Ethical Corporation Magazine - October 2015 edition

TTIPStandards clash

A culture of integrityLead by example

John ElkingtonSustainability forecast

Modern slaveryFinding solutions

October 2015 www.ethicalcorp.com

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Ethical Corporation | September 2014???Contents Ethical Corporation | October 2015

42 NGOWatch Conflict-free mines

44 Cheatsheet All you need to know

Strategy and management

48 John Elkington Forward thinking

54 Company culture Leadership ethics

Review

59 Report: PepsiCo

61 Report: Merck

63 Academic news

65 New books

67 People on the move

34TTIPEU standards threat

5 From the editor

EthicsWatch

6 DJSI Analysis questioned

8 VW scandal Automotive backfire

11 SDGs Company pledges

14 PolicyWatch EU truck emissions

Modern slavery

16 Hidden labour Supply chain slaves

24 Stamping out slavery Find and release

32 BrandWatch Climate lobbying

16Modern slaveryDig it out

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EthicsWatch: Ethical Corporation | October 2015

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Emissions

The people’s cheat

By Ellen R DelisioThe emissions cheating by Volkswagen is unlike other corporate scandals of recent years: deliberate wrongdoing. It has repercussions for the whole car-making industry

Two weeks after news of an emissions-testing scandal broke, Volkswagen is in hyper-damage-control mode, taking out full-page newspaper ads in Germany begging for the restoration of public trust and racing to meet a deadline from Germany’s Federal Motor Transport Authority to develop a plan to fix 2.8m cars in Germany.

The US Environmental Protection Agency announced on 18 September that it had found software in some VWs called “defeat devices” that detect when a car’s emissions are being tested and reduce the amount of pollutants the car emits. Without the devices, the diesel cars were found to be spewing 40 times the amount of nitrogen oxide into the atmosphere permitted by US standards. As a result, the US government directed VW to recall 482,000 VW and Audi cars produced since 2009.

Volkswagen officials quickly admitted wrongdoing and soon acknowledged that more than 11m cars worldwide were rigged. Volkswagen chief executive Martin Winterkorn resigned on 23 September, but claimed he didn’t know anything about the devices.

The company’s stock price has plummeted and big investors have removed Volkswagen, the world’s second largest car company, from their portfolios, according to Stephen Hine, deputy CEO of Eiris, a UK-headquartered agency that researches socially responsible investment opportunities. So far, Volkswagen has announced it has allocated $7.2bn to remedy the situation, but the company still could face fines and executives could face jail.

Among the major questions raised is whether a market for diesel cars will survive. “Despite generally offering more efficient use of fuel, many deem them to be more polluting,” Hine says.

Ethical Corporation | August 2014???

Defeat devices reduced pollutants

EthicsWatch: Volkswagen

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Ethical Corporation | August 2014??? Ethical Corporation | October 2015EthicsWatch: SDGs

Sustainable development

Ensuring the SDGs mean business

By Ellen R DelisioLeading businesses are taking steps to support the recently adopted Sustainable Development Goals

The UN Global Compact has applauded businesses that have committed to the 17 new Sustainable Development Goals (SDGs), for approaching them the same way they would business goals.

“We are encouraged that companies are setting targets that through their businesses positively affect SDGs,” says Ole Lund Hansen, chief of leadership programmes for the UN Global Compact. “For most companies, setting goals is widespread, and there is still a small but growing group that is applying the same process to sustainability goals. This helps everyone understand what the priorities are, and they can tie them to performance. We see that as extremely important; taking a professional approach to sustainable development.”

The SDGs were adopted on 25 September at a UN General Assembly plenary session. More than 300 CEOs, heads of state, UN and civil society leaders attended the session to discuss businesses’ role in implementing the SDGs, which apply to the period 2016-2030. The SDGs replace the Millennium Development Goals (MDGs), which were in place from 2000 to 2015. The aim of the SDGs, according to the UN Global Compact, is to “eradicate poverty and combine elements of economic, social and environmental action, including climate change”.

