Larger companies are talking about corporate responsibility. Smaller companies need to join in

Larger companies are talking about corporate responsibility. Smaller companies need to join in.

Corporate responsibility has become big news in Brazil. From billboards to business school curricula, messages about companies’ social and environmental commitments and activities are everywhere. There is even a programme on national television about the subject.

Is it just a fad? Do companies’ practices contradict their rhetoric? The questions are valid. Few companies operating in Brazil can genuinely claim to have a strategic, fully integrated corporate responsibility programme in place.

Beat Grueninger, director at the specialist advisory firm BSD Brazil, says most companies still direct corporate social responsibility through a charitable foundation or independent institute.

There are exceptions. Brazil boasts an advance guard of business leaders that have been pushing Brazil’s private sector to tackle critical social and – more latterly – environment issues.

Cosmetics giant Natura, state-owned energy company Petrobras, mining giant Vale, utility Endesa and large financial institutions such as Banco do Brasil, Banco Santander and Itaú Unibanco are among those widely cited as industry leaders.

Gathering pace

Interest in corporate responsibility may have accelerated hugely in recent years, but it is not new. Back in the early 1980s, the industry-backed Abrinq Foundation was running a high-profile campaign to eliminate child labour. Around the same time, the Brazilian Institute of Social and Economic Analyses (Ibase) was pushing for companies to produce “social balances” to account for their societal impacts.

“In the 1980s and 1990s, a series of new executives who studied abroad returned to Brazil and wanted to make a contribution,” Grueninger says.

Arguably these disparate efforts crystallised under the umbrella of the Ethos Institute. Set up in 1998, Ethos wears many hats, from public awareness raising and public policy programmes to professional training for its corporate members.

In recent years, internationalising corporate responsibility has emerged as a key concern for Ethos and the companies it represents. Its recent annual conference illustrated the point. Speakers from around the world filled the rostrum. Likewise, the agenda had a distinctively global flavour: delivering on the Earth Charter, developing sustainable business solutions with “planetary scale” and contributing to the Millennium Development Goals through the Global Compact, to name just a few.

That said, Brazil is not without its local nuances. The Ethos Indicators and the Brazilian Association of Technical Norms (ABNT) NBR 16001 standard represent two successful attempts at national standard-setting for corporate responsibility.

As a general rule, the more globalised the sector in Brazil, the more globalised its approach to corporate responsibility. The banking sector is the best example. Anxious to compete on a global level, Brazil’s large banks have begun championing sustainability in their internal practices.

Many financial institutions, for example, have introduced rigorous social and environmental risk assessment processes into their lending services (see case study: Santander’s Practicas programme). The process has been spurred on by the Equator Principles, a worldwide initiative to promote responsibility in project finance.

Where a country’s credit-providers go, the corporate sector has a habit of following. Public companies, in particular, are learning to become more attentive to investors’ concerns about corporate governance and transparency. In 2005, for instance, the Brazilian stock exchange instituted a new index (the Bovespa Corporate Sustainability Index) to track high performers.

Individual banks are also establishing designated credit streams to finance low-carbon technologies, renewable energies and other sustainability-focused enterprises.

The phenomenon also extends to the equity market. Brazil now plays host to dozens of ethical and sustainability-based funds, such as Itaú’s Social Excellence Fund and Santander’s Fundo Ethical.

Apart from investors, a variety of other stakeholder pressures have been pushing Brazilian companies to improve their responsibility practices. Chief among these have been employees.

The reasons are multiple. A large part of Brazil’s global competitiveness depends on its human capital. Recruitment, retention and skills development have therefore emerged as critical management issues. By the same token, the country’s highly regulated and unionised labour market places a considerable onus on employee relations and fair wages. Hot issues such as child labour and slave labour have accentuated this trend, particularly in the influential agricultural sector.

Coordination lacking

As for public pressure, while social expectations of companies are high, the influence of civil society has been hamstrung by a lack of coordination in the non-profit sector. Local communities have therefore typically become the object of corporate social investment endeavours, rather than the subject of equitable dialogue and partnership.

The extractive and energy sectors mark notable exceptions, with companies such as state-owned Petrobras and utilities Copel and CPFL developing advanced community development programmes. High levels of regulation and state ownership in the energy sector put a particular precedence on such activities.

Surprisingly for a country so rich in biodiversity, environmental issues have not traditionally enjoyed the same attention from companies as social issues. Again, exceptions naturally exist. The stellar case is that of cosmetics retailer Natura, the long-time trailblazer on environmental management (see case study).

Others are following. Marina Grossi, executive president of the Business Council for Sustainable Development (BCSD) in Brazil, credits the 2007 publication of the Intergovernmental Panel on Climate Change report with a sudden change in mindset on environmental issues.

