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CSR Balanced Scorecard Guide

CSR Balanced Scorecard Guide

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Published by: Koushik Das on Jun 17, 2012
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Contents..............................................................................................................1 INTRODUCTION....................................................................................................1 HOW THE CSR BALANCED SCORECARD WORKS...................................................1 HOW TO ASSESS THE IMPORTANCE OF EACH CRITERIA........................................2 AREA: ECONOMIC.................................................................................................2 CRITERIA: CODES OF CONDUCT, COMPLIANCE, AND CORRUPTION....................2 CRITERIA: CORPORATE GOVERNANCE...............................................................4 CRITERIA: RISK AND CRISIS MANAGEMENT.......................................................4 AREA: ENVIRONMENT ..........................................................................................5 CRITERIA: ENVIRONMENTAL PERFORMANCE.....................................................5 CLIMATE CHANGE RISK AND FINANCIAL IMPLICATIONS.....................................6 AREA: SOCIAL .....................................................................................................6 CRITERIA: CORPORATE CITIZENSHIP AND PHILANTROPHY.................................6 CRITERIA: LABOR PRACTICES INDICATORS........................................................7 CRITERIA: HUMAN CAPITAL DEVELOPMENT.......................................................7 CRITERIA: SOCIAL REPORTING..........................................................................7 CRITERIA: TALENT ATTRACTION AND RETENTION.............................................9

The Balanced Scorecard is a recognized and established management tool, well positioned to support a knowledge-building effort to help organizations make their values and visions a reality. The Balanced Scorecard enables individuals to make decisions based upon values and metrics that can be designed to support these long-term cognizant benefits. The Balanced Scorecard can be used to effectively align consumer and employee values with corporate strategy to generate long-term benefits, as well as a better understanding of precisely with whom, what, when, where, how and why an enterprise makes a profit or surplus. The term “balanced” does not mean equivalence among the measures but rather an acknowledgement of other key performance metrics that are not financial such as social and environmental.

The CSR Balanced Scorecard is made of two documents: 1) The present document provides guidelines on the criteria to answering the questions presented in the following excel file. 2) The Excel file contains the frame where to answer those questions and to evaluate the final result. There are different grades for different type of questions:

• •

Answers can range from 1 to 5: o never = 1 to always = 5 o very low = 1 to very high = 5 o poor = 1 to excellent = 5 o do nothing = 1 to do more than required = 5 Answers YES or NO: when you find besides a question, please do not use the 1 to 5 criteria but simply input in the cell “Y” or “N”. If questions are “not applicable”, leave the cell empty.

The Summary Table contains pre-defined weights assigned to each criteria. Their sum amounts to 50% of the total weight for the analyzed company. The remaining 50% is left to the judgment of the analyzing team and should be awarded to the industry specific criteria depending on the industry where the company operates (e.g. if the company operates in the Oil industry the weight associated with the Environment criteria should carry more value compared to an organization operating in the Banking industry). If the total weights column does not equal to 100%, make sure you properly assign the weights to the industry. The final score is the sum of the weights times the actual scores assessed per criteria. It is calculated automatically from the underlined spreadsheet. Please note that changing the formulas will compromise the final result.

The aim of this section is to illustrate the organization’s impacts on the economic conditions of its stakeholders and on the economic systems at local, national, and global levels.

Before digging into these criteria, it is important to clarify some terminology. Bribery, fraud, extortion, collusion, and money laundry are considered acts of corruption. Examples of those acts are the following: o Any act or omission in the discharge of his duties by a government official or a person who performs public functions for the purpose of illicitly obtaining benefits for himself or for a third party; o The fraudulent use or concealment of property derived from any of the acts previously mentioned; and o Participation as a principal, co-principal, instigator, accomplice or accessory after the fact, or in any other manner, in the commission or attempted commission of, or in any collaboration or conspiracy to commit, any of the acts referred to previously.

• • • • •

Bribery: is the solicitation or acceptance, directly or indirectly, by a government official or a person who performs public functions, of any article of monetary value, or other benefit, such as a gift, favor, promise or advantage for himself or for another person or entity, in exchange for any act or omission in the performance of his functions. The offering or granting, directly or indirectly, to a government official or a person who performs public functions, of any article of monetary value, or other benefit, such as a gift, favor, promise or advantage for himself or for another person or entity, in exchange for any act or omission in the performance of his functions; Extortion: is defined as the crime of obtaining money or some other thing of value by the abuse of one's office or authority. Fraud: is defined as deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage. Collusion: is defined as a secret understanding between two or more persons to gain something illegally, to defraud another of his or her rights, or to appear as adversaries though in agreement. Conflict of interests: is a situation in which a public official's decisions are influenced by the official's personal interests Money laundry: is the process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate source.

