Blue chips have a lot to learn about corporate social responsibility

PUBLISHED : Saturday, 24 February, 2007, 12:00am
UPDATED : Saturday, 24 February, 2007, 12:00am

MOST OF US are aware of global warming, although not all have been persuaded by the arguments - or not until you had to dump the peach blossom way before the New Year began. Not until your expensive Chinese silk jacket was soaked with sweat on New Year's Day.

Similarly, hurricanes and other hostile aspects of the climate have brought warnings of global warming closer to home for folks in other parts of the world.

As increasing public awareness has helped to push global warming closer to the top state leaders' agendas, corporations are increasingly having to ask what it means for them.

It certainly means more than new investment opportunities such as bio-fuel and solar energy. A fundamental change in public expectations of corporations, comparable to the Enron-prompted corporate governance campaign, is under way.

'Corporate social responsibility [CSR] is going to be the theme in 2007 and the years after,' said a senior official of a local blue chip company. Yet our companies don't seem to be prepared.

CSR is a concept by which 'companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis', as defined by the European Commission.

It's not just about recycling office paper. Companies are expected to carry out an environmental assessment before putting up a plant. It's not just about charity donations. Beverage companies are expected to put money into promoting responsible drinking. CSR can be costly but the pressure to act on it is mounting.

First, there are growing demands from investors.

'Other than China and business, more fund managers are asking about environmental protection,' said a managing director of a listed mainland manufacturer who had just returned from a two-week roadshow in Europe.

It is not about putting money where morals are. It is about risk management. Concern on global warming will fuel growth in socially responsible investment which is already estimated at US$2.5 trillion in the United States.

Second, the mainland is expected to tighten enforcement on green issues as state leaders continue to uphold 'harmony' between business, society and the environment as a ruling theme.

Cheng Siwei, vice-chairman of the National People's Congress, recently attacked companies for making huge profits while they ignored their social and environmental duties. He threatened to propose new legislation to enforce ethical business standards.

Whether Mr Cheng's remarks represent the official mood is hard to say but the fact is state leaders take global warming seriously and a national strategy will be released in the first half of this year.

How prepared are our companies to meet rising expectations that they demonstrate social responsibility? A review of the 2004 and 2005 annual reports of all Hong Kong's blue chips shows that we are quite far behind.

Of the reports by the 38 companies in the Hang Seng Index, 12 have no mention of CSR. Not surprisingly, most of them are property developers, who have lined the harbour with windshield-effect apartment buildings.

Some might argue that that still leaves two out of three blue chips mentioning CSR, so things are not too bad. Wait till you read the details.

Under the headings of 'corporate social responsibility', 'corporate culture' or 'in the community' appear mainly ad-hoc donations to charity groups or sponsorship of cultural and sports events. These reflect a very narrow version of CSR. Some cases listed will choke any CSR activist.

In New World Development's CSR page was the recommendation in the Hong Kong Reading Month campaign of Jack Welch's book Winning by managing director Henry Cheng Kar-shun.

CNOOC listed the construction of mosques in Indonesia where the company has brought huge gasfields. Cosco Pacific included the visit by polytechnic students to its Terminal 8.

Zoom into their environmental protection efforts and the results are even more disappointing, if that is possible. Nineteen blue chips mention environmental protection but not all have a formal policy. Some simply equate this to sponsoring tree-planting or green campaigns for students.

Only 12 of the blue chips have formal CSR programmes and 15 have environmental protection programmes. They belong largely to environment-sensitive industries such as public utilities, oil companies or suppliers of international brands.

This half-hearted approach reveals a belief that investors and authorities are far from reaching a consensus. But don't forget it's been only five years since the Enron scandal erupted and corporate governance is now on every listed company's book. Things may happen faster than you, or they, expect.