Though the term ‘corporate social responsibility’ varies across companies and countries, it’s generally considered to be a form of organizational self-regulation focusing on an employer’s approach to sustainability across a variety of topics, such as environmental efforts, human rights, corporate governance, health and safety and economic development.
Unilever’s sustainable living plan sets out ambitious targets for its environmental footprint and social impact, with two pillars focused on the health and well-being of its employees and its customers.
Read: 72% favour employers with strong CSR practices: survey
“The first is to improve health and well-being for one billion people by 2020 and the second is to enhance the livelihood of one billion people by 2020 — and our employees are included in that,” says Bronwyn Ott, the company’s benefits and well-being manager. “In order to be a leader with our sustainable living plan, we have to focus on our own internal sustainability so we can bring it to life within the company.”
CSR policies have become a key part of many organizations’ operations. Indeed, 21 per cent of employers have a CSR plan aligned to their business goals and 30 per cent of Canadians see these policies as a competitive advantage for businesses, according to research published by PricewaterhouseCoopers in 2018.
As the understanding of both the tangible and intangible benefits of CSR policies grows, organizations are folding them into their benefits and pension plans in the form of volunteer programs, employee-driven charitable initiatives and pension plan investment policies.
Engaging employees
Increasingly, employers are aligning their internal efforts with their sustainability strategies, says Karen Lockridge, principal in sustainability and climate change at Mercer. Companies are asking, “Given what business we’re in, how can we best contribute to achieve our targets?” she says.
In Numbers
48%
of Canadian private companies don’t have a corporate social responsibility plan.
21%
have a CSR plan aligned to their business goals.
29%
plan to have one in the next three to five years.
53%
consider a CSR plan a nice-to-have rather than a priority.
30%
see CSR as a competitive advantage for businesses.
0%
of respondents with a CSR plan are communicating it in their recruitment initiatives.
Source: PricewaterhouseCoopers
survey, 2018
Unilever started its journey through the improvement of employee’s health and well-being in a holistic sense, and now it’s moving to sustainability, which is aligned to its living plan. “We want employees to be able to live their purpose and sustain high performance inside and outside of work,” says Ott.
Read: Which companies are finalists in the 2018 Workplace Benefits Awards?
Unilever employees can take paid volunteer days to give back to their communities and access the company’s charitable donation program. In January 2018, it launched a lifestyle spending account to replace its fitness reimbursement program, which Ott says was no longer reflective of its sustainability philosophy. Now, employees receive a lump sum that can be spent to support their individual well-being goals.
Eric Saarvala, an advisor with the Canadian Business for Social Responsibility, lists three trends driving how leading organizations are approaching CSR in their benefit plans. The first is shifting relationships with non-profits from transactional to transformational. The second is creating ways for employees to determine how they give back, since this increases employee engagement. And lastly, it’s about creating opportunities that build skills for employees. “[Skill building] activities are not just happening in training rooms anymore,” says Saarvala. “Developing skills outside of the actual office is becoming a norm.”
Deloitte is embracing all three. Its long-standing Impact Day allows employees to go out one day each year to volunteer in a variety of capacities, including tree planting, cleaning up gardens and working at a food bank. “We’ve recently gone through a strategy refresh for Impact Day,” says Sarah Chapman, the company’s director of corporate responsibility, who notes it was becoming challenging to find enough meaningful volunteer opportunities for employees all on the same day. “Finding 5,000 meaningful spots is a big burden on the community organizations.”
Read: Canadians want volunteering opportunities organized by employers: study
Now Deloitte is looking for ongoing volunteer opportunities throughout the year and engaging with community organizations to put its employees’ skills to work. “We are trying to move toward skills-based volunteering opportunities to utilize the incredible talents of our people,” says Chapman. “For example, we used to sort food at the food bank, but now we’re looking at how we can help improve the processes in their warehouse. We can do what we do with clients, but in a volunteering capacity.”
Deloitte’s pro bono work program and board mentoring also extend its CSR efforts into its benefits offering while developing employees’ skills. “Employees can offer to be involved in pro bono work we do for non-profits and social enterprises,” says Chapman. “We also provide leadership development opportunities for our people, teaching how to get on a board and identifying local board opportunities out in the community.”
At Fidelity Canada, employees receive two paid volunteer days each year and teams can volunteer together. Employees who consistently volunteer or are outstanding fundraisers are celebrated internally, and the organization donates $100 to the charity of their choice as recognition.
