Business Ethics

Corporate Social Responsibility

Sustainability

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Business Ethics
What is ethics?
• Business ethics is an application of moral standards in business
situations. It involves moral principles and decision-making process.
Business ethics goes beyond the standard of legislation.
• Business ethics is applicable to the conduct of individuals as well as
the corporation
• According to Raymond Baumhart’s survey:
- ethics has to do with what my feelings tell me is right
or wrong
- ethics has to do with my religious beliefs
- being ethical is doing what the law requires
- ethics consists of the standards of behaviour our society
accepts (Baumhart, cited in Mitchell 2003, p.8)

• A structured approach is required to solve ethical issues rather than

relying on individual’s feelings, which are not consistent.
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Business Ethics
• Ethical decisions can limit losses  faster problem
solving

• Unethical decisions, e.g. financial statements with

inflated sales/profits figures  financial loss, corporation
failure, job losses, shareholder and stakeholder losses.

• Common ethical issues faced by e.g. accountants include:

• Conflict of interest; superior instruction to carry

out unethical acts; client proposal on manipulating
accounts/tax evasion; receipt of unreasonable
gifts/entertainments from clients, etc.
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Business ethics
Virtue ethics

• Virtue = attitudes, dispositions or traits of character 

take ethical desirable actions through consistent practices
 ethical character  virtue ethics

• Virtues include courage, courtesy, compassion, generosity,

fairness, fidelity, honesty, integrity, prudence and self-
control etc.

• Virtues  professional conduct e.g. integrity, objectivity,

competence etc.

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Business ethics
As per Principle One of the Wates Corporate Governance Principles for Large
Private Companies 2018 in UK, ‘A company's purpose and values should inform
expected behaviours and practices throughout the organisation. The values should
be explained and integrated into the different functions and operations of the
business. This may include internal assurance, employment practices, risk
management and compliance functions.’

Steps to achieve above:

• Develop ethical values
• Incorporate the ethical value in a code of conduct or code of ethics and
communicate the same to the board
• Organise training programme  values + the above code are embedded
within the corporation’s behaviours and functions
• Rewards behaviours that are in line with the values and the code
• Make sure employees feel free to whistle blow unethical practices
• Regularly review the code of conduct/ethics
Source: ICSA Study Text on Corporate Governance
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Business ethics
As per Code Provision A.1.1 of the Corporate Governance Code (Appendix 14)
of the Main Board Listing Rules, ‘The board should establish the issuer’s purpose,
values and strategy, and satisfy itself that these and the issuer’s culture are aligned.
All directors must act with integrity, lead by example, and promote the desired
culture. Such culture should instil and continually reinforce across the
organisation values of acting lawfully, ethically and responsibly’.

• The board is responsible to monitor the culture and sets standards of ethical
business
• The company secretary (CS)can assist the board to establish and maintain an
ethical culture e.g., suggesting the board to discuss corporate culture and
report to stakeholders, etc.
• CS should voice out bad governance and unethical practices and remind the
board and SM to take the right course of conduct and good governance
practices
• CS and HR department organise training sessions on ethics and culture
creation
Source: HK CG Code and ICSA Study Text on Corporate Governance
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Business ethics
• CS may work with HR department and internal audit unit in developing
a code of ethics, which contains (a) values of the company: (b) ethical
principles; (c) ethical standards towards employees, customers, suppliers,
business partners, government, community, society and the environment; and
(d) code implementation  responsibility statement for code compliance;
means to obtain advice; training.

• Company should communicate standards of ethical behavior to the

board and all stakeholders

• CS should alert the board and management on professional ethical

standards of persons within and outside the corporation

• CS should ensure (i) compliance with values and code of ethics; (ii)
regular review of ethical values and code of ethics; (iii) the board
monitor whistleblowing policies and procedures.
Source: ICSA Study Text on Corporate Governance
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Ethical theories

Utilitarian Theory

• Jeremy Bentham and John Stuart Mill (18th Century)

• Act-Utilitarianism
• An action or decision that provides the most benefits to
most people

• Rule-Utilitarianism
• An action is taken is based on moral rules that everybody has
to comply with

• Applies to professionals such as accountants

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Ethical theories

Rights Theory

• Thomas Hobbes and John Locke (17th Century)

• Individual rights e.g. human rights (such as freedom of

speech, freedom of conscience, privacy rights), legal rights,
contractual rights.

