ambreen rbi-secp csr-pakistan extract without apex

September 2005

EVALUATION OF THE STATE OF

CORPORATE SOCIAL RESPONSIBILITY

IN PAKISTAN AND A STRATEGY FOR IMPLEMENTATION

FOR

SECURITIES & EXCHANGE COMMISSION OF PAKISTAN

PAK/98/011 PARADIGM-UNDP

By

Ambreen Waheed Executive Director

Responsible Business Initiative

www.rbipk.org

EVALUATION OF THE STATE OF CORPORATE SOCIAL RESPONSIBILITY IN PAKISTAN AND A STRATEGY FOR IMPLEMENTATION

September 2005

A MEMBER OF THE ASIA-PACIFIC CSR CENTRE GROUP

AND THE SOUTH ASIA ALLIANCE FOR RESPONSIBLE BUSINESS

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© Responsible Business Initiative

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CONTENTS

1.0PREFACE.......................................................................................................6

2.0INTRODUCTION.............................................................................................72.1.Why Map CSR in Pakistan?...........................................................................................................................................9

3.0WHAT IS CORPORATE SOCIAL RESPONSIBILITY?...............................103.1.How CSR Has Evolved through History......................................................................................................................113.3How it is Currently Defined and Understood.................................................................................................................14

4.0HOW IMPORTANT IS CSR IN TODAY’S WORLD? ..................................164.1.Global Principles, Local Application.............................................................................................................................164.2.Insurance against Bad News ......................................................................................................................................184.3.Risks of Non-Compliance ...........................................................................................................................................194.4.Factors Driving CSR Growth........................................................................................................................................204.5.World Trends in CSR Demand & Supply.....................................................................................................................214.6.CSR and WTO Requirements......................................................................................................................................214.7.Business Case.............................................................................................................................................................214.7.1.Access to Markets.....................................................................................................................................................224.7.2.Improved Financial Performance..............................................................................................................................224.7.3.Slide in Operating Costs...........................................................................................................................................224.7.4.Brand Image and Reputation....................................................................................................................................224.7.5.Growing Sales and Customer loyalty........................................................................................................................234.7.6.Productivity and Quality Enhancement.....................................................................................................................234.7.7.Employee Retention..................................................................................................................................................234.7.8.Less Scrutiny by Regulatory Bodies.........................................................................................................................23

5.0HOW DOES CSR FIGURE IN THE PAKISTAN CONTEXT?......................235.1.CSR Practices in Pakistan...........................................................................................................................................245.2.Initiatives by Support Organizations in Pakistan.........................................................................................................255.3.CSR in the Light of Islam.............................................................................................................................................27

6.0IS THERE A CSR ROLE FOR GOVERNMENT? ......................................276.1.Examples from the World.............................................................................................................................................276.2.Meanwhile, In Pakistan…............................................................................................................................................28

7.0WHY THIS STUDY AND HOW.....................................................................297.1.Methodology.................................................................................................................................................................297.2.Benchmarks.................................................................................................................................................................31

8.0RESEARCH FINDINGS ...............................................................................318.1.Data Analysis...............................................................................................................................................................318.2.Response Analysis.......................................................................................................................................................32

9.0GENERAL PERFORMANCE.......................................................................35

10.0STATE OF CSR..........................................................................................40

10.1.CORPORATE GOVERNMENT.................................................................40

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10.2.BUSINESS ETHICS PRINCIPLES............................................................42

10.3.ENVIRONMENTAL COMPLIANCE..........................................................43

10.4.SOCIAL COMPLIANCE............................................................................45

10.5.DISCLOSURE AND REPORTING............................................................49

10.6.PRODUCT INTEGRITY.............................................................................50

10.7.CORPORATE GIVING OR COMMUNITY INVESTMENT........................51

10.8.STAKEHOLDER INVOLVEMENT............................................................52

A.........................................................................................................................54

FIG (10.8.2)........................................................................................................54

10.9.SUPPLY CHAIN SECURITY.....................................................................54

10.10.FINANCIAL PERFORMANCE................................................................55

10.11.LEVELS OF COMPLIANCE OF CSR PRINCIPLES..............................57Fig(10.11.2)........................................................................................................................................................................58

11.0BRIDGING THE GAP.................................................................................58

12.0CONCLUTION............................................................................................60

13.0RECOMMENDATION FOR CSR STRATEGY...........................................61

14.0REFERENCES............................................................................................70

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ACKNOWLEDGEMENTS

I would like to record my sincere appreciation to the Securities and Exchange Commission for

their commitment to CSR and their proactive role in leading the way towards a culture of

Corporate Social Responsibility in Pakistan. Initiating this research is a worthy first step toward

this objective. It would not have been possible without Dr. Tariq Hassan’s personal interest and

commitment. I would also like to acknowledge the support, facilitation and feedback provided

by Ms. Jaweria Ather.

RBI’s partners of the Asia-Pacific CSR Centres Group, the Global Responsible Leaders

Initiative at the European Management Development Foundation and Global Compact Learning

Forum deserve my gratitude for their expert advice in the design of this research through

extensive discussions. Their inputs added a meaningful perspective to the study.

This task would have been impossible without my team at RBI; Jamil Anwar for coordination,

Maryum Zaidi for data collation, Saad bin Tariq, Mohsin Bashir, Ahmed Hassan and

Muhammad Hussain, for their dedicated efforts throughout the study. Thanks to all of them,

and to Dr. Faiz Shah for reviewing the data analysis and facilitating the stakeholder workshop

despite his busy schedule.

Ambreen Waheed

Lahore, September 2005

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All of us

– the private sector, civil society, labour unions, NGOs, universities, foundations, and individuals –

must come together in an alliance for progress.

Together,

we can and must move from value to values, from shareholders to stakeholders,

and from balance sheets to balanced development.

Together,

we can and must face the dangers ahead and bring solutions within reach.

– Kofi Annan

UN Secretary-General

1.0 PREFACE

Corporate Social Responsibility (CSR) is now moving towards Responsible Competitiveness, a

precept that implies that there is a role for business in influencing policy for business

success. The global CSR movement has passed through varied phases in time and in concept

with regard to the implementation of CSR. Initially grounded in corporate philanthropy, it

moved on to solidarity movements or environmental activism with citizen sector movements

taking on business. At the same time governments and courts have laid down more stringent

parameters of corporate behaviour, compelling business

towards legal compliance, damage control for civil

society and consumer reactions, and then on to

efficiency gains and differentiation for competitive

advantage.

Over the last ten years there has been a shift from

antagonistic activism to positive engagement between

companies and their stakeholders. In Europe business

organizations and their stakeholders are taking

collaborative actions for debating and creating CSR

policies and strategies to achieve a competitive

advantage at a national stage and to move towards the

next wave of responsible competitiveness which is

innovation, sustainability and future focus.

In the Asia Pacific most of the countries are riding the so-called second wave of CSR, which is

efficiency-centred and market focused. They have reached conceptual clarity and are looking

at the impediments to CSR implementation. In Pakistan, however, we have just started our

journey and are struggling with the first wave i.e. of philanthropy and legal compliance which is

society and government focused.

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CSR is “the integration by

enterprises on a voluntary basis of

the social and ecological concerns

in their business transactions and

their relations with the involved

parties”

.CSR is a dimension that should be

part of the strategic orientation at

the basis of enterprise and should

therefore interact with all spheres of

company management: with the

financial aspects, with production,

with marketing, with Human

Resource and more generally with

corporate strategies and policies.


September 2005

In Pakistan’s immediate neighbourhood, we see that during the last decade or so India and Sri

Lanka have gained competitive advantage due to their pro-activeness and future market-

centred policies. Pakistan’s early promise in the wake of the widely recognized Sialkot

Partnership against Child Labour has lost momentum. Now, another opportunity is coming this

way in the emerging manufacturing hubs created by the various upcoming enterprise zones

and so-called “textile cities”, which can market themselves by adopting a demonstrable CSR

strategy. Pakistan can either let this opportunity pass it by or swing into action in case a crisis

like the Sialkot child labour crisis hit, or Pakistan could act to embed a national CSR strategy

into decision-making and business practice through effective policy, incentives and a system of

credentialing that can assure overseas buyers of the country’ distinct position as a socially

responsible supplier country.

Has the Pakistani enterprise arrived at a stage where it can learn from experience around it and

take a jump forward to catch the third wave of differentiation and competitiveness built on

responsible business practice? Is the Pakistani enterprise mature enough to assess its own

processes against global CSR benchmarks and then turn shortcomings into differentiators to

capture future markets, which are surely steered by responsible and ethical business

practices? Sadly, barring a few notable exceptions, the answer to these questions is in the

negative, as indicated by the findings of this research.

Taking Pakistan into the current wave of CSR means building responsible competitiveness, and

to do so require a collaborative effort that supports a culture of compliance and an environment

that enables responsible thinking and practices. This is only possible by underscoring CSR as

a priority of national policy, followed by the development and implementation of a national CSR

strategy supported by all important stakeholders. From this first step CSR practices need to

evolve through an institution for CSR dialogue that responds to ever changing market

demands. An example of such an institutional arrangement would be the formalization of a

CSR policy and learning group comprising individuals representing relevant stakeholders.

Beginning as a semi-formal working coalition, possibly under the aegis of SECP itself or an

academic or CSR research institution, this group can evolve into an independent organization if

the situation demands.

2.0 INTRODUCTION

Does CSR have a value to corporate and national competitiveness as well as to society at

large? Is there at all, a role for business in working with policy makers to create an enabling

environment for responsible and ethical business to flourish? Does business have a

responsibility for raising awareness, building capacities, and affecting change in ways that

impact national competitiveness in a globalizing world? Does Pakistani business have anything

to contribute meaningfully to the global CSR debate and how it influences it?

CSR is no longer a new phenomenon for business, but these are some of the questions that

confront policy makers as they determine the need for and the direction of a national CSR

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policy. Governments are reviewing regulatory frameworks to integrate CSR into routine

corporate disclosure regimes. Who would have said ten years ago that a random debate in the

citizen sector would nudge the world into a new paradigm of corporate behaviour?

As we know it today, CSR has its roots in consumer consciousness and solidarity movements

in developed consumer societies that saw elements of social and environmental exploitation in

the behaviour of major global enterprises, whether they were mining or natural resource

exploration companies or retailers sourcing consumer goods and produce from cheap labour

markets in the developing world. From initial finger pointing and confrontationist strategies

spearheaded by NGOs and civil rights activists to the blossoming of a host of sustainability

partnerships between these same NGOs and their erstwhile corporate foes, CSR has definitely

come a long way.

Yet, even as the sustainability motive drives cooperation, lingering concerns about corporate

intentions and NGO agendas continue to muddy the discussion, especially in the case of brand

supply chains in the developing world to avoid labour practice norms or the environmental

impact of obsolete plants relocating to countries with less stringent safety or environmental

regulations. Thus the CSR discussion now impacts supply chains of multinationals (MNCs)

even in their remotest reaches. As a result, with an eye on their stakeholders to safeguard

repute and often attracted by the competitive advantage it brings, MNC’s are in the forefront of

demanding “responsible behaviour” from their suppliers or sub-contractors. This side of CSR

has of late been strengthened by initiatives from influential organizations like the World Trade

Organization (WTO).

Thus, multiple variables like stakeholder awareness, government initiatives, globalization and

localization patterns, and the highly volatile business scenario, all have had a role to play in

determining the centrality of CSR in today’s business environment. But, contrary to

expectation, CSR is not a defined code or a toolkit to be employed in the manner of an

operating manual. Rather, CSR is often a vision based on particular sets of values that

business leaders often aspire to, and as such is more of an ever-changing philosophy, quite

open to interpretation and re-thinking of business strategy based on decisions related to ethical

values, legal compliance, respect for stakeholders, and supporting communities or nurturing

environment.

Increasingly, CSR is being interpreted as the expectation society has of business. CSR is the

leadership vision that is more than occasional gestures, marketing oriented initiatives,

enhancing public relations or business affiliations etc. In contrast, it’s a comprehensive set of

policies and programs enriched with the urge for developing a better society.

This report presents the prevailing state of corporate social responsibility in Pakistan. The

report has been compiled on the basis of information shared directly by companies as well as

by extensive literature review from variety of public sources such as newspapers, books, on-

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line services, reports from various NGOs, academic studies and international conferences and

dialogues between governments, industry, academics and civil society. Starting with the brief

back ground about how the CSR roots were planted, the report explains the growth and

expansion apart from the need to conduct this type of research in Pakistan. The driving factors

have been discussed along with the influence in the countries like Pakistan. The research

methodology explains the development of the questionnaire catering the set parameters and

the data collection strategy. A detailed analysis has been established over the data collected

from variegated business sectors in Pakistan including the multinationals as well as the small

and medium enterprise. At the end we have proposed the strategy to fill up the gaps in the CSR

implementation and the steps essential for Pakistani businesses to compete their international

competitors by increasing their repute and maintaining their quality.

2.1. Why Map CSR in Pakistan?

CSR is now a mainstream business management issue the world over. A growing body of

research is enriching the business case for a socially and environmentally responsive corporate

sector. This was not always so. The nineties are believed to be a watershed in pushing CSR

towards the top of the agenda following a groundswell of consumer concern about standards of

corporate behaviour along product supply chains criss-crossing the globe. From product

integrity issues confronting brands like Nike and Martha Stewart, to process integrity issues

highlighted during the Shell and Barings episodes, the ethical dimensions of an enterprise’s

conduct became a focus of debate not only within citizen sector organizations where it had

originated, but among top decision-makers in Government.

Lobbyists and legislators, especially in Scandinavia and Western Europe were quick to echo

civil society’s demand for corporate accountability and disclosure. Enron drew in the USA into

the CSR debate as well, followed by tougher regulations on corporate disclosure. Other than

for a handful of corporations, this nexus of consumer demand and legislation has meant a

paradigm shift. The new millennium has seen companies in over-drive, rallying to present their

humane values in sharp relief to their traditional competitive qualities. The “stakeholder” had

finally arrived to share the boardroom agenda with the “stock-holder”.

This burgeoning demand for socially responsible business behaviour has been matched step-

for-step by a number of credible supply side efforts that help the consumer or investor

objectively differentiate between “good” corporate citizens and everyone else. With beginnings

in diverse contexts, raging from inter-faith groups to labour unions to watchdog organizations, a

set of globally acknowledged yardsticks are now available for establishing credentials of any

enterprise that wishes to be judged for its impact on society. These, including the ISO 14000

standard for environmental management systems, the SA 8000 social accountability standard,

and more recently, the Global Reporting Initiative guidelines for sustainability reporting, all

emerged in response to the need for a global set of implement-able CSR standards. The UN

Global Compact and the Johannesburg World Summit on Sustainable Development both

validate this trend for CSR. Closer to home Securities and Exchange Commission of Pakistan

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(SECP) has made a first contribution with its Code of Corporate Governance, and the 2002

Trade Policy articulated for the first time the government’s intent to mainstream international

industry benchmarks through appropriate institutional support.

Pakistan itself has had to learn quickly in adapting to the CSR paradigm. The country’s carpet

industry suffered almost a billion dollars of damage through the 1990s as a result of the Iqbal

Masih case, while the sporting goods industry stepped away from the brink only after the

Sialkot Partnership led by industry associations brought together the government, ILO and

citizen sector organizations to combat child labour. Since then the nation’s textile and edible

products export industries have continued to face demands by international buyers for CSR

credentials

Within this environment, it is unavoidable for Pakistan to actively consider evidence-based

strategy development as a first step towards creating a well-directed and meaningful CSR

culture in Pakistan. We have numerous examples of corporate philanthropy, which are

regularly presented as CSR. To explore how deeply corporate values are embedded in

organizations and to examine the role values are playing in Pakistan’s context, this study

emphasizes:

- how companies define

Corporate Responsibility and

Corporate values

- the relationship of values to

business performance

- to identify best practices for

managing corporate values.

