Perspectives in Responsible Sourcing

Study analyzes spillover benefits for supply chain security

Stanford University researchers Barchi Peleg-Gillai, Gauri Bhat and Lesley Sept, recently released a study on the results of implementing Supply Chain Security standards, titled “Innovators in Supply Chain Security: Better Security Drives Business Value”. The Study was co-sponsored by the National Association of Manufacturers (NAM) and IBM, and is the latest in a series of papers on the costs, implications and benefits of supply chain security measures created following the terrorist attacks of 9/11. This paper focuses on the spillover benefits of compliance with C-TPAT, the 24-hour rule and other related measures such as the Technology Asset Protection Association (TAPA) and the ISO 28000 Specification for security management systems for the supply chain.

For compliance, security or customs managers, this study is significant in that it may help to engage internal stakeholders and management in proposed or existing C-TPAT programs. Implementing security standards throughout one's supply chain has the potential to benefit the overall operation of large multinationals and small importers alike, according to the study.

The research is based on data gathered from responses from 11 manufacturers and 3 logistics service providers. Participants were interviewed about how implementing security measures had affected them in terms of supply chain visibility, efficiency, customer satisfaction, inventory management, shipping time, and any associated cost reductions.

According to the study, participants reported experiencing the following:

• 38 percent reduction in theft/loss/pilferage
• 37 percent reduction in tampering
• 14 percent reduction in excess inventory
• 12 percent increase in reported on-time delivery
• 50 percent increase in access to supply chain data
• 30 percent increase in timeliness of shipping information
• 43 percent increase in automated handling of goods
• 30 percent reduction in process deviations
• 49 percent reduction in cargo delays
• 48 percent reduction in cargo inspections/examinations
• 29 percent reduction in transit time
• 28 percent reduction in delivery time window
• close to 30 percent reduction in problem identification time
• response time to problems and problem resolution time
• 26 percent reduction in customer attrition
• 20 percent increase in number of new customers.

This complete study can be found here.

Organic Food

Chances are that within the last month, you have purchased at least one organic food item from the grocery store or consumed an organic beverage such as juice, tea or coffee from a café or restaurant. Several years ago, the average person would have been much less likely to purchase organic foods, in part because such items were harder to find and often not as fresh as the conventional produce surrounding it. Largely due to consumer demand, and subsequent buy-in of major corporations such as Kraft, ConAgra, and General Mills, however, the sector has emerged from the margins and expanded into the mainstream, commanding a market share of approximately $12 billion. Of course, in comparison to the value of the entire $500 billion food industry, organics are still considered a niche market. Nevertheless, with an annual growth of nearly 20% over the last few years in an otherwise stagnant industry, organics continue to generate great interest and investment into sector development.

What is an organic food product?
Organic food and agricultural products differ from conventionally produced goods in the way it is grown, handled, and processed. According to the United States Department of Agriculture (USDA), organic food cannot be produced with the following products or production techniques if it is to be eligible for certification:
- Antibiotics or chemical growth hormones (used in meat, poultry, eggs, and dairy products);
- Most conventional pesticides (a few are still allowed);
- Fertilizers made with synthetic ingredients or sewage sludge;
- Bioengineering (or genetic modification); and
- Ionizing radiation.

In addition, farmers producing organic products emphasize the use of renewable resources and the conservation of soil and water to enhance environmental quality for future generations. To qualify as organic, the product must also be produced on land that has been cultivated according to organic standards for at least three years.

Organic labels
Depending on where you live, your government may or may not be regulating the organic market. In countries like Canada, for instance, the market is not federally regulated and organic products need only comply with voluntary standards. In the US and UK, however, the government both creates the standards and approves the certifying bodies before a product (domestic or foreign) gets labeled with the USDA Organic Seal. In fact, the companies that handle or process organic food before it gets to your local supermarket or restaurant must be certified, too.