• An action of a decision made will not offend the rights of

anybody. In other words, one should not take an action,
which will affect the rights of all stakeholders.

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Ethical theories

Justice Theory

• Aristotle and Plato (5th Century B.C.) and John Rawls

(1971)

• Advocates fairness, justice, equality and impartiality.

• An action should be selected and taken if it can fairly

allocate resources to all stakeholders

• Examples: fairness relating to rights of employees,

customers; equal treatment of individuals/ groups
(especially minorities).
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Ethical decision making model

• An individual may make use of a decision model, a

thinking or analytical process, in dealing with ethical
dilemmas.

• The Hong Kong Ethics Development Centre of the

Independent Commission Against Corruption in Hong
Kong has developed an ETHICS PLUS Decision
Making Model

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Ethical decision making model
ETHICS process - 6 steps to follow
Establish the relevant facts and identify the ethical issues
involved
Take stock of all stakeholders involved

Have an objective assessment of each stakeholder' s

position

Identify viable alternatives and their effects on the

stakeholders

Compare and evaluate the likely consequences of each

alternative with reference to the four PLUS Standards

Select the most appropriate course of action 12

Ethical decision making model
PLUS standards - 4 key factors to consider

Professional/Trade-related/Company code of conduct (e.g.

any violation of the professional code of conduct?)

Legal requirements e.g. any breach of the Prevention of

Bribery Ordinance, Theft Ordinance etc.

Uncompromisable self values e.g. honesty, integrity and

fairness etc.

Sunshine test i.e. whether the issue can be disclosed to and

discussed in the public.
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Corporate Social Responsibility
Definition
European Union – ‘A concept whereby companies
integrate social and environmental concerns in their business
operations and in their interaction with their stakeholders on
a voluntary basis’.

King IV, the South Africa Corporate Governance Code

instead adopted the term ‘Corporate citizenship’  the
recognition that the organisation is an integral part of the
broader society in which it operates, affording the
organisation standing as a juristic person in that
society with rights but also responsibilities and
obligations. It is a recognition that the broader society is the
licensor of the organisation’.
Source: ICSA Study Text on Corporate Governance
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Corporate Social Responsibility

Definition
According to Carroll 1979 Academy of Management Review,
responsibilities of a business are:
Economic responsibility – first and foremost the societal
responsibility to be a profit orientated and market driven business

Legal responsibility – to adhere to society’s laws and regulations as a

licence to operate

Ethical responsibilities – to honour society’s wider social norms and

expectations of behaviour over and above the law

Discretionary (or philanthropic) responsibilities – to undertake

voluntary activities and expenditures which exceed society’s minimum
expectations.
Source: Corporate Governance International, Bob Tricker
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Corporate Social Responsibility
Definition
World Business Council for Sustainable Development
(WBCSD)
‘Corporate Social Responsibility is the continuing commitment by
business to behave ethically and contribute to economic
development while improving the quality of life of the workforce
and their families as well as of the local community and society
at large’.

‘For many companies, managing corporate social responsibility well is

no longer seen as an extra cost or burden on hard-pressed
management. Rather, CSR is increasingly viewed, not only as making
good business sense but also contributing to the long-term
prosperity of companies and ultimately its survival.’ 16
Corporate Social Responsibility

Definition

Craig Carter, Rahul Kale and Curtis Grimm define

corporate social responsibility as ‘[Corporate] social
responsibility deals with the managerial consideration
of non-market forces or social aspects of corporate
activity outside of a market or regulatory framework
and includes consideration of issues such as employee
welfare, community programs, charitable donations, and
environmental protection.’
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Corporate Social Responsibility

Definition

Milton Friedman

‘The Social Responsibility of Business is to Increase Its

Profits’ in The New York Times Magazines 13 September
1970.
“…………there is one and only one social responsibility of business to use its
resources and engage in activities designed to increase its profits so long as it
stays in the rules of the game, which is to say, engages in open and free
competition, without deception or fraud.”