3.0 WHAT IS CORPORATE SOCIAL RESPONSIBILITY?

Allan Hammond of the World Resources Institute says, “I don’t know of any developing country

government that can deliver services in a million places at once everyday. If we want to solve

some of these social problems, one of the best ways we could do it is to hire the right global

companies.”

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AREAS OF FOCUS FOR THE STUDY

1. The Need for CSR in Pakistan

2. CSR approaches being practised in Pakistan

3. Factors driving CSR, like reputation, loyalty etc.

4. Barriers to implementation of CSR

5. WTO requirements

6. Assessment of potential threats & opportunities

7. Policy or regulatory measures to support CSR

8. Outputs/targets industry can set to report on CSR

9. Identify best practices

10. Strategy for effective implementation of CSR


September 2005

3.1. How CSR Has Evolved through History

Corporations use natural and human resources from their environment to run their business

and generate profits, and they are responsible for the depletion of these resources and the

negative impact caused by running of their business to environment and the community

around their business. The CSR concept evolution started with the concerns related to the

damage created by business on environment and society at large by way of activities linked to

their business operation. Business are expected to clean up the mess they have generated to

the environment, Until 1980’s CSR was considered same as corporate philanthropy. The

current CSR concepts started formulating in early 80’s. In 1980’s and 1990’s examples like

Shell spoiling the environment and violating the human rights in Nigeria, started a new wave of

criticism which triggered a complete different thinking on CSR and hence many CSR

definitions emerged during this period.

On the other hand, companies like Nike and GAP Inc were hit by the bad repute of their

suppliers violating labour laws and exploiting poverty and promoting discrimination. When the

activist groups and governments felt that current laws governing environment, health, and

safety and consumer protection are weak to handle multinationals, the United Nations took the

initial step by providing a code of conduct for such trans-national companies. This step failed

due to the lack of support from governments and opposition from different organizations. As a

result a voluntary initiative, World Business Council for Sustainable Development (WBCSD)

was formed in 1991. This initiative was attacked because critics said that CSR actions should

be mandatory instead of voluntary. Critiques argued that voluntary CSR cannot hold corporate

operations accountable.

As a further development social auditing was introduced by third party verifiers to evaluate the

compliances and the social state of businesses. Social reports emerged as a result. In the late

80’s Ben & Jerry's ice-cream led in voluntary social auditing, opening up their records and

processes for evaluation and inspection. But because in these early days the process lacked

the rigour or standards against which performance could be measured, it did not create a major

following. Social and environmental standards began to be developed to cope with this

situation. Certification programmes have been emerging since all through the 1990’s. Several

certification-centred groups like Social Accountability International, Forest Stewardship Council,

Fairtrade Labelling Organizations International, and a host of others have continued to work on

different social aspects of CSR. Lately they have joined hands in the form of the International

Social and Environmental Accreditation and Labelling (ISEAL) group with a view to oversee

standard identification and standard implementation.

Hence, CSR has continued to evolve rapidly over the last thirty years. Even though it is still

favoured by corporate leaders, the old model of corporate philanthropy is looked upon more as

a self-actualization gesture than as socially responsible attitude. For example Andrew

Carnegie, the steel magnate who built libraries, universities and museums as a philanthropist

polluted towns with smoke and debris and dealt harshly with workers as an industrialist even

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CSR Approaches• Business Ethics• Cleaner Production• Environment• Fair-trade• Human Rights• Labor Practice• Workplace Safety• Occupational Health• Quality Management• Supply Chain Integrity• Triple Bottom line


September 2005

employing armed guards to shoot at strikers. In today’s environment libraries or universities

might not accept funding from a business known to pollute or be socially irresponsible. In 1999

students from a number of major US universities formed the Workers Rights Consortium

(WRC) to protest against Nike and its sponsorship programmes because of human rights

allegations.

Customer expectations and demand for “clean and green” companies have led to a number of

benchmarks and guidelines, such as the Sullivan Principles, the UN Global Compact and the

Organization for Economic Cooperation and Development (OECD) guidelines on multinational

enterprises. During the last decade, the adoption of the codes of conducts by the organizations

is an encouraging act. Several examples exist in the leather, footwear and apparel industries

establishing codes of conduct and monitoring programs not only due to the prestige and

competition but also with the aim to contribute towards society. Quite a few pharmaceutical

companies have reduced the prices of the drugs direly needed in the underdeveloped

countries.

The evolution from CSR theory to CSR practice can be broken down into several phases.

1. Pressure building up against the businesses

2. Wave of awareness by the society and the

stake holders

3. Realization of the responsibility by the businesses

4. Development of Policies and identification of

best practices

5. Implementation of the policies

6. Development of several programs to implement

CSR Performance and Compliance Evaluation

3.2

3.3 A Chronology of CSRCSR Drivers Year Crisis Focus

Pressure & Enabling OrganizationsBusiness action & Reaction

Civil Society Action & Reaction

• Denial• Information hiding• Environmental

disaster• Damage control

• Pressure Building• Voice Raising• H/C Rights Awareness • Criticism for Gov. &

Business

1960-1979

• Pressure building against the Government

1960 Amnesty International1l, WWF2and OECD3 founded

1962 “Silent Spring” by Rachel Carson exposed DDT4

1962 Cuban Missile Crises1969 Friends of Earth founded

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s and Business

• Demand for policies for compliance

• environmental and natural• resource limits• NGOs and environment• ministries formed• Demand for Compliance• Environmental NGO

1970 First Earth Day Celebrated in USA1971 Green Peace founded1973 Seveso Disaster, Italy, chemical reactor

ruptured and infected the ecosystem. 5

1973 Watergate Scandal USA1975 End of Vietnam War1978 2nd Oil Crises1979 Iran revolution / Soviet invasion of Afghanistan

1980 – 1997

• Human /labor right violations

• Corruption

• Environment Negative impacts

1984 Bhopal Disaster, India • Business responsibility

• Process Implementation

• Strategies development

• Policy development

• Efficiency• Risk management

• Capacity Building• Societal Awareness• Legislation development

Strategies development• Auditing• Accounting• Human Rights formulated• Collaborations/forums • Consumer actions

1986 Chernobyl Disaster, Ukrain1987 Montreal Protocol, intl. agreement designed to

protect the stratospheric ozone layer1988 Green Consumer Guide Launched 1989 Exxon Valdez Oil Spill, Alaska1989 Fall of Berlin Wall, East Germany1989 Tiananmen Square Massacre, China1990 Nelson Mandela Freed1990 20 Anniversary of Earth Day1990 SustainAbility formed1991 First Gulf War1992 First Earth Summit, Brazil1994 Triple Bottom Line1995 Shell’s Brent Spar issue1995 Shell’s Nigerian Scandal1996 Nike Sweatshops, Consumers boycott Nike1996 Mad Cow Disease1997 Kyoto Protocol6

1998 – 2005

• Globalization

• Demand for Responsibility in behavior & actions to SH.

• Security

• WTO

• Economic imbalance

• Governance

• Accountability

1999 Battle of Seattle • Accountability• Transparency• Governance • Global

Collaborations• Security • Stakeholder

involvement• Collaborations with

academia

• Demand for SR also from other Stakeholders especially from Government

• Diversity• Global Social

Responsibility• Responsible

Competitiveness• Governance• Capacity building• Enabling

2000 World Social Forum held - the WEF’s failure7

2001 9/11, terror attack changes the world history, highlighting security and civil human rights

2002 World Summit on sustainable development, USA

2002 Enron Scandal2002 American Invasion on Afghanistan2003 3rd Gulf War, UN credibility shattered2003 Parmalat Scandal, Italy2004 Iraq Turmoil, Abu Ghareeb human rights

scandal 2004 Madrid Train bombing, Spain2004 Shell reserves controversy2004 Tsunami Catastrophe , Indian Ocean

2005 London bombing, UK

Adapted Table 3.2

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3.3 How it is Currently Defined and Understood

Over the period of the past thirty years, the term CSR has continued to adapt to the changing

situation in businesses world over. The concept continues to go through its evolutionary march

and so does its definition. No one definition describes CSR, but each of the following reflects a

value-driven expectation that a business generates within its customers. A sampling is given

below:

“CSR is the organizations social license to operate, and is important to legitimize business

activity, particularly in the global activity where businesses are accused of practicing soulless

capitalism.”8 Corporations need to have powerful vision and highest values to go further than

compliance with current regulations and best practice.9

“Corporate Social Responsibility is achieving commercial success in ways that honor ethical

values and respect people, communities, and the natural environment”10.

“CSR means addressing the legal, ethical, commercial and other expectations society has for

business, and making decisions that fairly balance the claims of all key stakeholders”

“CSR when well practiced is about sound business practices and good management that

deliver value to businesses and their shareholders, as well as to society at large. This vision of

business hardly suggests that profits should take a back seat to other considerations” 11

“Globalization creates risk as well as opportunity and business leaders have considerable

responsibility to help make it a constructive rather than a destructive force. Responsible

behaviour toward employees, shareholders and communities is not a luxury for good economic

times but a core concern at all times”12.

“The key for corporations is that CSR activity is seen not as PR, not as philanthropy, but as

mainstream to the business – justified not just by altruism but on sound business ground”. 13

Stephen Timm’s definition above very clearly sets CSR apart from philanthropy which is

giving back to the community in some sense whether it is through funding, volunteering or any

kind donation or personal involvement and CSR involves more internally - focussed activities in

terms of HR policy, Ethical Business Practices, environmental regulatory compliance.

Corporate philanthropy is an act of giving and this business practice includes the giving of cash

gifts, the establishment of non-profit foundations, product donations, and employee

volunteerism or In addition to charitable giving, more corporations are becoming actively

involved in arts, education, culture, health and human services, and civic and community

outreach.

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A socially responsible company may include philanthropy as a part of its overall efforts to be

stakeholder-focused. However, corporate social responsibility implies a much broader

obligation than philanthropy alone. Socially responsible companies will consider the community

impact of all aspects of their operations, rather than reserving community issues until after

profits are made. Shifting one-time philanthropic donations into a focused program of

community partnering can be a good first step for companies that want to develop a

comprehensive approach to social responsibility.

However, it has to be made clear that CSR extends beyond the random act of generosity to

include such commonplace values as paying taxes, open disclosure, labour standards and

customer sensitivity. It is time Pakistan has a mechanism for collecting and analyzing credible

real-time data on accepted CSR variables within its multi-layered corporate sector. Only then

can we see CSR becoming a strategic asset for increasing industry competitiveness and a

socially responsive corporate culture.

Increasingly, companies around the world have adopted formal statements of corporate values,

and senior executives now started to identify social concerns as top issues on their companies’

agendas. The meaning of this new emphasis on social responsibility is less obvious than the

trend itself.

John Zinkin of Nottingham University explains, “defining responsible behavior and getting CSR

right is difficult because it is a journey, not a destination. As countries evolve, getting richer and

better educated, so society’s expectations of company behavior become more demanding. So

what was good enough yesterday may no longer be good enough today, and certainly will not

be good enough tomorrow.”14

CSR still is an evolving concept and has taken its shape based on different events in different

geographical contexts over a period of time. We can say it has gone through different stages of

evolution over the last 30 to 40 years, which can be referred to as “generations”. After the

massive destruction of World War II, the process of rebuilding and restructuring was begun.

International organizations were formed. Businesses were developed through incentives.

During the 1960’s and 1970’s several non-governmental organizations came into being, often

lobbying with governments to develop policies and laws related to human rights and fair

treatment for vulnerable segments of society 15 In the 80’s and in the mid 90’s the world

economy saw several ups and downs.

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CSR Dynamism

In a perpetually changing world, there is

A constant re-evaluation of what CSR means,

individually and collectively,

Within business, for government,

For societies in which business operates

And for the environment.”

Chris Perceval

Director CSR International


September 2005

Several international pacts were signed and organizations emerged to address a variety of

social and environmental problems collectively. Corporate governance and responsible

investment emerged as key areas of regulatory concern as a consequence of highly publicised

cases16. Concurrently, and perhaps as a consequence, several advocacy or enabling

organizations and initiatives have come into being in the face of the growing need for corporate

disclosure and social accountability17. The Fig (3.3) elaborates the focus on the activities

during these three generations. We are now on the verge of the 4 th Generation and importance

of CSR is still growing.

4.0 HOW IMPORTANT IS CSR IN TODAY’S

WORLD?

4.1. Global Principles, Local Application

Globally organizations, especially UN organizations,

are promoting CSR as the path to competitive

advantage and sustainable development. There is

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1st Generation Pressure driven engagement for pain alleviation with

localized benefits

2nd Generation Systematic engagement for

risk management and increased under-standing

of stakeholders

3rd

Generation Integrated

Strategic engagement for sustainable

competitiveness

Fig (3.3) ©AccountAbility

The Sullivan principles act as a benchmark of CSR

• Express our support for universal human rights and, particularly,

those of employees, the communities.

• Promote equal opportunity for employees with respect to issues

such as color, race, gender, age, ethnicity or religious beliefs...

• Compensate employees to enable them to meet at least their

basic needs and provide the opportunity to improve their skill

and capability

• Provide a safe and healthy workplace; protect human health

and the environment.

• Promote fair competition including respect for intellectual and

other property rights.

• Work with governments and communities in which we do

business to improve the quality of life.

• Promote the application of these Principles by those with whom

we do business.


September 2005

emphasis on designing projects to facilitate less developed countries in understanding and

implementing CSR.

UNCTAD is assisting developing countries18 in designing and implementing active policies

for building productive capacity

and international competitiveness

based on an integrated treatment

of investment, corporate

responsibility, technology transfer

and innovation, enterprise

development and business

facilitation (including

transportation and information

and communication technology),

competitiveness, diversification

and export capacity, to sustain a

high level of growth and promote

sustainable development’.

According to a survey conducted by PriceWaterhouseCooper to reach CEO’s around the word

to gather their view on CSR "Many Global CEOs seem to view their companies' social

reputations as a work in progress. While 47 percent are resolutely proud of their companies for

having a positive social reputation, another 41 percent offer a qualified view-'to some extent'

The survey reported highest confidence in CSR reputation amongst North American CEOs,

with 64 percent feeling strongly that the public perceives their company as a positive social

performer and 30 percent feeling somewhat guarded confidence.

Asia-Pacific CEOs have the lowest confidence in public perception of their companies as

positive social performers, with only 28 percent feeling strongly confident and 54 percent

feeling more cautiously confident. CEOs definitions of CSR differ across regions. As a group,

CEOs prioritize workplace safety and responsiveness to all stakeholders, regardless of legal

requirements, as the key defining components of social reputation, with over 80 percent

support. However, North American CEOs' prioritize supporting community projects over

workplace safety in their definition of CSR, while Central/South American and European CEOs

prioritize workplace safety highest. About 60% CEO believe that CSR is vital to profitability

and stress that CSR must remain a priority, even amidst the current economic downturn.

According to Nitin Desai, the UN Under-Secretary-General the evolution of corporate social and

environmental consciousness over the past decade, with corporate supporters of these

initiatives is growing from a small minority to a larger, more legitimate minority. Marketplace

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Ambreen Waheed

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September 2005

competition, as well as burgeoning environmental and social consciousness in society at large,

may create the critical mass necessary to push this minority into a majority.