But is organic food really healthier and better for the environment?
On one hand, proponents of organic food claim that consumption of food produced without toxic chemicals is obviously a good thing for human health and for the environment. First, there are the field workers that might otherwise be exposed to pesticides and experience negative health effects such as skin and respiratory problems, as well as higher rates of cancer and birth defects. Second, there are the consumers of the products. Even small concentrations of pesticides present on conventionally produced food products may have a number of detrimental effects on health over the course of a lifetime. Furthermore, these synthetic pesticides and herbicides can wash off the fields, entering local water systems and affecting wildlife. By way of contrast, advocates of organic production contend that organic production actually improves the land and results in less energy use and waste production compared to conventional systems.

Critics of organic production, on the other hand, argue that the system of production as controlled by large corporations is not as earth friendly as it appears. The problem is with the heavy consumption of fossil fuels required for transportation of goods within the conventional sourcing and distribution structure of industrial agriculture. Is an organic apple shipped thousands of miles from Chile more environmentally friendly than one conventionally produced from your local farmers market? What is more, these products shipped around the world may not even be pesticide free!

Contrary to popular belief, pesticides can be used in organic production but of the hundreds available, there are only a few approved for organic use. However, this does not mean that the approved pesticides are necessarily environmentally friendly and some are even toxic like ryania, Sabadilla, and rotenone. Other non-toxic chemicals can cause different problems such as those including inorganic copper that cannot biodegrade in the soil or those containing copper salts or sulfur that must be applied at high levels or pyrethrin that must be applied frequently. Finally, critics worry that the standards of organic production are becoming progressively weaker to the extent that organic labels may one day be meaningless.

Sources:
USDA Organic Standards. Available http://www.ams.usda.gov/nop
Melanie Warner, “What Is Organic? Powerful Players Want a Say”, New York Times, November 1, 2005.
The Idaho Association of Soil Conservation Districts. 2004. Organic Pest Control: Approved Materials and Practices. 2004. Available http://www.oneplan.org/Crop/OrganicPestCtrl.shtml.

For additional information on organic standards:
Australia: NASAA Organic Standard. Available http://www.nasaa.com.au/steps1.html
Britain: Organic Farmers and Growers Organic Standards. http://www.organicfarmers.uk.com/licensees/controlmanual/index.php
United States: NOP Program Standards. http://www.ams.usda.gov/nop/NOP/standards.html

The Cost of Food Transportation

In the last fifty years, food production and supply chain systems have changed dramatically on a global scale. As identified in a report released last month by the United Kingdom’s Department for the Environment, Food and Rural affairs (DEFRA), some of the most striking changes have been:
- Increases in global food trade (imports and exports);
- A concentration of the food supply base towards fewer, larger suppliers;
- Changes in food transport and delivery patterns, with an increased trend towards using larger, heavy goods vehicles and rerouting products to regional distribution centers; and
- Changes in consumer behavior from frequent food shopping (on foot) in local stores to weekly shopping (by car) in larger supermarkets.

A direct consequence of these changes in our global food system is the dramatic increase in “food miles” or the distance our food travels from the point of production to the point of consumption. The rise in food miles, which is calculated by measuring transport via air freight, land, and sea as well as the miles driven by consumers, is further associated with a number of social, environmental and economic costs. These include greenhouse gas emissions, congestion, accidents, road maintenance costs, noise and air pollution.

In total, it was estimated in the DEFRA Report that the transportation of food cost UK taxpayers approximately £9bn, with £5bn of this linked to road congestion, £2bn to road accidents, £1bn to pollution and about £1bn to other social and environmental issues. In addition, food transportation also resulted in the release of 18 million metric tons of CO2 emissions, which is almost 6 per cent higher than the previous year. Despite recent efforts of the government and private sector to reduce food miles, however, both costs and emissions appear to be reaching record levels.

