Friday, July 9, 2010

Canada's Top Performers in CSR: Loblaw's False Impression

In my previous post, I began a series of three blogs on some of the limitations of the highly coveted Corporate Knights ranking of Canadian public companies. This next blog looks more closely at Loblaw and the fact that Corporate Knights rated them “top honours” (see article) on the corporate social responsibility front. I think it’s important to pick on Loblaw here because they received an impressive 81.81 percent, almost 10 percent higher than the runner up on the CSR measure. My objective in the discussion below is to show that while Loblaw may be performing well RELATIVE to other companies, they are failing when we examine their social and ecological performance more comprehensively from the perspective of multiple systems and our definition of sustainability from the previous blog.

To be blunt, one walk down the aisles of one of Loblaw’s grocery stores will perplex anyone trying to understand how it was possible that they received such a high rating. If CSR is based on a firm’s responsibility towards the negative externalities imposed on stakeholders stemming from their decisions and behaviours, Corporate Knights fails to consider the complexity of the food system and, more importantly, the complexity of what CSR actually represents.

To understand this, let’s make our way around the grocery store, starting with the produce section. A high majority (very difficult to find the exact percentage on Loblaw’s website) of the produce in Loblaw stores are from non-organic sources, caked with fertilizers and pesticides. As a large centralized retailer, the decision to purchase from suppliers that use these chemicals represents a substantial contribution to the degradation of ecological systems. The use of chemical fertilizers “is considered the major human-related cause of dead zones around the world” and causes farmland degradation, reduced soil fertility and biodiversity according to the UN assessment of Earth’s Ecosystems in 2005 and again in 2009. On the social systems side, growing consensus is emerging linking the excessive use of these chemicals to cancer and other diseases. A recent study summarized by CNN found that 12 products (the dirty dozen) carry more pesticide residue than any others resulting in as much as 67 pesticides remaining on non-organic food despite intense spraying with water. In my walk through a few stores these past few weeks, I was unable to find many of these 12 products in an organic form.

Unfortunately, Corporate Knights does not measure decisions related to what types of products Loblaw chooses to sell. This is an issue when we consider large public companies like Loblaw who 1) have a strong influence on public opinion related to food and 2) have strong power over suppliers. Scoring a firm’s CSR without considering these sorts of decisions is missing a fundamental component of what being responsible is all about. When Corporate Knights measures energy, waste, water, and carbon intensity of Loblaw’s stores, they are missing out on the fact that any improvements in operational waste, for example, is easily offset by the indirect effects of the chemicals ending up as waste in water systems or the carbon intensity of nitrogen found in fertilizers, or the energy required to produce these pesticides and fertilizers or the massive amounts of water required to feed non-organic produce. Is this not a contradiction when Corporate Knights lauds Loblaw for improvements in operational waste, energy, carbon, and water?

Next, let’s move on to the bulk and central part of the store – the processed food section – the section of the store several authors and a growing number of health advocates have warned consumers to stay away from (see Food Inc., Omnivore’s Dilemma, Food Matters). It does seem rather ironic that a company like Loblaw receives the highest grade despite the fact that 80% of its product offering is linked to major social and ecological issues. The invention of processed foods afforded food companies the ability to reach distant markets because the food can stay on the shelves much longer than perishable foods. But the only way to do this is to remove the ingredients of the food that attract bacteria. Well, like us, bacteria are attracted to nutrients. So we must remove nutrients to make food last longer and then reinsert them synthetically, with no guarantee that consumers will receive the same nutritional benefits. Moreover, any quick read of the ingredients list reveals massive amounts of sugar and derivatives of corn and soy drawn from a wet milling process which is incredibly energy intensive and unhealthy in its effect. The subsequent impact on the health system is monstrous when we consider the onset of diabetes in adults and now children, obesity, and heart disease. While there are subtle improvements in this area, Corporate Knights does not measure the degree to which Loblaw has made decisions to reflect responsibility for these effects. What about the intense waste created from the excessive packaging of the tens of thousands of processed products that end up in landfills and/or is incinerated? I can’t help but chuckle when I read the very narrow-minded praise for Loblaw’s diversion of 70% of its waste from landfills in 2009 when we consider that 77% of the plastic that packages the thousands of processed food Loblaw sells ends up in landfills. Again, the water, carbon, energy, and waste associated with these processed foods are not captured in the Corporate Knights measure.

