Insights in Corporate Social Responsibility of Dutch Multinationals

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Insights in Corporate Social Responsibility

of Dutch Multinationals

‘A comparison between the service sector and the

manufacturing sector’

Rijksuniversiteit Groningen

Faculty of Economics and Business

June 25, 2008

Name: Moniek Snuverink (1336525) Email: m_snuverink@hotmail.com

Phone: 06-30425757

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PREFACE

Hereby I present my Master Thesis for the specialisation International Business and Management from the faculty of Economics and Business at the Rijksuniversiteit Groningen. This thesis is the result of the knowledge and skills acquired during my Bachelor Business and Management and my Master International Business and Management.

This thesis presents the current situation regarding Corporate Social Responsibility of Dutch multinationals with an additional relative new point of view by comparing the CSR policies of the service sector and the manufacturing sector. This connects to the field of International Business and Management because it involves multinational companies and their policies. Corporate Social Responsibility is a complex and diverse subject, which is even more so in the case of companies that conduct an international policy. Insights in this also give insights in the often more difficult and complex policymaking of multinational companies as compared to national companies. With an ever more globalising world thorough knowledge of this is very important.

The completion of this thesis could not have been done without my two supervisors, dr. Bram Neuijen en dr. Bartjan Pennink. I would like to thank them for their dedication and feedback that enabled me to stay on the right track and eventually led to the thesis before you.

For me writing this thesis was a very valuable lesson and I was very pleased with the fact that I was able to contribute to the field of International Business and Management and the field of Corporate Social Responsibility.

For anyone with an interest in reading this thesis, I wish you much reading pleasure.

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ABSTRACT

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1. Introduction

In the past decades, globalization has become more and more a common concept. The number of multinational companies (MNCs) and their investments in other countries is still increasing. Some of the main reasons these MNCs choose for a certain country to invest in, are for example that labour is cheaper or the environmental regulations are less strict. These factors can lead and have lead to high short term profits for those MNCs. This can be good for now, but what are the consequences of this for the country, the environment and even the company itself in the long term?

In the last few years this became more and more an issue of concern for several groups of people, like the government, companies, employees, labour unions, environmentalists and consumers. Pressure from all these parties has lead to a growing focus of companies on ‘sustainable development’.

The most commonly cited definition of sustainable development comes from the WCED (1987) and states that sustainable development is ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs’ (Veleva and Ellenbecker, 2000), (De Soysa and Neumayer, 2005). In other words, if companies keep depleting natural resources and exploiting human labour in an unsustainable way, this will have severe consequences for the environment, humans and their own business in the future. Fortunately companies do realize that now more and more. This goes of course for both local companies and MNCs, but for this research the focus will be on the latter, because mostly MNCs can have a bigger influence on sustainable development, especially in developing countries, because of their transfer of more advanced technologies, knowledge and skills. Also, these companies are more present in the media, better known and so more looked upon of what they are doing. Whether or not it is the right motive, they have to be more aware of their reputation. Sustainable development is something that needs to be engaged in by everyone in the world, meaning governments, consumers, international organizations and companies. The engaging in sustainable development by this latter group, the companies, is also called ‘Corporate Social Responsibility’ (CSR), and will be the focus of this thesis. Throughout this thesis the terms sustainable development, sustainability and Corporate Social Responsibility will all be used interchangeably, but all refer to the engagement of companies in a sustainable development of this world.

Since the issue of sustainable development is relatively recent, also the supporting literature and theories are relatively recent. This means that there is still a need for more research on this subject. For example Chudnovsky and Lopez (2003) state that ‘The empirical evidence on the environmental impact of MNCs on host developing countries is, however, mixed and not in proportion to the debate the issue has generated in recent years. There are to date relatively few carefully designed studies; and the relevant literature features for the most part anecdotal rather than empirically robust evidence.’

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two other aspects are becoming more and more visible in the most recent literature. The focus on all three of these aspects of sustainable development is called ‘triple bottom line’. This term was first introduced by John Elkington in 1994 and since then it spread around the world and is used more and more as a common term for this tripartite concept of sustainability. (Henriques and Richardson, 2004)

So researchers are becoming more aware and make more use of the triple bottom line approach, but one thing is often ignored and most certainly very little researched. With the increasing amount of service companies, it is not only the manufacturing companies that can have a large influence on the environment and even more on the social and economic aspect of sustainable development. This can also be concluded from the increasing amount of service companies that present a corporate sustainability report.

So even with countries and companies becoming more aware of sustainable development, the question remains to what extent sustainable development actually is part of their business and on which aspects of sustainability their CSR policy is focused on and in that way has influence on. For example companies in the service sector do have an influence on sustainable development in the country they have invested in, but this influence most likely will be different than that of the manufacturing companies. Manufacturing companies are more resource-based and mainly have a large impact on the environment, whereas service companies are more labour-based and might have a larger impact on the social aspect of sustainable development.

Since for this research it is more relevant to focus only on the environment and society, the economical aspect of the triple bottom line will be left out. It also appeared that companies reported little on this aspect and often referred to their annual (financial) report.

Therefore this thesis presents a research on the difference in policy focus on sustainable development of the service sector and manufacturing sector. Besides this, another important question is what influence do companies have on the environment as a logical result of their business, both in a positive and negative way, and to what extent do they have initiatives of their own to create a more sustainable world? In other words: What is their contribution? Since Corporate Social Responsibility is such a complex and diverse subject, it is interesting to see what their focus is regarding their CSR policies, and if this differs for the service and manufacturing sector. With `difference´ is meant if one sector for example has a larger influence on one of the two aspects than the other sector. Or if there are differences within either the environmental or social aspect, since both factors consist of multiple factors. For example the environmental aspect consists of, among others, emissions and energy. It could very well be that both sectors have a completely different policy regarding these factors. So `difference between service and manufacturing sector` is two-folded, on the one hand it is looking at difference in intensity of the focus and on the other hand it is looking at the specific policy focus regarding the several sustainability factors.

