CEE companies are learning to be good

By bne IntelliNews December 13, 2007

Dominic Swire in Prague -

One could be forgiven for thinking that ethical considerations aren't exactly at the top of the corporate agenda for companies in the ex-Soviet Bloc, yet increased competition from the West, new EU regulations and a spate of state asset seizures on the grounds of environmental violations are all pushing companies operating in the region to look more closely at their ethical credentials.

Kazakhstan may not be the most obvious place to set up a consultancy specializing in corporate social responsibility (CSR), but this is where Localis has set up operations, offering a range of courses in corporate ethics in the former capital Almaty.

"The biggest aspect working in Central Asia, especially Kazakhstan, is helping companies manage risks," explains Caleb Wall, senior consultant at Localis. "There are a set of political risks at national level as well as a set of operational risks at local level."

By political risks, Wall is referring to state seizure of assets from foreign companies. One recent example in Kazakhstan was the suspension of work at the Kashagan oilfield following alleged environmental breeches, delays and cost overruns by Italy's Eni, which is the operator of the field. Farkhad Sharip, a local commentator, notes the "government's persistent efforts to impose new regulations and environmental standards on oil companies."

Similar tactics have been used elsewhere in the region, notably Russia where Rosprirodnadzor, the federal environment watchdog, has hounded a host of companies, most notably oil giant Royal Dutch Shell, which was forced to sell 50% of its stake in the Sakhalin-2 gas project to Gazprom last year. UK-based mining company Peter Hambro Mining also came under scrutiny this summer, and Porsche, Ikea, and Samsung have all been similarly affected by Russia's new ethical conscience.

Few are convinced that such moves are anything other than thinly-veiled asset seizures by governments or forced attempts to renegotiate unfavourable contracts, yet the trend has panicked many companies in the region to reexamine their ethical policies and implement CSR policies in a bid to reduce the risk of a similar fate. "One of the risks of operating in these countries is certainly a possibility of asset seizure or asset loss," acknowledges Wall. "What we're finding is that CSR in many ways is a very good way, a very positive and proactive way, to manage those political risks."

Implementing a CSR strategy means a company acknowledges responsibility for interests beyond the bottom line of its balance sheet, such as how its activities affect the local community, the environment and the welfare of its employees. This is often easier said than done; experts say that bringing thousands of employees and managers up to the same level of accountability and transparency involves changing people's behaviour and that's a big challenge.


The tide of ethical consciousness is starting to lap over Central Europe, albeit for slightly different reasons. Here the main driver is the desire to be taken seriously by Western customers and suppliers who over the past few years have grown increasingly sensitive to corporate ethical policies.

"If companies are supplying into the EU, or even the rest of the world, they're being asked what are your CSR activities, what are you doing socially and environmentally?" says Ivor Hopkins, vice president of MHCi, a consultancy firm specializing in advising CEE companies on CSR issues.

Certainly, many of the largest companies in the region have taken this onboard. Click onto the homepage of Poland's biggest company oil company PKN Orlen and you are greeted with a Christmas card designed by a child brought up in a foster home supported by the company. Czech energy firm CEZ devotes over 2,000 words to the wonders of its Environmental Protection Policy, and Hungary's largest firm Mol has several pages describing how it's helping education, the environment, sports and culture.

But it's a different story when looking at smaller companies in the region. A recent report from the United Nations Development Programme on CSR practices in new and candidate EU states looked at eight countries in the region, ranking them with scores from A (integrated and managed), to E (unaware and disinterested). Not one of the countries measured was awarded a B, never mind an A. The highest rating was Hungary with three Cs and a D.

Part of the reason for the poor performance is a mindset problem, says Cecilia Szoke, CSR manager at KPMG Hungary. Szoke has been involved in a number of internal CSR projects, one of which has been the promotion of recycled paper in their offices. Initially, Szoke says, this was difficult to implement as many employees saw the paper, which has a rough, natural grain, as inferior in quality to the conventional bleach-white sheets they were used to.

Szoke says KPMG Hungary has been working closely with local non-governmental organizations, or NGOs, on a number of internal CSR projects. Eventually, she says, they hope to mould their experiences into a CSR consultancy service for external companies. There are certainly not many of these in the region.

One man who has got there before her is UK entrepreneur Bruce Gahir. Resident in the Czech Republic for eight years, Gahir has recently set up the CSR consultancy ethics2biz Solutions in Prague.

Since the country joined the EU, Gahir says, there has been an increasing amount of pressure for Czech firms to comply with required ethical standards and carry out CSR policies. For instance, at the last G8 summit world leaders formally endorsed the Global Reporting Initiative that promotes routine reporting of economic, environmental and social performance. While not legally binding, this move adds political weight to what many now regard as global de facto reporting standards.

Bruce Gahir

"There's been ample proof to show that businesses that act responsibly perform better in long run. They're more stable, there's a better foundation, it's easier to expand and acquire finance because the business has a reputation," says Gahir.

Ivor Hopkins concurs. "Five years ago people were always asking whether there was a business case for CSR. You don't hear that any more. People now know there's real reason to be involved. The questions asked today are what do we need to do and how can we measure its effects on our business."

"CSR, certainly in Central and East Europe has a very, very bright future, that's for sure," Hopkins says.

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CEE companies are learning to be good

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