Once the “dirty man of Europe”, UK plc has done more than many to push ahead on issues of social and environmental management

Once the “dirty man of Europe”, UK plc has done more than many to push ahead on issues of social and environmental management. In November 2010, consumer giant Unilever did something extraordinary. The UK-domiciled company produced one of the longest laundry lists of corporate responsibility commitments in history.

Its so-called Sustainable Living Plan stretches from halving its products’ environmental impacts to helping more than a billion people improve their health and wellbeing. Not small undertakings.

But what really stands out is not the 50 concrete targets unveiled by Unilever. These, the company itself admits, will be “challenging”. A good majority will probably be met. A number quite possibly won’t be.

It is not the numbers that are most impressive, but what lies behind them: namely, the long-term sustainability vision of the plan’s executers.

In many ways, Unilever is a paragon of British business at its biggest and best. The shelves of more than half the households on the planet hold one or more of its products. It employs 163,000 people and generates annual sales of more than €40bn.

Yet this is also the business that talks of “decoupling” growth from environmental impact and “working alongside” non-profits.

This is the company that has a chief executive who warns of “stealing resources” from future generations; who pledges to take on consumers in order to “change their habits”; and who tells investors who deride sustainability to put their money elsewhere.

“What we are really after here is a different business model,” Unilever chief executive Paul Polman told a packed hall in central London. “Not a 30-day model of results … but a long-term model of sustainable, equitable growth.”

Ten years ago, such sentiments would have seen him laughed off the stage. Today, they were met with nodding approval. And not just from the corporate responsibility fraternity, of which the UK has a sizeable share.

The Guardian, anything but a pro-corporate newspaper, called the strategy “trailblazing”. The Financial Times, a serious sceptic of anything that sniffs of market unorthodoxy, termed the effort “admirable”.

Risk vs opportunity

So what has changed? To an extent, it could be said that UK plc is embracing the responsibility agenda. Satisfying stakeholders, most executives now accept, is the best way to please shareholders, not vice versa.

Rhetoric around corporate responsibility is nothing new. It was more than a decade ago that John Elkington, a (UK-based) business consultant and writer, and founder of SustainAbility and Volans, coined the phrase “people, planet and profit”.

It is, in fact, corporate practice that has changed. Ten years or more of trying to walk the talk is finally bearing fruit. What began as a theory is gradually becoming fact. Look at the FTSE100. It is no coincidence that its leaders tend to top UK corporate responsibility rankings too.

Industry leadership has been critical in making the case for corporate responsibility, says Charles Gooderham, director of sustainability services at professional services firm Deloitte. He points to early pioneers, such as BT in the telecommunications sector and utility company British Gas, now part of Centrica (see panel).

The early running fell to certain key sectors as a whole, however. Out in front came the extractive industry, Gooderham says.

Leading the charge were the likes of UK mining giants AngloAmerican and Rio Tinto and oil majors Shell and BP. All have – until very recently in the case of the latter – been judged among the more responsible corporate performers in their sectors. And not just at home, but internationally too.

Historically, the pharmaceutical industry has followed close behind. On issues such as access to medicine and sales ethics, companies such as AstraZeneca and notably GSK have occupied the vanguard.

There is an aggressive newcomer to the pack, however: consumer-facing businesses. Recent years have seen a “real upsurge” among UK retailers in particular, says Geoff Lane, lead partner for sustainability and climate change at professional services company PricewaterhouseCoopers.

“The battle to be Britain’s greenest grocer has really moved the whole retail and consumer sector to the forefront of the [corporate responsibility] issue,” he says.

Later to the game, high-street retailers such as Sainsbury’s, Waitrose, Marks & Spencer and Tesco lack the history and “sophistication of response” of resource companies, Lane maintains. But that, he concedes, is changing fast.

Nor is it necessarily a game of catch-up that UK consumer businesses are playing. Arguably they are engaged in an altogether different game: one focused more on business opportunities and less (as with the big, early players) on risk.

Their starting points are, after all, very different. Extractive companies have huge environmental and social impacts to manage. The footprints of retailers are, while significant, of a lesser magnitude. UK retailers do not suffer the same licence-to-operate anxieties that mining, energy and – to an extent – pharmaceutical industries face either.

Some commentators go as far as to say that the corporate responsibility movement in the UK is splitting into two.

One of those is Giles Gibbons, chief executive of London-based consultancy Good Business. From his viewpoint, he sees business-to-business firms standing on one side, led by the extractives. On the other side stand the retailers.

Driving the efforts of the first camp is the need to be in line with global standards of good governance and responsibility. Those in the second, in contrast, are taking their lead from the “everyday marketplace”. In short, the more responsible they are, the more stock they hope to shift.

The arrival of the UK consumer sector at the corporate responsibility table appears irrefutable. One clear piece of evidence is the take-up of responsibility branding, such as the Fairtrade and Forest Stewardship Council labels.

The jury remains out to whether UK consumers are “genuinely differentiating” on their day-to-day purchasing, says PwC’s Lane. The belief among retailers is that they are. Or, at least, they will.

Right or wrong, UK retailers see the creation of a responsible image as a critical consumer issue. It might not win them huge swathes of new customers, but it is perceived as a “must have” if they want to hang onto those customers they already have, Lane argues.

Of course, not all UK plc fits into one or other of these two streams. A good number still do the minimum. Those operating out of the consumer spotlight can be particularly slow on the uptake.

Edward Bickham, an independent consultant and former head of external affairs at AngloAmerican, refers to this third group as the “soft middle”. If they act, they do so with public relations in mind and not strategic concerns or stakeholder interests.

Yet even this trenchant group of laggards cannot ignore what has now become a mainstream agenda in the UK. A mixture of tougher regulation (especially on climate change), supply chain pressure and investor interest is ensuring that.