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The choice for the Netherlands was driven partly by an article by da Motta Veiga (2004) on FDI in Brazil, which stated that according to the Instituto Observatório Social (the largest central labour union in Brazil) ‘Scandinavian, Dutch and German corporations would be among the most advanced in terms of adhering to principles and practices associated with sustainable development.’ This is supported by a research in 2006 by the Dutch Sustainability Research (DSR), a large Dutch Research Institute on Sustainable Development, called ‘Sustainability Performance of Dutch Companies’. They have compared several large Dutch Companies on several sustainability issues, but also compared Dutch overall performance with that of other countries in the world. This is shown by the following figure:

Figure 1: Average sustainability score per country or region (source: DSR, 2006)

A country with such a relative high score on sustainability could mean that many companies in that country are actively involved in CSR and therefore are also active in reporting their progress and performance. This enables and makes it interesting, when a country performs so well, to get more in-depth insight in the companies’ separate performances and CSR policies by analysing their CSR reports.

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2. Theory

2.1. Introduction

Before starting the actual research and analysis of the differences in policy focus of Dutch multinationals in the service and manufacturing sector, it is first important to present some general information on Corporate Social Responsibility. This will be done in four steps. First of all a general description of sustainable development will be given.

But besides only knowing that sustainable development is good for the world and also for the companies in the long run, companies do need to have incentives for engaging in sustainable development. Companies are still in business and without some form of gain, companies are less willing to behave sustainable. There are indeed several incentives that developed over the past ten to twenty years, which will be discussed in the following paragraph.

So when the reasons for engaging in sustainable development are clear, it interesting to find out to what extent Dutch companies are also feeling these incentives. How advanced are Dutch companies nowadays and how do they perform? This will be discussed in the third paragraph. The final paragraph will show how (Dutch) companies are expressing this performance and progress regarding Corporate Social Responsibility to the external stakeholders. Because even though a company has the incentive to engage in sustainable development and is even actively pursuing this on several or more sustainability issues, without showing this to the outside world, it is impossible to get recognition for this. Therefore over the years several reporting principles have been set up, of which one is now the most widely used; the GRI Guidelines. Almost all of the companies in this thesis followed these guidelines in some way, and it is also the basis for my comparison framework. Therefore finally the GRI Guidelines will be explained in more detail.

2.2. Sustainable development

Practically every theory mentions the before mentioned most commonly cited definition of sustainable development which came from the WCED (1987) and states that sustainable development is ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs’ (Veleva and Ellenbecker, 2000), (De Soysa and Neumayer, 2005). With this of course being an excellent definition, it is still very general. Over the years it has become clear that sustainable development basically consists of three elements; the Environment, Society and Economy, also called the triple bottom line approach, or `People, Planet, Profit´.

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integrated in the literature. This also explains why the current database of sustainability articles mostly consists of articles relating to the environmental aspect.

By the end of the nineties it already became more integrated which is nicely shown by a statement of Lawson (1999): ‘Sustainable development is a management philosophy which seeks to responsibly develop the environment. The fundamental principle of sustainable development is that the environment should be developed in such a way that future generations are not taxed in terms of their manufacturing possibilities, stressing the importance of permanent growth. It recognizes that a healthy environment and a strong economy are potentially compatible because a healthy environment allows for greater manufacturing and harvesting of renewable resources and dramatically improves public health, especially when working in tandem with technological improvement. Sustainable development seeks a balance between short term and long term development which at least maintains the same level of manufacturing possibilities for future generations, thereby putting economic growth and environmental health in equilibrium.’

You see that he focuses on the environment, but does mention the economy and even the social aspect (by mentioning public healthcare) as being influenced by the environment. He acknowledges that all three aspects must be in equilibrium for sustainable development to be in effect.

When you look at the most recent literature, the term ‘triple bottom line’ surfaces more often. One example comes from an article by Fry and Slocum (2008) on management and the implementation of Corporate Social Responsibility: ‘One of the greatest challenges facing leaders today is the need to develop new business models that accentuate ethical leadership, employee well-being, sustainability and social responsibility without sacrificing profitability, revenue growth, and other indicators of financial performance. This article seeks to address top managers' need to simultaneously maximize the so-called triple bottom line, or "People, Planet, Profit.’

But not only authors are using this approach now as a standard for defining sustainability, also stakeholders in the business world are acknowledging this approach as an overall, complete view of sustainability. This is supported by a 2007 survey conducted by the Certified Practising Accountants (CPA) Australia. The survey revealed a strong demand for triple bottom line reporting. They state that ‘most of the respondents support laws requiring companies to prepare sustainability reports that reveal the social and environmental impacts of their activities.’ It is true namely that there are general accepted guidelines, but no government has made a law yet that obligates companies to adhere to these guidelines.

This does not imply though that authors nowadays only write about all three aspects of sustainability. There are many articles that only study one or two aspects in relation to something else, but at least the division into those three aspects is recognized.

2.3. Reasons for MNCs to engage in sustainable development

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even corporate governance. Statements like `sustainable development´ and `good corporate citizenship´ now litter annual reports and corporate websites.´

So `more than ever companies are trying to develop a reputation for ‘sustainability’ or ‘good corporate citizenship.’ The idea behind sustainability is simple: If a company takes a short sighted, exploitive approach to the environment, labour, and social issues, it will only be profitable in the short term. For example: Companies can not pollute the environment or damage their reputation with the public if they hope to be profitable in the next decade.´ (IOMA, 2004)

`To ensure a healthy business environment is in place 10, 20, or 50 years down the road, companies need to act responsibly now. In short, sustainability recognizes how important it is for corporations to promote a physical and social environment that will continue to support their business function. Even though more and more companies realize this, there are some analysts who argue that more companies talk the talk rather than walk the walk when it comes to sustainability, but there is no disputing that companies are now sensitive to the issue.´ (IOMA, 2004)

This sensitivity towards engaging in sustainable development comes from several factors. There are several authors and institutions that have researched this and despite the fact that there might be some differences in their terminology or findings, the basic ideas are relatively the same.