Ben Cohen, founder of Ben and Jerry’s homemade ice cream and a well-known social

entrepreneur believes that businesses tend to exploit communities and their workers and he

thinks that this is not the way the game should be played. He envisions that “business has a

responsibility to give back to the community because the business is allowed to be there in the

first place, the business ought to support the community, and business get community support

when they support the community.”

4.2. Insurance against Bad News

While corporations need to adopt common values that work across cultures and nationalities,

they also need to be sensitive to local communities, cultures, norms and work practices. CSR

is a corporate survival issue. In the e-information age any negative news can be a Tsunami for

even the most stable of organizations, Good news are short lived but negative news has a long

lasting negative impact on stakeholders. It can wreck market confidence, effect customer

loyalty and enrage general public. The media highlights corporations for their failures rather

than their successes – and unethical behaviour even if it is unproven means a blot on

reputation that takes a long time to clean, even with the most strident of remedial steps. The

ensuing cost to competitiveness is not difficult to surmise.

Being proactive and embracing CSR at the earliest possible is a

good risk managing strategy for a company. In today’s world social

responsibility, corporate values and community initiatives have a

major role in increasing profits through larger sale of product by

responsible companies. It’s the best management tool for voiding

and mitigating business and marketing risks.

Over recent years it has become more and more evident that customers reject products

developed, made or marketed through ways that generate unethical profits, even if it generates

profits for shareholders, who too are progressively becoming wary of such sensitivity.

Increasingly, there are growing legal implications linked to unethical business practices.

Corporations are finding it a challenge that is difficult to respond to. The global stakeholder

mindset reflects that mere compliance to regulation is not enough to label a corporation as

socially responsible. Even

companies that appear 100%

compliant today can still land up

in trouble tomorrow because

history tells us they will be

judged by tomorrow's standards

even when their past is examined. There is a need for companies to be more “futuristic” and

proactive in their thinking so they can lead the market by anticipating new legislation. It is now

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Whether you

“believe” in it or not,

CSR is a corporate

survival issue

CSR Opportunity

Globalization creates risk as well as opportunity, and

business leaders have considerable responsibility to help

make it a constructive, rather than destructive, force,"

DiPiazza.


September 2005

possible for companies to make a difference not only with their products but also with their

values.

4.3. Risks of Non-Compliance

Businesses had to pay a huge cost for failing to understand and integrate socially responsible

values and practices in business dealings with stakeholders. There are several examples that

alarmed the business sectors over the last two decades and enforced them for a strategy

change. A company’s repute and success is dependant on the relationship with all these

stakeholders. Relationship building is a key to success of any business and it’s only possible

when the business practices are the ones acceptable to everyone. Several corporate scandals

have been highlighted by the pressure agencies like NGO’s, media, internet etc.

In the 70’s and 80’s Shell was heavily criticized for continuing to carry out the business in South

Africa and breaking anti-apartheid sanctions. Shell’s intimate involvement in Nigeria while a key

opposition leader was assassinated and its role in environmental damage in Ogoni-land too

brought severe criticism against the multinational. The watershed event was by many

accounts, the Brent Spar crisis in 1995. Greenpeace. Opposed Shell’s decision to dismantle

and dispose of one of its oil platforms in the North Sea. Initially unmoved Shell ended up paying

a price in image and reputation, costing them more than double to what it would have cost to

decontaminate the structure and reuse or dispose of the waste on land. In the face of consumer

boycotts even a mighty company like Shell came to feel the might of the mass market, and

bowed to public opinion in the new media war.

Nike, the world leader in sporting goods, was struck by controversy over their labour practices

in Asia. This too led to massive consumer boycotts, negative publicity, stakeholder and

pressure group criticism, and created an emergency situation for the top management in which

the company was compelled to change their policies and devise a new strategy to clean up

their supply chain and make their suppliers compliant with the standard practices. The Nike

issue acted as a catalyst to bring about a change in management policies and pointed out that

consumer expectations are not restricted by geography.

The Enron scandal was another landmark in the history of CSR and built up a strong case for

its implementation. Enron came up from nowhere to become America’s largest company in just

15 years employing 21,000 staff in more than 40 countries. The company was spotlighted by its

corruption, bribery and false projection. Enron’s declaration of false profits, political lobbying,

shredding of documents and auditors inability to reveal companies unorthodox business

practices are just a few of the major charges. The Company had to face criminal investigation

and law suits and bad repute; transparent reporting then emerged as a solution to avoid such

corruptions in future which emphasizes the ethical dimension of CSR. Enron’s latest report on

environmental and social situations outlines this as a measure taken and how the company is

gearing up to address human rights, environmental problems, and health & safety issues etc.

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September 2005

4.4. Factors Driving CSR Growth

The changing scenario of business across the world due to globalization has instigated

governments to regulate business and develop policies compliant to this emerging situation.

These policies target traditional corporate performance variables such as environmental

performance, working conditions and marketing ethics etc. According to its promoters

globalisation is promoting democracy as well as economic growth. Companies can work with

local communities for sustainable development programs by conveying clear values and

principles, and accepting responsibility for workplaces and workplace conduct, companies can

not only build trust and mutual understanding with stakeholders, they can also support the role

of governments. As for its detractors, globalization can be contained by encouraging CSR as a

foil for runaway commercialism and exploitative business practices. This is a rare convergence

in support of CSR from completely opposing perspectives.

Customers can be both from businesses or consumers. Studies have shown that their interests

and purchasing decisions are linked with

social criteria, especially judging the

environment and human rights. Awareness

of various stakeholders including

shareholders and the general public has

increased over the period. This awareness

has increased the expectations they had of

businesses thus creating a pressure on the

businesses to adapt to the social and

economic well being. Increasing

interdependence of shareholder values and

the corporate values have brought up a

strong case for top management about CSR.

There is increasing awareness among business leaders in the developed economies that

practicing corporate responsibility affects their corporate reputation and brand image.

Demand for disclosure has increased over time from the customers, investors, regulators,

community groups, environmental activists, trading partners which have resulted in a variety of

social audits that explains the social performance of an organization. NGO’s have also played a

major role in turning the spotlight on the corporate practices creating pressure for the non-

compliant organization and boosting the activities of the organization practicing or planning the

CSR strategy. Also there has been a rapid growth in the ‘CSR industry’ of consultants and

accounting firms who are driving the social reporting trend, while representing that the driving

force actually comes from the organization’s stakeholders. Companies that base their business

decisions on profit margins alone and ignore their impact on stakeholders can pay a heavy

price in both the court of public opinion and the stock markets.

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Global CSR Trends

CSR is now a mainstream business principle

Triple Bottom Line is an accepted tool

Voluntary disclosure is gaining ground

CSR departments are now commonplace

CSR is now seen as an investment not a cost

SRI Indexes are outperforming others

Business schools teach CSR at PhD level

© Responsible Business Initiative-2003


September 2005

The Nike experience was a catalyst for bringing supply chain issues into the spotlight, that

consumer expectations from their favourite brands business are not geographically restricted to

their home country but based on universal principles reinforced by the fast expanding

information society that links all manner of stakeholders. Nike’s misfortune was that it became

the symbol of what every other global brand seemed to be doing – disregarding their

responsibility to exploited workers or an endangered environment. But Nike has also ended up

having to lead the pack in changing their previous business practices at headquarters as well

as along their supply chains in developing countries.

HOW IS CSR CHANGING WITH GLOBALIZATION?

4.5. World Trends in CSR Demand & Supply

The European Commission has established a “European Multi-stakeholder Forum” to exchange

best practices and explore the European approach to CSR. Corporate progresses towards

greater responsibility has always been the result of both push and pull forces. Business

leaders pulled their organisations to higher standards and, their counterparts in society pushed

for change.19 Pascal Lamy, EU’s Commissioner for Trade strongly advocates that in order to

extend the limited societal benefits of CSR practices it needs to be integrated into broader

strategies and public policies.

4.6. CSR and WTO Requirements

CSR is one of the responses to the imbalances resulting from

the acceleration of the globalization process. Imbalance

between the advanced governance system in industrialised

countries, who dispose of a highly sophisticated set of

economic and social regulations, and the lack of such

governance in developing countries as well as at international

level.20

International growth of business and the efforts of WTO to remove global barriers has also

pressurised the smaller economies to become competitive. Big business entities are not only

concerned about their CSR strategies, companies are also keen to ensure that their suppliers,

distributors and even consumers are informed about the company’s ethical and social

performance.

Investment groups have also started pressing the companies on their social issues. They

require disclosure on wide range of CSR issues including environment responsibility, workplace

policies, community involvement, human rights practices, ethical decision making and

corporate governance.

4.7. Business Case

Our research also focuses on different definitions and benchmarks being used globally in major

regions and at how business is being impacted in terms of their profitability and productivity by

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To make CSR into a business case, companies have to under-promise and

over-perform.©Responsible Business

Initiative-1999


September 2005

implemented CSR practices. The business case for CSR is now a reality proven through a

number of researches. Case studies of organizations all over the globe have clearly identified a

linkage between socially responsible practices and greater financial gains21. In Pakistan, on the

whole, the business case for CSR is yet to be understood in terms of competitiveness and

business advantage. If we assume that business schools teach what they determine as useful

to their pupils, then this finding is reinforced in the lack of importance being given by them to

CSR. Moreover, we find that companies often feel that resources expended on mandatory

social or environmental compliance is CSR. And that their donations to charity are CSR

costs.

The challenge is to create companies that have the vision and capacities to create socially and

environmentally responsible business models that can outperform competitors who do not

accept this challenge. Some of the proven benefits to business are discussed below:

4.7.1. Access to Markets

According to socialinvest.org SRI funds have increased from 40 billion US dollars in 1984 to 2

trillion US dollars in 2003. Socially Responsible Investments have risen by 7% over the past

year even as the total volume of investments has declined 4%. Companies addressing ethical,

social and environmental responsibilities have growing access to capital.

4.7.2. Improved Financial Performance

Several academic studies have shown the connection between socially responsible business

practices and positive financial performance. It’s found out that unethical corporate behaviour

directly affects the stock prices.

4.7.3. Slide in Operating Costs

Environmental stewardship and workplace safety initiatives help improve work place practices,

and processes, reduce wastes, and resource consumption. Thus they improve productivity and

reduce costs. Enhancement of social standards and benefits result in employee retention which

saves hiring and training cost and increase profit by improved productivity through stable work

force.

4.7.4. Brand Image and Reputation

Companies or brands with good image and clearly defined strategy on corporate social

responsibility attract a large number of customers. A socially responsible organisation can

benefit from its good reputation amongst its customers and is also recognised as a respectful

entity in their business community. Increasing their ability to attract investment and trading

partners. Saves revenue on advertising to restore brand image and increase financial viability

through increase share prices.

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September 2005

4.7.5. Growing Sales and Customer loyalty

The common concerns of the customers include price, quality, appearance, taste, availability

safety and convenience. CSR has created potential incentives for entrepreneurs who can now

cater a growing market segment of ethically motivated consumers who are inclined to value

based criteria. A good example from Pakistan is Saga Sports, whose investments in

community infrastructure and socially responsible manufacturing made it the world’s largest

soccer-ball manufacturing company despite a business environment fraught with child labour

allegations

4.7.6. Productivity and Quality Enhancement

Companies that invest in the working conditions and environmental friendly atmosphere and

also involve the employees in decision making tend to have an increase in productivity.

Employee loyalty and dedication results in effective man hour utilization and hence increase in

quality.

4.7.7. Employee Retention

Companies perceived to have strong CSR commitments often find it easier to recruit

employees, particularly during tight labour markets. Retention levels may be higher, too,

resulting in a reduction in turnover and associated recruitment and training costs.

4.7.8. Less Scrutiny by Regulatory Bodies

Another important advantage observed in case of organizations practicing corporate social

responsibility is that they are less scrutinized by the regulatory authorities and are given prompt

treatments and extra benefits.

5.0 HOW DOES CSR FIGURE IN THE PAKISTAN CONTEXT?

In the West CSR has become a touchstone of Corporate trust and a predictor of business

longevity. In Pakistan, CSR is still a buzzword for most of the organizations and individuals.

Businesses are in a process of attaining the internationally accepted norms of corporate social

responsibility often either misunderstanding the true philosophy of CSR or ignoring it. The

multinationals in Pakistan are ahead of this wave, due to their international linkages and are

actually adopting the standards followed in their

head-offices in the developed countries. The birth of

several NGO’s working for CSR related issues have

expedited the awareness process. The pressure

raised by their voice has actually instigated the

government and the businesses to develop

strategies complying with the international

standards. Still there is a need to involve civil

society and the academia to make a powerful CSR

strategy for Pakistan that can be implemented in addition to a strong national body that can

enforce the regulations.

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Need for change

Systemic change is needed. Discontinuities

will lead the core of the global economic

system — i.e. the financial community — to

value the material importance of sustainability

management.

Ernst Ligteringen, GRI

Global Reporting Initiative, Netherlands


September 2005

Multinationals and quite a few large nationals have policies committing to environmental, social

and ethical compliances and they have also invested in community projects which includes

welfare, primary education, adult literacy and health sector projects, media awareness and

vaccination campaigns, establishment of hospitals and diagnostic centres. Some focus is also

on cultural programmes such as, charity shows, sports events which are mainly initiated to

enhance brand image and product publicity.22 All these corporate activities are cyclical and

reflect a non-strategic and non-business approach to very good societal investments. These

activities are a useful component of CSR, referred to as Social Investment. It is mostly a step

that makes a difference, but companies can create an even larger impact towards sustainable

development if they consider strategically sound CSR investments.

5.1. CSR Practices in Pakistan

State of CSR in Pakistan is still in its infancy. Only few companies have an existing CSR

strategy and mostly they are the multinationals who follow their own CSR policies and S

standards. Unfortunately, the local industry is either unaware of the benefits brought by CSR or

they feel that even if they do not adopt such policies, they are not in any state of danger. The

apathy of the local business sector was highlighted in the 1996 by the breakdown of the local

carpet industry and the threat of damage to Sialkot’s sports industry. Labour exploitation, child

labour, inadequate employee benefits and unsuitable working environment were few areas

pinpointed by the international eye. Though taking the reactive measures, the joint effort of the

industrialists saved the greater damage foreseen, but not much has been done to take more

proactive measures.

In 2003 a multi stakeholder forum

“Pakistan Compliance initiative” was

launched with support from

international buyers, the textile sector,

and the Ministry of Commerce. A draft

national standard was developed for

use as compliance standard approved

by Government to replace many

International social and environment

compliance standards and buyers code of conduct. The result of this effort was inclusion of

social compliance in the trade policy and initiation of a project proposal by Ministry of Science

and Technology to European Union for encouraging SA800 implementation by subsidizing

consulting and implementation cost.

In Pakistan CSR is frequently equated with corporate philanthropy, the terms being often

mistakenly used synonymously. Some consider CSR to be a simple compliance with law.

This creates a difficulty because top management is still uncertain about the true meanings of

CSR. This indicates the need for a mass awareness campaign supported by the government,

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Why we need CSR Strategy in Pakistan...

- Money is better spent for preventive interventions

- It costs less over time to fix the process

- It costs more over time to fix “end-of-pipe”

- One-off philanthropy is good but not sustainable

- Business goals are better achieved if linked to CSR aims

- CSR leaders enjoy entrepreneurial advantage too

©Responsible Business Initiative -2000


September 2005

targeting businessmen, entrepreneurs and customers so that they are able to appreciate CSR

and also the general perils of non-compliance in today’s environment. Frequent and open

discussion defining and understanding CSR, detailing its nature and promoting and developing

methodologies on how local businesses adopt and manage their CSR obligations would be a

useful first step.