Hansen says: “We see the first and most important tasks as making sure that companies all over the world understand the new goals, why they are important and what can happen by taking action or not taking action. We produced guidance as to how to address them, but not all 17 will be equally important to any particular company.” In addressing the goals, the Global Compact would like to see companies develop products in ways that reduce the impact on the environment, and form partnerships, especially ones that bring together bigger organisations, explains Hansen. “The leading companies within a sector coming together really have the potential to advance things in a significant way.”

CEOs show support for UN SDGs

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The SDGs differ from the MDGs in three important ways, Hansen says. While poverty eradication is the main mission for both, the SDGs look at a broader dimension of sustainable development. The MDGs were mostly focused on poverty, health and education, and really defined a set of aspirations for developing countries. “The SDGs are designed so all countries can develop priorities,” Hansen says.

Connecting communitiesIn the case of the US social media giant Facebook, it plans to help the UN bring internet connectivity to refugee camps. In addition, the company launched the “Connectivity Declaration” together with other partners. “Recognising the indispensable role the internet plays in creating jobs and opportunities, enabling access to essential public services, advancing

human rights and justice, and ensuring government transparency and accountability, the Declaration calls on governments around the world to work together with innovators to deliver access to all,” according to a description of Facebook’s commitment from the UN Private Sector Forum.

The Connectivity Declaration highlights target 9c of the SDGs, which calls for internet access for everyone in the least-developed countries by 2020. As well as addressing SDG 9, which sets out the goal to build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation, Facebook’s commitment also addresses SDG 8: to promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all, and SDG 10: to reduce inequality within and among countries.

The UK mining firm Anglo American has also pledged to meet SDG 8 by adding 10,000-15,000 jobs a year in the communities where it operates – both within and outside the supply chain – adding up to a quarter of a million jobs by 2030. Anglo American has already employed about 100,000 people in the past 25 years through enterprise development programmes.

“With programmes now in five countries – South Africa, Botswana, Brazil, Chile and Peru – these SMEs generate an average of 10,000 jobs per year, with almost 50% of these businesses run by women and a large proportion by young people, in rural and urban areas,” says

EthicsWatch: SDGs

Facebook plugs refugees into the web

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James Wyatt-Tilby, head of external communication for Anglo American. “Although the current economic environment is challenging for miners, we recognise the long-term nature of both our investments and the SDGs, and will continue to work towards showing how mining can have a transformative role in development. We must focus on where we can make the biggest difference. For us, this focuses on developing local suppliers, enterprise development, building the capacity of local governments, building the skills of our workforce and supporting health and education.”

In addition, the company is partnering with the Universidad de Chile to build the capacity of municipal staff to deliver services to local communities, Wyatt-Tilby says. “In South Africa, we’re working with the Department of Science and Technology to improve maths and science education in Comfivaba, a rural community in the Eastern Cape. Using platinum-based fuel cell technology, we’re bringing a more reliable power supply and wireless internet to schools, with the ultimate goal of finding out how these technologies can contribute to the development of rural teaching and learning.”

Denmark’s Lego Group has committed to implement the Children’s Rights and Business Principles, which provide guidance to companies on the full range of actions they can take in the workplace, marketplace and community to respect and support children’s rights, according to the Global Compact. Lego plans to partner with Unicef and has committed $8.2m to this work to support the implementation of SDG 4: to ensure inclusive and equitable quality education and promote lifelong learning opportunities for all.

The Global Compact wants people to agree that the SDGs define the key challenges businesses are facing globally and examine how best to address them, Hansen says. “Businesses are set up to tackle problems and develop solutions,” he says. “You can tackle SDGs and know that if you can solve one, there will be a huge market for those solutions.”

Lego partner with Unicef

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EthicsWatch: SDGs

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Labour rights

The wrong kind of chainsBy Ellen R DelisioSlavery, still pervasive across the globe, has proven difficult to tackle for multinationals whose leaders are far removed from the people producing their raw ingredients. But with help, companies are working their way down the supply chain to eradicate the problem

Modern-day slavery has many faces, all of them imprinted with desperation. It is children working in cocoa fields in Ivory Coast, without protection from

the machetes they are wielding or the pesticides they are applying. It is teachers, lawyers and children in Uzbekistan, forced to spend two months harvesting cotton every year. It is fishermen in Thailand who were abducted and sent off to sea, where they work with almost no rest and are sometimes kept in cages during the few hours a day they are not hauling up nets or packing fish.