First of all, a very important reason that is not intrinsic, is of course home and host legislation towards environmental and social issues. In developed countries these regulations are often stricter than in developing countries, which can be one of the reasons for companies to invest and set up new businesses in those countries. So beside the fact that regulations are set to improve sustainable development, unfortunately (the difference in) home and host regulations can also still be an incentive for MNCs to engage in unsustainable development.

According to Van de Wateringen (1998) in the nineties a UN report (1993) already found, besides home legislation, the following reasons for engaging in sustainable development: `environmentally related legal actions of the firm (21.9 %), environmental accidents at other companies (20.1%), host-country legislation (18.9 %), environmentally related legal actions of other companies (15.4 %) and environmental accidents at company premises (14.2 %). Also named, but by much fewer respondents, are consumer related events and worker related events, respectively 8.9 % and 7.1 % (UNCTAD, 1993).´ Also a 1991 McKinsey-survey `points out that pressure to get engaged in corporate environmental management comes from four directions: governments, customers, employees and competitors.´ (Van de Wateringen, 1998) McKinsey also found that the industry sector in which the company was doing business was of importance. For example the greatest environmental concern lies in the metals, energy and chemicals industry. Furthermore `McKinsey concludes that the focus of the sector shifts with the distance to the end customer. The closer the activities of the firm are to the customer using its product in the end, the more the firm is focusing on product use and disposal and recycling. The larger the distance to the end-customer, the more the firm will focus on environmental considerations of the process of sourcing and manufacturing (McKinsey, 1991).´ (Van de Wateringen, 1998)

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formed by regulatory pressures from home country operations. Accidents happening at the premises of a multinational or elsewhere, as consequence of the activities of the multinational can cause a loss of confidence and can damage the image of the multinational. If investors or the public loses confidence in the company, the financial strength of the corporation can be affected. Financial strength can also be affected because the multinational can be held liable for the damage caused. (Hadlock, 1994).´ (Van de Wateringen, 1998)

From this can already be derived that loss of image is a huge driver for companies to engage in sustainable development. Especially with the growing attention of multiple stakeholders for sustainable development, the image loss tends to become larger and larger when companies are not involved in sustainable development practices, leading to increasingly larger financial losses. An example of this comes from an UNCTAD report (1995) that said that in the Brazilian aluminium sector, MNCs have successfully introduced environmental practices used abroad. It has been suggested that one of the main motivations for this behaviour is the desire to preserve their international reputation. Domestic firms in this industry and in bauxite mining are known to have made progress in the use of environmentally sound technologies and management practices.

By the end of the nineties Van de Wateringen (1998) also uses the ideas of Kolk (1998a) to describe the motivation for MNCs to engage in sustainable development. Kolk (1998a) describes three interrelated perspectives; the inside- in level, the inside-out level and the outside-in level. If you apply these ideas on sustainable development motivations it leads to the following findings: ‘The inside-in level focuses on the internal situation in the corporation with regard to environmental management. The inside-out level studies how the corporation in question influences environmental management in other corporations. This level also takes into account the influence of companies’ policies on non-governmental organisations and government policies. The third level of analysis is the outside-in level. This level focuses on influences of the external environment on the corporation. Examples of these influences are regulation and market pressure (competition, demands of supplying corporations, customers, shareholders, investors). It must be underlined that the outside- in level does not only concentrate on regulation but also on market forces. With the term ‘market forces’ not only the possibilities of investment are taken into account; attention is also given to other characteristics of the social-economical context of the country that have influence on the operations of the multinational.’ (Van de Wateringen, 1998)

So as soon as the concept of sustainable development became an issue, researchers started studying the rationale behind this behaviour. After more than a decade of research and the global discussion on sustainable development, it can be said that even though companies need to act sustainable now in order to remain profitable in the future, stakeholder pressure and loss of image still remain the main driver for those companies.

2.4. Sustainability performance of Dutch companies

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peers on seven factors; Customers, Employees, Contractors, Community, Business Ethics, Corporate Governance and Environment. (DSR, 2006) The following figure shows the overall performance of the companies. Most of the companies, which are framed in the figure, from this thesis´ research were also included in the DSR research.

Figure 2: Sustainability performance of AEX listed companies versus their international industry group peers (Source: DSR, 2006)

One important note they make regarding these results is that because of the comparison with industry peers, sometimes it is easier for a company to achieve a good CSR ranking when the overall performance of the industry they are in is weak.

Despite this though, the figure is a good reflection of the performance of the Dutch companies. It shows that practically all of the companies outperform their industry peers, and especially the multinational companies from this thesis´ research. First of all this means that it can be stated that the Dutch companies are relatively advanced in Corporate Social Responsibility. On the other hand it also supports the equality factor for the companies in my research. If they all perform well, this implies that they are active at all aspects of sustainable development and on the several factors within the two aspects. This gives enough information on their CSR policy to compare the companies in this research.

2.5. The GRI Guidelines

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development becomes more and more common for companies to engage in, and as the before mentioned paragraph shows, Dutch companies are relatively advanced in this. But without proper reporting of a company’s progress and performance it is hard to criticise, compare and rank the companies.

Also in this thesis, the comparison between the corporate social responsibility of the companies in both sectors needs to be compared according to several characteristics, or factors. Since the field of CSR is relatively new, no generally accepted and especially no generally used regulations and guidelines are in place yet. Of course as soon as CSR became a relevant issue for companies, the need for guidelines arose. In the first place so the performance of companies could be compared against others, but also to give companies a guideline on which elements of CSR are important and need to be taken into account and of course be reported on.

So therefore, from 1997 on several institutions began initiatives for sustainable development indicators and in 1999 there were about two dozen of them. One of these initiatives was the ‘Global Reporting Initiative’ (GRI) project by the Boston-based non-profit Coalition for Environmentally Responsible Economies (CERES). In 1997 they began with division and staffing, fundraising and network development and a GRI Steering Committee was formed, which ran until 2002. (Veleva and Ellenbecker, 2000)

‘The Global Reporting Initiative is a collaborating centre of the United Nations Environment Programme and furthermore the GRI refers to the 30,000 strong multi-stakeholder network that collaborates to advance sustainability reporting. To date more than 1000 organizations, including many of the worlds leading brands, have declared their voluntary adoption of the Guidelines worldwide. Consequently the G3 Guidelines have become the de facto global standard for reporting.’ (GRI, 2007)

In this thesis the comparison will be based on these GRI guidelines, because nowadays this initiative grew out to be the world’s most widely used reporting framework. This framework sets out the principles and indicators that organizations can use to measure and report their economic, environmental, and social performance.

