From “shareholder wealth maximization” to CSR
For a very long time, the concept of self‐centric ‘profit maximization’ has been the sole and fundamental objective of business. Under the prevalence of the free market economy doctrine as represented by Milton Friedman, the core mission of a firm is traditionally limited to maximizing profits for its owners or shareholders. However, with increasing demand for change from both internal and external stakeholders, companies are under growing pressure to undertake broader social responsibility or more of a civic role in recent decades. Changing societal values and various stakeholder expectations are moving companies beyond shareholder wealth maximization to address an array of social, economic and environmental challenges, which has been conceptualized as corporate social responsibility (CSR) from a stakeholder perspective.
From CSR to business sustainability
Beginning in the 2000s, a new CSR stage, triple-bottom line “sustainability”, began, and the theme of sustainable development became an integral part of all CSR initiatives and discussions. Increasingly, CSR has been considered as a means of achieving business sustainability worldwide. To promote the adoption of CSR as a business model for addressing a company’s relationship with its stakeholders and achieving corporate longevity & prosperity in Hong Kong and the Greater China Region, the Centre for Business Sustainability (CBS) at The Chinese University of Hong Kong pioneered the Hong Kong SME Business Sustainability Index (HKSMEBSI) and the Hong Kong Business Sustainability Index (HKBSI). The index companies of the HKSMEBSI are SMEs with proven records of excellent performance in undertaking CSR initiatives, while the HKBSI appraises 50 constituent companies of the Hang Seng Index. Based on the innovative “Values – Process – Impact” (VPI) assessment model, the CSR performance of each company is evaluated in three major aspects: values, process (encompassing management and practices), and impact brought by a company’s responsible and caring activities on various stakeholders.
The CSR trend of SMEs and listed companies over the past years
Since their launches in 2011 and 2015 respectively, the HKSMEBSI and the HKBSI have announced five compilations of the indices. By analysing the data of the two indices, some interesting CSR comparisons are found between SMEs and listed companies. Over the past five compilations of the index, participating SMEs have improved considerably, where the largest portion of participants have developed from being at the level of learners (score below 50, 38% in the first HKSMEBSI) to the level of pace-setters (score above 90, 35% in the 5th HKSMEBSI). While most companies on the HKBSI have been improving steadily, a significant proportion of them still remain learners (42% in the 5th HKBSI). Taking a close look at the detailed VPI scores of both indices, it is found that the impact score for SMEs is noticeably higher than that for listed companies, while close scores in the aspects of value and process are obtained by SMEs and listed companies. In other words, with a slight difference in the CSR effort, SMEs appear to generate a stronger influence on stakeholders. The lower impact score obtained by listed companies could be attributed to the greater difficulty or weaker capacity of listed companies to conduct impact assessments on various stakeholders. Based on stakeholder analysis, data indicate that SMEs’ CSR engagement with suppliers has achieved the most significant improvement, and the impact on different stakeholders tends to be more balanced by the 5th HKSMEBSI. For listed companies, CSR practice related to government has made the most improvement (increased by 307% from the 1st to the 5th HKBSI). Overall, impacts brought by listed companies are not as balanced as those brought by SMEs, and impacts on the community and on customers appear to have been predominant.
The Cases of Meiriki and Towngas
In the 5th HKSMEBSI, Meiriki Japan (hereafter Meiriki), one of the leading health supplement companies in Hong Kong, tops the index, standing out among all SMEs as a “Pace-setter”, with an overall score of 97. The top management of Meiriki are highly committed to CSR and business sustainability. To better integrate CSR initiatives into regular planning and budgeting cycles, Meiriki has set its annual CSR budget to be 5% of its business profit since 2011. With the establishment of a CSR department in 2012 and a sustainability committee in 2019, the company has exerted considerable effort in three major areas, namely staff caring, community development and environmental protection.
The company implements ethical employment from a variety of perspectives, such as staff training, staff benefits and the programme of Caring Angels, which have greatly increased the employees’ sense of belonging. In contrast to the high turnover rate of staff in the retail industry, most employees at Meiriki have been serving the company for at least five years and some individuals even for over 10 years. In order to contribute to the health and well-being of the local community, Meiriki participates regularly in corporate volunteering initiatives and tries to promote cross-sector collaboration that can create synergies among different parties. In 2015, Meiriki cooperated with the Food and Nutritional Sciences Programme of The Chinese University of Hong Kong to launch a creative competition called the “命力營全城” scholarship program. The competition develops a different theme every year to provide a platform to enable students to apply their knowledge and creativity to design proposals for ways to promote community health. Regarding environmental conservation, the company has incorporated the concepts of responsible production and consumption into the life cycle of its products. Since 2018, the company has required its suppliers to provide environmentally friendly products (mainly in the Swedish series) where environmental production has gradually matured.
In the last round of HKBSI, the Hong Kong and China Gas Company Limited (Towngas thereafter) reached the top of the index, being the first-ever company to attain the highest level, “Exemplar”, with an overall score above 90. As one of the largest energy suppliers in Hong Kong, Towngas aims to be Asia’s leading clean energy supplier and quality service provider, with a focus on innovation and environmental soundness. In order to reinforce its commitment to CSR and business sustainability, the company has developed an environmental, social and governance (ESG) framework that focuses on five key areas: creating business opportunities, ensuring health and safety, protecting the environment, contributing to stakeholders and strengthening corporate governance, where innovation and creativity are especially encouraged to seek continuous improvements.
Towngas makes earnest efforts in developing innovative energy solutions in order to support the transition towards sustainable energy. The company adopts the concept of a recycling economy, where waste is considered to be a resource that can be utilized to create new value. Recent salient examples include the landfill gas utilization projects in Hong Kong and a recent project in Suzhou to convert food waste into biogas. While combatting climate change poses a challenge for the company, it also presents tremendous opportunities for Towngas’ business growth. A case in point is the hydro-treated vegetable oil (HVO) plant in Zhangjiagang city, which produced over 24,000 tonnes of HVO for sale to customers in Europe who wished to achieve reductions in carbon emissions in 2019.
A comparison of the above two cases suggests that businesses with outstanding CSR performance share some common factors, including a clear and progressive CSR vision and mission for achieving business sustainability, top management support, stakeholder profiling for CSR engagement, executable action plans and budget systems, and comprehensive impact assessment.
.Image by Gerd Altmann from Pixabay
The way ahead
It is encouraging to see that companies, both small and large in size, are progressing steadily in achieving business sustainability through adopting CSR practices. However, there is still a long way to go for Hong Kong’s businesses, considering that the proportion of companies that are active in the CSR domain is still very small. Moving forward, more effort will need to be made jointly by different parties to promote CSR among businesses in Hong Kong. It is firmly believed that both large enterprises and SMEs should and can be responsible companies!
The research was presented at the 5th Sustainability & CSR Communication Forum “ Stakeholder Engagement in Social Responsibility” on 12 March 2021
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