“Understanding CSR for Business Sustainability” Mr Lee Swee Seng Day 3 : CRT Expert Seminar Series 12 th September 2007

1. 0 “Understanding CSR for Business Sustainability” Mr Lee Swee Seng Day 3 : CRT Expert Seminar Series 12th September 2007 . Kuala Lumpur

2. Introduction 1 Promotion of good corporate social responsibility is essential especially in enhancing the Malaysian capital market. Profit maximisation is not longer the sole consideration in business sustainability. Stakeholders are now becoming discerning especially with regard to the impact of businesses products and services on the environment, the local communities as well as the relationship with their employees.

3. Companies now have to take into account: A) the shareholders B) the stakeholders C) society CSR is nothing new It is about doing good More than just doing good CSR

4. More than charity, more than philanthropy It’s about doing the right thing Not something incidental to business but Infused through and integrated into business CSR

5. What CSR means to Bursa 4 “CSR is open and transparent business practices that are based on ethical values and respect for the community, employees, the environment, shareholders and other stakeholders. It is designed to deliver sustainable value to society at large.” www.bursamalaysia.com

6. CSR focal areas in Bursa 5 Environment Workplace Community Marketplace

7. Bursa Securities framework 6 Set of flexible guidelines for those who wish to practise CSR. All criteria do not apply to all companies. PLCs may choose and prioritize

8. Top 10 environmental issues facing humanity A) Climate change B) Energy C) Water D) Biodiversity and Land use E) Chemicals, Toxics and Heavy Metals F) Air pollution G) Waste management H) Ozone layer depletion I) Oceans and Fisheries J) Deforestation Source: From Green to Gold Why CSR matters

9. Competitive advantage vs Compliance 8 Legislation or regulatory intervention was not needed in encouraging companies to adopt CSR. SHELL MALAYSIA – companies like sustainable development not because legislators force them to but rather that they aware that they have to ensure their long-term livelihood

10. Encouragement rather than compulsion Their aim is to encourage but not compel business and local communities to work together to create a transparent and equitable, and therefore better and more efficient business environment. UK’s Approach

11. CSR as key to business sustainability 10 Adoption of sustainable criteria has key business benefits:- improving financial performance enhanced brand image and reputation attract and maintain quality workforce

12. CSR as key to business sustainability 11 Reduced long term cost Attract more investors Better client and customer satisfaction Improve employee satisfaction

13. Brand reputation 12 • The perception of brand can influence customer loyalty, lenders and investors scrutiny. • Strong brands will allow companies to compete effectively in global market.

14. Quality staff 13 Employees are major stakeholder of companies Employees are given chance to speak up and demand that companies to carry out more meaningful activities. Companies with bad CSR record will have difficulty in recruiting and retaining their staff compared with companies with good CSR records.

15. Harvard Business Review 2006– Strategy and Society : The Link Between Competitive Advantage and CSR – Michael Porter & Mark Kramer Successful corporations need a healthy society. Education, health care and equal opportunity are essential to a productive workforce. Safe products and working conditions can also lower internal cost of accidents. Efficient utilisation of land, water, energy and other natural resources makes business more productive. The link between competitive advantage and CSR

16. Toyota’s Prius, the hybrid electric/gasoline vehicle, is the first in the series of innovative car models that have produced competitive advantage and environmental benefits. Hybrid engines emit as little as 10% of the harmful pollutants while consuming only half as much of gas. Credit Agricole, France’s largest bank, has differentiated itself by offering specialized financial products related to the environment. The link between competitive advantage and CSR

17. Microsoft’s Working Connections partnership with American Association of Community Colleges (AACC) The shortage of IT workers is a significant constraint on Microsoft’s growth : Currently there are more than 450,000 unfilled IT positions in US. The link between competitive advantage and CSR

18. Therefore, Microsoft sent employee volunteers to colleges to assess needs, contribute to curriculum development and create faculty development institutes. Microsoft has achieved results that have benefited many communities while having a direct and potentially significant impact on the company. The link between competitive advantage and CSR

19. CSR reporting 18 CSR reporting was made compulsory in Budget 2006, requiring all PLCs to report on their environmental and social responsibility performance. Our prime minister in our Budget 2007 speech announced the requirements for PLCs to report on their CSR initiatives.

