Tuesday, July 27, 2010

IFC/World Bank framework for palm oil sector engagement

The International Finance Corporation / World Bank yesterday released a draft framework for engagement in the palm oil sector.

IFC/World Bank last year suspended lending to palm oil sector after a series of complaints against a few large palm oil producers lodged by civil society organisations.

"The World Bank Group recognized the legitimacy of these concerns and in response temporarily suspended any new investments in the palm oil sector," reads the executive summary of the draft framework.

The framework says that "the World Bank Group is aware of the sector’s negative environmental and social impacts, including deforestation, biodiversity loss, greenhouse gas emissions, land use conflicts, and questions over land tenure and human rights."

But the framework also adds that "the palm oil sector has played a significant role in advancing development and accelerating poverty reduction in the many tropical countries in which it grows. It often forms an important basis for national economies, both as a source of jobs, an export and a raw material for local industry."

The draft says that "the World Bank Group’s engagement in the palm oil sector is consistent with its mission to fight poverty without compromising economic, environmental and social sustainability."

"Adoption of this framework, coupled with compliance with environmental and social policies (the IFC’s Performance Standards and the World Bank’s Safeguard Policies), will enable the World Bank Group to play a catalytic role in moving the palm oil sector to a more sustainable footing."

The World Bank Group has defined four key themes that will frame its future engagement in the sector. These are:
• Supporting the development of an enabling policy and regulatory environment
• Mobilizing socially and environmentally sustainable private sector investment
• Encouraging benefit sharing with smallholders and communities
• Supporting sustainability codes of practice.

Here is the link to the draft framework document.

Dealing with corporate responsibility skeptics

Trying to convince corporate responsibility skeptics is not my favorite pass time. Over the years, I have learnt that arguing with skeptics is a waste of time. But I decided to respond to a friend who wrote to me about his experience with skeptics.

He has recently started teaching ethics in a few business schools in India.

This is the e-mail that I received from him :

"Last week I was taking a workshop on Ethics at A reputed B School in Mumbai and came across many students who held the view that the only responsibility of business is to maximise shareholder value and nothing else. And there I remembered your comment on MBA education in India and how it is biased towards shareholder value and not stakeholder value.
I tried to convince them with the discussion on Necessary condition and sufficient condition based on the HBR article What’s a Business For.

I just thought to check with you if there is a better or alternate way to explain this which you may be aware of."

And this is what I wrote to him:

Thanks for the mail. I am used to coming across skeptics. So your experience with the students does not surprise me. Though the situation is changing. Recently, I made a presentation to executive MBA students at INSEAD Singapore. None of them thought corporate responsibility was not important. Many in the class actually said that corporate responsibility was strategically important for companies which want to grow in a globalised economy.

The general misconception is that responsible business works against shareholder interests. In fact, the opposite is true. Running business responsibly actually protects, and increases shareholder value in the medium to long term. Irresponsible business practices on the other hand can diminish, and sometimes dramatically destroy, shareholder value. That is why more and more investors are making corporate responsibility a key criteria in their investment decisions.

The key challenge for companies is to find the right business case most suitable for their kind of operations. Most companies fail on this count. You can blame it on the lack of seasoned CR professionals. Indeed, there are more incompetent corporate responsibility consultants than the good ones.

When companies are not able to identify or articulate the business case for CR, they obviously fail to see how CR can create value for their shareholders.

Short-termism and short-sightedness are also to be blamed. Most managers have a 2-3 years time horizon in a company. But shareholder value is built over a longer term and needs to be sustained over a long term.

Another major problem is that a very large number of companies, and executives, do not understand what business responsibility actually means. I routinely run into managers, many of them in senior roles, who still believe corporate responsibility means philanthropy or charity.

MBA students who think corporate responsibility conflicts with shareholder value will not make it to the top in their career in any respectable company if they continue to hold the same view. Harsh this may sound. But the price of ignoring business responsibility is going to be severe. For companies as well as for managers.

In India, business schools need to reboot the curriculum and align with the current global thinking and realities. Otherwise, they will be producing MBAs who will not be equipped with the right knowledge to effectively serve their shareholders.