`The third version of the Guidelines – known as the G3 Guidelines - was published in 2006. Besides the reporting guidelines, components of the framework include Sector Supplements (unique indicators for industry sectors), Protocols (detailed reporting guidance) and National Annexes (unique country-level information).’ (GRI,2007)

‘Sustainability reports based on the GRI framework can be used to benchmark organizational performance with respect to laws, norms, codes, performance standards and voluntary initiatives; demonstrate organizational commitment to sustainable development; and compare organizational performance over time.’ (GRI,2007)

‘GRI promotes and develops this standardized approach to reporting to stimulate demand for sustainability information – which will benefit reporting organizations and those who use report information alike.’ (GRI,2007)

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Figure 3: G3 Reporting Framework (GRI, 2007)

Important for this research are the protocols, because these performance indicators in the protocols will be used as a starting point for the comparison of both sectors. The G3 protocols consist of six different elements: Economic, Environment, Human Rights, Labour Practices & Decent work, Product Responsibility and Society. These six elements cover the three dimensions of sustainable development: Environment, Social and Economic. For all of the six elements there are several performance indicators, which enable companies to see to what extent they engage in sustainable development. As stated before the economic dimension will be left out, which results in five remaining elements.

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3. Research Design

3.1. Research approach

The main focus of this thesis is the comparison of focus on sustainable development factors, reflected by their CSR policy, between the Dutch MNCs in service sector and the manufacturing sector. Besides policy focus from the an internal perspective, there is also another point of view from which policy can be influenced. The sector a company is in can have an influence on the way policies regarding certain aspects of sustainability are handled. Since this is a relative new approach, and the difference between the service sector and the manufacturing sector is a comparison not much conducted so far, it will be handled from a relative broad perspective, meaning just looking at the service and manufacturing sector as a whole. By comparing these two broad sectors, it can be possible to find out if there are certain aspects regarding CSR policy that are sector specific and thus have an influence on a company beyond their own specific CSR policy. With Corporate Social Responsibility being a relative new concept this comparison can not be done without also giving deeper insights in the current CSR structure of the Dutch MNCs. The comparison of the companies in both sectors on several sustainability issues, will lead to the answering of the main research question:

‘What are the differences regarding CSR policy of Dutch companies in the service sector and the manufacturing sector?’

Besides this main research question there are also some other questions that will be discussed. With Corporate Social Responsibility being such a relative new and hot topic, still many debates arise on certain aspects of the way companies engage in sustainable development. Knowingly or unknowingly the information in the CSR reports adds insights to these debates. Therefore the following interesting issues or sub questions will also be discussed throughout this thesis wherever relevant and concluded upon in the `Discussion´ part:

1. ‘To what extent do companies really want to help create a sustainable world, or is it just for their own good and a logical result of their business, even though it looks like they do it from some sort of philanthropic point of view? And if this were the case: is that such a bad thing?’ 2. ‘Is a CSR report a good reflection of actual performance and policy focus? The quality of one

report is better than another, but does that necessarily mean that the CSR performance is also better for that company?’

3. ‘What is the current quality and usability of the GRI Guidelines? Companies still are very

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4. ‘To what extent can the service sector and manufacturing sector as a whole be compared? CSR is very complex and there are many other factors such as the size of a company, the specific industry, the advancement in reporting that are of influence on the CSR policy.’

It is practically impossible to give a definitive answer to these questions, but it is interesting to add insights to these debates by having analyzed points of view from different companies. For a full analysis of Corporate Social Responsibility you just cannot ignore these issues.

3.2. Expectations

With CSR being so complex and for now still pretty much a qualitative matter, it is difficult to present definitive expectations, but regarding the main question the following expectations exist. Since the general sustainability issues are more general and more focused on giving insights into the intensity of policy focus and the general CSR structure, no real differences are expected here. Since companies in the manufacturing sector generally have a larger (negative) influence on the environment, it is expected that their CSR policy will be more focused on the environmental aspect of sustainability. And since service sector companies are working more with people, it can be expected that these companies will have their CSR policy focus more on the social aspect of sustainability.

Regarding the first sub question, next to stakeholder pressure, there are basically three ways a certain focus is generated and this focus can come from a negative or positive impact on the environment and society. Important regarding this is not only if the company in general has a positive or negative impact, but also what the incentives of (top) management are to either reduce negative impact, or exceed positive impact. The first sub question is based on the following three ways of impact a company can have on the environment and society:

This impact can be negative:

Of course it depends on the business the companies have, but almost every company has one way or another a negative impact on the environment, society or both. This could come from emissions and energy use to the taking of other people’s land or deforestation for the building of new plants. All these negative impacts are of course very bad for a company’s reputation, which in turn is bad for business. The main issue here is what are the companies doing about it to reduce this impact? Of course companies have certain legal targets set by the governments that they have to adhere to (mainly in the case of energy and emission reduction) and of course there is pressure from stakeholders, but the question is to what extent are companies holding these into account and to what extent are they having extra initiatives to become more sustainable?

This impact can be positive, as a logical result of business:

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question here is; do companies report certain positive, but logical consequences of their business as an accomplishment, or are they honest about the real reason for this positive influence?

This impact can be positive, from a philanthropic point of view:

Finally, to what extent are they actually doing things to improve the environment or society? Like with for example the previous example of the natural creation of jobs in a community where a new business or subsidiary has started up. It becomes something of a true sustainability issue when companies are actively hiring local people for example, or donating to that community in order to make that community become economically viable as well.