Around 36 million men, women and children worldwide currently are trapped in slavery, 20% more than previously thought, according to the 2014 Global Slavery Index (GSI). The higher estimates are attributed to changes in data collection methods and classifications. Twenty-first century slavery includes human trafficking, forced labour, debt bondage, forced or servile marriage, and commercial sexual exploitation, the GSI says.

Numbers have been rising over the past decade. In 2005, the estimate for those in modern slavery was about 12 million and in 2012, it was up to 21 million, although in the past, slavery and trafficking were measured differently, notes Jakub Sobik, the press and digital media officer for Anti-Slavery International in the UK.

Around 36 million men, women and children worldwide are currently trapped in slavery

Ethical Corporation | August 2014???Slavery briefing Ethical Corporation | October 2015

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The International Labour Organization estimates the profit from slavery is $150bn a year

Ethical Corporation | August 2014???Slavery briefing

And it is ubiquitous. “It happens in Mauritania, where people are the full property of their masters,” says Gina Dafalia, head of communications for the Walk Free Foundation, an Australian-based organisation committed to eradicating slavery. “[It happens] in Indian brick kilns where generations of families are enslaved, in farms in the UK and Australia and in fishing boats off the coast of Thailand. Every single country is affected.”

Five countries host 61% of the world’s slaves – almost 22 million people. India has the largest number of enslaved people, estimated at 14.3 million, followed by China with 3.2 million, Pakistan with 2.1 million, Uzbekistan with 1.2 million and Russia with 1.1 million.

Countries with the highest proportion of their population in modern slavery are Mauritania and Uzbekistan with 4%, then Haiti at 2.3%, Qatar, 1.4%, and India, 1.14%, according to GSI.

The majority of slave labourers are working in private sector industries, such as manufacturing, construction and agriculture. Modern slavery permeates the supply chains of many businesses around the world. “If a company is sourcing clothing from Bangladesh, electronics from Malaysia or China, bricks from India, cotton from Uzbekistan, minerals from West Africa, seafood from Thailand, or even tomatoes from Spain or Florida, chances are their products are manufactured using modern slavery,” says Dafalia.

As hard as it is to believe that an anachronistic practice such as slavery exists in the era of electric cars and 3D printers, forced labour continues because it is profitable, hard to identify and sustains many industries.

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Ethical Corporation | August 2014???Cheat sheet Ethical Corporation | October 2015

Corporate responsibility cheat sheetBy Oliver BalchWe read all the reports so you don’t have to

CEO pay Pay rises for chief executives of the UK’s largest companies have slowed, with more than a third (36%) receiving no salary increase during 2015. Four out of five chief executives were also awarded less than half their maximum bonus, which

averaged £1.12m. Don’t feel too sorry for them, though. The median base salary of FTSE 100 bosses still rose by 3% to £891,000 in 2015, and their overall median remuneration leapt by 6.8% to £4.28m, according to financial services firm PwC. PwC’s “Taking stock – Review of 2015 AGM season”

Cutting carbon is cost-neutralLooked at from a purely economic perspective, the costs of a “business as usual” approach to climate change and an “action” response are found to be almost identical. According to a report released by US-based Citibank, failure to take action against global warming will carry a price tag of $192tn over the next 25 years. This is primarily due to the cost of coal ($23tn) and gas ($13.6tn) for power generation (which will cost $74.7tn overall) and oil ($4.8tn) for transport ($47.4tn). Taking action will cost more upfront in energy efficiency investments ($19.4tn), but will result in long-term savings, the result being an estimated cost of $190tn between 2015 and 2040. On a risk-adjusted basis, the study puts the estimated return on investment for climate change mitigation measures at 1-4% in 2021, rising to between 3% and 10% by 2035. The findings chal-lenge the argument that a transition to a low-carbon economy will spell financial doom. Citi GPS: Energy Darwinism II