Getting strategic

The move from talk to action in the UK finds companies at very different stages. Most have a flagship programme or more under the banner of “corporate social responsibility” or, increasingly, “sustainability”.

Traditionally these have concentrated on community involvement, with charity tie-ups and volunteering popular starting points. The past decade has also seen UK companies adopt high-profile campaigns on the environment, especially around climate change issues.

In more recent years, the agenda has extended to a much wider range of issues, covering everything from consumer rights and employee diversity to responsible procurement and human rights. Today’s corporate responsibility managers have a broad brief.

The challenge for many is to channel these one-off programmes into a comprehensive strategy that not only addresses a company’s main impacts but also complements its business objectives.

Assessing how issues of sustainability will affect business operations in the longer term represents a related challenge for many UK firms, Deloitte’s Gooderham argues.

“Many now recognise, for example, that water scarcity and water stress is going to be as big an issue as climate change, if not bigger,” he notes.

Those in the lead of the corporate responsibility debate have crossed this hurdle. They boast integrated strategies that are genuinely company-wide and holistic.

Indeed, the willingness of companies to consider their responsibilities in a balanced fashion across the board – social, environmental and economic – distinguishes the UK market from many others.

“The private sector in the UK is seeing the big picture, not just tackling the issues that suit them the best,” Bickham argues.

The big obstacle for these leaders is the task of embedding. Companies such as Unilever, and Marks & Spencer with its Plan A strategy, are tackling this head-on. Yet, as PwC’s Lane puts it, “there’s a lot of work in progress”.

UK companies have an advantage. A veritable cottage industry of consultants is at hand to help, especially in London. Many of the pioneering management systems designed to help with implementation also trace their origins back to the UK.

The London Benchmarking Group model on community investment, the Carbon Trust Standard on greenhouse gas reduction and the IOSH certificate for health and safety feature among many.

In keeping with the adage about not managing what you cannot measure, the rapid take-up of non-financial reporting gives reason for hope on the challenges of implementation.

Of the 200 large UK companies covered by the ethical investment research firm Eiris, for example, a quarter now issue an annual corporate responsibility or sustainability report.

Such transparency bodes well for future performance, argues Alan Knight, an independent standards adviser.

“Reporting, and transparency in general, is all about change. If you are going to commit to reporting on your sustainability performance then you are going to have to do something about it,” he says.

Leading UK companies are by now seasoned reporters. The evidence suggests Knight’s logic holds true. Such transparency has served as a spur to action. As importantly, it is ensuring continual improvement. Now the spotlight is on, no one can afford to stand still.

Case study: John Lewis and employee ownership

Corporate UK is largely a publicly owned phenomenon. More than any other characteristic, that single factor dominates companies’ behaviour.

Heavily leveraged by the capital markets, corporate executives are answerable to the short-term concerns of their investors. Sustainability, with its long-term focus, does not always get a look-in.

One notable exception is the John Lewis Partnership, one of the longest-standing names on the UK high street. The £7.4bn-a-year retailer is employee-owned. All its 70,000 staff – or “partners”, as the company prefers them to be known – have a stake in the business.

Its unorthodox ownership structure affects every aspect of the company’s strategy and culture, says Gemma Lacey, head of corporate social responsibility at John Lewis, which also owns the upmarket supermarket chain Waitrose.

“Because we’re co-owned, we’re less driven by the short-term gain of shareholders. We are able to make investment decisions in terms of our programmes and focus that take a longer-term view,” she says.

The governing vision of the company is enshrined in a constitution dating back to the 1920s. Among other things, it calls for “the happiness of all its members” and the “wellbeing of communities where the company operates”.

Holding management to account for those commitments are a range of democratic channels, chief among them the partnership council. The membership of this senior decision-making body, to which the chairman is answerable, comprises a number of elected employees.

The company’s longer-term strategic vision can also be seen in its relationships with suppliers. John Lewis boasts an envious list of long-standing supplier companies.

“There is therefore a sense of provenance and traceability with our products, which forms a large part of our value and brand offer,” Lacey says.

Investment in people marks another positive consequence of the John Lewis ownership model. In 2007, for example, the company introduced a skills training programme called Horizons. More than 12,000 employees have accessed career development resources, courses and materials since then.

In its latest financial year, the retailer redistributed £151m of profit to its employees – money that would normally go to shareholders. The bonus payment represents almost eight weeks’ pay on average.

Case study: British Gas Green Deal

For any energy company, its major carbon footprint lies with its consumers. Conscious of that fact, British Gas is sending engineers into UK homes in a major energy-efficiency drive.

In 2010, British Gas announced it would “go early” on the UK government’s Green Deal, including offering full home assessments to its residential customers.

On the back of such a survey, British Gas then offers to install a range of carbon-saving technologies for customers.

“The plan is that customers will not be asked to foot the bill upfront. Instead, they will have the option to pay off the installation costs over time though their energy bills,” explains Gearóid Lane, managing director of British Gas new markets division.

“All other things being equal, repayments will be less than energy bill savings,” he adds.

A key aspect of the company’s programme is ensuring its engineers have the right skills to advise on and deliver the most appropriate services to customers.

With that in mind, the company plans to invest £30m a year in skills training in five centres around the country.

“Each training site includes a green training area where apprentices can learn to install low carbon technologies, including solar panels and biomass boilers,” Lane explains.

Working with the Welsh assembly, British Gas has also opened the UK’s first Green Skills Academy in Tredegar, Wales. The centre will offer training and qualifications for would-be energy-efficiency assessors.

In addition to training 1,300 of its existing engineers every year, British Gas has committed to create 2,600 new jobs in smart meter delivery and 1,100 for home insulation.

The company is currently considering extending the scheme to its business customers.

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