The first sub question can be answered if in the analysis the first two reasons are extracted and to see how much sustainable initiatives are left from the view point of the last reason. It is interesting to see to what extent companies do compliment themselves with accomplishments that resulted from the first two reasons.

Basically companies only do what is most profitable for the company, and if nowadays it is appreciated or even obligated through social pressure to do something about our environment and communities, they have to participate in that. One important factor for being successful is to conform to the wishes and demands from your stakeholders, which in turn are pressured by global issues. If this pressure from stakeholders leads to a more sustainable world, it is a good consequence, but to what extent is this really because of the (multinational) companies´ own philanthropic intentions…

The second sub question discusses the qualitativity of the CSR reports. Since the companies still do not use the same measurements for their key performance indicators, quantitative research is impossible. So throughout the analysis it has to be kept in mind that it is mainly written in a qualitative way. Most of the companies have had several years of experience with writing CSR reports and they are also ranked high by DJSI experts, so it is not expected that the quality of the reports reflects more the quality of the writer than the company, but still the reports need to be looked at critically.

Since the whole comparison in this thesis is based on CSR reports and those CSR reports in turn are based on GRI guidelines, the third sub question discusses these GRI guidelines. Especially since the reports are all still very different and the comparison framework in this thesis is also different from these guidelines. The expectations are that the GRI guidelines are indeed a good basis for reporting, but that still improvements both from the side of the creators as from the side of the companies´ interpretations are necessary.

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philanthropic or business motives can differ from the policies pursued by local subsidiaries, and that even with them being in the same business. Throughout the analysis more examples of the complexity of CSR will arise and discussed in the discussion part.

So by analyzing the sustainability reports of the companies, on the one hand it will become clear on which issues within the environmental and social aspect the companies focus on and of course also to what extent they are focusing on those aspects and to what extent this differs between the service sector and the manufacturing sector. On the other hand by analysing these reports, they sub question issues will surface and wherever relevant they will be discussed with the specific factor of sustainability. In the conclusion and discussion part of this thesis there will be a full analysis and discussion on these issues by bringing everything together.

3.3. Preliminary Research

Before that can be done though, the CSR issues or aspects need to be broken down into comparable factors. The GRI guidelines discussed in the previous chapter seem to be sufficient for this, but as it turned out they were not. These guidelines are really focused on the reporting of CSR and furthermore very general, meaning applicable for companies in all different sorts of countries and sectors. Furthermore, as stated before, despite the fact that the companies practically all used these guidelines in their reports, they al have interpreted it differently and therefore reported it differently.

So in order to make the reports of the companies comparable, a new framework needed to be created which required a preliminary research of factors that all the Dutch companies had in common in their reports. So before being able to compare the CSR reports regarding policy focus differences, the reports needed to be analyzed a first time to find out on which factors they could be compared. Although based on the GRI guidelines, in this way the comparison framework is more relevant and applicable for comparison of Dutch multinationals. The preliminary research turned the reporting guidelines into a comparison framework. The results of this preliminary research are presented in the following table:

GRI Guidelines Thesis Comparison Framework

1. Strategy and Analysis 2. Organizational Profile 3. Report parameters

- Report Profile

- Report Scope and Boundary - GRI Content Index

- Assurance

Not Relevant for Comparison

4. Governance, Commitments and Engagements - Governance

- Commitment to external initiatives - Stakeholder engagement

1. General Sustainability Issues - Corporate Governance

- Policies, Principles, Statements and Guidelines - Integration of sustainability in business Practices - Products and Services

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- Stakeholders

- Membership and participation - Millennium Development Goals - CSR Rankings

5a. Management Approach regarding economic, Social and Environmental part of CSR

Some or all of the following: - Goals and Performance - Policy

- Organizational Responsibility - Training and Awareness - Monitoring and Follow up - Other Contextual Information

Integrated where possible/necessary in Environmental and Social policy issues

5bI. Economic Performance Indicators - Economic Performance

- Market Presence

- Indirect Economic Impact

Not Included in this Comparison

5bII. Environmental Performance Indicators - Materials

- Energy - Biodiversity

- Emissions, Effluents and Waste - Products and Services

- Compliance - Transport - Overall

2a. Environmental Policy Focus - Emissions - Energy - Transport - Water - Waste - Paper Consumption

5bIII. Social Performance Indicators - Labour Practices and Decent Work * Employment

* Labour/Management Relations * Occupational Health and Safety * Training and Education

* Diversity and Equal Opportunity

- Human Rights

* Investment and Procurement Practices * Non-Discrimination

* Freedom of Association and Collective Bargaining

* Child Labour

* Forced and Compulsory Labour * Security Practices * Indigenous Rights - Society * Community * Corruption * Public Policy * Anti-Competitive Behaviour * Compliance - Product Responsibility

* Customer Health and Safety * Product and Service Labelling * Marketing Communications * Customer Privacy

* Compliance

2b. Social Policy Focus - Employees

* Occupational Health and Safety * Training, Education and Raising Awareness

* Diversity and Equal Opportunity * Employee Satisfaction

* Human Rights Statement - Customers

* Customer Health and Safety * Customer Satisfaction - Society

* Community Involvement

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The reason these frameworks are not completely the same, is mainly due to the fact that the GRI guidelines are aimed at reporting principles and performance measurement. My comparison is aimed at making a comparison between to sectors not regarding performance, but more regarding policy focus.

Also, especially on Human Rights and Society, the specific points according to GRI are more interesting when it is about countries where those practices are not in right order just yet. Dutch companies are regarding that so compliant, that it is irrelevant to compare them. Therefore it was better to bring those points back to Human Rights Statement and Community Involvement. Also the companies namely, did not report all these factors separately. Often they just referred to their Human Rights Statement.

Another reason that certain things are left out and others are added is that companies either did not report anything about it, or there was too little information for a comparison (meaning either too little per company or some companies did report about it but most of the companies did not) Also sometimes things were reported too unclear, or too different, which makes it incomparable. Either way, this comparison between the GRI guidelines and my own framework brings yet another interesting point, and that is that it makes things clear about the usability of the GRI guidelines and to what extent and in what way Dutch companies are using them. The interesting part about this is that almost all of the companies adhere to the GRI guidelines, but in practice it turns out that they all interpret and report things quite differently. It shows that even an advanced country like the Netherlands is still some steps away from generally accepted reporting principles.

