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Understanding CSR for Business SustainabilityMr Lee Swee Seng

Day 3 : CRT Expert Seminar Series12th September 2007 . Kuala Lumpur


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Introduction

Promotion of good corporate socialresponsibility is essential especially inenhancing the Malaysian capital market.

Profit maximisation is not longer the soleconsideration in business sustainability.

Stakeholders are now becoming discerningespecially with regard to the impact of

businesses products and services on theenvironment, the local communities as well asthe relationship with their employees.

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CSR

Companies now have to take into account:

A) the shareholders

B) the stakeholders C) society

CSR is nothing new

It is about doing good

More than just doing good


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CSR

More than charity, more than philanthropy

Its about doing the right thing

Not something incidental to business

but Infused through and integrated intobusiness


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What CSR means to Bursa

CSR is open and transparentbusiness practices that are basedon ethical values and respect for

the community, employees, theenvironment, shareholders andother stakeholders. It is designedto deliver sustainable value tosociety at large.

www.bursamalaysia.com

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CSR focal areas in Bursa

Environment

Workplace

Community Marketplace

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Bursa Securities framework

Set of flexible guidelines for those who wish to

practise CSR.

All criteria do not apply to all companies.

PLCs may choose and prioritize

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Why CSR matters

Top 10 environmental issues facing humanity A) Climate change

B) Energy

C) Water

D) Biodiversity and Land use E) Chemicals, Toxics and Heavy Metals

F) Air pollution

G) Waste management

H) Ozone layer depletion I) Oceans and Fisheries

J) Deforestation Source: From Green to Gold


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Competitive advantage vs Compliance

Legislation or regulatory intervention was not

needed in encouraging companies to adopt

CSR.

SHELL MALAYSIA companies like

sustainable development not because

legislators force them to but rather that they

aware that they have to ensure their long-termlivelihood

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UKs Approach

Encouragement rather than

compulsion

Their aim is to encourage

but not compel business

and local communities towork together to create a

transparent and equitable,

and therefore better andmore efficient business

environment.


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CSR as key to business sustainability

Adoption of sustainable criteria has key

business benefits:-

improving financial performance

enhanced brand image and reputation

attract and maintain quality workforce

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CSR as key to business sustainability

Reduced long term cost

Attract more investors

Better client and customer satisfaction

Improve employee satisfaction

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Brand reputation

The perception of brand can influence

customer loyalty, lenders and investors

scrutiny.

Strong brands will allow companies tocompete effectively in global market.

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Quality staff

Employees are major stakeholder of

companies

Employees are given chance to speak up anddemand that companies to carry out more

meaningful activities.

Companies with bad CSR record will have

difficulty in recruiting and retaining their staff

compared with companies with good CSR

records.

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The link between competitive advantage and CSR

Harvard Business Review 2006 Strategy andSociety : The Link Between CompetitiveAdvantage and CSR Michael Porter & Mark

Kramer Successful corporations need a healthy society.

Education, health care and equal opportunity areessential to a productive workforce.

Safe products and working conditions can also lowerinternal cost of accidents.

Efficient utilisation of land, water, energy and othernatural resources makes business more productive.


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Toyotas Prius, the hybrid electric/gasolinevehicle, is the first in the series of innovativecar models that have produced competitive

advantage and environmental benefits. Hybrid engines emit as little as 10% of the

harmful pollutants while consuming only half

as much of gas. Credit Agricole, Frances largest bank, hasdifferentiated itself by offering specializedfinancial products related to the environment.


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Microsofts Working Connections partnership

with American Association of Community

Colleges (AACC)

The shortage of IT workers is a significant

constraint on Microsofts growth : Currently

there are more than 450,000 unfilled IT

positions in US.


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Therefore, Microsoft sent employee volunteers

to colleges to assess needs, contribute to

curriculum development and create faculty

development institutes.

Microsoft has achieved results that have

benefited many communities while having a

direct and potentially significant impact on thecompany.


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CSR reporting

CSR reporting was made compulsory in

Budget 2006, requiring all PLCs to report on

their environmental and social responsibility

performance.

Our prime minister in our Budget 2007 speech

announced the requirements for PLCs to report

on their CSR initiatives.

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Budget 2007

To encourage companies to participate in CSR

program, the Government proposed that theceiling for tax deduction on contributions by

the private sector to charitable organisations be

increased from 5% to 7% of aggregate income. The Government also proposed that this tax

deductions be extended to sport activities.

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Bursa Securities Listing Requirements

CSR reporting will be mandatory in respect of

annual reports of listed companies with

financial years ending on or after 31 December

2007.

14 Dec 2006 Bursa media centre

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Appendix 9C Bursa Securities Listing Requirements

Contents of annual report

(29) A description of the corporate social

responsibility activities or practices undertakenby the listed issues and its subsidiaries and if

there are none, a statement to that effect.

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Non-compliance of the BSLR

Section 11 of the Securities Industry Act 1983

provides that :

Where any person fails to comply the rules of stock

exchange, that person has committed a breach.

If a person has committed a breach, the Securities

Commission may take one or more of the following

actions:

A) direct the person to comply with, observe, enforce

or give effect to those rules;


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Non-compliance of the BSLR

B) impose a penalty in proportion to the

severity or gravity of the breach but not

exceeding RM1 million

C) reprimand the person in breach

D) require the person in breach to take steps as

the Commission direct to remedy the breach.


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Breach of BSLR

Para 16.16 BSLR

In the event of breach of LR by a listed issuer

or its directors, the BSLR may, afterconsultation with SC, take or impose such

actions or penalties as it considers appropriate.


