New Horizons in CSR: Risk and Security

How companies can play an important role in addressing environmental, social and economic risk and security.

By Riva Krut

Imagine the next major disaster: a Katrina, a tsunami, a 9/11, in your hometown or city. Now imagine a situation where your local supermarkets and hardware stores do not close up, leave town and hire private police to protect them from looters. Instead, they open their doors, invite people in and give them the emergency supplies they need. Delivery companies, the post office, the town bus company, the school bus company, the local car dealerships, all make their vehicles available to residents to help with transportation or evacuation needs. Local industrial facilities send their emergency response teams to work with the town fire department. Hotels in the area open their rooms gratis to residents. Generator backup and communication infrastructures from companies and facilities are interconnected to consolidate nongrid sources of power and communication. All of these goods and services are provided for free to local residents and emergency responders, with limited questions asked, in order that they can best survive the disaster and mitigate its damage. After the event has ended, everyone sees that supporting society and the economy in this fashion helped the community recover. Equally important, it helped the structurally disadvantaged get back on their feet. For those who recall the way the Hurricane Katrina aftermath split on class lines, this was a real victory.

How did this happen? In this hypothetical, the town’s people accepted that they were vulnerable to increased risk from climate change and potential acts of terror. They embarked on a scenario-planning exercise, working with possible disaster scenarios specific to the town’s natural, human and economic profile. On the basis of this risk assessment, the residents envisioned various types of disasters and their likely impacts on the town’s society, economy and ecosystem. They identified the types of goods and services that would become critical in these scenarios. Purchase contracts were pre-negotiated with appropriate local, state or government agencies to compensate companies that would provide these goods and services. The insurance industry worked with local customers to negotiate discounted premiums in cases of disaster and communicated to customers what goods and services would be available. When disaster happened, the surge in demand for goods and services set in motion a series of prearranged transactions that resulted in more people being better served, and with less human, economic and social cost than resulted from the aforementioned set of actual disasters.

Is this possible? Yes. I say this with confidence because, to some extent, these responses have happened, but usually late or despite a plan. They were a product of individual initiative, creativity and, in many cases, heroism. Many companies stepped up to the plate after Katrina and helped during the crisis. In some cases, the realization of the vulnerability of communities to disasters such as Katrina catalyzed a corporate self-reflection, prompting more firms to explore how to achieve corporate sustainability and corporate social responsibility (CSR).

Another reason this vision could be realized is because many of the building blocks for this scenario already exist and could simply be added to, taken to scale, or utilized and influenced by other CSR players in new ways. Three examples illustrate this point:

1. Industry initiatives. The chemical industry has for decades realized that industrial accidents can happen outside a facility—typically a spill in transportation. They have set up peer-to-peer programs and corporate relationships with local emergency responders, so that in the event of an emergency, chemical companies act first and ask questions afterward. Their Chemical Transportation Emergency Center Program (CHEMTREC), works out legal and economic arrangements in advance so that a local responder does not first ask, “Who is going to pay for this?” before getting to work.

Noting this, the American Chemistry Council (ACC) Strategic Review Board, an external body invited to comment on the ACC Responsible Care program, recommended that the chemistry industry take the lead on linking CSR and security and risk, and that programs like CHEMTREC be used as the foundation for creating a range of contracts and pricing agreements among governmental agencies, the private sector and non-governmental organizations (NGOs). One of their recommendations includes the following:

• Link security and risk to CSR, sustainability and business value. Expand opportunities to share expertise and resources with local business, governmental and NGO entities.
• Build into the Security Code existing ACC models (such as CHEMTREC) of risk and emergency response management, where firms set up prenegotiated interfirm and ACC-agency and/or company-agency agreements that could be activated in an emergency, be it local, regional or national, caused by terrorism or natural disaster.

2. The Senate Commission on Katrina’s May 2006 report, “Hurricane Katrina: A Nation Still Unprepared,” calibrated the chaos of the events and aftermath and made a series of recommendations. Among them, government should have a role in precontracting and paying for goods and services that it cannot provide itself, and for the private sector and NGOs. The report’s recommendations 23 and 24 address this directly:

Recommendation 23: The Department of Homeland Security (DHS) should coordinate with the private sector and NGOs at the state, regional, and national level to incorporate those entities, where appropriate, into their planning, training, and exercises, to the greatest extent possible.

Recommendation 24: There needs to be a balance, even in a time of disaster, between procuring essential goods and services and maintaining fairness and reasonableness in the procurement process to the extent possible.

• The federal government should establish prenegotiated contracts for priority resources prior to disasters, especially in the areas of food, water, ice, fuel distribution and housing. DHS should include provisions in prenegotiated contracts to provide the surge capacity needed to respond to catastrophic disasters.
• The federal government, working with the private sector, should develop standard form agreements tailored for various needs to facilitate faster procurement for disaster relief operations.
• The federal government should consider expanding the cooperative purchasing authority of state and local governments to use all of the General Services Administration (GSA) schedules (not just IT Schedule 70), for the purchase of goods and services that are designed to facilitate response to and recovery from a presidentially-declared disaster or catastrophe. Under the expanded authority, state and local governments would use the same procedures as GSA already has adopted for Schedule 70 cooperative purchasing.

3. Leading companies have taken action. Under the aegis of The Conference Board and academics from the European Institute of Business Administration (INSEAD), an initiative called “Beyond Money” has been launched to help firms address disaster response as a social issue. They propose a process for companies to create a “Disaster Response Partnership Strategic Plan” that will position the company as a pioneer in a new and growing area of social concern. This research group will bring together the latest management research in this emerging area and provide the chance to share best practice examples with other leading multinational companies. While this program currently concentrates on corporate relationships with humanitarian agencies and does not include the government or explicitly link to CSR, the outline is there for this to contribute to the vision described above.

What needs to be done to make this vision of CSR and security a reality? There are details that need to be fleshed out. The relative contributions of the corporate, government and NGO sectors (or what is currently called the Public-Private Partnership) need to be carefully worked out. Difficult issues such as disparities in size of companies, or protocols for CSR issues such as labor relations, need to be put on the table. It is easier to see opportunities in this vision for large firms; the implications for the small-town family business is not as clear. But fundamentally, the focus of this conversation has to now include a creative and engaged private sector. Government commissions of inquiry after these events have typically focused on what government and non-governmental agencies can do differently in the future. I would argue that this ignores the reality that these actors cannot address these problems on their own. It ignores the resources and creativity of the private sector and potentially even the market.
Thus, the key new actors are not government or NGOs, although they will play a role, but corporations and industry associations. Surely building up a social, economic and environmental infrastructure capable of withstanding assault should be the quintessential role of corporate citizenship and CSR. Ironically, CSR (or its cousin, sustainability) as currently defined, does not look at this issue, nor does it look at risk and security. These indicators of CSR are not referenced in the strongest and most consensual definition of sustainability indicators, the Global Reporting Initiative. This would be a new area for the community to address, and an important one.

Unfortunately, we need to grapple with the reality that human or environmental catastrophe is more, not less, likely today. We cannot prevent the next disaster but we can prepare. We need to change and expand our concepts of corporate and governmental social responsibility and encourage leaders in the CSR arenas to start to broaden the concept of corporate citizenship to take into account social, environmental and economic security.

Riva Krut is a VP at Cameron-Cole, LLC and Regional Manager of their New York office. She can be reached at rkrut@cameron-cole.com.