Improving food sustainability
As consumers, we can help to reduce food miles and minimize the negative impact on sustainability by increasing our awareness of where our food comes from and how it is produced. One way to do this is to buy more locally produced food and to consume fresh fruits and vegetables that are in season (when possible). The next time you buy an apple, for instance, look for country of origin labels to see where it is produced: Chile? New Zealand? Washington? Chances are that you can find an apple produced in your own country and perhaps even your own state/province. Therefore, if you have a choice, help support the local farmers and buy local. Food produced closer to home is usually more fresh, flavorful and nutrient-rich than food that travels days and even weeks to reach your local supermarket anyway. However, if there are no country of origin labels available in at the local grocer or retailer, ask the store manager to provide such labels in the future. Some food retailers may even have sustainable food procurement policies in place and should be able to provide you with information about their food sourcing practices as well.

In addition to buying local products from the supermarket, you can also try shopping at local farmers’ markets, food stands, and food cooperatives or even try joining a Community Supported Agriculture (CSA) program where food boxes are delivered to you door on a regularly scheduled basis. With the variety of options available, it is now easier than ever to exercise your right as a consumer and to make informed decisions about the food you are consuming and the impact you are having on the environment.

Sources:
DEFRA. “The Validity of Food Miles as an Indicator of Sustainable Development: Final Report”. July 2005. Available http://statistics.defra.gov.uk/esg/reports/foodmiles/execsumm.pdf

Food Routes Network. http://www.foodroutes.org/
The Leopold Center for Sustainable Agriculture. http://www.leopold.iastate.edu/index.htm

CSR: A Voluntary or Legal Initiative?

CSR is in an interesting state right now.  One of its initial attractions for corporate participants was its voluntary nature.  Codes of conduct, for instance, were guiding documents, not legally binding mandates.  But of late, it's less clear that CSR is entirely voluntary.

In September of 2005, Terry Collingsworth of the International Labor Rights Fund filed a law suit against Wal-Mart, accusing the world's largest retailer of, among other things, failing to uphold its code of conduct.  Mr. Collingsworth has also filed a number of other suits against U.S. companies allegedly complicit in labor violations committed by their overseas suppliers.  Although he pursued a different legal route in the Wal-Mart case, Collingsworth's tool of choice is the Alien Tort Claims Act (ACTA), an obscure piece of legislation originally used in piracy cases (on the high seas, not music).  A recent U.S. Supreme Court ruling has verified that it is possible to use the ATCA in very specific situations to hold U.S. companies accountable for overseas labor violations.

However, law suits are not the only sign that CSR is going legal.  A number of cities in the U.S., such as New York and Los Angeles, have adopted living wage ordinances.  In a new development, Chicago has adopted a controversial "big box" wage ordinance that would require mammoth retailers to pay their store employees a living wage if the retailers want to open stores in the Windy City.  The retailers have vowed to fight this ordinance in court, so we'll wait to see what the outcome is.

Europe is also jumping on the "legalization" bandwagon with a recent European Parliament initiative to promote fair trade, and reporting legislation in a number of countries, including France and England.  Belgium has even enacted a law that awards a social label to products made "ethically" (as defined in the law).

So it appears that CSR is in a fairly nebulous state at the moment, somewhere between voluntary and legal.  It will be interesting to see how this state of affairs progresses over the next couple of years.  In this blog, I'll try to point to developments that shed light on where it's all headed.

Corporate Governance and Ethics: Lessons for the Corporate Responsibility Movement

It has been a year since I began working with our parent company on restructuring and implementing our internal corporate ethics program. Attending trainings and workshops, and reading manuals almost as thick as my International Law textbook, I steeped myself in ethics terminology, corporate governance regulations, and anti-corruption policies. Coming from a corporate responsibility (CR) perspective, I found myself continually asking the same two questions:

• How does the corporate governance function – also called ‘ethics’ or ‘compliance’ in the US – interact with the CR function within a company?
• What lessons can the CR movement take from decades of companies attempting to embed ethics into their systems?

