Corporate social responsibility and the plantations

Dr N Yogaratnam Chairman, Tree Crops Agro Consultants

In the developing and under-developed economics of the world, where problems of poverty and hunger still pose serious threats, efforts to improve the material welfare of the population may well receive top priority, and the production of material goods becomes the sole mission of business.

But, there is an increasing awareness among industrialised nations that a price has to be paid for unrestrained and unregulated economic growth in the form of deterioration in the quality of the environment, which in turn affects the quality of life of the people.

In Asia, a similar concern is being voiced about some of the undesirable social outcomes of unregulated development.

Evidence of such side effects are provided by a polluted environmental and problems and the indiscriminate depletion of scarce natural resources.

For example, there had been many cases of pollution of rivers caused by effluents discharged from rubber factories and palm oil mills which have seriously affected the livelihood of many fishing communities.

Indeed it had been estimated that the amount of pollutants discharged by palm oil mills in some countries exceeded the sewage discharge of the entire population.

This, however, has now been minimized by appropriate waste disposal systems.

The need, therefore, for companies to demonstrate a greater social concern has now become a major issue in plantation management.

It is not long before people begin to point accusing fingers at the business community and its activities for having caused some of the social ills apparent in the society.

This is not surprising because the modus operandi of business in all democratic systems, is one of free private enterprise with achievement of profits as the primary objective.

What has frequently been overlooked is that freedom of operation must co-exist with self-induced responsibility.

For a company to become involved in the social area there must be first of all awareness by the company of its social role.

Next is, social involvement in order to fulfill its social responsibility.

This must be followed by social reporting whereby reports are published concerning the company's social performance.

The final step is a social audit where the effectiveness of such social performance can be evaluated.

Thus corporate social responsibility may be conceived as consisting of four progressive levels of corporate participation reflecting a hierarchy of objectives to be achieved. Such a hierarchy is illustrated in Figure 1.

Level 4 Social audit

Social reporting

Social involvement

Level 1 Social awareness

Figure 1. The hierarchy of social objective

Social awareness

The philosophy of top management is the primary factor contributing to awareness. Any commitment to social action appears to stem from the initiative of top management.

The second factor is legislation relating to social performance areas. Such legislation includes the Employment Ordinance, Trade Descriptions Act, Sale of Food and Drugs Ordinance, and in particular the Environmental Quality Act, which is intended to protect the interests of parties like employees, consumers and the community at large.

As a factor contributing to social awareness, alignment with parent company practice receives relatively high attention.

This is more evident among foreign-owned subsidiaries or partners / collaborators.

In fact several companies produce social responsibility policy guidelines prepared by parent companies overseas.

The significance of these factors contributing to social awareness is further emphasized when the companies indicate their understanding of corporate social responsibility as;

(a) The only responsibility of business is to produce abundant goods and services guided by the profit motive. In this way business will be contributing to the material well-being of society.

(b) The social responsibility of business is evidenced by an active concern for the social impact of the economic activities of business. This is a responsibility for social performance of business operating as an economic unit.

(c)The social responsibility of business extends beyond its responsibility for the social side effects of its economic activities and includes active involvement by business in activities of broad social concern.

Social responsibility is thus conceived along two dimensions: social performance of business as an economic unit and social performance when business assumes a broader role as a social unit.

Social involvement

Four major social performance areas can be identified;(a) Human resources (b) Product/service to consumers (c) Community involvement and (d) Physical environment.

It is also relevant to point out that consideration of social performance cannot be completely dissociated from that of economic performance for, in many ways, these two activities complement each other in contributing to a company's long-term profits.

Greater emphasis is thus given to major social performance areas like human resources and product/service to consumers, where the potential impact from these activities can be associated, directly or indirectly, with the profitability of a company.

Together with financial and physical resources, human resources represent one of the most vital inputs in the economic production process.

Hence, interest in the welfare of employees is very much driven by a desire to develop a loyal, capable and dedicated work force that can demonstrate a high level of productivity, as it is motivated by a sense of social concern.

In the same way, the survival of a company hinges very much on ensuring that its products are relatively safe in application, of acceptable quality and reasonably priced.

On the other hand, community involvement which can only be remotely related to profitability has been given the least consideration.

Human resources

Human resources have been regarded by many companies as their most valuable asset. For this reason it is only logical to expect a business entity to consider the interests and welfare of its employees.

The various factors concerning human resources on average companies tended to give quite - significant - attention to employee safety on the job; "moderate" attention to facilities that will improve the well-being of employees; job enrichment in job design; supplementary financial assistance for housing, transportation and sustenance; "minor" attention towards overcoming problems associated with drug abuse and alcoholism; and very minimal attention to the employment of physically handicapped individuals; pre-retirement counselling; and adjustments to post-retirement payments.

Product/service to consumers

It is interesting to know that, except for consumer education which has an overall "moderate" involvement, all other factors relating to product quality, responsiveness to consumer complaints, product safety, completeness and clarity of labelling, warranty provisions and content and quality of advertising, receive above moderate involvement.

The product quality and responsiveness to consumer complaints receive top priority.

Factors like product safety, content, quality of advertising, and consumer education, receive the lowest attention from the plantation industry.

This is not surprising because the produce of plantations, for example, tea, rubber and palm oil, are sold to large institutional buyers and consequently, these factors are less important.

In consumer education the lowest attention is paid by companies in the plantation industry. Product information about the produce of plantations has already been widely disseminated so that consumer education is considered unnecessary. This is undesirable.

Community involvement

Attention towards activities associated with the well-being of the community has been given less consideration by companies compared with the previous two social performance areas.