5.2. Initiatives by Support Organizations in Pakistan

Since the inception of the concept of CSR and the awareness, several organizations have

evolved over the period of time that have played a major role in creating the awareness,

pointing out the issues and fighting the injustice. In Pakistan this activity has not been

encouraging so far. Since the idea is hardly a decade old, few organizations have been formed

to work on different issues incorporated in CSR. The table-5.2 elaborates the initiatives taken

by different organizations and the key areas they are working on.

There is a slow growth of the ‘CSR industry’ of consultant firms who are charging highly to

corporations who want to ride the CSR bandwagon. They pose a risk of misguiding

corporations to get involved in “green washing” by doing token efforts or replicating policies

and projects done by other Global Corporations or their competitors without realizing the real

impact of their initiatives. These corporations sometimes claim that the driving force actually

comes from their stakeholders.

- Academia

Academia has a very important role in shaping the future Business Leaders in Pakistan. As an

extension of this study, RBI asked faculties, departments and institutions recognized by the

Higher Education Commission whether they taught CSR as a course or whether it was a

subject for faculty or student research. The study found no CSR department or unit in any

institution within the sample and no faculty member carrying out primary research on CSR

issues. Also, with the exception of the Institute of Administrative Science at the Punjab

University where a special elective is offered, this study found no CSR courses being taught.

There are examples of conferences where CSR is made a topic for panel session, but it is often

observed that the focus of these presentations labelled as CSR tends to examples of corporate

philanthropy and the examples cited as CSR best practice often describe charitable acts by

companies. In a situation where there is a lack of both theoretical and practical CSR

knowledge and experience, this attitude invariably goes unchallenged.

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September 2005

- Media

The Media plays a large role in consumer awareness and in creating demand for responsible

behaviour from business on globally accepted parameters. In Pakistan the Tele Media as well

as newspapers are often silent on these issues. We see a few programmes or interviews on

some television channels, but the focus is often limited to elements like labour rights or

environmental compliance. A few supplements on related topics like environmental reporting

and CSR best practices mainly write about the odd corporate community project or

environmental reports. Main CSR parameters are still missing from media.

Organization Initiative FocusACCA – Association of Chartered

Certified Accountants

Reporting Award Environment

GTZ – German Technical Cooperation Partnership for awareness European social standardsILO – International Labour Organization Monitoring for child labour

compliance

ILO code, child labour, labour

rights, Decent Work conditionsLEAD-Pk – Leadership for Environment

& Development – Pakistan

Component in overall training

programme

Environment

Corporate Philanthropy

Corporate investmentNCP Cleaner Technologies Environment

NPO Productivity Environment, Trade

PCI – Pakistan Compliance Initiative Criteria development Social Compliance

Pakistan Centre for Philanthropy NGO Certification

Community work

Philanthropy

Corporate givingOrganization Initiative Focus

RBI – Responsible Business Initiative Research, awareness

Capacity building,

Standard/tools development,

Strategy building

Stakeholder Dialogue

Training/Teaching

International Linkages

Impl. & Impact assessment

Global CSR policy

Tools development

CSR-10 pillars, Tripe Bottom Line,

Global Responsible Leadership

Initiative, Social auditing, GRI

UN Global Compact, SA8000,

UNCTAD/ISAR, AA1000,

Accounting Standards

Responsible Entrepreneurship

Sustainable consumerism

Responsible competitiveness

SECP – Securities and Exchange

Commission of Pakistan

Codes development

Research, Regulation

Corporate Governance

CSR UNDP – United Nations Development

Program

Research projects Corporate Governance

Environment, Global CompactUNCTAD – United Nations Conference

on Trade & Development

Reporting Standards Corporate transparency

UNIDO – United Nations Industrial

Development Organization

Triple Bottom Line project

Cleaner production centres

Efficiency, sustainable business

principlesGCF – Global Compact Foundation

Pakistan

Compact signing GC principles

Table (5.2)

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September 2005

5.3. CSR in the Light of Islam

Islam favors fair and ethical business as the best source of income. It aims to promote mutual

benefit in business interactions. Islam reinforces transparent and corruption free written

contracts, acceptable working conditions, fair exchanges for both natural resources and human

effort. It advocates “Tazkiyah”23, through active participation in this life and by behaving

ethically in the midst of the tests of this dunia (world). Muslims prove their worth to Allah by

upholding Huquq-ul-Ibad (Individual Rights) and care for society, and sharing wealth with poor

and underprivileged. Actions and decisions are judged to be ethical depending on the intention

of the individual. God is omniscient, and knows our intention completely and perfectly. Good

intentions followed by good actions are considered as acts of worship. Halal (good) intentions

cannot make haram (bad) actions halal)24. Islam allows an individual the freedom to believe and

act however he/she desires, but not at the expense of accountability and justice.

The Shariah (Islamic law) defines codes of social behaviour, and business ethics according to

which today’s business investors can invest in socially responsible companies. One example

of applying the Shariah in socially responsible investment is the Dow Jones Islamic Fund –

IMANX – which invests in Shariah -compliant companies to encourage muslims seek a blend

between financially rewarding and faith-compatible investment opportunities. Thus it makes a

strong business case for companies in Pakistan to adopt Islamic business principles as part of

a national compliance code and support a disclosure and verification system to validate

performance against it.

6.0 IS THERE A CSR ROLE FOR GOVERNMENT?

6.1. Examples from the World

Governments can play a unique and powerful role when it comes to corporate responsibility. It’s

widely accepted that countries and governments that respect human rights have more open

and transparent laws and financial systems, less corruption, a better-educated workforce, more

stability and more security. In order to establish the global rules and regulations imposed by the

international organisations, and making their businesses compliant to the international law and

practices;

- Governments should pursue their traditional function of promoting trade and business

through a proper policy. Supporting economic growth establishes a support for

democracy. The strongest foundations for the stability, predictability, and security

necessary for a sustainable business environment are democratic governments that

protect human rights and labour rights.

- Government must work with companies to promote strong corporate values which

promote legal and ethical behaviour as well as respect human rights and labour rights.

- Governments should support and facilitate public-private efforts to promote corporate

responsibility bringing seemingly disparate groups together for serious efforts to address

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September 2005

mutually recognized problems. The Voluntary Principles and Social Accountability

International are two good examples of such efforts.

- Governments should support existing international standards and adopt them in their

policies to delegate them to their local businesses making them readily competitive for

the international market.

- Governments should help civil society, business, academics, NGO’s and unions to join

hands together and craft credible solutions for their day to day problems and help them

implement that throughout the business chain.

- Governments can promote the CSR agenda through legislation, media and create

awards to encourage the organizations to adopt the changes.

The importance of CSR for United Kingdom is depicted by the

fact that they have a Minister for CSR. Stephen Timms, Minister

for Corporate Social Responsibility, welcomed a social

responsibility investment index saying, “Corporate Social

Responsibility has a vital role to play in our society. It's living

proof that economic and social goals do not have to be in

conflict. And it can address some of the toughest challenges our

society faces”.

6.2. Meanwhile, In Pakistan…

The conduct of for-profit businesses in Pakistan is regulated through comprehensive principal

legislation in the form of the Companies Ordinance, 1994, overseen by a statutory body like the

SECP, and business interests are represented by duly recognized representative bodies such

as trade associations or chambers of commerce. This structured and supervised mechanism

imparts strength to the concept of process integrity by instituting transparency and

accountability. .

- SECP is reviewing corporate governance legislation and regulations that will bring into

focus elements of corporate disclosure, shareholder liability and transparent

accountability.

- NAB has unveiled a national anti-corruption strategy that lays down parameters for

corporate compliance.

- The State Bank has outlined new regulatory frameworks on financial responsibility and

probity.

- Internationally recognized guidelines such as SA8000 is getting support from

Government

- In 2003 “Pakistan Compliance initiative” was launched with a draft national standard as

a compliance standard approved by Government.

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“Role of Business in Society

is the 21st century's

most important and

contentious

public policy issue”.

Simon Zadek


September 2005

- Compliance was declared a priority in the national trade policy, however, little progress

was seen at the practical level.

- PNAC initiated awareness seminars on SA8000, social compliance standards in 2003

at all major chambers of commerce in the Punjab.

- A proposal was made by Ministry of Science and Technology to the EU for subsidizing

SA800 certification among Pakistani suppliers and companies

Corporations, people and innovative CSR initiatives need Governments support, in terms of

policies and acceptance of the initiative, more than financial investment.

GAPs

- There is no evidence of the various tenders, requests for proposal (RFP’s) or terms

of reference (TOR’s) for government contracts advertised or initiated by its departments or

agencies specifying any CSR-related parameters25 as criteria for selection. This could help

in promoting the management aspect of CSR.

- There is no confirmed information on any clearly articulated tax incentives or

recognition from Government for good business practices and innovative initiatives like

research & development for sustainable technologies.

- The research could identify no work in progress on the development of CSR-

related policies based on emerging global requirements to facilitate Pakistani companies in

improving and expanding export and trade in international market.

7.0 WHY THIS STUDY AND HOW

7.1. Methodology

Based on available data, a universe of companies was identified, stratified and randomised into

a representative cohort of about 100 companies. A detailed survey instrument was designed in

keeping with the data requirements articulated in the TORs, with due reference to current

international CSR trends and issues and benchmarks. This instrument was based on the RBI

“Pillars of CSR” model within the context of the “4-Ps26 of CSR embeddedness” in a

Knowledge, Attitude and Practice (KAP) format. It was administered to identify stakeholder

respondents.

A ten-level multi phased CSR performance grid was used to inform the survey instrument and a

triangulation methodology was adopted for administering the survey involving a three-step

process. First, respondents were identified within the subject organization through a signed

letter of intent and baseline information acquired. Second, an information pack was sent out

with the survey instrument directly to individuals identified as respondents. Third, a trained

data collector personally validated the response in discussion with the respondent. The

methodology was kept adaptable and flexible

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29


September 2005

This research is specific to the current state of corporate social responsibility that is being

practiced in Pakistan. Questionnaires were dispatched to over 100 organizations from 10

sectors, a mix of multinationals and national companies, including small and medium

enterprise. The sectors include

1. Textile

2. Tobacco

3. Pharmaceuticals

4. Fuel & Energy

5. Chemical & Fertilizer

6. Cement & Building

7. Financial Institutions

8. Leather & Footwear

9. Telecom & IT

10. Sugar & Food

11. Consumer product & services (misc.)

A detailed literature review was conducted to inform the context and the approaches currently

being followed and the type of organisational best practices relevant to Pakistan. This led into

a comprehensive super-set of questions, which was shared with SECP for review. This set of

questions for assessing respondents’ CSR awareness, practices and performance was then

split into three separate questionnaires, to be used in three steps.

The first questionnaire served as an introduction between the questioner and the focal person

from the organization. Getting the initial details about the company, its strengths, locations and

practices, the second questionnaire acted as a detailed evaluation on the state of corporate

social responsibility. It judged the organizations on the basis of several essential parameters of

corporate social responsibility. These parameters

include:

1. Corporate Governance

2. Business and Ethical Principles

3. Environmental Compliance

4. Social Compliance

5. Disclosure – Environmental and Social

6. Product Integrity

7. Corporate Giving & Community Investment

8. Stake Holder Dialogue

9. Financial Performance

10. Supply Chain Security

For each parameter a set of KAP questions was

devised. The questionnaire was purposely kept

very detailed to instigate respondents’ thinking. The two-fold purpose was firstly to get detailed

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Ambreen Waheed

30

Questionnaire 1 sought general

information about the respondent

organization’s business, human

resources and systems.

Questionnaire 2 asked for detailed CSR

information based on the KAP approach

according to the RBI’s 10 parameters

and global benchmarks.

Questionnaire 3 asked for the CEO’s

direct views on CSR and the success or

failure of their various initiatives, if any.


September 2005

understanding of the respondent’s CSR aspirations, issues, impediments and expectations and

to have evidence-based qualitative data for a designing future strategy. Secondly, it was to

facilitate participating organizations in understanding CSR and assist in a gap analysis of their

respective CSR practices as a result of the question-answer process. The questionnaire

served to also standardize the information exchange in line with a framework based on a global

benchmark. Sample questionnaires are attached as appendices ( APPENDIX A). Responses

to all three questionnaires were cross linked and integrated for an In-depth qualitative analysis.

Recommendations were prepared for taking action toward a National CSR Strategy. The

research findings and recommendations were presented for validation to the leaders of the

participating companies and other major stakeholders through an Apex Consultation process.

The consultative process created larger awareness and generated interest for actions. (see

minutes attached- APENDIX B)

7.2. Benchmarks

The RBI Pillars and the Perception model is derived from the consultant’s local and overseas

experience, of developing business and social standards, fair trade criteria, CSR and reporting

indicators independently and as a team member with International organizations such as

UNCTAD, SAI, GRI, Accountability, FLO, etc. Additional benchmarks being used in different

regions were also reviewed to include all the various perspectives relating to the fast-evolving

thinking on CSR. A number of CSR experts from RBI’s international collaborating partners

were also consulted to get a balanced approach while designing the three questionnaires.

The Table (7.2) introduces some of the well recognized organizations from different regions

who have pioneered and developed or are in the process of developing CSR tools and

Benchmarks. These include guidelines, criteria, indicators, benchmarks, frameworks for

facilitating and implementing CSR

.

Table (7.2)

8.0 RESEARCH FINDINGS

8.1. Data Analysis

Ongoing debate on how countries are gaining competitive advantage using CSR as a

management tool reflects the importance this approach has for companies continuously

seeking the next formula for success. There is evidence that national strategies are being

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Ambreen Waheed

REGION BENCHMARKS byEU UNCTAD,GRI, FLO, ILO, TransparencyUK Accountability, BIC ,FTSE4GoodUS BSR, GC, SAI, OECDAsia Pacific BIC, CSM, CCSR, IBL,PBSP,RBISouth Africa AICSRSouth America Ethos

31

Measurement Frame work

AA1000- process framework Brands - CoCFTSE- FTSE4 good index Keidanren- Quality standardsGlobal Compact- COPGRI Reporting guidelineILO- Resolutions on HRICCR- Code for ethicsSA8000- Social standardRBI- CSR managementTransparency- BP for Bribery


September 2005

developed to facilitate corporations overcome impediments that prevent them fulfilling their

corporate social responsibilities.

If CSR is to be regarded as an integral part of business decision–making, it merits a place in a

company’s core mission, vision and value statements, succinctly related to its business goals.

This research found “quality” and “customer satisfaction” as aspiration values occurring

frequently in corporate statements, owed no doubt to the consumer demand for such attitudes

from business and the realization that they affect the bottom-line. Likewise, perhaps as an

indication of the changing paradigm, mission or vision statements of companies aspiring for a

“socially responsible” image frequently refer to going “beyond mere profit” or “creating social

value for stakeholders”.

Results of this study, discussed below in detail show that Pakistani corporations, barring a

handful of enterprises, remain outside of the CSR mainstream. CSR thinking is still confined to

a select few who often believe philanthropy to be responsibility. CSR leaders responding to

queries in connection with this research stress that Pakistani businesses must learn fast to ride

the CSR bandwagon. Otherwise others in the region would benefit from the gains in

competitive advantage.

From the findings of this research what appears to be a priority is a clear and realistic

appreciation of the business case for CSR and the systemic advantages it bestows on the day

to day running of a company. SECP’s recent efforts indicate that it may be best placed to

provide the leadership for achieving consensus on a National CSR Strategy developed through

a consultative process and the active involvement of the corporate and citizens sectors, and the

patronage of government ministries directly working for trade promotion.