Low-carbon citiesCities lie at the heart of the world’s low-carbon future, an influential international working group argues. The world’s cities are responsible for an estimated 67%-76% of global energy use and 71-76% of energy-related greenhouse gas emissions. According to the US-based Global Commission on the Economy and Climate, which includes the likes of the London School of Economics and the World Resources Institute among its partners, low-carbon solutions for the world’s largest cities could result in emission reductions of 3.7 gigatonnes of carbon

dioxide equivalent by 2030. This is equal to around 15-20% of the total global emission reductions needed for a 2°C pathway. The Global Commission is calling for an investment of $1bn for technical assistance, capacity-building and finance to support the greening of 500 cities. If successful, it estimates that the financial savings could be in the order of $16.6tn by 2050. The world’s cities currently generate around 66% of global domestic production.Global Commission on the Economy and Climate, “Accelerating Low-Carbon Development in the World’s Cities”

Low-carbon solutions could result in emission

reductions of 3.7Gt

36% of UK CEOs received no salary increase during 2015

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Lifetime achievement

Sustainability’s super sleuthBy Oliver BalchAuthor, adviser, thinker, speaker: John Elkington has worn a variety of hats during his 40-year career. Linking them all is a quiet yet irrepressible passion for positive change

Consultants come in many guises. The big shots with their swagger. The technocrats with their spreadsheets. The charlatans with their sweet talk.

John Elkington, the 66-year-old founder of boutique consultancy firm Volans, is none of those things. In fact, there’s little initially that would suggest this softly spoken urban planning graduate has spent the best part of three decades visiting corporate boardrooms around the world (he previously co-founded and led the advisory firm SustainAbility).

The constant consultant For one, he’s ready to turn down work. In the mid-1990s, it took the badgering of not one but two chief executives at Shell to persuade him to advise the oil major. Second, “cranking the handle” – his phrase for churning out the same old same old – bores him. Unlike so many consultancies, with their cut-and-paste solutions, he openly admits to having no “black box methodology”.

The closest model to his approach, he says jokingly, is James Bond. Not because of the fast cars and women (bird-watching or visiting castles is more Elkington’s idea of a good time). What connects him with Ian Fleming’s super sleuth is his quick thinking and adaptability.

Churning out the same old same old bores him

Ethical Corporation | August 2014???Interview: John Elkington Ethical Corporation | October 2015

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Ethical Corporation | August 2014Report reviewReport review Ethical Corporation | October 2015

PepsiCo 2014 sustainability report

Needs more pepBy Elaine CohenSoft drinks giant PepsiCo is an established sustainability reporter. In its latest report it could go further on the ‘purpose’ part of its strategy and say more on the role of its products in society

PepsiCo’s reporting is commendably accessible to different stakeholders, with a full GRI-compliant, 127-page indicator-by-indicator report, a 24-page

summary report and a dedicated website. However, while offering clarity, the two-report set lacks attractiveness and readability.

The report covers the issues but does not really reveal much. Indra Nooyi’s opening message is as bland and generic as it is unenlightening. Nooyi is welcomed globally as an influential icon in sustainability circles and personifies how the leader of a large and complex business can turn sustainability into a differentiator and even a profit-booster. But her opening message in 2014 makes no reference to key achievements, challenges or ways in which PepsiCo is changing to meet evolving sustainability priorities. The general message is “more of the same” Performance with Purpose – this could be an any-year statement. Something a little more incisive could have set the tone for this report and offered a more credible affirmation of leadership engagement.

A very positive feature of PepsiCo’s reporting is the linkage between sustainability performance to business growth and profitability. Most companies keep financial and non-financial messaging conveniently separate and it is rare to find an economic expression of sustainability benefits in standalone sustainability reports. PepsiCo’s press release leads with a highlight of financial benefits: “Environmental sustainability programs, including efforts to use less packaging and energy, have saved the company more than $375m since 2010.”

Throughout the report, these references are specific: in 2014 PepsiCo recycled and reused 90% of waste with estimated savings of $3.5m compared with 2009; decreased absolute water use by one billion litres, generating $17m in cost savings; removed over 89m pounds of packaging materials resulting in $48m of cost savings; and improved energy efficiency delivering energy cost savings of more than $83m. This is good for the financial community who use sustainability reports, and for PepsiCo stakeholders who are interested in impacts on society, and it also serves as an encouragement to other companies, demonstrating that sustainable practice can also be profitable practice. In other areas, PepsiCo incudes outcome-type statements that show

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