Corporate Social Responsibility: trends and strategies

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Corporate Social Responsibility (CSR) has assumed worldwide a high value of importance and a fundamental social impact in the daily activities of an organisation. The CSR could be defined, according to the WBCSD, the World Business Council for sustainable development, as the continuing commitment by business to contribute to economic development while improving the quality of life of the workforce and their families as well as of the community and society at large. The most exciting challenge for an organisation, a company or a financial entity, is to create the right equilibrium between the culture and the strategy adopted in the long term by the company according to a set of standards recognised as the Environmental, Social and Governance (ESG) Criteria.

In order the better understand what is considered responsible by the market and society and which type of criteria an organisation has to respect and believe in, the analysis is going into an examination of a peculiar financial index and some significant and practical examples of CSR.

One of the main Index based on the ESG rating model that supports investors in the risk taking decision process and in the performance measurement is the FTSE4Good Index Series, the equivalent of the US Domini 400 Social Index. The FTSE4Good Index Series was launched in the 2001 and, with over fifteen years of experience, today it includes more then 15 benchmarks composed by more than 4100 selected companies and based on strict selection criteria. The FTSE4Good’s rating model is built on more than 300 indicators and three main sections typical of an ESG model: some Environmental, Social and Governance criteria, as reported in figure 1. Obviously the exclusion of those companies associated with tobacco, weapons and the principal business of coal mining is mandatory.

Figure 1: The FTSE ESG Ratings Model from the Index Inclusion Rules for the FTSE4Good Index Series.

Considering the country breakdown at the end of January 2017, as shown in figure 2, the FTSE4Good Global Benchmark results composed by 198 US constituents, almost the half of the total benchmark’s weight.

The top 5 constituents of the FTSE4Good Global Index include Apple, Microsoft Corporation, Johnson & Johnson, Wells Fargo & Company, AT&T and represent the 10% of the total index. The UK and Japanese components are even relevant comprising some giants like HSBC Holdings and Royal Dutch Shell.

Figure 2: Country Breakdown – FTSE4Good Global Benchmark (Jan 2017)

The industry breakdown, comparing the FTSE4Good US Benchmark and the FTSE4Good Europe Benchmark, reveals a different trend among types of industries following the ESG criteria. In the US Benchmark is possible to outline a strong presence of companies that operate in the health care, financial and IT industries; on the other side the European one is more focus on the consumer goods industry and the financial sector.

Figure 3: Industry Breakdown – FTSE4Good US Benchmark and FTSE4Good Europe Benchmark (Jan 2017)

Concluding this brief overview, it is illustrative to show and explain two different examples of how the corporate social responsibility is practically implemented everyday in a company’s strategy. HSBC, one of the strongest global financial institution, and Indra, a leading global consulting and technology company with headquarter in Madrid; two extremely different organisations but both devoted to the Corporate Social Responsibility.

HSBC, one of the most famous banking and financial services institutions, with more than 250.000 employees worldwide, more than 145 languages spoken and a presence in 71 countries, has implemented a strong sustainable approach in its strategy. HSBC interprets the sustainability as “building the business for the long term by making decisions that balance social, environmental and economic considerations” and even the Group Chief Operating Officer Mr. Andy Maguire has underlined the importance of operating sustainably in order to make good business sense.

Analyzing the sustainability approach of HSBC, there are countless programs in which this institution is ethically involved. The HSBC Water Programme, for example, was launched in 2012 and over a five-years period and an investment among 100 USD millions, aims to involve employees in volunteering activities and key partners, like Earthwatch, WaterAid and the WWF, in providing water sources and driving the economic development. HSBC experimented also an approach to sustainable financing working with institutions, suppliers and customers in order to support a low carbon economy through the adoption of renewable energy and collaborating with the United Nations’ Green Climate Fund. HSBC had an important role also in the development of the green bond market and during November 2015 it has invested 1 USD billion to green bond portfolios in green, social or sustainability bonds in line with the Green Bond Principles. HSBC, via projects and partnerships, has always given a long-term contribution to the society, the young section of population and the environment itself.

Indra, for the second year included in the FTSE4Good Index, is another strong example of how to implement strategies and projects based on key ESG criteria. Today Indra counts a workforce of 34.000 employees and a local presence in 46 countries. The CSR strategy for Indra “has to be aligned with the natural activity of the company”. Consulting teams offering innovative services and solutions not only satisfy the need of the customer but also try to contribute to the society and community itself. The promotion of peculiar initiatives is reported in the CSR Master Plan updated every year. Indra’s CRS policy underlines the importance of dialogue and collaboration among the main interested parties and the aim to reach a sustainable development for the Company based on a balanced growth that contributes also to create value for the Society.

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