8.2. Response Analysis

Over 100 companies were invited to participate in this survey. They represented the following

sectors:

1. Textile

2. Tobacco

3. Pharmaceuticals

4. Fuel & Energy

5. Chemical & Fertilizer

6. Cement & Building

7. Financial Institutions

8. Leather & Footwear

9. Telecom & IT

10. Sugar & Food

11. Consumer product & services (misc.)

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32


September 2005

Fig (8.2)

Of the companies invited to participate, about 35% responded to the survey questionnaire.

Multinational, fuel and energy, and financial institutions showed 70% response which is so far

the best percentage. None of the pharmaceutical companies responded to our call. Based on

our frequent interaction with companies, we found the following factors responsible for lack of

participation:

1. Lack of Interest: The general perception elicited from respondents about research is

that it is an academic exercise which has no direct benefit to their business. These

perceptions seem to be based on respondents’ experience of previous research surveys

that have a tendency for ending up in reports and research papers with limited practical

outcome. Respondents overwhelmingly said that they consider surveys as a mere waste of

time27.

2. Lack of Awareness: For a majority of respondent organizations CSR is a new and

alien concept and it appears there is significant resistance towards adopting CSR best

practices particularly among family owned businesses. Respondents confirm that there is

a perceived apprehension of “getting exposed” with regard to their relatively low

compliance with even existing mandatory requirements, and aspiring to major CSR

benchmarks increases this feeling of vulnerability.

3. Lack of Learning: Most of the companies who agreed to participate in the survey

expressed difficulty in responding to the questionnaire because either the questions on

CSR were not understood within the context of business or specific data were not available

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Ambreen Waheed

0 10

20

30

40

50

60

70

80

90

100

Textile

Tobacco

Pharmaceuticals

Fuel & Energy

Chemical & Fertilizer

Cement & Building

Financial Institutions

Leather & Footwear

Telecom

Sugar &Food

Consumer & Services

Response %

Legal requirement or Customer Image drives CSR Legal requirement or Customer Image drives CSR participation participation

33


September 2005

in a reportable form. RBI team members personally visited corporations and were always

available on the telephone phone to backstop the process of completing the

questionnaires. Respondents who took this as a learning opportunity later conveyed how

the process helped them build awareness on CSR precepts.

4. Lack of Trust: There seems to be no culture yet of corporate disclosure, and while a

number of the respondents were ready to verbally communicate their information with the

research team, they expressed a reluctance to share anything in writing. Respondents

referred to incidences of misuse of corporate information by competitors and others,

indicating a general lack of trust even for research that may ultimately prove beneficial to

their companies.

5. Lack of Documentation: Lack of documented information and absence of proper

systems to generate decision data about company’s policies and practices invariably

hinders companies in participating actively in CSR initiatives. Among the respondents there

appeared to be no considered effort by management to invest specifically in CSR-led

information systems that make data available for decision-making and strategy.

6. Lack of Leadership: Like all other innovations, the success of CSR activities too

depends to a large measure on strong, visionary leadership. In the case of this research,

even though invitation letters from the Chairman SECP were addressed to CEOs, only a

small number were able to commit personal time to oversee the collection or validation of

their respective company data. At times the task was handed down to executives who

seemed to have limited time, knowledge or interest in the study.

7. Lack of Coordination: In a number of respondent companies, despite top

managements interest, the feedback process was very time-consuming, and in the odd

case the study questionnaire got lost between departments. It was clear that in the absence

of clear demarcation of responsibility for CSR assignments within the corporate structure,

there was insufficient coordination between departments as well as layers of top and

middle management.

8. Lack of Commitment: In a number of cases the research team faced a general gap in

commitment from people to whom the task of completing the questionnaire was assigned.

In a small number of respondent companies assigned personnel went for leave or left their

jobs without handing over the task. A general paucity of the right CSR knowledge and skills

at the management or supervisory tier to which the task was assigned also may have

contributed to the overall quality of the questionnaire in a small number of responses. RBI

had to recheck and validate a number of such data instruments.

9. Lack of Stability: The research team were unable to get timely feedback from a

number of highly committed corporate leaders and company managements because of the

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Ambreen Waheed

34


September 2005

transitional process underway within their companies due to re-structuring, privatization or

mergers and acquisitions.

9.0 GENERAL PERFORMANCE

1. Perception

1. Before a discussion of the different key factors for CSR awareness and implementation

it is important to get a general sense of perception of CSR among corporations in different

Industrial sectors in Pakistan. Each participating company was to define CSR based on their

own perception, knowledge and understanding of CSR. The responses are compared to the

globally accepted parameters based on interaction with Global CSR initiatives on a scale of 1 to

5. Each of the parameters was given weights and ranking based on its relevance to the CSR

concept.

Fig (9.1)

From the responses, it is evident that companies from consumer products and oil & gas sectors

have a greater awareness about current CSR concepts. This is perhaps because of

international exposure and consumer pressure in the case of the former and relatively stringent

legislation and regulatory requirements for the latter. Responses of certain companies also

show that they do have programs to contribute to the communities, but they are more of

philanthropic endeavours than activities to contribute to actual CSR spirit.

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International exposure creates better understanding of preceptsInternational exposure creates better understanding of precepts

FIN

AN

CIA

L

CO

NS

UM

ER

TE

LE

CO

M

TE

XT

ILE

CE

ME

N T

OIL

& G

AS

FO

OT

WE

AR

FIN

AN

CIA L

TO

BA

CC O

SU

GA R

SE

RV

ICE S

CH

EM

ICA L

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Average understanding of definition of CSR on a scale

of 1 to 5

1Sectors participating in the survey

Financial

Textile

Cement

Oil and gasFootwea

rSuga

rTobacc

oChemical

sTelecom

Consumer Products

Services

35


September 2005

ZThe service and the financial sector show moderate awareness towards principles of CSR.

Their detailed responses reveal that they are either now starting to focus on policies and

procedures for implementing CSR or they are developing strategies and frameworks for such

initiatives. However, these companies reveal an unmistakable focus on marketing and

business-development as a derivative of CSR interventions. In any case companies in this

category appear to have accepted that CSR is here to stay and they now show evidence of

being in the process of developing, documenting and implementing CSR policies and code of

business ethics.

The cement, footwear manufacturing, sugar, chemicals and telecommunication sectors still

appear to be lagging behind in assimilating CSR precepts and their importance to their

business. Their relatively fuzzy perception of CSR means they typically do not have well formed

initiatives to develop CSR strategies in their organizations. Data provided by respondent

companies in these sectors show that companies are unable to relate their business practices

and community interface with CSR, nor is there widespread evidence of any substantial

constructive activity to develop a CSR infrastructure in these organizations. Responses reveal

that certain companies feel their philanthropic endeavours are CSR initiatives.

Pakistani companies have an unfocussed perception of business ethical principles. Few have

certain bribery control policies which they think encompass the complete business ethical

principles red book. Textile, footwear, and cement industry typically lack tailored policies to curb

corruption, which can be a possible setback for quality in business. The fuel & energy sector

acknowledged corporate governance, business ethical principles and product integrity as the

parameters of primary importance in CSR.

On average companies are shy of admitting their pursuit towards business and financial

benefits for the fear of being perceived as not being “socially responsible”. Similarly

environmental and social commitment towards internal factors like employees, management,

workplace environment is not reflected in many companies’ definition of CSR. And quite

understandably, company responses show a general lack of awareness about the emerging

global prospective of CSR.

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36


September 2005

2. CSR Policy

Of the companies providing data, most are engaged in CSR as a minimal compliance

requirement or in response to specific client demand. Often it is possible to draw the

conclusion that CSR activity in a company is involuntary and as such driven not by corporate

values but by necessity. However, companies do declare philanthropic projects, some of which

are in place for decades, as evidence of their commitment to CSR. Interpreted within the

current paradigm, these otherwise admirable acts do not make a company fall in to the CSR

compliant category.

In addition, there are companies who have just begun adverting to CSR, and can be termed as

being in the “Awareness” stage. These may often be companies who have traditionally

supported community projects but have only recently been introduced to CSR as an umbrella

term that implies community giving. Often these companies find themselves in the process

learning what CSR actually means, and why it is important for their management practice and

corporate image.

3. CSR Practices

Less than 50% of respondents fall into the “Compliance” category, a stage where a company

exhibits a general awareness of CSR principles, objectives and benefits. These companies

typically take interest in training their management about CSR and are found focusing on

developing CSR policies. They are seen reviewing their philanthropic activities and evaluating

their community impact within their renewed CSR orientation. Companies at this stage show

that they are becoming more conscious of environmental and social impact issues arising as a

result of their industrial activity. Most are contemplating or actually implementing measures to

improve their CSR impact. The textile, financial, leather & footwear, cement & building, and

telecommunication sectors, all appear at this stage of CSR development.

In terms of adopting company-wide CSR policies or strategically implementing CSR, this study

finds only multinationals or large nationals with international affiliations actively engaged at the

practical level. This is primarily because of global policy uniformity among international

businesses, designed to bring overall conformity with head offices overseas. These companies

exhibit a focus on internal stakeholders. Some are in the process of customizing their head

office policies to Pakistan’s local environment. Amongst national companies, those belonging

to the chemicals, oil & gas and those operating in the service sector are in the early stage of

CSR development. These companies reveal a desire for developing their CSR strategies and

are in the process of doing so. They show well-formulated business ethics policies, regard for

stakeholders, and generally good reporting structures. They often have projects which

contribute to the community and environment, e.g. waste minimization, recycling and pollution

prevention. They also show evidence of encouraging compliance to CSR standards among

their subcontractors and suppliers.

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37


September 2005

Multinational companies in the fuel & energy, and consumer sectors appear to be implementing

CSR policies to a relatively greater extent as compared to their peers. They provide indications

of addressing environment-related issues, implementing employee-related best practices and

community support programs.

4. CSR Performance

This study can state with reasonable confidence that only a handful of respondent companies

seem to be concerned about the long term impact of their CSR policies, such as corporate

governance, anti-corruption measures, disclosure, and process- and product integrity. This

research could not find widespread evidence of reliable and verifiable measurement processes

to gauge these impacts, or stakeholder feedback mechanisms that can help improve on or

change the nature of these activities.

The 4 P’s

The adoption of CSR starts with clear understanding and right perception of Global CSR

debate, knowing what actually Corporate Social responsibility really means and why it is

important to adopt CSR practices. Once a company has a clear concept the first step is to the

show commitment and have CSR reflected in their mission and vision so it progress to the

stage of developing CSR policies to guide management in implementing them and to create

awareness among employees to adopt these policies. Having clear and related policies is not

enough for a successful CSR program. The third and most important stage is the “practice“ of

implementing well established systems to follow the policies for integrity, governance,

marketing practices, social and environmental compliances, disclosure and other CSR

parameters. The success of a CSR program and initiatives needs to be measured to improve

the ongoing CSR practices and projects, thus the performance needs to be obvious and

transparent. Very few companies at present are seen to be at the fourth stage where they are

able to reap business benefits of their efforts.

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38


September 2005

Fig (9.2)

The Fig (9.2) illustrates the stages in which different organizations participating in this study

are seen in. The Figure maps the sectors-wise general state of CSR on perception, policy,

practice and performance. Participating sectors have been colour-coded and placed in

overlapping bubbles which represent different states of CSR the “4-Ps28 of CSR embedded-

ness. Companies in textile, telecom and financial sectors are in the overlapping areas between

Perception and Policy which indicates that they are in a transition between the two stages.

They have developed a perception about CSR and are currently contemplating to develop a

CSR Policy. Companies in technology and services sector fall in the overlapping region

between Policy and Practice. It is indicative of the fact that these companies have developed

policies to bring CSR in their organizational infrastructure and are currently struggling to deploy

them. Consumer goods manufacturing multinationals are in the middle section of the figure

which indicates better perception, policies and some practices in place and trying to gauge their

performance. Tobacco is weak in perception but has a place in the performance circle as it has

tried to evaluate interventions through social reporting and attempts to measure the impact of

their interventions through stakeholder Involvement and assessment.

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Ambreen Waheed

Most Companies are still in the initial Policy Development stageMost Companies are still in the initial Policy Development stage

39

PerceptionKnowledge and understanding

of CSR

PolicyDeveloping a CSR policy

PracticeCSR policies

implemented to improve

organizational efficacy

PerformanceMeasuring Impact

company competitive edge

Financial

Footwear

Telecom

Textile

Sugar

Consumer

Cement

Tobacco

Services

Fuel & Energy

Chemicals

Technology


September 2005

10.0 STATE OF CSR

RBI’s “CSR Pillars” were used to benchmark the state of CSR in Pakistan. Each parameter

was further assessed against globally acknowledged standards, evaluation tools, evolving CSR

definitions and indicators, as well as learning through interaction with International business

and CSR organizations. Questions gauged company knowledge; attitude and perceptions

(KAP) related to each “parameter”, validated through existing codes, rules, policy, standard

operating procedures (SOPs) and implementation.

RBI’s CSR PillarsCG Corporate GovernanceBE Business Ethical PrinciplesEC Environmental ComplianceSC Social ComplianceDR Disclosure & ReportingEP Product IntegrityCC Giving & Community InvestmentSH Stakeholder involvementFP Financial PerformanceSS Supply Chain Security

10.1. Corporate Government

Corporate Governance is the most important pillar of CSR. It acts as the umbrella for all CSR

activities and ensures that the corporation is directed, administered or controlled fairly by its

shareholders, management and the board of directors. Corporate Governance is concerned

with holding the balance between economic and social goals and between individual and

communal goals. The corporate governance framework is there to encourage the efficient use

of resources and equally to require accountability for the stewardship of those resources. SECP

already has in place a Code of Corporate Governance that all listed companies must comply

with and report in the mandatory annual report.

Corporate governance is commonly referred to as a system by which organizations are directed

and controlled. It is the process by which company objectives are established, achieved and

monitored. Corporate governance is concerned with the relationships and responsibilities

between the board, management, shareholders and other relevant stakeholders within a legal

and regulatory framework. In today’s fast paced corporate and industrial growth, there is a

global appreciation of the corporate governance principles of responsibility, accountability,

transparency and fairness.

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40


September 2005

Fig (10.1)

This research shows that companies have a fair understanding of the need to conform to the

corporate governance parameter in order to become responsible. More than 50% of the

respondents gave corporate governance the highest priority as a CSR measure. Consumer

products and chemical manufacturing companies showed a stronger conceptual understanding

of corporate governance along with the necessary infrastructure, documentation, policies and

procedures in place. They showed confidence that strong corporate governance policy helps in

beating corruption and as a result improves business as well as image.

The financial sector assigned topmost priority to corporate governance and business ethics

principles. Corporate governance and business ethics principles go hand in hand in any

professional setting. Business ethical principles provide a framework of behaviour to the

professional. Integrity in all professional and business relations, fair dealing and truthfulness

should be shown by a professional with commitment uncorrupted by self-interest. One should

strive for objectivity in all business judgments, display necessary competence to fulfil assigned

tasks and should carry out delegated professional work with due skill, care and diligence with

proper regard for the technical and professional standards expected.

This research shows that companies do have a clear understanding of the need to conform to

this particular CSR parameter. More than 50% of the respondents gave corporate governance

the highest priority as a CSR measure.