Then we move onto the meat, poultry and seafood sections. I do commend Loblaw’s commitment to source 100% of their seafood from the Marine Stewardship Council by 2013. It certainly is a step in the right direction. But it’s not that impressive. Shouldn’t a large company like Loblaw be an active participant in its supply chain rather than a passive purchaser? And what is the company doing as a major purchaser of meat and poultry to stem some of the major human and animal health effects of the industrialized meat system, not to mention the ecological effects?

Critics of what I’m writing here will likely argue that it is not the responsibility of Loblaw to influence their supply chain and that what Loblaw does operationally in house in their little nook of the supply chain is all they should be responsible for. Unfortunately this is a very old logic, one that got the apparel sector in trouble during the 1990s when they said that exploitative labour conditions of their supplier factories were not their problem. When we look at the financial crisis that occurred in 2008, we see that this was a failure of a system, a complicated web of services that can only be blamed on a group of firms acting as suppliers and customers rather than on one section or organization of that supply chain. My point is that any attempt at addressing more systemic issues associated with externalities demands that firms see the bigger picture of that supply chain or the web of activities responsible for products and services. Any company that isolates itself in their supply chain without considering their responsibility across the supply chain is not committed to the true definition of sustainability and thus should receive a poor rating. As an important aside, I find it highly hypocritical that Corporate Knights praises Loblaw for sourcing 100% of their seafood from the Stewardship Marine Council in 2013 (as mentioned), yet does not extend this measure to the rest of its product lines like I’ve discussed above.

But what about the 1.3 billion plastic shopping bags that Loblaw prevented from entering landfills? Is that not something to be proud of? This does help of course but it would be equivalent to praising the consumer who brought his own reusable shopping bags only to pack them into his hummer to drive a few blocks home. Focusing on shopping bags afforded Loblaw good PR with consumers yet shifted consumer attention away from the billions of plastic material Loblaw uses in their operations and in the products that they purchase. They instead placed the onus on the consumer while affording the company extra revenue (reusable bags) and cost savings (reduction in plastic bags). Is this responsible? To me, being responsible means asking the more difficult questions about how to discontinue the selling of products laced with BPA, for example, that Health Canada has now earmarked as a chemical toxin dangerous to humans. This takes courage and represents the sort of decisions and behaviours that should be granting companies the score Loblaw received.

The Globe and Mail also touted the firm’s efforts to release an annual CSR report. The release of a CSR report should not be viewed as a commitment to sustainability because it creates an incentive to produce some kind of report with no guidance on what should be in the report and how its contents should be measured, evaluated, and monitored. I’ve read through hundreds of CSR reports and a majority of them are used for PR purposes and avoid any serious commitment to sustainability.

Thus the Globe and Mail’s claim that Loblaw has pushed to “do the right thing in an array of corporate social responsibility areas” is based on a very limited set of measures of what we mean by corporate social responsibility. While I appreciate the work that Corporate Knights is doing, until the measures used more accurately represent proxies for the true definition of sustainability and CSR, we should be careful of encouraging companies to aspire to the CSR performance of a company like Loblaw.

The inability to measure the more indirect effects I’ve discussed above is as critical as it is difficult. In my next blog, I’ll dive more deeply into the measures Corporate Knights uses. They are not the only one struggling with this. This is and will continue to be one of the most pressing challenges of the field of accounting and business more generally.

1 comment:

  1. I am so sorry I didn't find this marvelous article earlier. I am doing analysis of Loblaw's practices for comparison with Walmart and Nestlé in supplier assessment area.