Credit: Joe Kingleigh/Getty
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Corporations were described by the poet Edward Thurlow as "Not having a soul to be damned, nor a body to be kicked." That may be so, but bad publicity can be fairly painful: ask the James Hardie Company about its asbestos products. Or AWB Ltd about selling wheat to Iraq.
Bad publicity can torpedo a company’s share price, as both of these companies can attest. Which is why a lot of companies are now making a real effort: not just to look like they're good corporate citizens, but to actually be them.
As Ian Wood, vice president of sustainable development at mining giant BHP Billiton says, "Our sector is not regarded highly in terms of the environment or human rights, and that adds enormously to our costs. "It's something the company worries about, enough to spend A$250 million annually on - maintaining the integrity of our reputation and processes."
That's a lot of worry. But how is a green investor going to know whether a company is spending time and money on being a good citizen - and addressing issues like sustainability - or whether they're likely to end up on the TV news for all the wrong reasons?
This is where
Its annual index is "a mechanism to assess the social responsibility performance and risk management capacities of Australian and international companies," according to RepuTex Rodrigo Castellanos. In other words, it assesses whether companies are good "corporate citizens". RepuTex looks at a company's attitudes towards corporate governance, the environment, social issues and workplace practices. From the RepuTex point of view, corporate governance includes looking at a company's transparency, management and ethics. The scandal surrounding AWB's kickbacks to Sadaam Hussein's regime illustrates clearly how a company’s culture can either encourage or discourage unethical behaviour.
Measuring up
Rating a company's work practices involves an assessment of its occupational health and safety, management systems, workplace culture and diversity. A company's social impact is measured by reviewing its products and services, policies and practices. And environmental impact covers carbon dioxide emissions and supply chain issues.
Castellanos said RepuTex is not an ethical indicator, rather, a systematic mechanism to inform the market of the level of environmental, social and governance risk, and the capacity of a company to manage such risks or opportunities. "RepuTex leaves moral and ethical decisions to individual investors; instead we focus on the implications of a company's actions and operations from a risk and exposure perspective." RepuTex ratings are assigned on a scale from AAA (outstanding) to D (inadequate). So who out of Australia's Top 100 companies and New Zealand's Top 20 companies gets a gold star under this rating system?
Well, in 2007, for the third year in a row, Westpac Banking Corp was the only Australian company to get an AAA rating, while 11 other Australian companies received an AA rating. These are (in alphabetical order): ANZ Bank, Australia Post, BHP Billiton, Energex, Ergon Energy, Hewlett Packard Australia, IBM Australia, Insurance Australia Group, National Australia Bank, Queensland Rail, and Visy Industries.
Westpac is clearly doing something right, because the bank also came top in its category in the Dow Jones Sustainability World Index for the fifth year in a row. So what does it take to get a AAA rating from RepuTex? The bank was noted particularly for its workplace practices: adopting a strong commitment to diversity and sound work/life balance initiatives for employees, such as increasing paid parental leave from six weeks to 12 weeks; a commitment to sustainability within Westpac and the wider community; best practice in the community investment and philanthropic support (especially Westpac's community partnerships, which focus on sharing staff expertise with the non-profit sector and providing financial literacy programs); and environmental impact - especially risk and ecological footprint.
Core values
"A lot of the debate around issues of corporate governance, sustainability, environmental impact and good work practices has argued these areas are peripheral to business," says Noel Purcell, Westpac's general manager of stakeholder communications. "We argue they are core business issues and not just add-ons or after-thoughts."
Purcell points to the bank's darker moments as examples where it had lost sight of its core values. "In the early 1990s - as a result of foreign currency loans and the "Westpac Letters" affairs - we suffered the largest corporate loss in Australian history. We know what happens when our core values are eroded. A [banking] license to operate is not just legal, it is also a social compact, and we take that very seriously."
While the mainstream media have sometimes portrayed corporate social responsibility as the "soft and fluffy" end of business activity, Purcell points to very practical results. "Becoming an employer of choice has saved the bank A$50 million per year," he said. "Our emissions are down by 35 per cent since 1990. Our return-to-work rate is now 80 per cent as a result of our maternity leave provisions and on-site childcare facilities, and we save another couple of million dollars a year by taking occupational health and safety seriously. This directly affects our bottom line."
But real world politics can interrupt this process at any time. And, as Paul Schroder, national secretary of the Finance Sector Union (FSU) says, his union has concerns about Westpac's decision to send jobs offshore. "I am sure [chief executive] David Morgan wants Westpac to be as good as possible," says Schroder. "But the bank [discussed] sending 485 jobs currently located in Concord [in Sydney] offshore to Bangalore."
Schroder points to a 2005 report by the rich nations’ club, the Organisation for Economic Co-operation and Development (OECD), predicting close to 20 per cent of all work performed in Australia could potentially be sent offshore. This would equate to almost two million jobs.
Purcell countered these concerns, saying "There has been no decision made about 485 jobs, but 77 jobs will go from BT to offshore."
Grey areas
Purcell argues such decisions are necessary to keep the bank globally competitive and a failure to do so would, "put the rest of our workforce at risk".
In 2006, Westpac's BT unit announced their Socially Responsible Investment Fund would no longer screen out uranium miners. "The fund may invest in companies which mine or use uranium primarily in relation to power generation," it said. "But the fund will not invest in companies which directly mine uranium for the purpose of weapons manufacture. We will also have regard to the health and safety record of companies in which we invest."
This is not incongruous as it first sounds. The rapid onset of climate change is altering the uranium debate: a growing number of scientists and industry groups argue that nuclear power generation - which produces no greenhouse gases - is preferable to carbon-intensive electricity from coal and gas-fired plants.
The uranium issue became unavoidable when BHP Billiton, which represents 45 per cent of Australia's resources sector, began operating as a uranium miner. However, as Erik Mather, head of BT Sustainability's governance advisory service says, "The issue is not nuclear itself. The real issue is dealing with climate change and, in dealing with climate change, nuclear is but one part of a potential portfolio response."
Another example is ANZ Bank, which in 2006, received an AA rating from RepuTex. In August that year, five community groups in Australia and Papua New Guinea (PNG) filed a formal complaint against the bank over its financial support of logging companies which, the groups claim, are engaged in human rights abuses and environmental destruction in PNG.
The complaint alleges the bank is "actively facilitating and supporting" the PNG operations of Malaysian logging giant Rimbunan Hijau, a company whose operations involve "serious human rights abuses, environmentally devastating logging practices and repeated serious illegal conduct." ANZ has acknowledged Rimbunan Hijau is a "long-standing client" in PNG. And then, for a controversial time, there was the Gunns' pulp mill support.
Annie Kajir, chief executive of PNG’s Environmental Law Centre, argued that “compliance with basic human rights and environmental standards should be a strict condition of doing business with a reputable bank like ANZ."She added that foreign banks “can play a constructive role by supporting sustainable, community-based forestry in PNG." For its part, ANZ Bank said it would continue to "consult with stakeholders engaged on the issue".
Corporations behaving well is one thing, but it's their environmental scorecard that will have an impact on the planet. Coming to grips with their appetite for carbon and natural resources is what will matter most to environmentally conscious consumers - although the ethical dimension of corporate behaviour also affects perception.
Rating systems like RepuTex and the Dow Jones Sustainability Index go some way to address the issue. But they don't just inform investors - they also educate companies about what's acceptable in the 21st century.
