ASEAN SEMINAR 17 January 2007 Balancing Economic Integration and Social Governance: “Sustainability Model: Social Investment Does Make Economic Sense” Felia Salim Commissioner, BNI Chairperson, Partnership for Governance Reform OUTLINE • BACKGROUND/ISSUES • OLD SCHOOL DEVELOPMENT MODEL V.S. TODAY‟S MODEL (OR MINDSET?) • GLOBAL TRENDS…SUSTAINABLE DEVELOPMENT MODEL • CHALLENGES TO SD • MINDSETS? • WHO DOES WHAT • MARKET APPLICATION: How to Integrate • CONCLUDING REMARKS/RECOMMENDATION BACKGROUND/ISSUES • Unemployment (weak absorption capacity particularly in the real • Structural Problems & Poverty Issues • Institutional problems (Government, Market/Corporate Sector and Civil Society) • Energy/Climate Change/Environment • ICT gap • Globalization (survival of the fittest; and the most connected and with capital advantage) • Development (Old School) v.s. Sustainable Development OLD SCHOOL? “Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible” (“Capitalism and Freedom” – Milton Friedman, 1962) Today: GCG and CSR “There is no conflict between social responsibility and the obligation on companies to use scarce resources efficiently and be profitable – an unprofitable business is a drain on society. The essence of the contract between society and business is that companies shall not pursue their immediate profit objectives at the expense of the longer term interests of the community.” (“Corporate Governance and Chairmanship” – Adrian Cadbury, 2002) Social Investments: Sustainable Development Model • The Sustainable Development Model takes into account social, environmental and economic measures in the business model Suggested Definition of SD (source: Int‟l Institute for SD, publication 1992) “For the business enterprise, sustainable development means adopting business strategies and activities that meet the needs of the enterprise and its stakeholders today while protecting, sustaining and enhancing the human and natural resources that will be needed in the future.” Note: Sustainability does not have to mean a trade- off between economic development & an improved environment Triple Bottom Line ECONOMIC – shareholders/stakeholders SOCIAL – stakeholders ENVIRONMENTAL - stakeholders Note: By adopting Triple Bottom Line, interests of the stakeholders and shareholders are taken care of. More then enough Proof • Facts and Figures (Fortune 500 companies) indeed prove that social and environmental investments do make economic sense in the long run • Companies that have adopted GCG and CSR perform better in the long run (many studies in different countries) • Some good examples: Astra International, Unilever • Some bad examples: Lapindo Global Trends: • International and Regional Initiatives: – Millenium Development Goal – OECD Initiative – UN Global Compact – Global Reporting Initiative • Market Initiatives: Syariah business Trend • Demand Side: Sustainable Responsible Investors • Mohammad Yunus: empowering the poor Global Trends: Global Compact • HUMAN RIGHTS • LABOR STANDARDS • ENVIRONMENT • ANTI-CORRUPTION Challenges to Global Trend • Mindset change • How to operationalize Initiatives • New Emerging Market Forces (China, India) want to catch up on fruits of development using old models • Sustainable Development Models not fully „mainstream” • Weak Demand Side (consumers need to be more aware and demand more affirmative action) Mindset Change • old school = rational economic man so deeply imbedded; limited measures of success • Poverty Issues is not sole responsibility of Governments • Looking at the “Poor” as market potential (Prahalad: The Fortune at the Bottom of the Pyramid) Who Does What: • Redirect Corporate Philantrophy from social services to business-to-business (Micheal Porter) • Government shift focus from direct involvement and intervention to creating a favourable environment for business • Private sector organizations more effective but CSO‟s must be empowered and coordinate with the private sector SD Success Factor • If sustainable development is to achieve its potential, it must be integrated into the planning and measurement systems (of governments and business enterprises) Global Initiatives to Integrate • The Global Reporting Initiative attempts to make the Triple Bottom Line operational • Mission Statement: The Global Reporting Initiative (GRI) promotes international harmonization in the reporting of relevant and credible corporate environmental, social and economic performance information to enhance responsible decision-making. The GRI pursues this mission through a multi-stakeholder process of open dialogue and collaboration in the design and implementation of widely applicable sustainability reporting guidelines Indonesian Initiatives • Program Kemitraan dan Bina Lingkungan of Sate of Entreprises (3% of profit) to be channelled to social programs • Successul BRI model • Syariah Finance and Banking Concluding Remarks/Recommendation • Economic Integration and Social Governance through the Sustainable Development Model • Change Mindset about the “Poor” • Establish SD Model and replace old school model entirely by way of effective adoption of global initiatives at operational level • Sustainable Development Model must be adopted by Governments and the Corporate Sector • Who does What? Recommendation Few Tips: Big Questions about SD • What is Sustainable Development (SD), and why can't my enterprise afford to ignore it? • What do businesses do when they "do" sustainable development? How does it work in operational terms? • What forces are driving it? Consumer preferences? Regulation? Changing markets? Shareholder activists? Investors? • Which business sectors are leading, which are lagging, and why? • What is "Triple bottom line" reporting? What is the "Global Reporting Initiative," and how is it changing business? • What's happening at the forefront of technical innovation in industry for environmentally benign manufacturing and operation? • What certification standards exist, what are their criteria, and what does a business have to do to meet them? • What strategic frameworks exist for working on sustainability in business? How do they work? • What is the relationship between "CSR" (Corporate Social Responsibility) and Sustainable Development (SD)? • Does SD earn money, or cost money?