Questions about corruption 1. Are there any sort of formal statutes, regulations or manuals to support the procedures and actions against corruption? 2. Are there any procedures to punish acts of corruption? 3. Are codes of procedures in place it acts of corruption take place? 4. Is there any risk analysis done over the effectiveness of the procedure codes? Is any sort of evaluation performed? 5. Is the company training its labor force against corruption actions? 6. Is the company providing training regarding corruption issues as employees are coming into the company? Are all entry levels receiving this training and preparation? 7. Once the employees are a permanent part of the company, do they continue their training? Are there recurring (semiannual or annual) training sessions? 8. Is there an emphasis on awareness against corruptions practices? 9. Does the company have a Code of Ethics? The Code of Ethics includes the generally acceptable behavior and actions targeted at acts against corruption. 10.Is Corporate Governance included in the code of ethics? In the CSR practices? 11.Are good practices included? (e.g. good practices refer to actions delineated in the Code of Ethics) 12.Does the company recognize corruption incidents? Do they deal with those incidents? 13.Are the Codes of Ethics generated by a CSR organism within the company, or is it provided by an external actor (international organizations, government, civil groups)? 14.Was this code provided by the government?

The objective of this set of questions is to assess the relationship between board of directors, management, and stakeholders (including employees, suppliers, customers, banks and other lenders, regulators, the environment and the community at large). Questions about Corporate Governance 1. Are there non-executive directors on the board? The non-executive directors number indicates how indipendent the board of directors is. 2. Is there a majority of non-executive directors on the board? 3. Is the board of directors headed by a non-executive and independent chairman and/or an independent lead director? YES, if the chairman is nonexecutive and independent and NO if the role of the chairman and CEO is joint. 4. Is there a formal documented corporate governance policy? 5. Is it publicly available (e.g. on the website)? 6. Does the policy cover remuneration framework and performance evaluation of board members, CEO and senior executives? Please indicate if there are details of directors' remuneration individually or in aggregate form. 7. Does the policy cover Independence statement of board of directors? Please indicate if independency statements of directors are publicly available. 8. Are Biographies, CVs of board of directors disclosed and public (e.g. on the website)? 9. How many members of the board are women? 10.Are Non-executive directors required to buy shares? Please indicate if it is a requirement for non-executive directors to buy shares. This is an indication of the alignment of directors' interests to that of shareholders. 11.Does the company book the current value of its employee stock option programs as expenses? Please indicate if details of employee stock options are disclosed in the financial statements. 12.Does the company communicate the remuneration/compensation of board of directors and other highest paid senior directors externally? Please indicate if the financial statements contain details of directors' remuneration either individually or in aggregate form.

Questions about corporate risk 1. Is there a Chief Risk Officer or person responsible for this function at the group level? 2. Does the company rank risk exposures according to the likelihood of events happening? 3. Does the company use a specific framework to define corporate risk? (e.g. probability, magnitude, time horizon) 4. Does the company have a contingency plan? 5. Does your company use a uniform groupwide risk analysis framework, i.e. risk assessment, risk 6. management, risk communication/reporting?

The major purpose of environmental performance measurement and reporting is to look into how the company is impacting the environment directly by usage of a few main indicators, applicable across all sectors and measure steps taken in mitigation of environmental damage caused by the company itself and /or by other businesses and society at large.

Questions about performance 1. Estimate the company's Energy Consumption (including heating, airconditioning, lighting). In assessing the consumption please evaluate the Lighting, Heating, and Cooling(in Kwh). 2. Estimate the company's Water Consumption & recycling. In assessing the consumption please evaluate the following: a. total volume of water used ( cubic meters/ year) b. volume of recycled/reused water based on the volume of water demand satisfied by recycled/reused water 3. Estimate the company's Emission and measures to reduce green house gases like CO2. To calculate the emissions please use the following formula: Emissions = (average monthly bill/price per KwH) * Emission factor ( electricity/kWh)* months = average bill of electricity consumed* $0.1* 1.37* 12 a. Emission factor determined by IPCC ( Intercontinental panel on Climate Change) = 1.37 b. Average price/kWh= $ 0.1 as determined IPCC c. CO2 Equivalent (tons) of electricity used d. Average price /KwH= 0.1 $ Emission factor ( electricity/kWh)=1.37 e. Travel: 0.45* kg/km, if less than 1000km; 0.30* kg/km; if more than 5000km 4. Estimate the company's waste generation (Metric Tons) 5. Is the company taking particular initiative to mitigate its environmental impacts? In assessing the consumption please evaluate the following examples: • Optimizing Electricity, water usage and air travel • Recycling water, paper, metals and reducing waste generation • Measures supporting green energy initiatives like encouraging renewable energy (Wind, Solar, biomass, geothermal) Questions about reporting 1. Government Rules and compliance are those set by the Country in which the company is operating. 2. International Norms (e.g. IPCC & Kyoto protocol, including carbon dioxide equivalent and carbon credits)