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UK Companies Act 2006

S172 Duty to promote the success ofcompany

A director of a company must act in the wayhe considers, in good faith, would be mostlikely to promote the success of the companyfor the benefits of its members as a whole andin so doing having regard to

(d) the impact of the companys operations onthe community and the environment


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Global trends

Growth potential for SRI funds is tremendous with

interest in such funds increasing globally.

In the US, a total of US$2.16 trillion in assets was

identified as using one or more of the three SRIstrategies namely screening, shareholder advocacy

and community investing.

More than one out of every nine US dollars under

professional management in the US in 2003 is

involved in socially responsible investing. www.sc.com.my


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Exporting to CSR-aware markets

Green To Gold by Daniel C. Esty and Andrew S.Winston

Sony Playstation 3 (Cadmium crisis)

In 2001, The Dutch Government was blocking Sonysentire European shipment of Playstation gamestations because a small but legally unacceptableamount of the toxic element cadmium was found in

the cables of the game controls. Sony rushed in replacements to swap put the tainted

wires.


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Four lessons from Sonys experience:-

A) even the best companies can be surprisedby environmental issues

B) it can cost businesses real money

C) real benefits can come from seeing things ina new light

D) Smart companies seize competitiveadvantage through strategic management ofenvironmental challenges


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The Star 5 September 2007

Mattel recalls 800,000 toys worldwide because

of lead paint. This was the third major recall of chinese-

made toys because of excessive amounts of

lead paint.

Mattels last recall announced on Aug 14

covered about 19 million toys worldwide.


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New York Times Aug 13

The head of a Chinese company that wasbehind the recall of about a million Mattel toys

committed suicide over the weekend.

The NYT goes on to report that many chinesefactory owners often under intense pressure to

lower production cost cut corners in makingproducts and regularly use cheap and illegalsubstitutes.


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Bloomberg Aug 13

Chinese toothpaste distributed to hotels

worldwide by a US company has been recalledbecause it may contain a chemical used in

antifreeze.


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USATODAY.com

Natural Balance pet food recalled

The industrial chemical melamine has beenfound in pet food.

Melamine is believed to have contaminated

rice protein concentrate used to make pet food.


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CSR practices in Malaysia


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British American Tobacco (BAT)

Environment

Developed and implemented an integratedmanagement system to propel employees

toward higher productivity and quality

standards.

Afforestation to reach carbon neutrality

Waste management

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Community

Providing opportunities through education Social responsibility in farming

Workplace Open two way communication channels are

made to employees at all levels

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Marketplace

External stakeholder engagement Internal stakeholder engagement

a) listening to employees

b) responding to employees

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Shell Malaysia Social Investment

Youth and Education

In 2000, 129 new scholarships were awarded.

Shell also sponsored 21 students and teachersto the 2nd APEC Youth Science Festival in

Singapore in July.

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Environment

nature camps in Bintulu and Miri for students,

staff and their families in collaboration with

NGOs and Government agencies, a RM461,000 sponsorship for the construction of the

Danum Valley Education and Interpretation

Centre and a grant of RM1 million to YayasanBosama, (Borneo, Sarawak, Malaysia

Foundation) for environmental conservation

initiatives.

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Community

A) culture of sustainable development

Employees reaching out to communities inneed

Project better world

Running for environmental education Planting trees in support of sustainability

Promoting environment through art forms

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B) employees community service &

voluntary fund

Employee community service fund eg.donation of RM 2,000 from EP community

service fund to Women's Institute of Bario

Asal Longhouse for the purchase of chairs fortheir community hall.

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Shell employees voluntary fund eg.

donation of RM 20,000 to the Miri Charter

of the Malaysian Red Crescent Societytowards the purchase of a mobile blood

bank van.


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Banking perspectives : HSBC

To ensure the approach to lending and investmentreflects our business principles and values,sensitivity to societys expectations and an

assessment of risk, HSBC: have adopted the Equator Principles - a set of

voluntary guidelines developed to address theenvironmental and social issues that arise in

financing projects - in September 2003. have published five sector guidelines & policies tocomplement our Environmental Risk Standardpublished in 2002.

www.hsbc.com


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are looking to develop sustainability-focusedbusiness in a number of areas, particularly lowcarbon energy, water infrastructure, sustainableforestry and related agricultural commodities. Wealso provide a range ofsustainable & responsibleinvestment (SRI) funds.

avoid certain types of business, such as financingweapons manufacture and sales, dealing withcountries subject to international sanctions, andtransactions that might be used to evade tax or tolaunder earnings from crime.

www.hsbc.com


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HSBC Group Investment Businesses are

signatories to the United Nations Principles

for Responsible Investment. These commitinstitutional investors to incorporate

environmental, social and governance

considerations into investment analysis,decision-making and ownership practices. www.hsbc.com


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Aims of HSBC

Making HSBC one of the leading brands

By going beyond the accepted corporate

governance standards, HSBC gains

competitive advantage and theirs efforts to

be transparent, responsible and accountable

to their shareholders have been recognised.


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Government initiatives

THE PRIME MINISTERS CSR AWARDS

The Awards represent the nations highestrecognition of corporate organizations that

have had a significant and positive impact onthe lives of people around them.

There are 6 categories in the Prime Ministers

CSR Awards: Community & Social Welfare,Education, Environment, Culture & Heritage,Small Company CSR and Best WorkplacePractices.


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Government initiatives

The most outstanding of the six category

winners will take away the prestigious Prime

Ministers award for the Best Overall CSR

Programme.

In addition, there is a special award for the best

Media Reporting.

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Conclusion

CSR can make our business more

competitive.

Companies should be encouraged toassimilate CSR values into their business

strategies and goals.


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Understanding CSR for Business SustainabilityMr Lee Swee Seng

Day 3 : CRT Expert Seminar Series12th September 2007 . Kuala Lumpur

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