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Corporate Social Responsibility
CSR competency framework for managers (UK Government)
Framework covers
• Understanding society – understand (a)how business operates and its impact
on society, and (b) the roles of, e.g. government, non-governmental
organisations, trade unions in the society.
• Building capacity – work with others (e.g. in partnership) in order to manage
business effectively; create strategic networks and alliances.
• Questioning ‘business as usual’ – open to new ideas; adopt new ways of
thinking and questioning the business relating to a sustainable future.
• Stakeholder relations – identify the stakeholders especially those who have an
impact on/impacted by the company’s business; communicate with
stakeholders and take into account their views/suggestions.
• Strategic view – ensure social + environmental issues are included in the
business strategy  CSR becomes ‘business as usual’.
• Harnessing diversity – respect diversity  value employees’ and other
stakeholders’ views or suggestions.
Five levels of attainment  from awareness, understanding, application, integration to
leadership (i.e. integrates CSR in the decision-making process).
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Corporate Social Responsibility
CSR Frameworks
• UN Guiding Principles on business and human rights -
- apply to all businesses  remedies to those who suffer from human rights
abuses
• UN Global Compact
- encourage companies to align their strategies and operations with 10
principles covering human rights, labour, environment + anti-corruption
• The Sigma Project – Sustainability – Integrated Guidelines for
Management
- guiding principles (on natural, human, social, manufactured and financial) to
understand sustainability
• The Equator Principles
- a risk management framework adopted by financial institutions, for
determining, assessing and managing environmental and social risk in project finance.
• OECD Guidelines for Multinational Enterprises
- encourage positive contributions to economic, environmental and social
progress and to minimize operation difficulties
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Source: ICSA Study Text on Corporate Governance
Corporate Social Responsibility
• Is there a link between CSR and financial performance?

• Earlier studies  mixed evidence on the link between

CSR and financial performance (i.e. either negative link or
positive link)

• Sandra Waddock and Samuel Graves acknowledge

the fact that higher levels of CSR may cause higher levels
of financial performance and vice-versa, and better
performing companies have more money to spend on
CSR. Companies that have high level of CRS perform
better.
Source: Goergen, M. International Corporate Governance 21
Corporate Social Responsibility

• Amy Hillman and Gerald Keim argue that there are

two components of CSR:

• One relates to improving relationship with primary

stakeholders  stakeholder management

• The other relates to social issues that will not

improve the relationship of the company and the
primary stakeholders  social issue participation,
which reduces financial performance.
Source: Goergen, M. International Corporate Governance
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CSR and Sustainability

World Business Council for Sustainable

Development (WBCSD) in its first report on CSR,
Meeting Changing Expectation (1999):
• CSR priorities : human rights, employee rights, environmental protection,
community involvement, supplier relations;
• A coherent CSR strategy: based on integrity, sound values and long-term
approach, offers business benefits to companies and contribution to
society;
• Companies should articulate their core values and codes of conduct
• Responsive to local and cultural differences when implementing
company policies;
• Engage in dialogue and partnerships with government,
intergovernmental organisations, NGOs, communities;
• Maintain high global standard and policies when implementing CSR
strategies.
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CSR and Sustainability
WBCSD launched its Vision 2050 in the year of 2010 on
global sustainability:
• Incorporate costs of externalities  carbon, ecosystem services and water
into the structure of marketplace;

• Double agriculture output without increasing amount of land and water

used;

• Halt deforestation and increasing yields from planted forests;

• Halve carbon emissions worldwide (from 2005 levels) by 2050 by a shift

to low-carbon energy systems;

• Improve demand-side energy efficiency + provide universal access to low-

carbon mobility.
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Sustainability
Definition
• Sustainability is important in the study of corporate governance and
business ethics
• It means corporations aim at their long-term survival
• Companies activities will impact on economy, society and
environment
• CSR plays a part to ensure survival of the corporations
• Sustainability ensures the long-term survival of the corporations