“We had this dogma that as a developing country we didn’t have to do anything [on climate change]. That shifted with the IPCC report … companies took into account that climate change was a reality,” she says.

As early as 2005, BCSD had led a handful of leading businesses to issue a position paper for the private sector on climate change. Momentum began to grow. Government actions helped, such as a high-profile attempt to protect the Amazon rainforest.

In late 2009, 22 large companies put their names to an open letter in the run-up to the UN conference on climate change in Copenhagen. The letter called for more substantive steps to be taken, including the implementation of emissions targets and tougher deforestation measures. Among the signatories were retailer Grupo Pão de Açúcar, paper manufacturer Aracruz Celulose and mining companies Vale and Samarco Mineração.

Another emerging driver is the Brazilian consumer. Expectations are high. Half of consumers believe large companies have a civic duty to develop society, as well as orthodox pursuits such as tax contributions and employment provision, research by the Akatu Institute for Conscious Consumption finds.

And consumers are beginning to act. The number buying ethical goods or endorsing ethical companies has doubled in the past three years, a recent opinion survey indicates. Yet, at 22% of all consumers, the market impact remains incipient.

Brazil’s consumers need persuading if they are to begin to exert real influence. The gap between consumer expectations and satisfaction with corporate responsibility is greater in Brazil than in any other country in the region, according to Fabian Echegaray, managing director at research firm Market Analysis.

“Four or five years ago, there was a positive attitude towards what companies were doing and the information they provided. Now, there is a general suspicion among consumers,” Echegaray says.

More fact-based information would help turn this around. Only one in 10 print advertisements about corporate responsibility makes any mention of deliverable results, a study of more than 750 such adverts between 2001 and 2010 shows.

Consumers increasingly believe companies are using corporate responsibility as “an advertising theme”, according to Helio Mattar, president of the Akatu Institute for Conscious Consumption. This deters consumers from either rewarding or punishing companies, he argues.

“There is a need in Brazilian society for organisations to provide consumers with summary information about what companies are doing in corporate responsibility in a credible way,” Mattar adds.

The messages are there if the right channels can be found, Mattar insists. He cites Wal-Mart Brazil as a leading example. The US retailer has negotiated sustainability targets for 100 of its main suppliers. It has also provided capacity building for 3,500 employee “multipliers” on responsible consumption, with the intention of spreading the message to all its 80,000 or so employees.

Despite recent growth, Brazil remains an emerging economy. Deep inequalities still exist. What is true for the economic field is also valid for corporate responsibility. The fundamentals are there: a willingness to act by companies, a support infrastructure for management, and high levels of awareness on the part of the public. But work is still required.

Brazil’s sector leaders present an impressive display. The record of smaller, less global-minded companies is patchy at best, however. Investors and consumers can change that. So too – through cooperative efforts and supply chain pressure – can corporations.

Ethical consumerism in Brazil: gaps and good intentions

• Three in four (75%) of consumers are “interested” in companies’ social and environmental practices.
• More than one-fifth (22%) of consumers have bought ethical products or recommended a company for its ethical credentials, up from 12% in 2007.
• One in 10 consumers has boycotted companies for ethical reasons.
• More than four-fifths (85%) of Brazilians say they are concerned about climate change.
• Only half of Brazilian consumers believe that responsibility-related

Source: Market Analysis, based on a minimum of 800 home-interviews with adults aged 18-69 in Brazil’s nine largest cities

Case study: Natura going neutral

Often described as South America’s Body Shop, Natura has set itself the target of becoming carbon-neutral by 2011. Launched in 2007, the initiative is costing the cosmetics company 3.28m reais ($1.81m) per year.

To meet its goal, Natura needed a verifiable carbon baseline. So, in 2006, it carried out a carbon footprinting assessment of its operations in line with the benchmark GHG Protocol initiative and Brazil’s own ABNT NBR ISO 14064-1 standard.

“To know with the greatest precision possible the volume of greenhouse gas emissions is essential to put a project for the reduction and neutralisation of carbon into operation,” says Marcos Vaz, director of sustainability.

The inventory is updated every year, and verified by third-party specialists auditors Det Norske Veritas, he adds.

In terms of reduction, the retailer estimates it can decrease emissions in its existing operations by 33%. The figure could well be higher, Vaz says, had Natura not already been concentrating on reducing its environmental impacts.

Almost a decade ago, the cosmetics company implemented a life cycle assessment process for its packaging – which accounts for 20% of overall GHG emissions. Under the system, Natura has been able to grade products according to their environmental performance and factor low-emission features into its product development.

Natura’s reduction game plan includes measures from increasing renewable raw materials in its formulas (now 79% of all content) to the use of renewable fuels. Most recently, the company has been concentrating on a more productive use of its regional distribution centres. In Mexico and Peru, meanwhile, the company has shifted distribution from air to sea.