A note on definitions: my favourite distinction between ethics and CR is Phillip Rudolph’s definitions that appeared in a recent article in Corporate Responsibility Management. Rudolph defined ethics as, ‘a values-based…concept…[that] help[s] people make choices in situations in which the rules are unclear, silent or off-point. Like [compliance], however, ethics tend to be inwardly focused,’ whereas corporate responsibility, Rudolph defines as ‘externally-focused ethics…embrac[ing] a far broader array of stakeholders than traditional notions of ethics typically encompass’. Rudolph also makes a distinction between governance and ethics but for the purposes of this post, I’ll group those terms together since as a function they usually fall into the same department or position.

On the first point, as far as I can tell there is very little interaction between the ethics department and anyone working on CR in a company. Perhaps this is due to ethics being traditionally perceived as a very legalese function. However, even in that case I can see an immediate connection to the job of the social compliance manager, those people we work most closely with who are responsible for the ethical sourcing of products from subcontracted manufacturing entities. Similarly, in the US, more traditional CR approaches have been in the realm of corporate philanthropy and would therefore have had little connection to the ethics office.

Current trends in ethics and CR are now, I believe, bringing these two concepts closer together. On the one hand, regulatory developments in the US are mandating that companies not only comply with the law, but also demonstrate an ‘ethical culture’. On the other hand, CR is becoming more mainstreamed within companies. For example, companies are hiring dedicated CR managers and industry buzzwords include ‘strategic alignment’ and ‘business integration’ of CR. Furthermore, the trend towards regulation (and some would say over-regulation) of corporate governance issues, which accelerated in response to the corporate scandals of the last decade, and the mandatory public disclosure (to the government or government agencies) of equal opportunity data and CEO compensation may signal what’s ahead for CR, in which case the two functions may have to work more closely together in the future. Such a convergence can already be inferred from the recent announcement of the ‘Business Ethics’ magazine – an 18-year-old, US publication – to merge with the newly created CRO, a corporate membership organisation for Corporate Responsibility Officers (ring any bells?).   

As for lessons learned, I think CR will gain from studying the tools companies have used to implement ethics programs. Firstly, internal messaging and ethical leadership are key components of both a successful ethics program and a socially responsible business. Ethics officers have experience in selling a ‘soft’ program to management and communicating it to employees. How many CR programs focus on internal communication? It’s often a big area of weakness and missed opportunities in CR. Secondly, risk analysis is often a feature of a good ethics program and since they are designed to identify potential threats to the company’s financial and reputational integrity, the same methodologies could also be applied to an analysis of internal and external sustainability issues. Thirdly, CR mechanisms such as data collection for reporting can probably utilise some of the internal ethics structures that are already in place such as the internal audit system and employee interfaces. Lastly, the structure of the ethics personnel within a company may provide a model for how to structure the CR department. Many publicly traded companies have at least one full-time staff member in charge of ethics who reports directly to the Internal Audit Committee, the CEO, or the Board.

So, if you’re working on any aspect of CR within a company, dust off the Code of Ethics and make a date in your calendar to invite the Ethics Officer for lunch – I’m sure it will be a rewarding discussion and maybe, the beginning of a beautiful partnership.

Sources:

‘Don’t Obsess About Corporate Responsibility and Governance – Corporate Culture is What Counts’, Phillip Rudolph, Corporate Responsibility Management, Volume 2, Issue 1 August/September 2005

Business Ethics Magazine: www.business-ethics.com

What is Going On In Bangladesh?

Riots, riots, and more riots. What progress has been made in Bangladesh since the initial outburst of worker protests in May, which culminated in hundreds of factory closures, building and equipment damage in the millions of dollars, rampant physical injury to hundreds of protesters, and even a few reported deaths?

Following the riots, a wage board was formed with a mandate to implement the first wage hike for workers in over 12 years. With the 90-day deadline for the wage hike fast approaching, the latest news from Dhaka is that factory owners have not reached a consensus on the proposed minimum wage increase.

This week, several thousand workers have again taken to the streets to protest poor working conditions and low wage rates. Among the specifics, workers are incensed that wages have not yet increased, overtime work is not compensated, they are harassed when seeking leave time, and toilets are not separated for men and women.