• The Institute for Research and Innovation in Sustainability in Canada

defines sustainability as ‘about living and working in ways that meet
and integrate existing environmental, economic, and social needs
without compromising the wellbeing of future generations.The
transition to sustainable development benefits today’s society and
builds a more secure future for our children.’
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Sustainability
UK CG Code 2018 stated that the board’s role ‘is to promote long-
term sustainable success of the company…….………………………..’.
Steps to achieve sustainability
• Determine and identify the potential threats to the supply and
maintenance of the company’s resources, assets and processes, which
are critical to sustainability of the corporation
• Develop sustainability objectives and policies
• Develop a business continuity plan (BCP)  includes disaster
recovery plans for IT, equipment, buildings…). CS may be involved in
developing the BCP.
• Communication of BCP to internal and external parties
• Develop sustainability indicators
• Review BCP annually
• Inform key stakeholders re sustainability planning

Source: ICSA Study Text on Corporate Governance

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Sustainability
Examples: attempt to reduce world’s greenhouse gases
below 1990 levels, to reduce global warming, control of
forest products etc.
Corporate example: Swire Pacific Limited, which has
adopted a sustainable development policy
“We adopt this policy because:
Long-term value creation for our shareholders depends on the sustainable
development[1] of our businesses and the communities in which we operate.
We wish to excel as corporate citizens”

[1] Sustainable Development is development that meets the needs of the present
without compromising the ability of future generations to meet their own
needs. – “Our Common Future”, 1987 - World Commission on Environment and
Development.
Sustainable development covers environment, health and safety,
employment, business partnerships and community matters.
Source: Corporate Governance International, Bob Tricker
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Sustainability
Example: Swire Pacific Limited’s Sustainable Development
Policy
Our business policy
Industry leadership: We will work with others to promote sustainable
development in the industries in which we operate.
Our operating policy
In our operations: We will meet or exceed all legal requirements and:
• Be a good steward of the natural resources
• Operate in a manner which safeguards health and safety of all
stakeholders.
• Strive to be an employer of choice respect
• Favour suppliers and contractors who promote sustainable
development
• Promote good relationships with the communities of which we are a
part

Source: Corporate Governance International, Bob Tricker 28

Sustainability
Swire Pacific became a member of the World Business Council for
Sustainable Development (WBCSD) in 2021

 Swire’s latest sustainable strategy – commits to net zero carbon

emissions by 2050 and launches updated sustainable development
strategy (SwireTHRIVE 2.0)
 The strategy covers five areas - Climate (decarbonisation and
resilience), Waste, Water, People (diversity and inclusion and health
and safety), and Communities.
 The group commits to achieve following targets by 2030
• 50% reduction in greenhouse gas emissions from direct operations (excluding Cathay
Pacific's jet fuel) from a 2018 base year
• 27% reduction in water withdrawal from a 2018 frozen efficiency baseline;
• 55% waste managed by us diverted from landfill; and
• 30% women in senior management roles by 2024.
 Also commits to reduce carbon emissions to achieve net zero by 2050

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Source: WBCSD.org/3BL CSR Wire (https://www.csrwire.com/)
Sustainability

CLP Holdings Limited

Sustainability committee oversees management of the group’s sustainability

issues with the support of the sustainability executive committee.

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Source: https://www.clpgroup.com/en/sustainability/overview/sustainability-approach.html#
Sustainability
CLP Holdings Limited’s sustainable development goals –
prioritize 4 out of 17 goals
 SDG7 - Affordable and clean energy
 SDG8 - Decent work and economic growth
 SDG9 - Industry, innovation and infrastructure
 SDG13 - Climate Action

Source: https://www.clpgroup.com/en/sustainability/overview/sustainability-approach.html# 31
Sustainability

CLP Holdings Limited’s Climate Vision 2050

 Meet science-based targets for 2030 to align with the
Paris Agreement goal of limiting global warming to well-
below 2°C above pre-industrial levels