Fidelity also has employee resource groups where staff decide which community-based opportunities the company will contribute towards. Recently, 30 employees volunteered in high school classrooms across Toronto teaching financial topics, says Diana Godfrey, senior vice-president of human resources at Fidelity Canada. “[The resource groups] really excited us because the employees are the ones making the decision on how they give back to the community. It means they ultimately end up giving more time themselves.”
Climate risk driving pension change
In the case of pensions plans, the obvious alignment with CSR is through the incorporation of environmental, social and governance factors into investment strategies.
Investing in companies that incorporate ESG or CSR principles into their operations and strategic decision-making has a direct impact on share price performance, says Natalia Moudrak, director of the infrastructure adaptation program at the University of Waterloo’s Intact Centre on Climate Adaptation. Looking at total returns in October 2018 compared to the S&P/TSX composite index, companies focusing on these issues have outperformed by one to two per cent, according to global research firm Sustainanalytics. “The application of ESG principles can — and does — pay off,” says Moudrak.
Read: Most Canadian institutional investors engaging in ESG issues: survey
While ESG isn’t new, climate risk is increasing the desire, and pressure, to take action. Under a number of scenarios, climate change will inevitably affect investment returns, according to a 2015 report by Mercer, which encouraged investors to view climate risk as a new return variable.
The wider pension and investment industry is making moves to address these realities. In October 2018, the federal government’s expert panel on sustainable finance released its interim report with the goal of understanding how to support investment in climate resilience and low-carbon growth. The panel, which includes experts from the Caisse de dépôt et placement du Québec and the Ontario Teachers’ Pension Plan, acknowledged that climate effects are significant and growing, Canada’s economy is carbon intensive and the financial services industry has a key role to play.
“This will have an important impact on how sustainable finance is prioritized from a regulatory level right down to what investors are doing,” says Lockridge, noting Mercer is working on an initiative to align corporate pension fund assets to sustainability strategies. “Corporate funds are behind the public sector funds, but progress is happening.”
CSR and millennials
CSR improves attraction and retention, particularly with millennials, says the Canadian Business for Social Responsibility’s Eric Saarvala. “Millennials want employees to be socially responsible. In the war on talent, [CSR] can be a way to attract, manage and train these employees.”
2/3
of people between the ages of 18 and 34 were at least somewhat more likely to want to work for a company that gave to charity than one that did not, according to Forbes.
77%
of millennial’s are active in causes and/or charities, according to a Deloitte survey.
81%
of millennials expect a company to commit to corporate citizenship, according to a Horizon Media study.
62%
of millennials would take a pay cut to work for a company that’s socially responsible, according to a survey by Cone Communications.
The OPSEU Pension Trust aligns its organizational activities with its approach to sustainability and stewardship, engaging with companies on key issues such as worker rights and labour standards in supply chains, human rights and executive compensation.
Read: OPTrust and partners launch climate-focused strategic investment project
In terms of climate change, the pension fund’s journey began about two years ago with an aim of understanding its investment portfolio’s climate and carbon footprint. “When we started that effort, we quickly realized there was insufficient public information,” says Hugh O’Reilly, president of the OPTrust. “What we decided to do was issue a discussion paper asking for more and better disclosure.”
In January 2017, the OPTrust released a position paper that provided an assessment and analysis of the climate risk exposure across the total fund. O’Reilly says it was clear at that time the organization needed to take action. “Climate risk is a risk we, as a pension fund, need to price. Once we can price the risk, we can engage with the companies we invest in to reduce the risks. In the absence of information, we can’t do that.”
In June 2018, the OPTrust released its climate change action plan, which includes pushing for better disclosure of the information required to price carbon risk, defining a baseline of climate-related risks to the total fund and collaborating with peers, regulators and others to achieve change.
O’Reilly says a recent inventory of the OPTrust’s portfolio found five per cent of its total assets are invested in renewables, three per cent are in green real estate and eight per cent are in green bonds, with only one per cent directly exposed to fossil fuel.
Read: OPTrust sets out climate change action plan
“We are long-term investors, so knowing what the consequences of climate change are and will be on our investments is in the long-term interest of our members,” he says.
Kevin Thomas, executive director of the Shareholder Association for Research and Education, says pension plan administrators or trustees that aren’t looking at ESG factors aren’t doing their jobs. “It’s well-understood now to include consideration of ESG questions,” he says. “In fact, it is arguably necessary to address if they are material to the investment you hold. For example, if you look at the future of our economy here in Canada, to not consider climate change as part of your assessment would be a breach of your fiduciary duty.”