3.4. Explanation of the factors

In the results chapters the analysis of the reports will be presented. The results will be presented per factor divided in three chapters: General Sustainability Issues, Environmental Issues and Social Issues, discussed respectively in chapter four, five and six. For a clear overview of the framework and the meaning of the several factors, the following table is presented. This table explains what specific focal points are used to analyse the several sustainability factors per aspect.

Thesis Comparison Framework Explanation of Factors

General Sustainability Issues

Corporate Governance Focuses only on who has the responsibility of the policy making and implementation of CSR policy

Policies, Principles, Statements and

Guidelines What kind of policies do the companies have in place to implement and/or regulate sustainable behaviour Integration of sustainability in business

Practices

What are companies doing to implement (new) CSR policies and how far is this process

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Stakeholders Which groups have an interest in the sustainable _{behaviour of the company and what is their influence}

Membership and participation

Which memberships of external organizations and participation in external international initiatives with a common goal to improve a certain sustainability aspect do the companies have

Millennium Development Goals To what extent do companies include these goals into _{their CSR policy} CSR Rankings Is the company included in international CSR rankings

Environmental Issues

Emissions What kind of emissions do the companies have and what _{amount and what are their reduction targets} Energy How energy consuming are the companies and to what

extent are they using energy from renewable sources Transport What kind of transport do the companies have and what is the influence on the environment and what are

reduction targets

Water What is their water use and what is the influence on the environment

Waste What kind and how much waste do the companies have _{and what are reduction targets} Paper Consumption How much paper consumption and what are reduction

targets Social Issues

Employees

Occupational Health and Safety What are the occupational health and safety regulations and on what aspect of health and safety is the main focus on

Training, Education and Raising

Awareness How much focus is put on training and raising awareness of sustainability issues among employees Diversity and Equal Opportunity What is the diversity policy and to what extent are there _{equal opportunities for employees in the company} Employee Satisfaction What is done to measure employee satisfaction and what _{is the overall opinion of employees about the company} Human Rights Statement Do the companies have a human rights statement and on _{what international standards is this based on}

Customers

Customer Health and Safety Where lies the focus regarding customer health and _safety Customer Satisfaction What is done to measure customer satisfaction and what _{is the overall opinion of customers about the company}

Society

Community Involvement To what extent are companies involved in community development and what are they doing to help communities

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3.5. Companies

Now that it is set out which main and sub questions will be answered by this research, and what framework will be used to answer these questions, it is time to present the companies that will be used to conduct this analysis.

The companies in this research are all the Dutch multinational companies that have subsidiaries in multiple countries of which one is Brazil, and all the companies are clearly service or manufacturing focused. This leads to six Dutch companies in the service sector and seven Dutch companies in the manufacturing sector. These companies were obtained from my own created database of ‘Dutch multinationals in Brazil’. The following table gives an overview of these companies within each sector.

Service Sector Sub Sector Manufacturing

Sector

Sub Sector

ABN AMRO Financial services Akzo Nobel Industrial Goods Fortis Financial services CSM Industrial Goods ING Financial services DSM Industrial Goods Rabobank Financial services Nutreco Consumer Goods KLM Transport services Shell Consumer Goods TNT Transport services Philips Consumer Goods Unilever Consumer Goods

Table 3: companies within sectors

Within each sector the companies are divided over two sub sectors, or industries. This makes the comparison even more interesting, because in this way you can see if a characteristic is consistently sector specific, or only sub sector or industry specific.

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4. General Sustainability Issues

Besides the influence a company has on its surroundings, the surroundings also have an influence on a company. This is an aspect some researchers tend not to treat in their articles. Mainly the influence of companies on the economy, environment or society is discussed. There are some general external sustainability issues though that influence a company, but are not to be categorized under environment or society. I do think it is important to discuss these issues to give a complete overview of the context Dutch companies are in regarding CSR, since it is not only the aim to compare the companies, but also to give insights in the CSR situation of Dutch companies so far. Without knowing the context the Dutch companies are in regarding Corporate Social Responsibility, it can be more difficult to understand the reasoning of the companies on the environmental and social issues. The issues that will be discussed in this section are:

- Corporate Governance

- Policies, Principles, Statements and Guidelines - Integration of Sustainability in Business Practices - Products and Services

- Value Chain Acceptance - Stakeholders

- Membership and Participation - Millennium Development Goals - CSR Rankings

As the list shows, there are five internal aspects and four external aspects that are of importance. With internal is meant the CSR influence inside the company and with external is meant the influences from outside the company on the CSR policy. To start with the internal aspect, first of all I will discuss who is responsible for the policymaking and implementation of the CSR policy. Then I will discuss the general policies, principle, statements and guidelines companies use. A combination of these two is integration of sustainability in business practices. In other words: how far are Dutch companies with implementing and integrating CSR policies in all aspects of their business? This of course also has an influence on their products and services, the issue that will be discussed thereafter. Finally companies also need to look beyond their own line of business and further along the value chain. Suppliers and customers are more and more evaluated on their corporate social responsibility, so this will be discussed last.

Regarding the external perspective, external pressure form stakeholders is very important, so this will be discussed first. Further, in order to come to an overall general CSR policy for companies all over the world, there are many initiatives and organizations that companies can participate in and become a member of. One of the most important overall initiatives is the Millennium Development Goals (MDGs). Companies are paying more and more attention to these, which is also visible in their reports. Therefore these MDGs will be discussed separately. The chapter will end with an

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overview of the external recognition the Dutch companies are getting for their performance by providing an overview of CSR listings and rankings.