I can understand your frustration. I no more argue with the skeptics. Let them learn at their own cost. Not sure if this helps:)

best regards,

If working on skeptics is something you do, your comments and tips are welcome.

Tuesday, July 13, 2010

UK govt to research palm oil sustainability. HSBC exits controversial palm oil giant

The UK government has launched a research project into the use of palm oil. The project will look at how much palm oil is used in the UK and what portion is sustainably sourced. The project will also look at the palm oil's connection with the destruction of natural forests in Indonesia.

In an unrelated development, the British banking giant HSBC has announced that it has sold off its shares in the Indonesian palm oil producer Sinar Mas. Several reports by Greenpeace have accused Sinar Mas of illegal forest clearing.

The palm oil plantation industry is under attack for alleged unsustainable practices that are contributing to massive deforestation in South-east Asia.

CSR gets on govt agenda in China and India

Two recent reports indicate that India and China may have started viewing corporate social responsibility a bit more seriously.

Last December, India's corporate affairs ministry issued voluntary CSR guidelines for companies. The ministry has also urged all companies to create a separate fund for their CSR activities. Separately, the ministry also issued a voluntary guideline on corporate governance last year.

The corporate affairs minister Salman Khurshid has even suggested issuing social credits, on the lines of carbon credits, to companies which engage in corporate social responsibility programmes. He says that if needed his ministry will consider making CSR mandatory for companies.

In China,the Ministry of Commerce says it is using CSR indicators like environmental protection and employee welfare to appraise exporters - including domestic- and overseas-funded enterprises - to ensure they meet international standards.

Shanghai Bureau of Quality and Technical Supervision, a government department, introduced Shanghai Municipal Local Standards on CSR in January 2009. The guidelines though voluntary promise a number of incentives to those companies which adopt CSR.

A string of scandals in the recent couple of years ranging from child slavery and product safety to more recent incidents of worker suicides in Foxonn, an electronics manufacturer for Apple and other global brands, has tarnished the image of China-based businesses.

The government understands that a poor corporate responsibility image can dent the competitiveness of Chinese companies in the international markets. More importantly, bad corporate responsibility reputation will increase opposition to Chinese companies' takeover bids to acquire western companies.

Wednesday, July 07, 2010

Greenpeace urges top brands to boycott palm oil giant Sinar Mas in a new report

A new report by Greenpeace urges some of the top brands to boycott palm oil producer Sinar Mas.

The report, How Sinar Mas is Pulping the Planet, says: "“It’s time for companies like Burger King, Dunkin’ Donuts and Kentucky Fried Chicken to catch up. We’re calling on companies in this report to stop doing business with Sinar Mas immediately."

China's minimum wage increase and corporate responsibility

Minimum wage in 18 provinces of China has gone up with effect from the 1st July. The wage hike amounts to an average of 20%. Several other provinces and municipalities are expected to follow suit in the coming months.

Minimum wage increase should at least partially address the problem rising discontent among low wage workers who have resorted to industrial action demanding higher wages.

What should companies do? An emerging trend indicates that companies are tempted to move their manufacturing further deep in the mainland where wages are still low and local governments are eager to roll out a red carpet to attract investment. Some are even planing to move out of the country.

But moving inland also means all the hard work done by multinational companies to improve working conditions in their supplier factories will be undone. They will have to start all over again at the new location. Interior mainland locations are also less accessible and away from the media and NGO glare.

Local governments will be willing to turn a blind eye in order to get investors come and set up operations and add to local economy. This is what happened 20 years ago when the coastal provinces competed with each other to win favours with foreign investors.

Responsible companies therefore need to prepare a blue print clearly identifying the new social and environmental risks that the migration of factories will create.

Migration, by the way, is not a bad thing. Provinces which have not benefited from China's boom can now look forward to new factories which will generate employment and improve the local economy. This is also necessary to reduce the widening income gap in China. But a more responsible handling of such migration by companies will be required to avoid a repeat of exploitation.

The best practice for companies however would be to focus on improving productivity rather than switching to a low wage town. This is an opportunity for companies to invest in human resources to upgrade their skills. Higher productivity will make it possible to pay higher wages.

Companies should also note that China is no more about cheap labour alone. China is now also about a huge market and a well developed supply chain infrastructure which no other city on earth can offer. Not at this time.