What is going on in Bangladesh? It’s a tough business, especially in the apparel industry where margins are often tight. On top of that, the Bangladesh industry sector was slated for complete demise following the end of quota and the freeing of the China export tiger. Yet some buyers and retailers decided to stay in Bangladesh in order to prevent the whole-scale collapse of one of the cornerstones of the Bangladesh economy. Yet every few months there is another news report about factory fires, panicked and stampeding workers, and collapsing buildings. In addition, there are recurring riots that delay production, potentially damaging goods and scaring buyers away. The lack of follow-through on international commitments to allow freedom of association in Export Processing Zones underscores the confusion of how to balance business interests and worker rights. This inaction even earned the government a public scolding from the International Labor Organization. What is Bangladesh waiting for before they decide to commit to whole-scale change?

In the meantime, neighboring Cambodia has become the poster-child of social compliance as a competitive advantage, touting the ILO Better Factories Cambodia program. Sri Lanka proved years ago it was willing to push laws through Parliament to ensure working conditions coincided with buyer compliance programs. Yet the Bangladesh wage board is sending workers to riot in the streets because they are not prepared to increase wages from TK900 (13 USD / 11 EUR), set about 12 years ago, to TK1800, which is the compromise position put forward by the wage board.

Granted, it does seem daunting to increase wages by 100%. Yet Bangladesh literally has some of the lowest basic wage rates in the entire world. The hourly wage for many of these workers translates to $00.04 - $00.06 USD per hour (this does reach up to $00.09 - $00.11 USD per hour for more senior or technical workers). The only wages lower than these belong to Kyrgyzstan and Laos, coming in at $00.01 and $00.02 USD per hour, respectively.

The reality is, after 12 years without wage increases in one of the most impoverished countries on the planet, Bangladesh is overdue for a wage increase. Employers should bite the bullet and work on meeting worker needs, both in compensation and in humane and safe working conditions. While they’re at it, they should glance around at their neighborhood competition and realize that providing good working conditions is the name of the game in today’s market. A little Better Factories Bangladesh program might be just what the doctor ordered to remedy the labor ills in this country.

How Our Food Choices Can Make a Big Difference to Our World

Beyond the rhetoric of academics and corporate social responsibility reports, words like “sustainable” and “sustainability” can actually have meaning when applied to your daily life. In fact, many of the choices we make during the day—such as what we had for lunch and where we bought our coffee—help to shape the way we live, directly affecting our bodies and the world around us as a result. Essentially, every time we buy food and agriculture products, we are supporting a given type or system of agricultural production and distribution, which in turn, has an impact on the economy, the environment and society; not only in our own backyard but also in parts of the world where our food is produced, processed or transported. Although the impact of our choice is felt throughout, some of those most affected tend to be the workers operating at the beginning of the food supply chain in agriculture production.

The agriculture industry is one of the most dangerous industries in world, where workers may be subject to poor working conditions, pesticide exposure, low wages, few benefits, and long overtime hours. In some cases, the type of food we purchase may lead to socio-economic or environmental improvements but in other cases, the opposite may occur. Factors that can contribute to a positive outcome require that the issues are addressed at the ground level, by providing fair/living wages to workers, fair commodity prices to farmers or price premiums and other such incentives necessary to preserve social and environmental resources. While the outcome is largely dependent on the systems of food production and distribution available to consumers, as well as the price that we are willing to pay for this food, other actors such as manufacturers, wholesalers, retailers and government also play a large role in determining whether or not food and agriculture production contributes to sustainability.

To better explore various social and environmental issues surrounding food and agriculture production in my future postings, I will be using a concept of food “sustainability” that is derived from the Farmer’s Link website and included below for convenience.