4.1. Corporate Governance

With the increasing pressure from stakeholders to integrate sustainability practices into business, so is the need increasing for general CSR management in order to coordinate this process. Of course there is a central coordination, but basically for every manager the responsibilities are the same. At top level the (CSR) policies are developed and it is the responsibility of every (Business Unit) manager to implement these policies into their operations. Only ABN AMRO, Fortis, ING and TNT report that their CEO or CSO has the final responsibility and all the other companies report that final responsibility lies with the executive board. Many companies have installed departments or advisory boards to control and audit the execution and implementation of social and environmental policies and who report directly to the executive board. There is no clear distinction between the service sector and the manufacturing sector. Every company has its corporate governance slightly different, but in essence it is the same. Every company has in stalled a separate body to make sure that CSR policies are well implemented in every level of the company.

4.2. Policies, principles, statements and guidelines

The main tool to get CSR implemented in the company’s everyday business is by means of policies, principles, statements and guidelines. However a company names it, it comes down to the same thing, regulations for everyone in the company in order to come to a general viewing point and behaviour regarding CSR.

The following figure, based on an example of Fortis, gives a clear view of the breakdown of principles in a company and the overall influence the international Standards and Agreements have on them.

Figure 4: Breakdown of general principles into specific business applications with the overall international influence (Source: Fortis, 2007)

 Code of Conduct/ General Business Principles  CSR Statements  Environmental Statements

 Human Rights Statements  Supplier/Client Policies

 Equator Principles

 Industry specific

statements, e.g. defence, agriculture, shipping General

Principles

Specific Business Applications

International Standards and Agreements UN Global Compact, EU Directives WBCSD, OECD,

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At the heart of every company are the General Business Principles or Code of Conduct. Companies sometimes name it differently, or the contents of it are slightly different, but the essence is the same. These Principles are policy statements about the actions of the company and the expected behaviour of employees regarding business ethics and integrity. These principles are the cornerstone of every company.

With these principles as a fundamental basis, the CSR policies are drawn up. As the figure shows, these are general CSR Statements, but also more specific statements and policies regarding separate aspects of Corporate Social Responsibility, like the environment, human rights and supplier/client acceptance. And even those policies can be broken down into more specific business applications.

The main difference between the two sectors is seen in that whereas the first two blocks are applicable to all of the companies, the third block is indeed more sector specific. This could either mean that it is specific for an industry within a sector, like for example the financial services companies that all adhere to the equator principles. The Equator Principles are ‘a financial industry benchmark for determining, assessing and managing social & environmental risk in project financing’. (Equator Principles, 2007) Or it could also mean that they have a policy regarding one certain industry they are in business with, like for example the defence industry.

The overall external initiatives, the International Standards and Agreements, in the bottom of the figure will be discussed in the ‘Membership and Participation’ paragraph.

4.3. Integration of sustainability in business practices

The implementation of a CSR department and all the initiatives taken by the companies and the policies that are written down regarding environmental and social improvement are of course a big step forward towards a more sustainable world. Only this is just the first step. For sustainability to work, sustainability policies really need to be integrated into everyday business practices.

To a large extent this integration is already happening. This is shown by companies integrating CSR policies into their code of conduct, in their targets and also even in the supply chain. Some companies have installed teams to coordinate this process. For example at ABN AMRO where they have dedicated teams installed to help line management to implement sustainability initiatives and to raise awareness on environmental, social and ethical issues. Other companies have installed internal auditors, such as TNT and Akzo Nobel.

The companies really emphasise that they want to implement CSR practices into their core practices and activities, in order to really being able to improve their Corporate Social Responsibility. Most companies already have had several years of continuous improvement of integrating CSR practices, but are committed to keep on improving this. CSR is a complex and dynamic subject so it is important that companies keep on doing this.

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Where there is more difference between the service sector and manufacturing sector is at departmental level. Within companies different departments or business units can have different CSR objectives. So besides a general policy that has to be implemented in the company, the managers of the business units and departments need to intensively coordinate the implementation and adjustment of that general overall CSR policy into their specific business unit or department. Even though there is an overall policy, it can have different consequences for the different departments and business units regarding implementation of CSR issues because they have a different focus on specific parts of CSR. For example, in retail Banking focus points are financial literacy (mainly also under western children) and customer satisfaction. Whereas in insurance, one of the key focus areas is emerging markets, because people in those markets can prepare themselves for the future, by insurance activities such as pension reforms and life insurance. (ING, 2007) They tend to adapt the CSR policy to their focal points and therefore have different priorities regarding the implementation of the CSR policy.

Therefore, it is important for companies not only to develop one overall CSR policy, but also to adapt it to the different business operations. This is a factor that adds to the complexity of CSR and also the comparability of CSR practices between companies and between the two sectors.

Sometimes companies even set up entirely new departments to live up to the demand for sustainability, as is the case with the financial service companies. Within investments, there is a new department which is called Sustainable and Responsible Investment (SRI). ‘This department offers sustainable portfolio management to private banking clients and institutions and analyses of the social and environmental performance of companies in which their clients can invest. This analysis includes for example information on energy savings and CO2 reductions programmes.’ (ING, 2007)

It is clear that the Dutch multinationals are actively involved in the integration and implementation of CSR practices in their core business and departments. Either through specific business applications, or through entirely new departments, companies are trying to find the best way to implement CSR. With the complexity of CSR and the different focus points of departments even within the same company, companies need to be very flexible and open minded regarding this implementation. It is therefore very progressive that Dutch companies have installed separate CSR departments or internal auditors to coordinate this. This adds to the advancements of Dutch companies regarding CSR.

