For MNCs, it pays to be good

Chua Mui Hoong, Straits Times 10 Oct 09;

WHEN even Wal-Mart starts to talk and act green, you know the tipping point is near.

Wal-Mart chairman Rob Walton told the Global Social Innovators Forum in Singapore last week that the department store chain was serious in its commitment to sustainable development. Lest sceptics think he was just paying lip service, he said Wal-Mart had committed itself to very specific targets: 100 per cent renewable energy, zero waste, and selling products that help sustainable development.

These are difficult targets for the company, a colossus with a US$400 billion (S$560 billion) annual turnover. Wal-Mart estimated that its cutting packaging by just 5 per cent by 2013 would be equal to removing 213,000 trucks from the road, saving about 324,000 tons of coal and 67 million gallons of diesel fuel a year.

One way it is going to achieve its target is by working with its suppliers. Wal-Mart's 100,000 suppliers will answer a questionnaire on the products they supply. A consortium of universities will use the answers to devise a sustainability index. The information will be made public, so consumers will know the sustainability index of the products they buy.

Activists tout this as a pivotal measure that can change the retail sector significantly and nudge it along the green path, especially given Wal-Mart's pole position as America's biggest private sector employer and biggest Fortune 500 company in terms of revenue.

That Wal-Mart - once the bete noire of labour and environmental activists - considers it essential to turn green is telling. It launched its sustainable development push in 2005, about a year after the litany of complaints and lawsuits against it swelled.

Four years on, some of its harshest critics are changing their tune. Environmental groups like Treehugger have paid it a backhanded compliment by acknowledging that 'it's getting harder to hate Wal-Mart'.

Indeed, American multi-nationals seem to be falling over themselves to catch the green bug, and with good reason. At the same forum, another American company, Pepsi Co, shared a case study on a successful marketing campaign in China targeted at 'millennials' - youngsters born between 1977 and 1998 - which had an environmental theme.

Instead of a hard sell on Pepsi's products, the company opted for a series of informational ads by celebrities celebrating China's rivers and urging a water conservation message. Pepsi's Harry Hui, its chief marketing honcho in China, wanted a campaign that was 'credible, authentic, congruent' - and chose an environmentally conscious message because he figured it would appeal to this socially aware demographic.

The MIT Sloan Management Review devoted its Fall 2009 issue to sustainable businesses, highlighting some reasons why sustainability will change management.

# As consumers care about the issue, companies will face pressure to change. Wal-Mart, Nike and Rio Tinto were cited as examples.

# Sustainable companies are more productive. For example, GE saved US$100 million from energy-saving measures.

# Sustainability is the new proxy indicator by which consumers, regulators and activists gauge how good a company's management is. Just as safety was once used as a gauge of a company's dedication to quality, so a firm's sustainability policy will be used as a proxy for how disciplined, rigorous and ethical the management is.

MIT published results of experiments which asked consumers how much they would pay for coffee and T-shirts, together with stories of how the company concerned engaged in trading practices. People were willing to pay a premium for products perceived to be ethically produced and 'punished' unethical producers by paying a lower price.

The bottom line of the survey was that it pays to be good and that consumers increasingly want to support companies which are socially responsible and products which were not made by exploiting nature or people.

Within Singapore, there is some talk of corporate social responsibility, the view that companies must care for all stakeholders, not just shareholders and employees. Companies also talk of sustainable development, but mainly use this as a shorthand for energy-efficient production and reducing waste.

In fact, sustainable development goes beyond the environment. It is basically an approach to development that says you should not take away more than you add - to the world's resources and environment, as well as to the well-being of the people who work for you.

Say you set up a T-shirt sweatshop in Bangladesh. The community may end up with a higher employment rate and average wages. But it could also end up with a higher rate of illness and lower literacy as a result of your factory - with clear negative implications for future generations. This would be considered unsustainable.

Singapore has a compact promoting corporate social responsibility (CSR). At the simplest level, CSR could mean giving back to the community via philanthropic initiatives. But the CSR movement in Singapore can go much further, by educating companies here about the sustainability movement.

There is some urgency because by 2010, the Geneva-based International Standards Organisation (ISO) is expected to come up with guidelines for a new standard on social responsibility for businesses. The convenor of the task force assigned to draft the guidelines, Mr Jonathan Hanks, was in Singapore this week to conduct awareness seminars by Spring Singapore.

If you have not heard about ISO 26000, and your company has not been aligned to sustainability, now is not a bad time to get started - before the tipping point is reached and going green becomes a mass movement and you are left behind in the race to meet new global standards on social responsibility.