From the Farmers’ Link Website, “sustainable food” is:

1. Proximate: originating from the closest practicable source
2. Healthy: as part of a balanced diet and not containing harmful biological or chemical contaminants
3. Fairly or co-operatively traded between producers, processors, retailers and consumers. Non-exploitative of employees in the food sector in terms of pay and conditions.
4. Environmentally beneficial or benign in its production
5. Accessible both in terms of geographic access and affordability
6. Maintains high animal welfare standards in both production and transport
7. Encourages knowledge and understanding of food and food culture

Backlog in C-TPAT Validations

Since the development of C-TPAT, the response from the private sector has been significant, with more than 10,000 importers, carriers, brokers, and foreign manufacturers seeking certification. Of these applications, approximately 7,000 partners have been certified, a status obtained following submission and approval of the Supply Chain Security Profile to Customs and Border Protection (CBP). At this stage C-TPAT partners are granted Tier 1 status, entitling them to a number of limited benefits.

The following stage in the process for granting partners, specifically importers, full rights and benefits under C-TPAT, occurs when Customs and Border Patrol officers, termed Supply Chain Specialists, conduct the Validation audit. In this process, the Supply Chain Specialists review the security policies and practices of applicants to ensure the importer’s profile is accurate and to verify appropriate security measures are being implemented. Working alongside the importer, CBP Supply Chain Specialists identify countries where the importer conducts substantial sourcing operations, and identifies ideal targets within the supply chain for staging the Validation audit. Once Validation has taken place, CBP assigns a Tier category to the partner (importer) based on their level of security practices and the number of concerns and best practices observed. At this stage, CBP may also suspend the benefits of an importer if significant security concerns are detected.

Current Challenge:
As mentioned earlier, of the approximately 10,000 application to C-TPAT, approximately 7,000 had been certified by March 2006. According to the General Accounting Office report “Homeland Security: Key Cargo Security Programs Can Be Improved” (GAO-05-466T), CBP’s goal was to validate members within 3 years (of the program inception in 2002), [and] to date it has validated 11 percent of them”. By the date of this report (May 05), of the 4877 certified members, only 550 had undergone Validation. According to a recent report by the consulting firm PriceWaterhouseCoopers, the total number of certified partners had increased to nearly 7,000, while the number of validated members had risen to roughly 700, representing 10% of the members already receiving a number of limited benefits.

This clearly points to a massive backlog of Validations. GAO recommendations focused on CBP increasing the number of supply chain specialists dedicated to conducting Validations, which CBP has undertaken since the report was issued. In August 2004, the number of specialists was roughly 40, and according to CBP, by July 2006 this number is expected to increase to 156. The recent approval of an additional $20 million in funding for C-TPAT will likely ease staffing constraints, but the backlog of C-TPAT members remains striking, and as new members join, the goal of validating all members appears increasingly unattainable in the near future. Also noteworthy is the potential approval of the "GreenLane Maritime Cargo Security Act”, which would require CBP to conduct all Validation inspections:

“not later than 1 year after a participant has been certified under subsection (d)(1), the Secretary shall validate, directly or through certified third parties, the security measures and supply chain security practices of that participant. Such Validation shall include a visit to foreign locations utilized by the C-TPAT participant as part of the supply chain”

At 156 supply chain specialists, the number of Validations needing to take place within one year would be overwhelming (roughly 6300), and would including foreign and domestic site visits. Even where this possible, it would bring into question the effectiveness of the Validation process, as this would require the Validation of highly complex supply chains of C-TPAT partners to take place at the rate of twice weekly. With many importers sourcing in scores of countries with potentially thousands of foreign manufacturers, such a limited audit is unreliable and potentially inaccurate in gathering an accurate “snapshot” of the importer’s supply chain security practices.

While the proposed timetable within S2008 appears draconian, at current Validation rates essentially 90% of certified C-TPAT members are receiving a number of benefits based solely on their submission of an application, without any kind of verification to date.

In addition to the backlog of Validations that will need to be addressed in such a short timeframe, CBP has declared its intention to pursue re-Validation audits for selected C-TPAT partners in 2007. This practice is certainly in the right direction, as it ensures that the practices and policies reviewed during the original Validation are effectively part of the standard operating procedures of the partner and not merely created for the purposes of a favorable Validation report. However, the plan to add more audits and site visits to the already vast workload of the supply chain specialists would appear unfeasible under current project operation guidelines.