4.4. Products and Services

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light bulbs. But also when the product reduces environmental impact for other appliances it can be more sustainable. One example is higher concentrated, improved washing powder. Because of the higher concentration, packaging is smaller, which reduces waste and transport emissions. In addition, it enables people to wash at a lower temperature, which reduces energy consumption. For the manufacturing sector, the focus and responsibility of producing sustainable products very much lays with R&D department. For the industrial companies in the manufacturing sector it is often of first priority to reduce raw materials of concern or harmful components, such as Volatile Organic Compounds. Wherever possible they try to switch to renewable raw materials. One of the tools they use in product development is nanotechnology which offers superior ecological performance. This not only means lower environmental impact and elimination of raw materials of high concern, but also reduces material consumption by extending product life and improving wear resistance. (Akzo Nobel, 2007) Another technology some companies in human and animal nutrition and health are using is Genetically Modified Organisms. The benefits of the use of GMOs are a higher productivity, better products, less waste and lower energy consumption. Modified bacteria can for example produce up to ten times more enzymes per litre of reactor volume than their unmodified counterparts. Despite the fact that the products they make with the aid of GMOs do not contain any GMOs and with the before mentioned benefits, there is still some resistance to the use of GMOs. To a large extent, this appears to be due to a lack of familiarity with the technology. (DSM, 2007)

Also the use of white biotechnology results in considerable savings in the use of fossil-based fuels and raw materials and major reductions in waste generation. But despite all the new technologies and the introduction of new processes, industrial companies can also still achieve further improvements by modifying the classical chemical processes. (DSM, 2007)

These are all examples of companies trying to improve their products from within the company, but Nutreco also has an interesting way of creating more sustainable products. For their animal nutrition, Nutreco invests in R&D programmes that will help convert by-products of the fuel and dairy industry into nutritious animal feeds, to help solve global problems of scarcity of feed, food and fuel, and of climate change and loss of biodiversity. (Nutreco, 2007)

Another approach to product improvement is not improving your own product, but creating partnerships with companies that make products that use your product to create more efficiency. In the case of Shell, besides of course their large investments in new technologies to provide more energy, secure energy and cleaner energy, they also pursue partnerships to develop lower carbon technologies and create co-operations with vehicle manufacturers on advanced fuels for the next generation of cleaner, more efficient engines. (Shell, 2007)

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using less water for laundry, and to dispose of their products responsibly (Unilever 2007). Also companies like Philips are helping societies by making healthcare available and affordable. (Philips, 2007)

Another form of a company’s product is the service it delivers. In this paragraph the difference between the service sector and the manufacturing sector is probably most visible, since this is about the core business of the companies; their products. For a service company their main product is the service they provide and that is in many ways a completely different thing than a tangible product.

With the exemption of microfinance, instead of having a product that is directly beneficial for society or the environment, the financial service companies in a way reward people by means of credits and funds when they behave responsibly. An example is energy saving credit or mortgage. Companies or inhabitants that build houses or live in houses that are energy efficient, can receive a credit or a mortgage at a lower interest rate. But also business start-ups with innovative sustainable new technology ideas can apply for funds and special financial services to stimulate this. Also, many renewable energy projects, or energy saving projects can make use of what they call `Green Loans´.

These examples show that product improvement is very sector dependent, but also within both sectors there are differences between industries. Either way, the Dutch companies are very actively involved in these product and service improvements.

4.5. Value Chain Acceptance Policies

Besides looking in their own business operations for improvements, there is a trend appearing of companies to look beyond their own operations regarding CSR and further along the value chain. This leads to a relatively new issue in the CSR world; supplier acceptance. Because even if a company’s own operations would be sustainable, if they purchased from unsustainable suppliers, it could still have a negative effect on the company’s image and products.

Companies realise this as well, because practically all the companies have supplier acceptance policies in place, which are linked to their own CSR policies and Code of Conduct.

Interestingly, the two companies that do not have that (yet), or to a lesser extent, are CSM and Nutreco, the smaller two of all the companies. CSM declares that: ‘We did not investigate our suppliers’ environmental and social quantitative performance in 2006.’ And Nutreco (2007), even though they are on the right track, only ‘wants to ensure that a substantial part of their key raw materials are sourced from sustainable managed, independently verified sources.’ This could add to the discussion that advanced CSR is only something for very large multinational companies. Of course this can only be stated for sure if this is looked into more thoroughly with more companies that are relatively smaller, but it is something striking.

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be long, so as a domino effect or chain reaction influences this many companies around the world. One can even say that because of this effect companies are forced to behave responsibly.

A main difference between the manufacturing sector and the service sector is that besides supplier acceptance, service companies also have an acceptance policy for another group of stakeholders; clients. Whereas in the manufacturing sector customers are mainly buyers of a product, in the service sector and especially the financial companies, customers are users of the service. This brings along much more risk for the financial companies and therefore financial companies can reject clients if they do not behave responsibly enough. This is nicely illustrated by an example from Rabobank (2007): ‘Only if a client knowingly and intentionally continues to engage in practices unwanted from a CSR perspective, will we have no option but to deny the client the use of our financial services. On the one hand, disregard for social and environmental risks can undermine the ability of a client’s business to continue operating as a going concern, and affect its competitive or financial position, and it can also expose the bank to risk. On the other hand, the early identification of the commercial opportunities social or ecological issues generate can prompt the development of new innovative products and services. Our client can thus add value and improve its competitive and financial position. That, too, affects Rabobank.’ This also reflects back to the earlier stated domino effect and the way companies between them also have a strong influence on each other to behave responsibly. This makes business partners also a stakeholder group of great importance and even if they are sometimes lesser emphasised by companies, it is something that cannot be underestimated.

But as with many things in CSR, of course this is not all black and white. Financial companies sometimes do take on clients with a higher risk as part of their wider social responsibilities by means of microfinance. Or, a manufacturing company can take on a supplier that does not exactly comply with their CSR policies, but they do need to engage in activities with that company in order to have some control in that industry/region. This adds also to the stakeholder dilemma issue, regarding suppliers and clients, discussed in the following paragraph.

4.6. Stakeholders

Business, in the end, comes down to creating value for stakeholders. Companies can have many stakeholders such as employees, consumers/clients, suppliers, shareholders, society, environment, governments, NGOs, business partners, investors, emerging markets, neighbours, industry, media and general public. This looks like many groups to hold into account, but of course some stakeholders are more important than others. The main reason CSR reports are written, is for the stakeholders. The CSR reports aim to provide stakeholders with a complete and balanced picture of the companies’ performance in different areas of Corporate Social Responsibility and to achieve transparency and credibility.

Insights in Corporate Social Responsibility of Dutch Multinationals