adequate oversight exists to ensure that company standards are being met.

Finally, in building business policies that incorporate human rights, companies should increasingly approach human rights risk management as they would any other type of risk management.  Potential projects and business relationships should be assessed for the manner in which they will challenge and possibly violate company values and policies.  In some cases, particular investments may be deemed too risky.  In other cases, specific risks will be identified and thoughtful planning as to how to manage those risks should begin. 

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Sarah A. Altschuller is a an associate at Foley Hoag LLP's Corporate Social Responsibility practice.  She can be contacted at saltschuller@foleyhoag.com.

Forced Laborers - Their plight and what can be done to help them

Download Podcast Here 

Inspired by a Newsweek Magazine article on forced laborers in Malaysia, Rachelle Jackson, Director of Research and Development, and Paul Dinh, Research Associate, explore the conditions that many forced and migrant laborers face, and offer insight into the various initiatives happening globally to stop this exploitation.

Standardizing an audit day…It could be the start of a beautiful friendship between Collaboration and Continuous Improvement

While collaboration has been spoken of and hyped up for the past four years, the greater CSR community does a proportionately small amount of collaboration.  Collaboration is still a leading edge idea, rather than a normative practice.

While no single group (brands, factories, monitors, NGOs, initiatives, etc) is to blame, we all share some culpability in our delay to collaborate. Some of us are demanding high level improvement in terms of living wages and carbon foot printing, but have not laid the groundwork to ensure that factory start-ups in the Pearl River Delta, Los Angeles or Bangalore know the basics of calculating holiday overtime, legal requirements of basic sanitation or the benefits of recycling. Similarly, but on the other end of the supply chain, many brands and retailers want to get the same information from a one-day audit by two auditors with a really detailed checklist as they would from a week-long participatory training and remediation.

For the sake of simplicity, we will focus on collaboration of a basic assessment for now. Each brand, each report sharing initiative, each certification body, and each monitoring firm has their own unique approaches to the standard operating procedures, reporting and grading for a one-day audit. Having so many templates, procedures and grading approaches makes coordinating collaborative assessments  a drawn out process that includes a great deal of discussion, particularly if done on a large scale. 

If collaboration and report sharing are going to take hold industry wide, industry stakeholders are going to have to speak to one another and compromise. Who best to facilitate those conversations surrounding compromise? How about the monitors (non-profit and private) who have done hundreds of thousands of audits over the past 15 plus years? Monitors understand the complexity of the demands and scale of the industry.  Monitors understand the pros and cons of each template. Monitors understand the limitations of the audit day.  Monitors understand how to get the best data and what reduces audit quality. Monitors understand the technology used across multiple brands to load the various reports and data. Monitors deal with this every day. So, let’s start talking…anyone interested?

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Carrie George is a Client Service Representative at CSCC.  She studied Industrial Relations and International Development at Cornell and Brigham Young universities, and worked as a Research Analyst at Innovest Strategic Value Advisors before joining CSCC.  At CSCC, Carrie has been responsible for advising and helping clients build robust responsible sourcing programs, in addition to being a vocal proponent of greater stakeholder collaboration in monitoring and remediation.