Boards that want their organisation to be an exemplar in corporate social responsibility (CSR) need to follow latest CSR trends and anticipate emerging issues. Focusing on long-standing CSR issues, while important, is not enough in a fast-moving business landscape.
Seven CSR issues have become more important over the past decade, according to Deloitte’s 2018 Annual Review of the State of CSR in Australia and New Zealand report. They include:
- Business corruption
- Labour relations issues
- Human rights issues
- Improving supply-chain practices and policies
- Building internal understanding/support for the organisation’s sustainability report
- Improving or beginning the organisation’s sustainability reporting
- Reducing or eliminating any negative environmental impacts from the organisation
The priority of each CSR issue has increased over the past 10 years, according to Deloitte’s survey of 1,107 respondents. Corruption, labour rights and addressing human rights showed the largest increase in importance, suggesting Australian industry is still grappling with these issues.
Boards need to understand these central CSR issues and how their organisation is addressing them. Equally, directors should consider how emerging issues will play into these trends, whether their organisation is adequately prepared for them and its governance response.
Here are five emerging CSR issues for boards to consider based on the report by Deloitte and other researchers.
1. Workforce diversity and inclusion
Workforce diversity topped the list of sustainability issues for the first time in 10 years, in the Deloitte survey. Four of five respondents rated it a high or very high priority. The issue has risen from a 50 per cent rating in 2014 to an 80 per cent rating in 2018 in the survey.
Deloitte wrote: “In this time, Australian business has become more active and vocal on diversity issues, recognising that Australia is one of the most ethnically diverse countries in the world. Businesses are also acting on a broad range of social issues, as shown by business support for gay marriage in the 2017 referendum.”
2. Modern slavery
The Modern Slavery Bill was introduced into the House of Representatives on June 28 and referred to the Senate Legal and Constitutional Affairs Legislation Committee for a report by August 28.
The Bill proposed to establish a Modern Slavery Reporting Requirement that will require businesses with revenue of more than $100 million to publish an annual statement on how they are addressing the risk of modern slavery in their supply chains and operations.
Modern slavery is an umbrella term that describes violations such as forced labour, bonded labour or debt bondage, adult or child sex trafficking, domestic servitude, forced child labour or the use of child soldiers. There are 40.3 million people in modern slavery, according to the 2018 Global Slavery Index. About 71 per cent of those enslaved are women.
Deloitte says Australian business is underprepared for the Modern Slavery Act: 79 per cent of senior CSR managers thought it unlikely there is any slavery in their supply chains, and only 25 per cent rated it a high or very high CSR priority, the survey found.
That is despite two thirds of modern slavery thought to occur in the Asia Pacific, according to the Global Slavery Index. Modern slavery could be an underappreciated governance risk for Australian companies with supply chains in the region.
Managing the implications of data security, privacy and other technology issues is another emerging priority for CSR managers, according to Deloitte. Seventy per cent of respondents rated the issue a high or very high priority in their organisation’s CSR approach.
Boards, however, appear to be lagging on this issue from a CSR perspective. Less than a third of respondents to the PwC Global State of Information Security Survey 2018 said their corporate board actively participates in a review of current technology security and data privacy risks.
Only 39 per cent of survey respondents were very confident their organisation had identified its most valuable and sensitive digital assets and 44 per cent were very confident there was a comprehensive program in place to address data security and privacy issues.
Cybersecurity breaches are likely to attract more attention in Australia. The Notifiable Data Breaches scheme, which took effect in Australia in February 2018, requires organisations to alert the Australian Information Commissioner and all affected clients if a hacking of their information could result in serious harm. The new laws apply to businesses, not-for-profits and government agencies with annual turnover of at least $3 million.
If Australia follows the international experience, risk management and reporting of data breaches will become a bigger issue across industry – and a higher CSR priority as consumers, suppliers, staff and other stakeholders expect companies to secure their data.
4. Climate change
Companies managing the impact of climate change on their operations is a different issue to reducing or eliminating an organisation’s negative environmental impacts. The former involves companies and boards having a strategic approach to assessing, governing and disclosing climate-related risks and opportunities.
Just over half of respondents in the Deloitte survey said managing the impact of climate change on their organisation was a high or very high priority. But only a quarter were addressing the requirements of the Task Force on Climate-related Financial Disclosures (TCFD).
The TCFD, covered separately in this edition of the Governance Leadership Centre newsletter, provides voluntary recommendations that companies can adopt to disclose information to investors and other stakeholders about climate-related risks.
Deloitte wrote: “While adoption of the TCFD framework is voluntary, it is becoming increasingly expected, as investors and other stakeholders increase their focus on understanding how organisations are considering the impact of climate change on their business from a strategic risk and opportunity perspective in the short, medium and longer terms.”
The low prioritisation of the TCFD among CSR managers might be because many respondents to the Deloitte survey are not employed by ASX 200 companies, which are expected to be among early adopters of the TCFD framework given investor expectations for climate-related disclosure.
5. Workforce transition
The role of companies in managing the upcoming workforce transition, as millions of workers worldwide are replaced by artificial intelligence, has so far not registered in CSR surveys.
However, the role of companies in helping workers reskill and find new work, or navigate unemployment, could become the defining CSR issue in the next two decades given the expected magnitude of change.
Up to 800 million workers worldwide could be displaced by technology by 2030 and need to find new work, according to a November 2017 study by McKinsey Global Institute. Up to 375 million of these people may need to switch occupations and learn new skills to find employment.
McKinsey says income support and other forms of transition assistance to help displaced workers find employment will be essential. It says policy makers, business leaders and individuals will each have key roles in helping smooth the greatest workforce transition in human history.
Boards of organisations that are likely to have large workforce transitions in the coming decade, as AI and automation replace more workers, will need to consider the role of governance in labour-market change and how the organisation can work with other stakeholders, such as government and the not-for-profit sectors, to help society manage the transition.
As McKinsey notes: “Businesses will be on the front lines of the workplace as it changes… Many companies are finding it is in their self-interest – as well as part of their societal responsibility – to train and prepare workers for a new world of work.”