Conclusively, Corporate Governance looks at the institutional and policy framework for

corporations - from their very beginnings, in entrepreneurship, through their governance

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Ambreen Waheed

SECP’s Code implemented fairly uniformly by listed companiesSECP’s Code implemented fairly uniformly by listed companies

Median on 1-5 scale

Outlier

Financial

Textile

Ce

men

t

Oil

and

gas

Footw

ear

Sugar

Tobacco

Chemicals

Tele

com

Consumer Products

Services

0

1

2

3

4

5

State of Corporate Governance on a

scale of 1-5

Participating Sectors

41


September 2005

structures, company law, privatization, to market exit and insolvency. The integrity of

corporations, financial institutions and markets is particularly central to the health of our

economies and their stability. Our interaction with companies in different sectors allowed us to

evaluate that many companies do not have a corporate governance strategy; rather they need

direction to fit them into CSR definition.

10.2. Business Ethics Principles

Government and corporate corruption cost billions of dollars throughout the world that could

have been used to improve the lives of countless people. Corruption is against the spirit of

competition. Business efficiency improves when conducted in an environment of fair

competition supporting stake holder’s confidence.

Companies generally understand that employees tend to engage in behaviour that is rewarded

and avoid behaviour that is penalized. The system of recruiting, hiring, promoting,

compensating and publicly honouring employees all can be designed to promote CSR. Most

respondents to the questionnaire include ethical behaviour as part of their general code of

conduct. However, this study did not find an instance where a company acknowledges an

employee’s individual contribution towards maintaining an ethical environment. Thus research

appraised companies on two key parameters:

• Existing policy that penalizes workers in case of unethical behaviour

• Existing policy that rewards workers on abstinence from unethical behaviour

In the following graph, companies were rated on a scale of 1 to 5. Almost a third of the

respondents were hesitant to share information on their initiatives or practices in ethical

behaviour. Shown as “0” on the scale, this reflects lack of importance given to implementation

of ethical values or codes mentioned in their mission, vision or codes of conduct.

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42


September 2005

Fig (10.2)

27% of the companies, rated 2 show that they neither have an effective business ethics policy

in place to motivate employees to abstain from unethical behaviour nor any incentive to induce

practice of ethical behaviour. 20% of the respondents have penalties for unethical behaviour,

such as bribery or other misdemeanours. These commit to a verbal declaration that exhorts

avoidance of unethical behaviour in the organization. Only 7% companies declare a clearly

articulated code of behaviour for employees that aim to promote an ethical work environment.

Not surprisingly, all respondents in this category are multinational companies with well-

formulated organizational structure and policies in place.

The research findings confirm that national companies still do not have a clear enough

perception of ethical principles relevant to their respective processes. A few do commit to

bribery control policies which they think encompass the complete business ethical principles.

Textile, footwear, and cement industry typically lack tailored policies to curb corruption, which

can be a possible setback for quality in business.

10.3. Environmental Compliance

Environmental compliance means that the organization makes health, safety, and environment

considerations a priority in its business decision-making and processes. This implies that

there are mechanisms in place to promptly report any hazards or incidents that put the

environment or life at risk to authorities or other stakeholders, along with any recommended

protective measures. It also means that a company shares learning on the impact of its

process to outside parties and assures by the management of its waste materials that it is

doing its best to safeguard the environment and protect life.

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Ambreen Waheed

Ethics not linked to CSR implementation in company Ethics not linked to CSR implementation in company practicespractices

43

0

1

2

3

4

5

Company attitudes clustered by response performa? response

Importance given to

ethica

l business

Practice

s in

compan

y policy & Pr

actice

s practice

Respondents not named


September 2005

An organization's aim is to Identify assesses, rank and control all health and safety risks for

their employees and contractor staff. Generally human error is the primary cause of work-

related accidents and incidents, high priority should be assigned to raising health and safety

awareness by providing appropriate training to the workers and employees and raising their

consciousness, and caring about environment. There is a need for changing behaviour through

briefings, instructions, training and appropriate tools.

It is the responsibility of the management to make sure they have proper policies and that their

work force is familiar with health and safety policies, and they are briefed on all potential

hazards and risks in the workplace. Employee involvement and training is necessary to actively

manage and minimise health and safety risks.

Health and Safety performance should be measured in terms of accident frequency and

severity. Three aspects are of incremental importance in safety reporting: industrial safety,

personal safety and time lost.

Fig (10.3)

The Fig (10.3) maps the measures taken by corporations in different sectors to improve their

Environmental Compliance. The light shade reflects some awareness raising trainings and

initiatives, the darker shade shows that a company has policies relating to environmental and

health & safety compliance, the darkest shade reflects that a company has future plans for

improving their health & safety, environmental training, improvement on policies and

implementation. Finally the opaque shade shows that the company feels the importance of

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Ambreen Waheed

Compliance vision is predominantly situational not strategicCompliance vision is predominantly situational not strategic

44


September 2005

environment risks and have employed personal specially to look after environmental issues and

initiatives. This research reflects that fuel and energy sector and multinational companies

have:

• Environment, health and safety and accident management policies in place.

• Future improvement for current projects

• Personnel to support train and manage employees for environmental compliance.

• Protective gears available for workers working with hazardous chemicals.

These corporations owe these measures to international consortiums and petroleum products

regulatory authorities’ laws pressing upon them. Multinational chemical manufacturing

companies also display a competent level of environmental compliance and health and safety

management of their employees, although their existing departments are handling these

issues.

As a best practice work-related accidents should be recorded in a central database and

periodically analyzed. A uniform system should be employed for reporting accident figures and

the figures published for future reference and preventive tactics. Health and Safety

performance should be measured in terms of accident frequency and severity.

Majority of the respondents in our survey do not provide or support any organized

environmental awareness training, health and safety training procedures and proper record

keeping mechanism for documenting frequency and causes of accident for future analysis and

risk management.

The research identifies very low focus on waste management, recycling, energy efficiency or an

emphasis on finding innovative ways for employing green energy and sustainable technologies.

Only 25% of the respondents were seen to have taken an initiative towards improving

environmental conditions. 30% said they give consideration to energy-efficient and

environmentally friendly products while choosing office appliances or raw material. Only 12%

said they are recycling a proportion of their waste material.

10.4. Social Compliance

Like shareholders, employees of a company too have demands on a company to be treated in

a socially responsible way. In developed countries, employees are seeking contracts that not

only define wages and working conditions, but also their employer’s social responsibility. It is

becoming evident that a corporation’s reputation for social responsibility can attract and retain

better quality employees. One study shows that more than ninety percent of MBAs in the

relevant sample were willing to forgo financial benefits to work for firms with better reputations

for corporate social responsibility.29 Employees derive satisfaction from being associated with

responsible firms.30

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September 2005

This study finds that none of the respondent companies include a reference to CSR in their

employee contracts. Social compliance being recognized as the backbone to corporate

citizenship, involves policies, procedures and practices that relate to the impact of the

organization on the society in general and the workplace in particular. Workplace security,

wage and work hour’s related issues, human resource development, abolition of child labour,

labour welfare and social protection and the right for the employees to organize as unions and

bargain collectively are important aspects that come under the bracket of social compliance.

This indicates a significant knowledge gap that requires immediate attention.

Like shareholders, employees should insist on socially responsible behaviour from employers

both by contract and by choice of work. Employee’s contracts should have clauses on

responsible behaviour, along with the mandatory ones on wages and working conditions,

including provisions for social and human capital development through shared learning,

knowledge enhancement, human capacity building and opportunities for future growth. A

corporation’s reputation for social responsibility can attract and retain employees.

All companies sampled agreed that the employee is the backbone of their organization, and

that competent, satisfied and healthy employees are invaluable assets. 100% Companies

accept that they can attract best human capital by providing employee rights, employee

benefits, growth potential, and a safe and healthy workplace. But less evidence is found for

practice relating to systematic approach and enabling environment for flexibility and employee

knowledge enhancement. The questionnaire for this research included a number of parameters

to determine the state of social compliance in the respondent companies.

Pakistan’s industry has lagged behind the transformation of the economy and must now ‘catch

up’ if they are to play a meaningful role in national and enterprise development. New

approaches to cooperation between workers and employers at enterprise level are of particular

importance with the purpose of encouraging genuine bilateral dialogue.

Social compliance encompasses the introduction of norms and implementation of policies to

ensure basic rights like equal treatment and non-discrimination, the absence of forced labour,

and the absence of child labour. Safe working conditions including minimum wages and above

minimum wage issues, allowances and benefits, hours of work, over time work, rest breaks and

leave arrangements, including annual leave, sick leave and special leave issues, and job

security provisions. Working environment includes protection against the effect of hazards in

the work place involving issues of work safety as well as protection from work related diseases

and illness. Social security includes protection against the effects of economic and social

hardship resulting from a reduction in earnings due to work accidents, work illness,

unemployment, or retirement.

Our survey questionnaire consisted of different parameters which help in determining the state

of social compliance in different companies in Pakistan. Among the major employee benefits

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September 2005

provided by our participating organizations are: annual leave and medical insurance and annual

bonus and sports and recreation. Primary benefit given to women in all sectors of Pakistan

industry is the maternity leave. The goals of maternity leave policies are to support family work

and child rearing and to create an incentive for women not to leave the labour force when

children are very young. These policies are made to facilitate women's work outside the home

and help reconcile work and family life by protecting and promoting the well-being of children

while their parents are in the labour force.

On average, respondent companies are willing to let a mother have 2 months paid leave. The

question about paternity leave grant was avoided by companies in general. It can be concluded

that it is not the norm in Pakistani companies to give paternal leave. Maternity rights affect the

time a mother spends out of the labour force after a birth and the probability that a mother

returns to her pre-birth employer rather than starting a new job. The provision of paid leave can

help to protect children’s health and development by enabling financially constrained mothers

to remain at home for longer period following childbirth.

There is one company in the financial sector that gives female employees 130 days paid leave

for Iddat31, which is commendable. This can serve as an indicator of best practices being

followed employed by companies in Pakistan with a vision to facilitate workforce and to improve

their overall performance and commitment.

Benefits like subsidized food and transport facilities are uncommon. Except for one company,

stock options are not offered to employees. Employees unions are typically discouraged by

companies who do not cater to the international market. Multinationals allow workers to form

works councils and unions, as stipulated under law, which allow for negotiating worker

demands with the management.

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September 2005

Fig (10.4)

wrefCompanies do not focus on areas like subsidized food and transport facilities. Multinational

companies allow employees to have work councils and unions which protect their rights and

negotiate worker demands with the management. They can elect their representative

independently and have the right to voice their concerns, to improve working conditions.

Employees unions are not allowed by local companies or even by exporting companies whose

international buyers insist unions or works councils as a major CSR compliance issue.

According to the responses received about 50% of the companies do not approve of

employees joining unions, and associate unions with strikes and coercive practices. However,

companies seem to favour works councils and often opt for “workers’ committees” to represent

workers for issues and complaints to management for solution. Half of the respondent

companies do not even support such in-house representative structures.

There is always the potential for conflict to arise in a workplace. Conflict creates an

environment of tension and if not properly managed can harm morale and productivity. A work

related grievance might flow from any aspect of a staff member's work experience that they

believe to be unfair, unjust or unreasonable. 80% of the companies in Pakistan lack articulate

grievance procedures. Companies rely on verbal employee-management interactions to deal

with conflicts and problems. There are no complaint document management systems and no

history is kept to review on an annual basis.

Management and staff should understand that having a grievance procedure provides a

process for resolving conflicts and can help facilitate the effective use of resources, maintain

good working relationships, and support a positive overall experience. Multinational companies

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xxxxxxxxxxxPaternity leave

xxMaternity leave

x xxxxXxStock options

Bonus/profits

Recreation etc.

xxxxFree transport

xxFree Meals

Insurance

Annual leave

ServicesConsumerTelecomChemicalsTobaccoSugarFootwearOil & GasCementTextileFinancial

Benefits follow minimal legal requirements or leader’s Benefits follow minimal legal requirements or leader’s choicechoice

48


September 2005

operating in the region have strong, well-maintained grievance procedures. Most companies

did not share detailed information to enable us to assess the kind of support documents and

procedures in place to ensure effective response of worker issues. An effective procedure

operates as an early warning system and alerts management to potential problems before they

escalate. A grievance procedure should be part of a larger effort to enhance communication.

Make clear and timely communication a priority.

10.5. Disclosure and Reporting

Reports are used as means of management (creating and documenting systems). The main

benefits that come out as a result of maintaining a reporting system is the ease of comparability

of the organization’s social and environment al performance. Like Business Principles, reports

also reduce conformance cost by providing quick views on operational procedures and their

outcomes and also to monitor ongoing processes.

The research showed that reporting is not given a high priority in adaptation of CSR by any

sector. For most of the organizations, it was given a priority value greater than 6 on a scale of 1

to 16 where 1 was the highest priority and 16 the lowest. In general, none of the sectors is

releasing reports on a voluntary basis. The sectors like Financial and Textile are doing this as

per requirements by government or their customers. None of the organizations have mentioned

any benefits obtained from reporting, even as 6% of the respondents have already published

CSR reports, of which one is based on the GRI reporting format. 20% of the respondents have

in the past disclosed environmental and social initiatives either in their annual report or in

newsletters or company supplements.

Cross-checking company procedures allowed us to realize that reporting is not being given

substantial importance in any sector in Pakistan. Reporting being done is often focused on

lighter issues and contains factual information concerning the organization. Often there is little

correlation between CSR and other business variables highlighted in company annual reports.

In recent years, however, interest among corporations for reporting environmental initiatives

has grown due to ACCA-WWF Environmental Reporting Award, but the quality of information

presented is still quite elementary compared to global standards.

The scope of CSR information in the financial report should cover information which is material

to the economic performance of the company. In order to properly capture CSR-related

financial risks there is a need for a cross disciplinary approach including both the financial and

the CSR manager of the company. Moreover there is a need for definitions which define e.g.

environmental costs and investments and a need to develop appropriate verification standards

for CSR information.

Apprehension of benefit-seeking outsiders is another factor that seems to compel companies to

avoid complete disclosure financial information in their reports. Textile, Financial institutions,

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September 2005

cement, leather and technology sector companies in Pakistan are run as family businesses

rather than publicly owned companies. At present private enterprises are not mandated by law

to publicly declare such information.

10.6. Product Integrity

Product integrity is actually a part of product quality. In a business sense, having Product

Integrity means a company ensures that the product reaching the consumer is the same as it

was promised in the advertisements and other commitment statements like quality standards

etc. It is an outcome of the supply chain monitoring as well as in-house quality systems. It

encompasses a wide variety of issues like environmental and social impacts of the production

process. An organization needs to pay attention to the following issues regarding product

integrity.

- Environment is not being damaged in any way during the production process (effluents,

emissions, pollution)

- Harmful materials are not being used in the process (chemicals, machinery that is risking

production crews’ life or health)

- workers are not being pressurized in any way during the production process (forced labour,

whistleblowers)

- There should be no harmful effects of the product. (chemicals that cause allergic or corrosive

reactions on human body, products that deteriorate human health and quality of life)

- Technology being employed should be sustainable and efficient. It should be at par with

modern safety and production standards. Product finishing should be to ensure that it is not

harmful for end user.

- Product being produced should be biodegradable. If it is not biodegradable then what

mechanisms are available to dispose of it after use.

- Channels of research should be well-developed with personnel implying a role of improving

standards of product not only in terms of quality but also increased health and safety

standards.

The research monitored Product Integrity through several ways, including the priority assigned

to it as a part of the CSR strategy by each company and the emphasis on Product Integrity

upon purchase of raw material. The emphasis of the company on ethical advertising was also

added to the criteria for evaluation of Product Integrity. We found that there is a serious lack of

appreciation regarding this factor. Respondents were not aware of any specific initiative on

part of government to enforce policies regarding product integrity. Participants in the survey did

not show much interest in this section of the questionnaire which is an indication that

companies lack awareness in this area. A contributing factor ascertained by the research to

this state of affairs may be the relatively weak consumer lobby in the country, even as there is

an abiding interest in quality management systems and certification in all sectors.