Progress towards its carbon-neutral goal is steady. Natura has reduced relative emissions of carbon dioxide equivalent (CO2e) per kilogram of product billed by 6%, 3% and 5.2% in each respective year since 2007. Overall CO2e emissions actually increased in 2009 by 22% to just under 246,000 tonnes – an increase primarily explained by the adoption of a more complete inventory.

Despite ongoing efforts, Natura is – and will continue to be – saddled with an emissions surplus. To hit its neutrality objective therefore requires offsetting. Every two years, the retailer invites organisations to propose projects that will compensate its own operational emissions.

The last batch of proposals focused on proven reduction approaches such as reforestation, renewal energy and avoided deforestation. The winning projects typically offer additional socio-environmental benefits as well, be they local income generation or biodiversity conservation.

 

Among Natura’s future management challenges is the development of a system to identify the carbon footprint of individual products. At present, it measures only the origin and impact of the raw materials and packaging for each product. In recognition of its advances to date, the retailer was invited by the United Nations Environmental Programme to form part of the Climate Neutral Network, a global forum on climate change.

Case study: Sustainability in practice at Banco Santander

Global banks are well known for their cut-throat approach to competition, but there is at least one that believes in sharing. Spanish-owned Banco Santander Brasil has developed a unique programme that allows others to learn from its own experiences and expertise on sustainability management.

“Essentially we’ve condensed our experience into a two-day course, which we offer to clients and suppliers of the bank,” says Sandro Marques, Santander’s executive manager for sustainable management.

Santander has learned from its own efforts to integrate sustainability into its core operations, as well as those of Banco Real, the Brazilian bank that it acquired in late 2007. In addition to its own programmes, the Práticas em Sustentabilidade (Sustainability Practices) programme also incorporates cutting-edge examples from other businesses.

“It’s our way of helping other companies to shorten their path to a more sustainable business ... We don’t presume that our practices are the best, but they can inspire other companies,” Marques says.

To date, more than 3,000 clients and suppliers have gone through the course. The training is strong on didactic and pedagogical content. Each participant leaves with a draft action plan tailored to his or her company. On completing the course, the most common step by attendees is to introduce a robust governance framework for the internal management of sustainability, feedback from the course shows.

Santander also provides an online training module that its own employees can access as well. In addition, the bank holds public lectures and operates an open website for anyone with an interest in learning more about sustainability. The online resource has had more than 1.2m hits to date.

From Santander’s perspective, the course helps confirm its position as a market leader in sustainability, as well as serving to build a “critical mass in the market”.

“It isn’t a good idea if we develop specific services and products in sustainability and the market doesn’t understand what we are offering,” Marques says.

Case study: A better ethos

The Ethos Institute has played a central role in raising awareness of corporate responsibility across Brazil since its foundation in 1998. The business-backed group is headquartered in São Paulo, but has a nationwide presence through its expansive network of industrial federations, non-profit groups, media organisations and educational institutes.

At a general citizenship level, it runs an annual advertising campaign on a responsibility-related topic in conjunction with media partners and communications agencies. It also runs separate annual corporate responsibility programmes to recognise graduate research, journalistic excellence and company reporting.

In terms of company practice, Ethos has also been instrumental in professionalising corporate management of responsibility issues. Its main instrument for doing so are the Ethos Social Responsibility Indicators. Every year, hundreds of companies complete this self-assessment tool, which is engineered to help evaluate, plan and monitor the incorporation of responsible business practices into everyday operations.

Ethos has customised the survey to factor in regional and industry-specific issues. There are now indicators for small and micro-sized companies, as well as the bakery, mining, financial, energy and paper sectors. Ethos also offers a benchmarking service to promote comparisons and cross-learning.

Knowledge sharing represents another core aspect of Ethos’ activities. It publishes a variety of newsletters, manuals, case studies, reports and web-based materials in an effort to share best practice. Examples of excellence from the indicators survey, for example, are collated for general reference into a publicly accessible practices store. The web-based InternEthos initiative fulfils a similar function, providing an online communication forum for the institute’s various audiences.

Ethos is not shy of pushing the boundaries in its desire to see business as an instrument of social change. It has pushed through corporate “pacts”, for instance, on controversial topics such as child labour and corruption. It also has a public policy arm, working with government, unions and non-profit groups on issues such as sustainable urban development, decent employment and poverty eradication.

Ethos also has a research and advisory arm. Working closely with corporate practitioners, universities and consulting firms, UniEthos seeks to promote new management methodologies and technologies. It also carries out consultancy services as well as open and in-house management education programmes. Finally UniEthos provides the forum for working groups on a variety of issues, ranging from the Global Reporting Initiative to the development of ISO 26000.