Sustainability: driving stakeholder engagement

Throughout the 1990s, clothing manufacturers such as Nike were synonymous with slave wages and unsafe factory conditions in developing countries. An early target of human rights activists, these companies eventually saw the need for an image makeover. A key factor in achieving that was the creation in 1999 of the Fair Labor Association, a non-profit group whose membership established independent monitoring and a code of conduct that included minimum age requirements for workers and a maximum 60-hour work week.

As awareness about the importance of sustainable business practices continues to grow, more companies are taking CSR more seriously and trying to communicate their efforts to a wider range of stakeholders beyond investors. Skeptics may regard such outreach as the latest in a bag of PR tricks deployed to divert attention from controversial corporate policies, practices and products. For some companies, however, outreach to non-governmental organizations (NGOs), consumer advocacy groups and local communities has become integral to how they do business, informed by deeper awareness and understanding of their impact on society. Undoubtedly, a keener appreciation for the role reputation plays in investors’ decisions and customers’ loyalty, as well as in relationships with regulators, is providing an incentive for expanded stakeholder engagement.

There are two different kinds of engagement between companies and external stakeholders, and these are distinguished by how closely aligned the parties’ interests and perspectives are on a given issue, says Dunstan Allison-Hope, managing director of Business for Social Responsibility (BSR), a non-profit consulting organization that facilitates engagement between companies and stakeholders. An example of close alignment between company and civil society interests is the response to censorship of internet content in China and elsewhere in the early 2000s: both companies and civil society groups want to protect privacy and freedom of expression.

In 2006 BSR facilitated a two-year process that involved three internet companies, three telecoms and roughly 20 different civil society and human rights organizations. That culminated in the creation of a separate legal entity, the Global Network Initiative (GNI), which has principles on the right to privacy and freedom of expression and holds companies accountable for implementing protective measures. As internet companies were under more intense scrutiny by regulators when the principles were initially defined, Google, Yahoo! and Microsoft signed up to the final principles while the three European telecoms bowed out. Since then, however, 10 telecoms and a couple of equipment manufacturers have signed up to a new initiative called the Telecommunications Industry Dialogue and have a memorandum of understanding with the GNI.

Tough customers

The second kind of engagement occurs around more complex issues, where there is less agreement as to what all parties think companies should do, such as labor conditions in supply chains. Issues like freedom of association, collective bargaining, wages, working hours and health and safety are often contentious and not easily addressed just by companies being willing to talk with stakeholders, Allison-Hope says.

In the worst-case scenario for engagement, the company feels its role ‘is to defend itself and its practices and convince the stakeholder it’s doing the right thing rather than listen and have a dialogue open to a different point of view,’ says Allison-Hope.

The best-case scenario, he continues, is one in which the company knows the stakeholder brings to the table certain insights, perspectives and knowledge that the company itself doesn’t have, and by working together the company and the stakeholder can achieve a lot more than each can alone. ‘We are seeing a lot more of that than we did 10 years ago,’ Allison-Hope notes.

Calvert Investments, which is guided by socially responsible investing principles, likes companies to use a materiality assessment to identify key stakeholders and decide which sustainability issues are the highest priority to address, based on their relevance to the company’s operations.

‘Then we want to see how often that engagement takes place,’ says Stu Dalheim, vice president of shareholder advocacy at Calvert. ‘Is senior leadership involved in the engagement? Does it act upon things it hears in its engagement with stakeholders? We like to see companies’ senior leaders involved in this and we like to see the board of directors, if not directly involved, then at least made well aware of the company’s efforts to engage with stakeholders. And we do think boards should get information about stakeholder concerns.’

Dalheim sees an increasing number of large companies, for example, that have set up environmental working groups with members of the local communities where their facilities are located in order to get feedback on operational issues. Intel has established community advisory panels (CAPs) at three major US manufacturing sites in Arizona, New Mexico and Oregon. These CAPs bring together elected city council and school board representatives, members of neighborhood groups and environmental bodies and sometimes a local fire or police chief, to discuss concerns such as noise, traffic disruptions and emissions with a company representative.

Gathering Intel

Intel created an advisory panel in Chandler, Arizona, nearly 20 years ago, before applying for permits for the fabrication facility it was planning to build. An environmental activist who joined the Chandler CAP 15 years ago was initially skeptical but has become one of Intel’s supporters, says Renee Levin, community engagement manager for the Chandler site. ‘He’s happy we’ve worked so closely with our first emergency responders to create close relationships so they know what chemicals we have on site,’ she explains. ‘We created a process with the local fire station so it knows what we have, where it is and the amounts we have.’ That can be very helpful should emergency responders need to know what to expect in a sudden situation, she adds.

Since 2006, Intel has made a series of incremental improvements at its Rio Rancho, New Mexico manufacturing facility to reduce the impact of emissions on surrounding communities. Intel’s Community Environmental Working Group’s web page states that while the group’s discussions ‘were an impetus for these improvements, the group cannot take full credit’, given contributions by members of the public, public agencies and Intel management.

When company policies have a much more serious impact on local communities, as with deforestation from palm oil production, ‘it’s a big problem when NGOs become gatekeepers for affected communities,’ says Jeff Conant, ecological justice advocate at Friends of the Earth, who heads its palm oil campaign. ‘My number one suggestion for companies is to be clear on who they’re talking to and who they’re not talking to.’