But Thomas says this duty doesn’t have to be viewed through the lens of corporate social responsibility. Rather, it’s fundamentally about being a good pension trustee, board or manager in the 21st century.
“Advocating for better ESG outcomes from the companies they own is part of [a trustee’s] duty,” he says. “Voting responsibly at corporate annual meetings is part of that duty. Advocating for better market regulations that support a sustainable, inclusive and productive economy, regulate poor corporate behaviour and improve investment decision-making is part of that duty. Taking a long-term view of the importance of a sustainable, inclusive and productive economy is part of that duty, since without a sustainable economy, long-term portfolio returns will suffer.”
Read: How Bâtirente takes ESG reporting to the next level
For smaller pension plans, capacity can be a barrier to mapping their portfolio’s climate risks, so Thomas suggests plan administrators ask their investment managers about their policies, practices and procedures for understanding ESG risks.
“Those managers work for them and should be held accountable for those funds,” he says.
Other elements of ESG
In addition to environmental concerns, ESG also incorporates social and governance factors, including labour standards, human rights, income inequality and diversity and inclusion.
Indeed, employment and human rights issues, such as forced labour and modern slavery, are rising up institutional investors’ agendas. “Despite the fact that all countries have abolished slavery, there were more than 40 million modern slaves globally in 2016,” says Lockridge. “Many of these are in the supply chains of investors’ portfolio companies.”
The U.K. Modern Slavery Act, enacted in 2015, includes supply chain disclosure requirements, as well as new criminal offenses and enforcement, an anti-slavery commissioner and victim support. In 2017, France passed the Corporate Duty of Vigilance Law, which requires companies to develop a plan with reasonable measures to identify and prevent risks of serious infringement to human rights and fundamental freedoms.
While similar legislation doesn’t yet exist in Canada, SHARE published a statement in June 2018 that was signed by a group of 129 Canadian and global investors, urging the Canadian government to act. “We consider a company’s management of environmental, social and governance risks, including human rights-related risks, in our investment decision-making processes,” noted the statement. “In order to do so, however, we require up-to-date, clear and comparable information from companies about their due diligence on priority issues like modern slavery and child labour in their supply chains.”
Read: How ESG considerations can lead to better investment decisions
Diversity and inclusion is also a key priority for many investors, says Lockbridge. “This topic is often approached from a corporate governance perspective, where investors engage with companies and express their views through proxy voting. But there are also more gender-based investment strategies coming to market, including portfolios made up of companies with more than a certain percentage of women on the board. Additionally, investors are looking for more disclosure from companies around the diversity of their board, leadership and workforce.”
Saarvala notes diversity and inclusion is a driver of employee engagement. “Sustainability that is built into the employee lifecycle — from talent attraction to management, development and retirement — will win the war on talent, particularly with millennials, and will decrease costs associated with turnover, recruitment and absenteeism,” he says. “A diverse and inclusive workforce that represents the communities in which the company operates and the customers they serve as a long-term strategy helps create business and brand sustainability.”
Measuring the impact
The Canadian Business for Social Responsibility offers a number of resources for companies looking to better align their whole company with their CSR goals. One practical tool, a checklist of 19 qualities to build into an organization, is intended to start conversations with boards and executive teams, as well as serving as a benchmark.
But where employers align their CSR policies with benefits and pension programs, how do they measure the effectiveness of these efforts?
Fidelity doesn’t have a direct measurement or score, but Godfrey considers awards recognizing the company as a best place to work, employee engagement surveys and ongoing recognition from staff as measurement enough. On the other hand, Unilever measures its employee feedback, but it isn’t just about return on investment, says Ott. “It’s about the value on the investment too.”
Read: Fidelity Canada wins diversity program award for driving change
Alongside employee engagement surveys, Saarvala recommends incorporating benefits offerings, like volunteering and professional growth, into annual employee performance metrics. Lockridge agrees, noting “larger organizations are moving toward aligning sustainability goals with performance and incentives, particularly at more senior levels.”
Connecting benefits and pension plans with CSR policies is a worthwhile way to drive employee engagement and satisfaction, meet plan promises and increase overall company sustainability. “Employers shouldn’t underestimate the power and value of this kind of engagement,” says Godfrey.
But organizations don’t need to have formal CSR or ESG policies in place to add these types of programs into their benefits plans, she adds, noting Fidelity has no formal alignment between its benefits programs and its CSR targets.
“When you create a culture of giving back, social responsibility is built into it,” she says. “There are lots of things organizations can do to support sustainability initiatives without having it in a mission or statement.”
Leigh Doyle is a Toronto-based freelance writer.