This section aims to identify if top management is involved and concerned about climate changes, if the company understands the financial implications of climate change and the opportunities and risks resultant from it, and how the company measures the financial impact of the weather changes and ask for disclosures of the tools used to quantify. Questions to measure the involvement of the organization's senior governance 1. Do they identify some risk related with the climate change? 2. Do they identify some opportunities with the climate change? Questions to measure the financial implications 1. Does the company measure the changes in the weather pattern? 2. Is the company aware of the Illness related with climate? 3. Has the company identified some opportunities to provide new technologies or services due to climate changes? 4. Has the company identified some competitive advantages by regulatory issues? 5. Do the Managers quantify the financial Implications of the climate change?

This section aims to measure the impacts organizations have on the communities in which they operate, and how the organization’s interactions with other social institutions are managed and mediated.

The following questions serve as indicators that an organization takes actions and makes commitments that foster corporate citizenship and philanthropy. Corporate citizenship and philanthropy entails the company’s use of its human, technical, financial and business resources to make a real and measurable difference in society and in the communities where it operates. Activities related to corporate citizenship and philanthropy leverage resources to address community issues and go beyond profit-maximizing objectives. Questions about performance indicators 1. Total Corporate-wide and Foundation cash and in-kind contributions 2. Number of hours volunteered by Employees in community-based initiatives 3. Number of Employees engaged in social investment projects 4. Number of countries where company invests in sustainability or green projects 5. Number of Board members from local communities 6. Degree of (in % Change, $ figures, # of Agreements) of Collaborations with partners, nonprofit, NGO’s Questions about reporting 1. Monitoring, Auditing and Compliance Mechanisms

2. Social Impact Assessment 3. Sustainability Report

The Labor Indicators aim to measure the scope and diversity of the organization’s workforce, emphasizing aspects of gender and age distribution, the dialogue between the company and its employees, the degree to which employees are organized in representative bodies, the physical protection and well-being of people at work. Questions about labor practices 1. Does the company have a continuing dialogue with the labor union on social responsibility? 2. Are the wages paid by the company better than the industrial average? 3. Does the company have policy to support human rights of the labor? 4. Does the company implement projects for the improvement of working conditions in the places where labor is involved? 5. Does the company address welfare issues of the personnel and their families?

Maintaining and improving human capital, particularly through training that expands the knowledge base of employees, is a key element in organizational development and it contributes to motivating improvement at both, personal and organizational level. Questions about human capital development 1. Does the company have a periodic skill mapping and development process? 2. Does the company offer learning programs or courses, selected as per the interest of the employee free of cost or at a discount?

Question about community Nature, scope, and effectiveness of any programs and practices that assess and manage the impacts of operations on communities, including entering, operating, and exiting. Community health and safety regarding infrastructure, hazardous materials, emissions and discharges and health disease Involuntary resettlement, physical and economic displacement and livelihood restoration, Local culture, gender, indigenous peoples and cultural heritage. 1) Hazardous materials: materials in various forms can cause death, serious injury, long-lasting health effects, and damage to buildings, homes, and other property. 2) Emissions and discharges: emissions and discharges are gases and particles released into the air, water and environment as byproducts of a natural or man-made process. One of these processes is the burning of fuels to create


4) 5)

6) 7) 8) 9)

electricity and other forms of energy. The emissions from burning fossil fuels contribute significantly to global warming, poor air quality, water pollution, water sources and habitats effected etc. Health and Diseases: voluntary health programs for employees well being, safety and productivity. Impact on health of communities in which the company operates and programs to combat the diseases, awareness in the community, prevention programs etc Preserving local culture: heritage conservation including tangible and intangible such as art, dance, music etc and ancient structures, buildings etc, festivals, competitions and other aspects of religion and local culture. Economic Displacement: displacement (relocation or loss of shelter) and economic displacement (loss of assets or access to assets that leads to loss of income sources or means of livelihood) as a result of project- related land acquisition. Livelihood restoration: provide resources(raw material, tools, working capital), skills and training, market access and shelter and guidance for people who lost the livelihood due to natural disasters, wars, developmental projects etc. Non discrimination/Diversity: discrimination based on sexual orientation, gender etc. Equal Remuneration Male/Female: equal pay for both Male and Female based on work of equal value. Freedom of Association: to describe the concept of absolute freedom to live in a community or be part of an organization whose values or culture are closely related to one's preferences; or, on a more basic level, to associate with any individual one chooses.