Dalheim agrees that when initiating contact with stakeholders in local communities, companies need ‘to know who really speaks for the community, who has the right to’ – which can be challenging.

At the global level, Intel’s corporate responsibility office manages relationships with many activist stakeholders. For example, when the Enough Project first approached Intel six years ago about the use of conflict minerals, then-chief operations officer Brian Krzanich, now Intel’s CEO, set the company on a path to being conflict-free.

‘It took us a little while to figure it out, but we’re now manufacturing conflict-free microprocessors, while still sourcing minerals from the Democratic Republic of the Congo,’ says Linda Qian, CSR communications manager at Intel. The company continues to work with the Enough Project in its quest to become conflict-free.

Part of the chain

For Monsanto, whose engagement has long been strong with growers and distributors, members of various disciplines within the scientific community and NGOs focused on environmental, food security and human rights issues, direct dialogue with consumers has recently become a higher priority than in the past. ‘What’s happened in the last couple of years is an understanding that while we are not a food company, we are part of the food value chain, and it’s really important that our engagement goes across the entire value chain, including consumers,’ says Dr Natalie DiNicola, who leads the company’s sustainability group.

As part of that effort, Monsanto has been reaching out to organizations and thought leaders that consumers look to for information, such as in the nutrition and pediatric communities, which ‘play an important role in food and people’s thoughts around food production,’ DiNicola says.

The company brought in several key thought leaders to talk with its executive team in late 2013 and convened numerous focus groups to better understand the interests and questions of those with a strong interest in food. Discussions made it clear Monsanto needed to significantly strengthen its relationships with consumers and the communications channels it was using. ‘The language we were using was very technically and agriculturally laden, and it really wasn’t resonating as much for consumers,’ says DiNicola. ‘We weren’t very active in social media and we saw a whole shift in where people were getting their information.’

In November, Monsanto participated in a breakout session on sustainable food systems at the annual conference of Net Impact, a non-profit whose members are students and professionals interested in applying business skills to various social and environmental causes. ‘We wanted to be more engaged from the point of view that these millennials have a lot of interest in sustainability and a lot of questions about agriculture,’ says DiNicola. After participating in a keynote panel with a Q&A, Monsanto spent an additional hour responding to students’ questions. At the company’s interactive booth at the conference, farmers could speak directly with students about production challenges related to climate change.

Monsanto’s outreach to a broader group of stakeholders focused on food and nutrition is occurring amid a consumer backlash against genetically modified organisms (GMOs) – one of Monsanto’s key product lines – and growing demand for organic foods. Angered by US government support of GMO crops without requiring either independent safety testing or labeling, the Organic Consumers Association has become more insistent in calling for GMOs to be banned if producers won’t support labeling them appropriately. In light of the creation of GMO-free zones by several nations, many member states of the European Union and counties in three US states, it’s not hard to see why Monsanto might be motivated to step up engagement with and expand goodwill among consumer groups.

Sustainability reporting

Where sustainability is concerned, one key demand from stakeholders has been increased transparency regarding corporate operations and their impact on local communities, and how efficiently vital resources are used. To satisfy these demands – and streamline communications to reduce the need for individual responses to stakeholder questions – many companies now publish CSR reports on their corporate websites annually or every two years. Some firms are taking this a step further by creating specialized websites to address specific issues they know civil society groups are concerned about.

Intel has created Explore Intel, a series of websites catering primarily to 11 local communities where Intel’s operations are located.The websites provide information about Intel’s buildings, emissions and other aspects of its environmental performance. ‘The fact that our local environmental data is on the website is key to engaging with our stakeholders,’ says Qian. ‘Transparency is central to our CSR strategy, and we know our stakeholders appreciate it.’

On gmoanswers.com, a new website funded by Monsanto and fellow members of the Council for Biotechnology Information, including Dow AgroSciences, DuPont and Syngenta, people can post questions that are answered either by Monsanto or by third-party experts who have done extensive research on GMOs.

More recently, Monsanto launched a website, discover.monsanto.com, that provides technical or agriculture-focused information about Monsanto and its products in consumer-friendly language. In its first two months, the website drew more than 200 questions, says DiNicola. ‘And it’s up there for everybody to see, so we’re trying to be very transparent about where people have questions and the information they’re looking for.’

For his part, Allison-Hope says: ‘Over the last few decades of working with technology companies, I’ve seen a whole range of issues where companies are now doing something differently because the issue has been brought up by stakeholder groups.’

He cites the way in which consumer electronics companies manage young workers in their supply chains. Several stakeholder groups have raised concerns about manufacturers hiring young workers as interns when actually their jobs are no different from any other assembly worker and they aren’t really learning anything. After entering into a constructive dialogue with such groups, consumer electronics companies have established guidelines that didn’t exist before, Allison-Hope notes.

‘To their great credit, the consumer electronics brands have been quite strong in telling manufacturers, No, that’s not acceptable. If you’re going to supply to us, you need to change those schemes,’ he says. ‘Companies know their own businesses really well, so they’re in a good place to spot potential social and environmental issues before anyone else. What’s more, they’re becoming increasingly good at bringing those proactively to stakeholders and saying, We have a challenge and we’d like to discuss it with you. And that’s been a big change over the past decade.’