The Fig (10.6) shows the priorities ((1-10) assigned to Product Integrity by organizations in

different sectors. The sectors not shown in this chart lacks proof of efforts made for the

integrity of their products

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September 2005

. Fig (10-6)

Across all products, avoiding confusion with labels and labelling statements should remain a

priority for all companies. Use of environmental labels on products, clear mentioning of product

ingredients and possible side effects should be mentioned clearly on each product label.

Tobacco sector showed commitment that their policy is to provide their customers with all the

necessary information to help them choose the product that is right for them. In this regard

ministry of health has also made an effort to prohibit sale of tobacco to minors and to clearly

state the harmful effects of tobacco on the label. Financial sector has also shown responsibility

towards fair trade, proper labelling of financial products and ethical marketing procedures. A

Few companies in the oil & gas sector are trying to improve their product’s negative

environmental impact.

10.7. Corporate Giving or Community Investment

Companies clearly give a lot of importance to community philanthropy and show a trend of

significant spending towards services and amenities to communities around their geographical

boundaries. However, these are mostly one-off activities, with companies allocating resources

based on their own perceptions, marketing needs or following peers or competitors.

Respondents reveal that the typical motivation stems from a desire for competitive advantage

and positive public relations impact. Corporate giving seems to be equated with good

corporate citizenship by a significant number of companies, including multinationals.

A number of companies reflect a readiness to actively contribute towards the welfare of poor

communities around them by providing education, health services, and technology access. Yet

most often, these efforts are independent of a considered strategy that reflects the felt needs of

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8

7

6

5

4

3

2

1

Awareness linked to market image and customer sensitivity Awareness linked to market image and customer sensitivity

Textile Fuel & Energy Tobacco Telecom Services Cement Financial

51

8

7

6

5

4

3

2

1


September 2005

the communities concerned. This appears as a gap in strategic planning the industrial sector in

relation to CSR precepts. The potential for leveraging the enormous potential of corporate

sector to alleviate poverty in specific terms is not generally recognized, and appears as a key

area for government policy direction.

We are part of society and have a responsi1bility to the world in which we operate.

This is not a matter of charity but of investment, because our continued success

depends on, among other things, the progress of the communities in which we work. 32

The Fig (10.7) below shows the various community initiatives disclosed by the respondent

companies.

Fig (10.7)

Education, health and water & sanitation are the most frequently addressed areas in

community initiatives. Organization-run schools, primary education schemes, educational

trusts, scholarships, free dispensaries, health camps, hospital set-ups, tube wells and tankers

to provide drinking water and sanitation projects are a few examples of this community

investment activity. However, this study did not encounter any initiative being taken by the

corporate sector to improve citizen rights or generally redress environmental deterioration.

Also the most important areas for sustainable development like technology research and

human capacity building have the lowest priority.

10.8. Stakeholder Involvement

CSR implementation is not possible in its essence without

stakeholder involvement. All over the world, corporations

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Ambreen Waheed

28%

9%

12%12%

6%

6%

21%

6% 0%0%Education

Technology

Water & Sanitation

Environment aw areness

Sports

Capacity building

Health

Micro credit

Enterprise Development

Citizen Rights

Giving follows High Visibility & services that attract attention Giving follows High Visibility & services that attract attention

52


September 2005

are generally beginning to realize the importance of the stakeholder perspective and are

becoming clear about their primary and secondary stakeholders. Increasingly, mechanisms are

being put in place for meaningful corporate interaction with stakeholders. In Pakistan, however,

companies still seem to be relatively aloof from their stakeholders and need to understand the

importance of stakeholder dialogue as the basis of CSR initiatives.

Fig (10.8.1)

This research reveals a low understanding of the importance of Stakeholder Involvement to a

company’s social responsibility. Likewise, the study found no large-scale evidence of any

systems and procedures installed by companies to elicit stakeholder feedback for CSR related

activities. In general, there seems little organized interaction between the five key stakeholders,

namely the board, employees, customers, buyers, and the community at large.

This study found evidence of stakeholder interaction in the chemical and tobacco sectors with

specific reference to the environment. The reason for this appears to be the perceived dangers

associated with the product in question with regard to the environment, and relatively high

media sensitivity. Apart from this one finding, companies generally reveal insufficient

understanding of the role of the stakeholder in their social interface. The Fig (10.8.1) indicates

a colour-coded comparison, which shows that Stakeholder Involvement is prioritized by

chemical manufacturing, telecommunications, consumer products and the service sectors.

They demonstrate the existence of varying degrees of reporting mechanisms and

communication channels with relevant stakeholders. Quite clearly the service and

telecommunication industry puts customer communication quite high as a priority and show that

they have policies and practices to satisfy them.

Another interesting finding is the importance of stakeholders by corporations in general. The

Fig(10.8.2) shows stakeholders order of priority given to them by the corporations.

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September 2005

a

Fig (10.8.2)

10.9. Supply Chain Security

As stakeholders take a growing interest in corporate social responsibility, many companies are

finding that they not only are responsible for their own CSR performance, but also for the CSR

performance of the companies upstream and downstream, that is, a company’s suppliers as

well as its customers and even its customers’ customers.

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BoardEmp

lMgt.

Gov

Stock H

Cust

Env..

Comm

Emp F.

Supplier

Buyert.

C S.

Comp Media

.

Acd

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September 2005

Fig (10.9)

In this research we have focused policies and practices which organizations expect from their

subcontractors and their suppliers only. Suppliers that manufacture, components and products

used by any industry must comply with all national and other applicable laws and regulations,

and they require their suppliers do the same (including labour agencies). They should uphold

the highest standards of ethics, sound human rights practices and treat workers fairly with

dignity and respect. They should strive to provide a safe and healthy working environment for

their workers. They should conduct business operations in a way that protects and sustains the

environment and maintain management systems that measure, improve and communicate their

company's labour, health & safety, environmental performance. Companies in Pakistan working

on permanent contract with international buyers especially in the consumer product sector take

particular care of supply chain security standards. Supply chain standards in Pakistani service

sector companies who have based their operational procedures on similar companies working

abroad have trickled down automatically.

10.10. Financial Performance

It has been a much-believed fact now that CSR compliant companies perform better worldwide.

CSR helps companies develop new competencies because it engages employees,

organization-wide, calls for a forward-thinking managerial style, and leaves responsible firms

better prepared for external changes, turbulence, and crises. It builds reputations and

enhances relations with bankers and investors. It helps firms attract better employees and

increase employee goodwill. It helps firms run better.

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Supplier practices considered less relevant to companies’ own practices Supplier practices considered less relevant to companies’ own practices

Median on 1-5 scale

Outlier

Financial Institutions

Textile

Cemen

t and B

uildi

ng

Fuel

and E

nergy

Footw

ear

Sugar

Tobacco

Chemicals

Telecommunic

ation

Consumer prod

Servi

ces

S1

0.0

1.0

2.0

3.0

4.0

5.0

55

Participating sectors

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September 2005

A study commissioned by the UK Environment Agency concluded companies with sound

environmental policies and practices are highly likely to see improved financial performance♣.

The analysis looked at 60 research studies over the last six years, finding that 51 of them (85

percent) showed a positive correlation between environmental management and financial

performance.

UNIDO’s TBL approach is unique in that it adds to the traditional TBL elements of evaluation and reporting a

third element of continuous improvement33. Fig(10.10)

The report on UNIDO demonstration project on Triple Bottom Line in four countries including

Pakistan34, very clearly demonstrated the link between social viability and environment

stewardship on the financial bottom line of the companies.35 Good social performance leads to

good financial performance which contributes to making sound reputation for the organization.

Organization can reap long term profits and have sustainable growth in turn.

The survey questionnaire asked respondents to provide information on buying decision to

ascertain cost savings through durable, energy efficient products, recycling, reusing and selling

waste. The organizations who are able to record these data demonstrate the link between

social and environmental stewardship to their financial bottom line. Only 5% of sampled

companies expressed this level of consciousness. They also revealed that their efforts towards

CSR compliance did not take away from their financial viability. The rest of the companies did

not respond to the question.

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VALUE ADDED

Taken by Customer

Taken by Enterprise

Customer Loyalty / Retention

Customer Acquisition

Customer 'Margin'

Plant / Process Efficiency

'Eco-efficiency'

Machine Efficiency(downtime)

Process Efficiency(cycle time)

Social Efficiency

Employee

Revenue Growth

Customer 'Share of Wallet

Cost Efficiency

Productivity

Loyalty &Availability

Employee

56



September 2005

10.11. Levels of Compliance of CSR Principles

Summarizing the findings of our study we have developed the following matrix P-P

representation of the state of CSR compliance in each participating sector. Each tile shows

state of compliance for each sector divided into separate columns for different states of CSR

embedded ness, Perception, Policy, Practice and Performance. Based on the evidence from

the study we have highlighted the existence of each state against the 10 pillars of CSR as

devised by RBI.

Fig (10.11.1)

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All the sectors mapped on 10 parameters of CSR identifies the gaps for each sectors on CSR

parameters.

CG Corporate Governance EP Product IntegrityBE Business Ethical Principles CC Corporate giving’s /Community investmentEC Environment Compliance SH Stake holder InvolvementSC Social Compliance FP Financial PerformanceDR Disclosure Environmental & Social Report SS Supply Chain Security

Fig(10.11.2)

11.0 Bridging The Gap

This study aimed at a realistic assessment of where Pakistani business stands with regards to

its awareness and attitudes on CSR in relation to the world at large. The assumption is that

learning from this study will help policy makers find ways to tackle the Global challenge our

business is going to face because of a change in market perception.

Consumer value perception has moved beyond a simple “price-quality” focus to one where

buyers seek “value-integrity” that reflects a company’s

sensitivity to environmental and social stewardship. It

seems Pakistani businesses need to gear up to respond to

this challenge. Analysis of data collected against available

global CSR good practice benchmarks shows:

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0

1

2

3

4

5CG

BE

EC

SC

DR

EP

CC

SH

SS

Financial

Textile

Cement

Oil and gas

Footwear

Sugar

Tobacco

Chemicals

Telecom

Consumer& Services

Highly variable CSR practices indicate no fixed goal-posts or mechanismsHighly variable CSR practices indicate no fixed goal-posts or mechanisms

58

Business needs to develop clear strategies to implement

the method of giving or volunteering that best suits

their goals and desired image.



September 2005

1. Incomplete Conceptual Understanding

This study confirms that most companies still see CSR as a “philanthropic obligation”, or as

“imposed compliance” with buyer-led social standards. Moreover company efforts are typically

“feel good” activities that often betray a low consideration for their long-term impact on

sustainable development. This reflects a shaky perception regarding the scope and scale of

CSR as a business strategy and management tool among the average Pakistani business.

2. Less Focus on Competitive Advantage

It appears from the results of the study that most CSR initiatives being implemented by

respondents presently are focused on short term economic benefits. There seems a lack of

understanding of how business can contribute to create sustainable development models that

promote economic growth, creating more business opportunities for corporations.

Respondents mention no investment and resource allocation for research and development on

cost effective models and efficient technologies that help bring production costs down and also

decrease environmental impact in future. However, two companies mentioned bringing their

costs down by using recycled material and environmentally safe raw materials. They also

declare they are tracking their savings through these initiatives.

3. Inadequate Stakeholder Communication

Companies appear to seldom engage directly with stakeholders other than those that are in

some way connected to their marketing activity. This study found no examples of any

organized communication mechanisms between companies and their stakeholders for 95% of

the respondents. Examples shared were somewhat scattered and random, which indicates

that while positive role models do exist, there is a need for a more systematic approach to

documenting best practices.

4. No Nationally Recognized CSR Benchmark

Respondents in the study were rightly not able to point to any nationally recognized definition or

benchmark according to which they could design compliance or implementation programmes.

A number of international CSR benchmarks were cited, such as GRI, SA800036 or the Sullivan

Principles, etc, which revealed the ambiguity such tools pose to the average business.

Implementing these, therefore, remain for businesses a factor of customer demand. Hence,

this study confirmed that customer-specific social compliance codes were a priority for

businesses primarily as a selling proposition, and not necessarily as an intrinsic organizational

value.

5. Uneven Official Incentives

Respondents revealed a relatively limited awareness of laws, codes or government policies

related to CSR. There appear to be no clearly understood incentives for socially responsible

behaviour, high labour standards or environmental performance, as there are for corporate

philanthropy or charitable donations. As such respondents are not able to link incentives or

enabling factors from Government to profits. SECP’s recent requirements for disclosure on the

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September 2005

Code of Corporate Governance too are not presently matched by tangible performance-related

incentives to motivate businesses.

6. Unclear Strategic Approach

Even among companies that show a relatively higher appreciation of business ethics issues,

this study finds a low incidence of consistent strategic CSR programme direction. In most

respondent companies that exhibit a demonstrable degree of environmental or social

compliance, data reflects community or philanthropic responses that appear to be the result of

situational decisions by or a projection of personal causes of the leadership.

7. Absence of National Platform

Respondents were not aware of any forum or platform, whether created by the Government,

representative trade bodies or any other institution that is currently able to provide a uniform or

credible level of awareness, information or guidance on CSR to interested individuals or

companies. Compared to some countries where such neutral platforms bring major

stakeholders together with CSR experts to discuss issues, identify solutions and frame policies,

the Pakistani business environment functions in somewhat of a vacuum.

8. Disclosure

This report confirms the general impression that Pakistan has still to develop a culture of

Disclosure. Over 60% of companies approached for this study declined to provide complete

information on their respective social and environment performance. A key reason for this is

the low trust companies have of any outsider asking questions. A second reason is the low

priority given to documentation and reporting in the typical business enterprise unless it has to

do with mandatory requirements. A third reason is the relatively low professional capacity and

allocated resources for such reporting. This can be overcome firstly by encouraging an

environment of trust between companies and regulatory agencies. Secondly, the development

of user-friendly formats to document and disclose social and environmental performance,

backed up by an effective orientation programme, ideally via internet or call centre solutions,

can quickly turn around the present state of information vacuum. Government can be

supported in this activity by its citizen sector counterparts.

12.0 CONCLUTION

It is clear from the above findings that Pakistani businesses need to be supported in bridging

the gap between their present state and the rapidly evolving CSR environment that is creating

new benchmarks of corporate performance and customer acceptance. Pakistan needs to

leapfrog from its present level of CSR into the current paradigm. The upside of this is that we

have global standards to guide such a leap and professional linkages to help along the process

over a relatively short timeline. Experts reflect on CSR as the main hedge against the negative

tendencies of globalization. With a well-considered strategic CSR action plan Pakistan can

emerge from being a potential victim of globalization to a potential beneficiary.

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September 2005

In placing Pakistani business in a competitive place with regard to CSR, every stakeholder has

a role to play and would need to be cultivated as an ally. On behalf of the Government, this

requires the creation of an enabling statutory and regulatory environment, clear policy

guidelines, fair and transparent rating and reporting mechanisms and tangible incentives and

penalties for companies who wish to demonstrate their commitment to sustainable

environmental or social investments.

Business on the other hand needs to abandon the subsidy-seeking culture of the past and

embrace competitive ways that build capacities, efficiencies and customer friendly practices as

a basis for market advantage. This requires adopting a culture of compliance, integrity and

technological research as dictated by current CSR precepts. And finally both government and

business need to include civil society as

represented by academia, consumer groups,

enablers, the media, and experts in their

activities to build a multilayered social

consciousness that quickly rewards ethical

behaviour by business in the marketplace and

just as readily condemns irresponsibility.

