THE KEY PIL­LARS OF CSR

What are the most im­por­tant el­e­ments of a strong CSR plan? KPMG has the an­swer

CEO Middle East - - CON­TENTS - BY JAMES BABB, PART­NER, HEAD OF CLIENTS & MAR­KETS, KPMG LOWER GULF

AROUND THE GLOBE, THE DE­MAND FOR CLI­MATE-AWARE IN­VEST­ING AND CAR­BON CON­TROLS IS IN­CREAS­ING. NO LONGER IS IT JUST ABOUT COR­PO­RATE SO­CIAL RE­SPON­SI­BIL­ITY (CSR). THERE IS NOW A SHIFT TO­WARD CRE­AT­ING REAL SO­CIAL IM­PACT, MOV­ING BE­YOND EVENTS SUCH AS BEACH CLEAN-UPS, MARATHON RUNS AND TREE PLANT­ING AC­TIV­I­TIES

IN THE MID­DLE EAST, WE ARE SEE­ING

a grow­ing ma­tu­rity and un­der­stand­ing of CSR as en­com­pass­ing eco­nomic as­pects of an or­gan­i­sa­tion, as well as en­vi­ron­men­tal and so­cial. More­over, with na­tional ini­tia­tives like the ‘Year of Giv­ing’ and the ‘Year of Tol­er­ance’ in the UAE, or­gan­i­sa­tions are start­ing to think about the wider con­text and im­pli­ca­tions of so­cial re­spon­si­bil­ity. More than a po­ten­tial ‘nice-to-have mar­ket­ing stunt’, it is recog­nised as a re­spon­si­bil­ity mon­i­tored by reg­u­la­tory au­thor­ity.

En­vi­ron­men­tal, so­cial and gov­er­nance (ESG) may have played a big part in en­abling this shift in per­spec­tive. ESG refers to the three cen­tral fac­tors in mea­sur­ing the sus­tain­abil­ity and so­ci­etal im­pact of an in­vest­ment in a com­pany or busi­ness. In Jan­uary 2004, then UN Sec­re­tary­Gen­eral Kofi An­nan wrote to the CEOs of sig­nif­i­cant fi­nan­cial in­sti­tu­tions to take part in an ini­tia­tive to in­te­grate ESG into cap­i­tal mar­kets . Since then, ESG has evolved and moved from the side­lines to the fore­front of de­ci­sion-mak­ing.

In the last decade, var­i­ous gov­ern­ments world­wide, in­clud­ing those of Switzer­land, France, the UK, Italy and Ger­many, have en­acted over 500 new mea­sures to pro­mote this ap­proach, and play­ers from gov­ern­ments and reg­u­la­tors to cap­i­tal mar­kets, from busi­nesses to con­sumers are be­com­ing in­volved .

ESG dis­clo­sures gain mo­men­tum

Di­rect and in­di­rect pres­sure on cor­po­rates and other types of en­ter­prises to make more de­tailed ESG-re­lated dis­clo­sures are in­creas­ing, and com­pa­nies are act­ing now to es­tab­lish these.

With ESG, or­gan­i­sa­tions are sub­ject to a set of non-fi­nan­cial re­port­ing. Cou­pled with in­creas­ing in­vestor de­mands, these new rules could have a pro­found so­cial and eco­nomic im­pact on com­pa­nies.

Reg­u­la­tory au­thor­i­ties, for ex­am­ple, are es­tab­lish­ing stan­dards and frame­works to en­sure manda­tory sus­tain­abil­ity re­port­ing. For ex­am­ple, Abu Dhabi Fi­nan­cial Ser­vices Reg­u­la­tory Au­thor­ity (FSRA) plans to in­tro­duce ESG cri­te­ria for en­ti­ties at Abu Dhabi Global Mar­ket (ADGM). Ac­cord­ing to Richard Teng, CEO of FSRA, or­gan­i­sa­tions are likely to win favour with in­vestors if they make ESG dis­clo­sures, as the fi­nan­cial sec­tor is in­creas­ingly look­ing for such com­pli­ance .

Fur­ther­more, as stake­holder ex­pec­ta­tions in­crease, com­pa­nies may be faced with grow­ing pres­sure to man­age risks and are ex­pected to be more re­spon­sive. Many of these is­sues are also partly driven by con­sumer and mar­ket de­mand, such as the need for en­ergy ef­fi­ciency.

En­gage­ment with stake­hold­ers is there­fore cen­tral to an or­gan­i­sa­tion’s sus­tain­abil­ity, whether share­hold­ers, cus­tomers, em­ploy­ees, the com­mu­nity or non-gov­ern­men­tal or­gan­i­sa­tions (NGOs). Many com­pa­nies only think about hu­man stake­hold­ers, but they have to con­sider rep­re­sent­ing the rights and in­ter­ests of non-hu­man en­ti­ties as well, in­clud­ing our nat­u­ral habi­tat, which is fac­ing un­prece­dented risks to­day.

