At the end of October, the Association of British Insurers (ABI) published guidelines on social responsibility (see box). The message is clear. The insurance industry had better shape up to its respon ...
At the end of October, the Association of British Insurers (ABI) published guidelines on social responsibility (see box). The message is clear. The insurance industry had better shape up to its responsibilities or risk having its name dragged through the mud.
The past few years have seen an important shift in attitudes towards corporate social responsibility (CSR), including the appointment of a UK CSR minister, Douglas Alexander. Big banks have seen the opportunity. Nationwide has launched a national TV advertising campaign heralding its policy to give every child in Britain a reflective coat tag that will help prevent road accidents.
Until recently, though, businesses restricted their corporate social responsibility to charitable donations. This conscience money was increased or reduced according to the economic climate.
What's changed
What is different now? First, the expectations of business by society - and the various stakeholders within it - are far greater than they were 20 years ago. Doing the minimum - obeying the law and paying taxes - is no longer enough. Nike, Starbucks and WallMart have had their reputations severely dented from being "exposed" in Naomi Klein's book No Logo.
Second, business has recognised it has a stake and interest in ensuring a stable and prosperous society. These are the societies that buy goods, equip people with marketable skills and provide infrastructures for business use. Look at how profit-sharing arrangements work between contractors and clients. Clients know keeping their suppliers profitable is a way of ensuring good service.
Third, CSR is increasingly part of essential business management, including the management of risk. As stakeholder expectations rise, so the business and reputational risk of disregarding them becomes more obvious. The case studies of Nike and Gap and third-world child labour, Shell in Nigeria and executive pay in many firms show the risk is real.
Globalisation hostility
The events of 11 September have increased the need for businesses to be socially responsible. Well before the attacks, Western businesses and governments were uncomfortably aware of the rising tide of
discontent over the effects of globalisation. Whatever the precise motives of the terrorists on 11 September, a sense of alienation and hostility towards Western values was certainly part of the story.
It would be ridiculous to argue that anti-globalisation protests or terrorism can be tackled with a healthy dose of CSR. The need to create a better, socially and economically inclusive globalisation is primarily a responsibility of multi-national institutions like the World Trade Organisation and governments, as well as non-government organisations and community groups.
But business can play a significant part, justified by long-term business benefit. The importance of CSR is that it helps companies to think more creatively about the effect they are having on communities and countries as part of long-term business planning.
In the UK, Business in the Community awards showcase companies that have made a particular impact, insurers among them. Insurance companies have always played a major part in the work of Business in the Community - Zurich Financial Services chief executive Sandy Leitch has driven the Cares initiative, engaging thousands of corporate volunteers in tackling community need in UK cities and last year won The Prince of Wales Ambassador's Award for his work.
CGNU has also played a significant part in the development of Business in the Community's Business in the Environment's Index and achieved top scores for the insurance sector.
There has been a significant increase in government interest in CSR. The European Commission has produced a Green Paper on corporate social responsibility, which is currently out to consultation. The United Nations has its Global Compact.
Business response
What should the response of business be to this increased interest shown by governments and international bodies? We need to tread carefully. The support of public authorities for CSR is helpful if it encourages more companies to address the issue.
One of the great strengths of the corporate social responsibility movement has been the voluntary engagement of companies in society because of the business benefits it brings. Either the short-term benefits of a better reputation with consumers and opinion-formers, or the longer-term gains from a prosperous society.
If encouragement from government slides towards pressure, or regulation and legislation, the spontaneous creativity and experimentation of CSR could be lost.
Governments have the right to establish social goals of their own and pass laws to deliver them, paid for by taxation. Delivering those same goals from business by moral blackmail is not a legitimate activity.
We are not yet at that stage by any means. But the sense I have - and this was confirmed both by Douglas Alexander's speech and the Commission's Green Paper - is that public authorities are groping for a role in CSR, driven by the potential it offers for social gain at apparently nil cost. Education has featured heavily in government praise for CSR in the UK - at a time when it is a public priority - and much is made in the Green Paper of employee rights suspiciously similar to broader Commission aims.
This would be a mistake. Companies have the right to take investment decisions for the good of their stakeholders, and there is a cost to the economy as a whole in compulsory diversion of investment into potentially less productive areas. That might mean less effective forms of social involvement and less genuine commitment.
CSR really has flourished in the past decade, and it has the potential to go further. Undermining the business case would be the worst thing governments could do. n
ABI guidelines to corporate social responsibility
These take the form of disclosures.
With regard to the board, the company should state in its annual report whether:
1.1 The board takes regular account of the significance of social, environmental and ethical (SEE) matters to the business of the company.
1.2 The board has identified and assessed the significant risks to the company's short and long term value arising from SEE matters, as well as the opportunities to enhance value that may arise from an appropriate response.
1.3 The board has received adequate information to make this assessment and that account is taken of SEE matters in the training of directors.
1.4 The board has ensured the company has in place effective systems for managing significant risks, which, where relevant, incorporate performance management systems and appropriate remuneration incentives.
With regard to policies, procedures and verification, the annual report should:
2.1 Include information on SEE-related risks and opportunities that may significantly affect the company's short and long term value, and how they might impact on the business
2.2 Describe the company's policies and procedures for managing risks to short and long term value arising from SEE matters. If the annual report and accounts states that the company has no such policies and procedures, the board should provide reasons for their absence
2.3 Include information about the extent to which the company has complied with its policies and procedures for managing risks arising from SEE matters.
2.4 Describe the procedures for verification of SEE disclosures. The verification procedure should be such as to achieve a reasonable level of credibility.