This study recommends the following immediate

actions to build into a strategic response to CSR

that can leapfrog Pakistani businesses into the

mainstream of business achievement in today’s

world:

13.0 RECOMMENDATION FOR CSR STRATEGY

There exists a dire need to improve the quality and quantity of corporate social responsibility. A

wide-ranging and multi-tiered awareness campaign needs to be organized in order to make the

various stakeholders and businesses understand the necessity and advantages of CSR and

remove any misconceptions related to it. Flowing from this improved awareness, cross-

stakeholder dialogue between governments, business, civil society and academia is a

necessity. A relevant and enabling CSR policy needs to be developed by Government with the

involvement of all stakeholders.

An effective regulatory authority is key to this strategic thrust, having the requisite capacity to

implement guidelines and monitor progress37. Also crucial are facilitator organizations that can

help groom small and medium enterprise in building socially responsible process, and advise

the larger businesses in leveraging the advantages of CSR and sharing lessons and best

practices. And to come full circle another important area that needs investment in terms of

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61

There is a dire need for a dialogue between the government, business and the citizen sector to develop a win-win for every one. Outcomes from this dialogue must inform

policy, which then must Such policies should be strictly observed by regulators, certifiers, academia and the media. Companies have

to feel encouraged to adopt CSR, know that it helps achieve profitability, human

development and progress, and that regulators, government authorities, investors, shareholders and labour representatives all

value accountability and transparency. Businesses need to know that in a

competitive international market, CSR adds value and builds image. CSR is not an option, it is a condition of survival for our businesses,

and ultimately, our society.



September 2005

money, time and education is consumer awareness, providing credible information beyond

social investments and corporate citizenship initiatives.

All this is achievable, but requires a strategic approach and a step-by-step process so Pakistani

businesses can emerge stronger in the current CSR paradigm. Below is a summary of what

this research has highlighted as areas for immediate attention within the context of a CSR

strategy. Each of these areas has the potential to becoming a distinct hub of programme

activity or project:

1. Build Strong Conceptual Knowledge

The first step towards a national CSR initiative must be a considered effort to build awareness

and knowledge on what comprises minima for CSR performance in Pakistan. A task force

could be formed with representatives of Government from SECP, Business and select CSR

experts to suggest a Pakistan-specific “definition of CSR” with accompanying policy guidelines

for Government to implement and Process indicators for business to assess their initiatives and

concept and frameworks to be included in business schools curricula. These could then be

introduced gradually, with the requisite opportunities for national debate, into legislative and

regulatory mechanisms. To guide CSR perceptions in the right direction media claims and

“green-wash” activities need to be watched through appropriate Government institutions like

SECP and representative bodies such as chambers, associations and stock exchanges.

2. Link CSR to Competitive Advantage

Businesses in Pakistan, especially the small and medium enterprises that form supply chains of

major businesses need to make the connection between CSR and profits so they can become

more efficient and pass on savings and value all along to the customer. CSR focus needs to

shift to improving internal efficiencies using CSR as management tool. This can be achieved

through linking SMEs with their larger corporate counterparts in knowledge transfer and

capacity-building partnerships that develop responsible cost effective solutions to create a

ripple effect. Institutions like SMEDA and Technology Institutes and engineering firms could be

linked into such programmes, along with trade associations and chambers of commerce.

Companies could contribute with their thinking and financial capabilities supported by

government incentives and facilitating policies.

3. Enhance Effective Stakeholder Involvement

CSR needs to be introduced as a topic in business discussions starting right from business

and commerce education to the highest level of trade negotiations. This area requires perhaps

the widest stakeholder involvement, with academia, lobbying groups, the media, Trade Unions

etc, all taking up the agenda in their inquiries, debate and dissemination activities. Social

Investments needs to be based on community and societal needs assessed through

stakeholder’s involvement at community and national level. All community projects and social

investments needs to be assessed for both negative and positive impacts, Incentive like tax

breaks and awards for sustainable programs with larger economic and social impacts. Also

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Learning from successful and unsuccessful investments can provide feedback into more

relevant policies and procedures.

4. Harmonize and Standardize CSR Performance

The most urgently required is a CSR tool based on considerations of our national limitations

and strengths for gaining competitive advantage with a focus on Global CSR debate and to get

it recognized globally. It would be appropriate to immediately embark upon the task of

instituting this national CSR standard or at least a voluntary best practice guideline against

which companies can benchmark them and be accepted in the global market. Companies

going beyond compliance would more readily gain competitive advantage. Over time and

through a calibrated process of national dialogue and technical appraisal these guidelines could

be inducted as a national standard on which companies can be graded for performance and

for bestowing incentives. Simpler CSR reporting guidelines need to be devised and

encouraged through CSR Report Awards by Government agencies like SECP in collaboration

with civil society organizations having technical expertise in CSR reporting standards.

5. Define and Promote Clear Incentives

At present the Government allows for tax exemptions and preferential treatment of businesses

that contribute to philanthropic causes. Other incentives include awards and public recognition

of individuals and companies bestowed by the government, representative bodies, trade

associations and public benefit organizations. All this promotes business interest in certain

activities and allows for interested individuals to aspire to higher standards. CSR must be

marked for such incentives too. Social reporting can be encouraged through instituting minimal

disclosure requirements as part of the licensing and compliance process for companies.

Benefits and recognition akin to those proposed for exemplary taxpayers by CBR could be

extended to transparent and accountable companies. Social investments can be recognized as

tax-relief contributions and finally official recognition of CSR as a corporate responsibility must

be matched by public rewards instituted officially or through trade associations and civil society

organizations.

6. Promote a Shared Strategic Vision

With all the above initiatives building the context for action, the country needs a clear and

compelling strategic vision for CSR, articulated convincingly by champions who practice what

they preach. SECP in its regulatory role has a key responsibility in steering other stakeholders

towards such a vision. Pakistan has many a notable example of socially responsible

entrepreneurs, CSR experts and conscientious citizens who can help promote the national

CSR strategy. Again, a task force of such citizens hosted by SECP would be well placed to

take this forward through the active collaboration of academia, CSR experts and the media.

7. Promote “Business” Thinking for CSR Projects

CSR interventions that seek to respond to community needs such as health or sanitation or

education are often not seen by their corporate sponsors as social investments and as such not

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open to the kind of scrutiny reserved for financial investments. This is a reason why such

projects often do not last long. Businesses need to be convinced that social investments are

not too different from financial ones and thus have to be measured like them. A real

contribution to CSR that business can make is to go beyond providing resources and instead

impart “business” thinking to their social interventions. This will encourage social enterprise

models that bring sustainable economic competitiveness to projects and lead to community

building through profits and entrepreneur skills. An approach towards this goal would be to pair

large, compliant organizations in mentoring relationships with smaller local companies that are

part of the large companies’ supplier network, leading to a gradual ratcheting up of socially

responsible thinking that is not averse to profits but to unethical practices. Good mentoring

programmers can be recognized and replicated. Examples can be documented and covered

through the media. An advice help-line and newsletters can provide basic CSR information and

a CSR induction kit for businesses can be developed and disseminated on a cost-recovery

basis.

8. Seed a Vibrant National Forum

CSR has fast emerged as key management concern for businesses, and thence for

government, due to a widespread citizen movement and

action by activist judicial systems. Recent years have

witnessed a spate of convictions of world renowned

business leaders for unethical practices, which indicates the

shape of things to come. However, the world has also seen

that confrontation between erstwhile antagonists among the

corporate and citizen sectors is now changing to joint action

and strategic partnerships for sustainable development.

Governments and corporations now regularly partner civil rights and development groups

guided by CSR experts to develop and implement sustainable interventions in an ever widening

range of environmental and social themes. In Pakistan too there is room for a national CSR

forum where knowledge can be shared informally and good practice honed to take the country

into the next plane of CSR performance. SECP can lead this forum, with secretariat housed in

an institution such as the Institute of Corporate Governance, or any another academic

institution, or a suitable citizen sector organization. The forum could become a membership

body and take over the tasks described above, such as publishing newsletters and

disseminating good practice values culled from a regular series of national dialogues.

9. Groom Future CSR Leaders

There is no dearth of innovation leaders among Pakistan’s corporate and citizen sectors. These

innovative corporate leaders can be the best resource and act as a catalyst for creating a larger

pool of future leaders. These leaders need to take a leap forward to educate themselves on

CSR issues and then showcase ethical behaviour within their own organization, collaborate

with other responsible leaders and provide a learning forum for young leaders. Over time and

through a considered stewarding approach, possibly through the forum suggested above, it

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“True, from the consumer society perspective, but telling philanthropy from responsible

business is still a conceptual leap for our businesses that prevents them contributing to sustainable

development. “

CSR in South Asia, India 2001 ©RBI



September 2005

would be possible to create a culture of competition based on innovation and socially

responsible behaviour in all aspects of business. These young leaders can be encouraged

through rewards and recognition by representative bodies, such as chambers of commerce,

SECP, business schools or CSR enabling organizations.

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THE WAY FORWARD

Fig (13)

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How to leapfrog into the global CSR mainstream for competitive advantageHow to leapfrog into the global CSR mainstream for competitive advantageHow to leapfrog into the global CSR mainstreamHow to leapfrog into the global CSR mainstream for competitive advantage for competitive advantage

Government

Society and Environment

CSR Expert

Multinational Corporation

Large National Corporation

Funding Agencies

Business School

Technology InstituteSustainabl

e Technolog

y

Small and Medium Enterprise

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APEX CSR DISCUSSION WORKSHEETLahore – 26th September 2005

# TARGET ACTIVITY LEAD ROLE TIME ASSUMPTION1. Build Strong Conceptual

Knowledge- Task force- National Campaign- Private TV channels- Annual CSR Event- Newsletter

- SECP- Pak Inst. Of Corp. Governance- RBI

12-18 months

CRIMessage development

2. Link CSR to Competitive Advantage

- formal CSR guidelines- Corp. Index Card-

- SECP- EFP- RBI

3. Enhance Effective Stakeholder Involvement

- CSR Roundtable- Outreach

- SECP- GTZ/RBI- NGO Coalition- Industry Forums- Media campaign

4. Harmonize and Standardize CSR Performance

- Industry-specific norms- Develop frameworks

- RBI Consider GRI as norm

5. Define andPromote Clear Incentives

- Tax break- Govt. co-funding- Recognize performers

- CBR

6. Promote a Shared Strategic CSRVision

- enlightened self-interest - PICG- NGO Coalition-Corporate reps

7. Promote “Business” Thinking for CSR Projects

- design need-based programs - Business- CSR Centre

8. Seed a Vibrant NationalCSR Forum

- take reps from existing committees forum

-SECP-RBI

9. Link Taxes to CSR performance – tax reform

- ICAP

10. Review laws and draw together supportive elements

-

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14.0 REFERENCES

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1 AI’s vision is of a world in which every person enjoys all of the human rights enshrined in the Universal Declaration of Human Rights and other international human rights standards.

2 WWF World Wide Fund for Nature was officially formed and registered as a charity on 11 September 1961. WWF planned to work, wherever possible, with existing non-governmental organizations, and base its grants on the best

scientific knowledge available a policy which has been adhered to ever since.

3 OECD Organisation for Economic Co-operation and Development-Organization groups 30 member countries sharing a commitment to democratic government and the market economy. The work covers economic and social issues to

trade, education, development and science and innovation. http://www.oecd.org

4 Carson Rachel, “Silent Spring” -exposed the hazards of the pesticide DDT raised question on humanity’s faith in technological progress and helped set the stage for the environmental

5 The company tried to hide that instead of sharing and overcoming the disaster

6 International treaty on global warming risk management

7 The WEF’s failure to deal with the social and environmental issues in the agenda.

8 Dr Vivian Balakrishnan, Minister of State for Trade and Industry and National Development, Singapore

9 Business for Social Responsibility, USA

10 Defined by “Business for Social Responsibility”

11 Business for Social Responsibility

12 Samuel DiPiazza. CEO Price Water house Cooper

13 Stephen Timms MP, UK Minister for CSR

14 John Zinkin, Associate Professor, Nottingham University

15 Amnesty International and OECD was formed by thirty countries to monitor economic development and foster good governance, V The World Wide Fund for Nature (WWF) came into being to protect natural resources. Greenpeace

was founded to fight against the pollution and the hazards caused due to human ignorance.

16 Promonent recent example have involved leading businesses like Enron, WorldCom, Parmalat, Shell and Nike.

17 Prominent among these are a wide array of international interventions including Global Reporting Initiative, SARB SouthAsia Alliance for Responsible Business, the Asia Pacific CSR Centres Group and the Globally Responsible

Leadership initiative, and a slew of national ones like the Pakistan Institute of Corporate Governance.

18 São Paulo Consensus of UNCTAD XI

19 Mark Goyder, Director, Tomorrow’s Company

20 Pascal Lamy, Commissioner for Trade, European Commission

21 A by FTSE 350 index undertaken by the Institute of Business Ethics found above average financial performance for

companies with CSR policies.

22 “CSR Supplement”: Financial Post , 20th September

23 According to Islam.com, Islam emphasizes a conscious effort to avoid “hypocrisy, caprice, heedlessness, and everything else that keeps a Muslim serving God for His sake alone. This purification of the soul is called tazkiyah”.

24

Raymond A. Klesc “Business Ethics in Islam”, Part III, Muslim Executive and Expatriate Newsletter , Volume 1 Issue 3 25 For example, a set of business ethics principles, disclosure requirements, product integrity specifications or identified social & environmental compliance standards

26 4-Ps- Perception, Policy, Practice, Performance

27 This could also be a key reason for the relatively low response-rate for this particular study

28 4-Ps- Perception, Policy, Practice, Performance

29 David B. Montgomery and Catherine A. Ramus, "Corporate Social Responsibility Reputation Effects on MBA Job

Choice" Stanford GSB Working Paper, May, 2004.

30 See Aguilera, et al, supra

31 Iddat (also pronounced IDDAH) is the period of waiting mandated upon widows after the death of their husbands during which they may not remarry. Iddat is established from the Quran and Hadith. mubaarak.netfirms.com/iddat.htm

http://web.amnesty.org/pages/aboutai-udhr-eng

http://www.oecd.org/

http://www.oecd.org/topic/0,2686,en_2649_37417_1_1_1_1_37417,00.html




http://www.oecd.org/document/58/0,2340,en_2649_201185_1889402_1_1_1_1,00.html

http://www.oecd.org/

32 Lord Browne of Madingley, Group Chief Executive of BP, 2001

Holy Grail Found, Absolute, definitive proof that responsible companies perform better financially; Marjorie Kelly,

33 Shah Faiz, Waheed Ambreen “ Triple Bottom-line Demonstration Project in South Asian Countries–Pakistan”,

Project Report: World Summit on Sustainable Development, Johannesburg, South Africa, 2002

34 Waheed Ambreen “GRI Potential at the Grass roots: Applying the Triple Bottom-line to Export SMEs in Pakistan”

Paper presented at the GRI Regional Symposium, Kuala Lumpur, Malaysia, 2002

35

36 http://www.iso14000.com, http://www.sa-intl.org

37 Strong regulatory authorities are exemplified by such institutions as the State Bank, SECP, Monopolies Control Authority, PEMRA, NEPRA etc.

http://www.sa-intl.org/

http://www.iso14000.com/

ambreen rbi-secp csr-pakistan extract without apex

Documents

state of csr

csr strategy

csr principles

csr role

csr figure

csr growth

map csr

csr research evaluation