20. Budget 2007 19 To encourage companies to participate in CSR program, the Government proposed that the ceiling for tax deduction on contributions by the private sector to charitable organisations be increased from 5% to 7% of aggregate income. The Government also proposed that this tax deductions be extended to sport activities.

21. Bursa Securities Listing Requirements 20 CSR reporting will be mandatory in respect of annual reports of listed companies with financial years ending on or after 31 December 2007. 14 Dec 2006 Bursa media centre

22. Appendix 9C Bursa Securities Listing Requirements 21 Contents of annual report (29) A description of the corporate social responsibility activities or practices undertaken by the listed issues and its subsidiaries and if there are none, a statement to that effect.

23. Section 11 of the Securities Industry Act 1983 provides that : Where any person fails to comply the rules of stock exchange, that person has committed a breach. If a person has committed a breach, the Securities Commission may take one or more of the following actions: A) direct the person to comply with, observe, enforce or give effect to those rules; Non-compliance of the BSLR

24. B) impose a penalty in proportion to the severity or gravity of the breach but not exceeding RM1 million C) reprimand the person in breach D) require the person in breach to take steps as the Commission direct to remedy the breach. Non-compliance of the BSLR

25. Para 16.16 BSLR In the event of breach of LR by a listed issuer or its directors, the BSLR may, after consultation with SC, take or impose such actions or penalties as it considers appropriate. Breach of BSLR

26. S172 Duty to promote the success of company A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefits of its members as a whole and in so doing having regard to – (d) the impact of the company’s operations on the community and the environment UK Companies Act 2006

27. Growth potential for SRI funds is tremendous with interest in such funds increasing globally. In the US, a total of US$2.16 trillion in assets was identified as using one or more of the three SRI strategies namely screening, shareholder advocacy and community investing. More than one out of every nine US dollars under professional management in the US in 2003 is involved in socially responsible investing. www.sc.com.my Global trends

28. Green To Gold by Daniel C. Esty and Andrew S. Winston Sony Playstation 3 (“Cadmium crisis”) In 2001, The Dutch Government was blocking Sony’s entire European shipment of Playstation game stations because a small but legally unacceptable amount of the toxic element cadmium was found in the cables of the game controls. Sony rushed in replacements to swap put the tainted wires. Exporting to CSR-aware markets

29. Four lessons from Sony’s experience:- A) even the best companies can be surprised by environmental issues B) it can cost businesses real money C) real benefits can come from seeing things in a new light D) Smart companies seize competitive advantage through strategic management of environmental challenges Exporting to CSR-aware markets

30. The Star – 5 September 2007 Mattel recalls 800,000 toys worldwide because of lead paint. This was the third major recall of chinese-made toys because of excessive amounts of lead paint. Mattel’s last recall announced on Aug 14 covered about 19 million toys worldwide. Exporting to CSR-aware markets

31. New York Times – Aug 13 The head of a chinese company that was behind the recall of about a million Mattel toys committed suicide over the weekend. The NYT goes on to report that many chinese factory owners often under intense pressure to lower production cost cut corners in making products and regularly use cheap and illegal substitutes. Exporting to CSR-aware markets

32. Bloomberg – Aug 13 Chinese toothpaste distributed to hotels worldwide by a US company has been recalled because it may contain a chemical used in antifreeze. Exporting to CSR-aware markets

33. USATODAY.com Natural Balance pet food recalled The industrial chemical melamine has been found in pet food. Melamine is believed to have contaminated rice protein concentrate used to make pet food. Exporting to CSR-aware markets