ESG in the wake of cri­sis

Ac­cord­ing to the Global Risks Re­port 2020, which of­fers a ten-year out­look of some of the big­gest chal­lenges fac­ing us, the top five global risks in terms of like­li­hood are

all re­lated to en­vi­ron­men­tal con­cerns (the re­port was pub­lished be­fore the COVID-19 pan­demic). The pub­li­ca­tion sounds the alarm on ex­treme weather events with ma­jor dam­age to prop­erty, in­fra­struc­ture and loss of hu­man life, fail­ure of cli­mate-change mit­i­ga­tion by gov­ern­ments and busi­nesses, and ma­jor bio­di­ver­sity loss and ecosys­tem col­lapse. These may re­sult in ir­re­versible con­se­quences for the en­vi­ron­ment and se­verely de­pleted re­sources for hu­mankind, as well as in­dus­tries. There could also be sev­eral in­ter­linked con­se­quences, as wit­nessed with COVID-19, which has far-reach­ing so­cial, eco­nomic and en­vi­ron­men­tal im­pacts. The stock mar­kets have taken a hit, and as pro­duc­tions units are shut down, busi­ness ac­tiv­ity has slowed tremen­dously.

Global and lo­cal ini­tia­tives

How rel­e­vant is ESG in the con­text of coron­avirus? Are or­gan­i­sa­tions mit­i­gat­ing the tremen­dous ef­fects of the virus and cre­at­ing any so­cial im­pact? Now is the time for or­gan­i­sa­tions to lis­ten to what stake­hold­ers want and to im­ple­ment rel­e­vant poli­cies that will safe­guard their in­ter­ests.

Some are rolling out re­lief mea­sures to safe­guard the well-be­ing of their cus­tomers, sup­pli­ers and share­hold­ers. For ex­am­ple,

Amer­i­can Ex­press pledged that it would not lay off work­ers, de­spite the credit card group suf­fer­ing se­vere rev­enue losses . The Ital­ian gov­ern­ment an­nounced that it plans to in­tro­duce a large-scale mora­to­rium on debt re­pay­ments, in­clud­ing mort­gages, to help fam­i­lies and busi­nesses cope with the COVID-19 out­break.

Closer to home, lead­ing banks such as Emi­rates NBD, Dubai Is­lamic Bank, Mashreq Bank, Emi­rates Is­lamic and Com­mer­cial Bank of Dubai an­nounced re­lief mea­sures for their in­di­vid­ual and cor­po­rate cus­tomers to deal with the im­pact of the out­break . Food de­liv­ery plat­form Tal­a­bat an­nounced con­tact­less de­liv­ery to safe­guard its cus­tomers and pre­vent the spread of the virus . The UAE gov­ern­ment has also an­nounced an AED 126bn stim­u­lus pack­age to re­duce the im­pact on both in­di­vid­u­als and busi­nesses in the coun­try. The emi­rates of Dubai and Abu Dhabi are also im­ple­ment­ing a num­ber of mea­sures to counter the eco­nomic im­pact of COVID-19. These ac­tions aim to re­duce the cost of do­ing busi­ness and sim­pli­fy­ing busi­ness pro­ce­dures, espe­cially in the com­mer­cial, re­tail, ex­ter­nal trade, tourism, and en­ergy sec­tors .

Al Fut­taim Group has said it will make sub­stan­tial con­tri­bu­tions to ease the fi­nan­cial bur­den of its re­tail ten­ants by of­fer­ing a fund of AED 100m to help af­fected re­tail busi­nesses as a re­sult of the slow­down .

Mean­while, Ma­jid Al Fut­taim-owned Car­refour has seen a spike in on­line gro­cery or­ders, which has prompted the com­pany to trans­form many of its su­per­mar­kets and hy­per­mar­kets into ful­fill­ment cen­tres to cope with the de­mand . Ma­jid Al Fut­taim is also reskilling staff by re­de­ploy­ing work­ers from cin­e­mas and other en­ter­tain­ment des­ti­na­tions to work in su­per­mar­kets .

Sound lead­er­ship can make a big dif­fer­ence at times like this, by giv­ing stake­hold­ers con­fi­dence that the com­pany will be re­silient through cri­sis. Re­gion­ally, many CEOs have con­ducted vir­tual ses­sions with their em­ploy­ees to con­vey mes­sages of strength and re­silience dur­ing this dif­fi­cult time. These chal­leng­ing times prompt so­ci­eties to bet­ter un­der­stand or­gan­i­sa­tions’ so­cial re­spon­si­bil­ity towards em­ploy­ees, cus­tomers, and other key stake­hold­ers, based on how well they en­gage and help them cope in such sit­u­a­tions.

So­cial re­spon­si­bil­ity

In the un­prece­dented times we live in, ESG is per­haps more rel­e­vant than ever. While the reg­u­la­tory de­vel­op­ments in the re­gion are a pos­i­tive step, there is still room for or­gan­i­sa­tions to bet­ter un­der­stand and recog­nise the all-round ad­van­tages of en­vi­ron­men­tal and so­cial gov­er­nance.

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