Questions about public policy Public policy positions and participation in public policy development and lobbying. Activities through trade associations, round tables, task forces and other forms of lobbying with public policy makers. 1) Public policy development: involvement with government in a plan of action or research to guide decisions and achieve rational outcome(s). Also, involving in the process of making important organizational decisions, including the identification of different alternatives such as programs or spending priorities, and choosing among them on the basis of the impact they will have. Policies can be understood as political, management, financial, and administrative mechanisms arranged to reach explicit goals. Organized or coordinated activities to effect government policy formulation. 2) Lobbying: it refers to efforts to persuade or influence persons holding political office, or candidates for such office, to sponsor policies, and/or to influence the development of legislation or political decisions. Also refers to lobbying governments at any level or international institutions. Questions about anti-competitive behavior Total number of legal actions for anti-competitive behavior, anti-trust, and monopoly practices and their outcomes. Consumer choice, pricing and other factors that affect market.

1) Creating barriers to entry: creating obstacles on the way of potential new entrant to enter the market and compete with the incumbents. 2) Unfair business practices: encompass fraud, misrepresentation, and oppressive or unconscionable acts or practices by business against consumers 3) Abuse of market position: causing damage to a direct competitor or competitor to a subsidiary by refusing supply of products or using predatory pricing. 4) Cartels: a cartel is a formal (explicit) agreement among firms. Cartel members may agree on such matters as price fixing, total industry output, market shares, allocation of customers, allocation of territories, bid rigging, establishment of common sales agencies, and the division of profits or combination of these. 5) Price fixing: agreement between competitors to sell a product or service at a certain price to capture all the profits between themselves. Question about compliance Monetary value of significant fines and total number of non-monetary sanctions for non-compliance with laws and regulations. Conformance of operations to performance parameters. Compliance to international declarations/conventions treaties, and national, sub national, regional, and local regulations. Total monetary value of significant fines, number of non monetary sanctions and cases brought through dispute resolution mechanisms. 1) Comply with international treaties and organizations: compliance with international treaties such as UN Universal declaration of Human Rights, ILO Declarations, OECD guidelines for Multinational Enterprises and other international charters related to labor practices/basic rights issues.

The company is evaluated not only by employees but also by good potential candidates; both are able to see the gap between what is spoken and what is enacted (e.g. employee recognition is limited in most organizations; new hires are given the chance to select the type of work they want to pursue but after joining the company they cannot easily shift their career). Attraction and retention are fundamentally related: short term actions to attract can have a negative impact on retention. Best practices for retaining top talents include offering a stimulating work environment, flexible career options, an excellent benefit package, and a culture that values staff contributions. When analyzing the CSR behavior in this area you should consider the following categories of employees: • Executive/Top management • Middle/General management • First line management/Supervisor • Specialist groups • Other Questions about performance appraisal

1. Is there a predefined and standardized performance appraisal process? In assessing this measure, please take into account the following examples: a. Management by objectives: systematic use of agreed measurable targets by line superior b. Multidimensional performance appraisal (e.g. 360 degree feedback) c. Formal comparative ranking of employees within one employee category 2. Is the individual performance of each employee regularly communicated to the team members by the line superior? 3. Is the individual performance of each employee regularly communicated to the next upper management level? 4. Does the Company run employee satisfaction surveys? Questions about compensation 1. Does the Company apply a variable compensation as a percentage of total compensation (excluding pension plans and fringe benefits)? 2. How much in percentage is the variable compensation? (1 = low; 5 = very high) 3. How does the Company determines the variable compensation? In assessing this measure, please take into account the following pre-defined indicators: a. Internal financial metrics (e.g. cash flow, EBIT, Revenues) b. External financial metrics (e.g. Share price, Tobins Q) c. Environmental metrics (e.g. corporate Emission reduction) d. Social figures (e.g. corporate Health & Safety figure) e. No indicators f. Is there a variable compensation based on corporate and/or individual performance? 4. How frequently the employees learn the interim corporate results relevant for the variable compensation from their line superiors? (e.g. quarterly, semiannually, annually, never) Questions about benefits Does the Company provide employees with benefits in addition to government schemes? a. Pension plans b. Health and/or accident insurance for employees c. Medical care for employee families d. Disability insurance/programs e. Maternity and/or paternity leave f. Child care g. Flexible work schemes h. Employee assistance program i. Other

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