Looking at the overall attitude towards the values of community-related activities, companies are only involved in these activities to a "minor" to "moderate" extent.

With regard to another relevant factor, namely, crime Prevention, high priority is given to it by the plantation industry.

Traditionally, companies in the plantation industry employ and maintain their own system of security.

This practice has become necessary due to frequent disputes and unrest in plantation areas.

Physical environment

The degree of involvement by companies in activities concerned with physical environment is also very limited.

With regard to ways of mitigating or solving problems affecting the environment, five areas of concern are recognized: air pollution, water pollution, noise pollution, energy conservation, and conservation of natural resources.

Corporate social reporting

In many cases, the social involvement is more extensive than is proper social reporting. This has resulted in criticism from some quarters that the business community has not been performing in a socially responsible manner.

Considering that annual reports of private companies are normally prepared for very limited circulation, these companies could see no tangible benefits for reporting on anything beyond meeting statutory requirements. Consequently, those companies which indicated some form of social disclosure in the annual reports are represented by public limited companies.

No formal reporting format was used in disclosing social performance information. Disclosure was largely in the form of passing references contained in the Chairman's statement.

In the absence of systematic and formal reporting, companies could find themselves in a difficult position to refute allegations that such ad hoc disclosure was intended as a public relations gimmick and there was no genuine desire to promote the image of good corporate citizenship.

Moreover, companies also tended to disclose more about employee-related activities compared to other social performance areas.

This may suggest that corporate social involvement is much greater than companies have indicated in their annual reports.

Lack of proper reporting format and besides, their circulation is being limited to company personnel, may be a discouraging factor.

Cost of preparing social performance information may not be costly.

Social auditing

It appears that most plantation companies have not yet reached this final stage in the practice of social responsibility, when the effectiveness of the social performances are evaluated.

Tea trade

Although global tea business is always concerned with the imbalances in tea markets, yet, there are also a number of issues at the production level that need consideration.

Looking at labour, social and ecological issues in the global tea sector, a sad picture of large scale violation of internationally accepted standards emerges.

ILO core conventions on labour issues are not respected. Issues such as wages, health and safety, working hours and regular employment paint a grim picture.

To address the persistent imbalance in production and consumption of tea, a number of initiatives have been undertaken.

The FAO in the early 1990s, launched a program to increase black tea consumption by highlighting health aspects.

The global tea industry has undertaken some initiatives in the field of corporate social responsibility to address social and environmental issues.

Critical analysis of quality and effectiveness of these initiatives however indicates that labour rights, social issues, environmental concerns and economic imbalances are not being adequately addressed.

Although there is a clear trend of growing interest in food safety issues - imposing higher standards of tea production for the sake of consumers, health and safety concerns of workers of the tea industry are generally neglected.

Ceylon Quality Certification (CQC)

This a Quality Management System (QMS) for tea factories approved by the Sri Lanka Tea Board.

Ethical Tea Partnership (ETP)

ETP is a partnership between many global tea partners that aims to monitor social conditions of tea production around the world.

ETP does not include a serious stakeholder approach. Workers are not involved in monitoring or verification processes. Absence of transparency is a discouraging factor.

The ETP's audit reports are not made public, which makes it impossible to asses the true impact of the initiative on the livelihood of the workers involved ETP, the only CSR initiative of any standing in the tea sector, still has a long way to go to make a difference in the fulfilment of the rights and improvements of the livelihood of workers on tea estates and tea processing factories.

Fair trade labelled tea

Fair trade labelling stands out among the half - hearted CSR initiatives in the tea industry. However, Fair trade is only relevant for a niche market, and not for the mainstream tea market.

Tea Supply/value chain

Tea supply /value chain responsibility, where a wide range of stakeholders are involved, is an under-developed concept of the tea industry.

Generally speaking, CSR initiatives do not offer more than a token involvement of stakeholders on an advisory level.

Direct involvement of workers or worker's organizations on an equal basis in remedying problems is very rare.

Uniliver sustainable tea initiatives

Apart from being a member of the ETP, it has its own sustainable development program, one of which focuses on tea; the Sustainable Agriculture Initiative for Tea.

IUF Code of Conduct of the tea sector

International Union of FOOD, Agriculture, Hotel, Restaurant, Catering, Tobacco and Allied Workers Association's aim of the initiative was to draw up a model Code of Conduct for tea sector from the perspective of the trade union movement, on standards in the field of social environment.

Rainforest tea gardens initiative

This initiative aims to develop a model tea ecosystem that provides a livelihood for the workers on the plantations and for neighbouring farmers, while at the same time restoring bio-diversity, based on Analog Forestry.

The Dutch tea initiative

This civil society initiative calls upon companies selling tea in the global market to assume their responsibility for sustainable production and trade.

It believes in a multi-stakeholder approach as key to improve labour, social, ecological and economic conditions in the tea sector in tea producing countries.

All the plantation companies in Sri Lanka are aware of the social role of their business and, secondly, they have been involved to different degrees in various socially-relevant activities.

However, of the social performance areas, relatively greater corporate attention is directed to improving human resources and product/service to consumers compared to rendering community-related services or alleviating environment deterioration.

It appears that any further progress by companies in undertaking greater social responsibilities and reporting may come from the larger companies with multinational link in their business.

It is these companies which have more experience with various socially-relevant activities through their overseas parent company connections and which also, in view of their bigger size, would have the capacity to become more socially involved.

Despite the weak social and environmental components in tea production, the tea trade is still highly profitable due to smart marketing, fierce competition, and product innovation, at least for the successful market players.