34. CSR practices in Malaysia

35. British American Tobacco (BAT) 34 Environment Developed and implemented an integrated management system to propel employees toward higher productivity and quality standards. Afforestation – to reach carbon neutrality Waste management

36. British American Tobacco (BAT) 35 Community Providing opportunities through education Social responsibility in farming Workplace Open two way communication channels are made to employees at all levels

37. British American Tobacco (BAT) 36 Marketplace External stakeholder engagement Internal stakeholder engagement – a) listening to employees b) responding to employees

38. Shell Malaysia Social Investment 37 Youth and Education In 2000, 129 new scholarships were awarded. Shell also sponsored 21 students and teachers to the 2nd APEC Youth Science Festival in Singapore in July.

39. Shell Malaysia Social Investment 38 Environment nature camps in Bintulu and Miri for students, staff and their families in collaboration with NGOs and Government agencies, a RM 461,000 sponsorship for the construction of the Danum Valley Education and Interpretation Centre and a grant of RM1 million to Yayasan Bosama, (Borneo, Sarawak, Malaysia Foundation) for environmental conservation initiatives.

40. Shell Malaysia Social Investment 39 Community A) culture of sustainable development Employees reaching out to communities in need Project better world Running for environmental education Planting trees in support of sustainability Promoting environment through art forms

41. Shell Malaysia Social Investment 40 B) employees community service & voluntary fund Employee community service fund – eg. donation of RM 2,000 from EP community service fund to Women's Institute of Bario Asal Longhouse for the purchase of chairs for their community hall.

42. Shell employees voluntary fund – eg. donation of RM 20,000 to the Miri Charter of the Malaysian Red Crescent Society towards the purchase of a mobile blood bank van. Shell Malaysia Social Investment

43. To ensure the approach to lending and investment reflects our business principles and values, sensitivity to society’s expectations and an assessment of risk, HSBC: have adopted the  Equator Principles - a set of voluntary guidelines developed to address the environmental and social issues that arise in financing projects - in September 2003. have published five sector guidelines & policies to complement our Environmental Risk Standard published in 2002. www.hsbc.com Banking perspectives : HSBC

44. are looking to develop sustainability-focused business in a number of areas, particularly low carbon energy, water infrastructure, sustainable forestry and related agricultural commodities. We also provide a range of sustainable & responsible investment (SRI) funds. avoid certain types of business, such as financing weapons manufacture and sales, dealing with countries subject to international sanctions, and transactions that might be used to evade tax or to launder earnings from crime. www.hsbc.com Banking perspectives : HSBC

45. HSBC Group Investment Businesses are signatories to the United Nations Principles for Responsible Investment. These commit institutional investors to incorporate environmental, social and governance considerations into investment analysis, decision-making and ownership practices. www.hsbc.com Banking perspectives : HSBC

46. Making HSBC one of the leading brands By going beyond the accepted corporate governance standards, HSBC gains competitive advantage and theirs efforts to be transparent, responsible and accountable to their shareholders have been recognised. Aims of HSBC

47. THE PRIME MINISTER’S CSR AWARDS The Awards represent the nation’s highest recognition of corporate organizations that have had a significant and positive impact on the lives of people around them. There are 6 categories in the Prime Minister’s CSR Awards: Community & Social Welfare, Education, Environment, Culture & Heritage, Small Company CSR and Best Workplace Practices. Government initiatives

48. The most outstanding of the six category winners will take away the prestigious Prime Minister’s award for the Best Overall CSR Programme. In addition, there is a special award for the best Media Reporting. Government initiatives

49. CSR can make our business more competitive. Companies should be encouraged to assimilate CSR values into their business strategies and goals. Conclusion

50. 49 “Understanding CSR for Business Sustainability” Mr Lee Swee Seng Day 3 : CRT Expert Seminar Series 12th September 2007 . Kuala Lumpur