Solution: Validations performed by Third Party Monitors
By delegating large part of the work of assessing foreign sites to third parties, CBP will be able to focus on administering the program, developing the means for increasing the number of container inspections, implementing the “GreenLane” benefits, cataloguing best practices, analyzing and isolating area of the global supply chain where highest vulnerabilities exist, updating the supply chain security profiles of partners, and undertaking the task of re-validating partners. By creating a means of increasing the pool of individuals with the ability to validate a certified C-TPAT member, there is a possibility of clearing the backlog of members awaiting Validation within a much shorter time frame than currently possible under CBP staffing constraints.

Currently, the “GreenLane Maritime Cargo Security Act” has been passed by the House, as well as the Senate Homeland Security Committee, but has yet to be voted on by the Senate. The Senate failed to debate this bill before the August recess; it now remains to be seen if this is taken up before the mid-term elections.

Sources:
General Accounting Office report “Homeland Security: Key Cargo Security Programs Can Be Improved” (GAO-05-466T). Available http://www.gao.gov/new.items/d05466t.pdf

PriceWaterhouseCoopers LLP. “Cargo Security White Paper: Independent Verification of C-TPAT Cargo Security Controls”. Available http://pwc.com/extweb/pwcpublications.nsf/docid/36261E03158608EB8525705A006C6DCF

S.2008. GreenLane Maritime Cargo Security Act. Presented by Senators Patty Murray and Susan Collins. November 2005. Available http://www.govtrack.us/congress/bill.xpd?bill=s109-2008

Book Review: “Corporations and the Public Interest: Guiding the Invisible Hand”, Steven Lydenberg

Data, Debate and Consequences. According to Steven Lydenberg, author of, “Corporations and the Public Interest”, these are the three elements needed to create the market mechanisms that will drive corporations to act in society’s best interests. Lydenberg advocates a long-term view of wealth-creation that forces companies to look beyond quarterly earnings data and annual profits towards making positive contributions to communities and the environment that outlast the life of the corporation itself.

Lydenberg defines long-term wealth creation as the internalization of social and environmental costs that companies have hitherto imposed on society, the preservation and renewal of natural resources, and a commitment to stakeholder engagement. Using Adam Smith’s metaphor of the ‘invisible hand’, a classical economic theory that pursuing profits automatically benefits the public interest, Lydenberg argues that government, consumers, investors, and employees have a role to play in guiding that ‘hand’.

Lydenberg outlines three strategies that can encourage companies to operate in a socially responsible manner: (1) the business case; (2) values-driven models; (3) systems of measurement and consequences.

Focusing on the third strategy, Lydenberg describes the growing trend in public disclosure of non-financial data that has led to companies publishing sustainability reports and many attempts to measure social and environmental impacts. In some cases, regulation has spurred the trend, although the scope and comparability of data still has a long way to go. In order for market mechanisms such as purchasing and investing to be able to effectively use this data to reward good corporate citizens and punish bad ones, Lydenberg affirms that there must be sufficient public debate and analysis of the data.

Socially responsible investment (SRI) firms have already developed ways to analyze company data and evaluate performance that enable them to make ethical investment decisions. The SRI movement is small but growing, accounting for just under 10% of all assets under management in the US. Online tools such as Calvert’s Know What You Own® Tool and Amnesty International’s Shareholder Advocacy guides are indicative of a groundswell in popular support for and understanding of SRI, which had previously been limited to large institutional and religious investors.

Lydenberg also advocates the provision of more company data on social and environmental impacts at the point of sale to encourage consumers to make ethical purchasing decisions. Some certification programs like the fair trade or organic labels are signs of a trend in that direction, and recently, Timberland went out on a limb and announced that it would add “nutritional labels” detailing the environmental and community impacts of its products on its shoe boxes.

CSCC is one cog in the wheel of this process of internalizing costs and engaging stakeholders through auditing. As we create new services around sustainability reporting and verification, we hope to further contribute to the development and analysis of social and environmental data that will allow the market to drive a race to the top rather than a race to the bottom.