 Phase out coal-based assets by 2040

 Achieve net-zero greenhouse gas emissions across our

value chain by 2050

Source: https://www.clpgroup.com/en/sustainability/overview/sustainability-approach.html#
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Sustainability
Example: HK Electric Investments which has adopted a
Sustainability Policy
Policy Statement 1.1 HK Electric Investments is committed to operating our business in a responsible
and transparent manner while meeting the long-term energy needs and supporting the sustainable
development of the community we serve, taking into consideration international consensus and industry
best practices. 1.2 Underpinned by our core values, we aim to be a good corporate citizen and a
worldclass energy supplier providing safe, reliable, affordable and environmentally friendly electricity
supply to our customers; and an employer of choice that attracts and develops talent.
To accomplish this, we integrate sustainability considerations into our operations, engage with and create
shared value for our stakeholders and will:
• Strive to achieve a high standard of corporate governance and disclosure;
• Understand and address customer needs through innovative and caring services and protect personal
data privacy;
• Secure a stable return and deliver long-term values for our investors;
• Treasure planet Earth by minimising the environmental impact of our operations and combating climate
change;
• Assist employees to develop continuously in an engaged workplace and care for them and their families;
• Influence our business partners to adhere to a high standard of integrity; encourage and guide our
suppliers and contractors to follow our requirements in various dimensions including ethics, human and
labour rights, health and safety, environmental protection and climate action; and
• Nurture a caring culture in society by supporting and contributing to community investment.
Source: HK Electric Investments’ Sustainability Policy 2020
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Sustainability
Sustainability Indices
 Hang Seng Corporate Sustainability Index Series
• Tradeable Series
• Hang Seng Corporate Sustainability Index
• Hang Seng (China A) Corporate Sustainability Index
• Hang Seng (Mainland and HK) Corporate Sustainability Index
• Benchmark Series
• Hang Seng Corporate Sustainability Benchmark Index
• Hang Seng (China A) Corporate Sustainability Benchmark Index

 Dow Jones Sustainability World Index

 Arcadis Sustainable Cities Index 2022

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Sustainability
Hong Kong Environmental Protection Department

October 2021 – Hong Kong’s Climate Action Plan

2050
‘Zero-carbon Emissions; Liveable City; Sustainable Development’  to enhance
Hong Kong’s competitiveness and sustainable development

• Strategies/opportunities
• Net-zero electricity generation  Energy saving and green
buildings
• Green transport
• Wastes reduction

Source: Hong Kong’s Climate Action Plan 2050, Environmental Protection Department, HK
https://www.eeb.gov.hk/sites/default/files/pdf/cap_2050_en.pdf 35
References

Goergen, M. International Corporate Governance, latest edition, England,

Pearson Education Limited.

Tricker, B., Corporate Governance: Principles, Policies, and Practices, latest

edition, Oxford University Press.

Manuel G.Velasquez, Business Ethics, Concepts and Cases, latest edition,

Prentice Hall.

Ethics in Action - A Resource Portfolio for Hong Kong Universities, Hong Kong
Ethics Development Centre of Independent Commission Against Corruption.

CPA Australia CPA Program – Ethics and Governance

Arcadis.com

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References
Code of Corporate Governance (Appendix 14), HK
HKCGI module on Corporate Governance
ICSA (now CGI) Study Text for Corporate Governance (Chapter 10)
Wates Corporate Governance Principles for Large Private Companies
2018, UK
Swire Pacific Limited
HK Electric Investments Sustainability Policy 2020
World Business Council for Sustainable Development
https://www.wbcsd.org/
Sustainable Development Report 2022, Cambridge University Press
https://dashboards.sdgindex.org/rankings
https://resources.unsdsn.org/2022-sustainable-development-report
3BL CSR Wire (https://www.csrwire.com/)

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References
Hang Seng Corporate Sustainability Index Series
https://www.hsi.com.hk/static/uploads/contents/en/dl_centre/brochure/co
rporatesustainabilitye.pdf
Dow Jones Sustainability World Index
https://www.finchandbeak.com/tag/12/dow-jones-sustainability-index.htm
Arcadis Sustainable Cities Index 2022
https://www.arcadis.com/
Hong Kong’s Climate Action Plan 2050 (Oct. 2021), Environmental
Protection Department
https://www.eeb.gov.hk/sites/default/files/pdf/cap_2050_en.pdf
CLP Holdings Limited
https://www.clpgroup.com/en/sustainability/overview/sustainability-
approach.html#

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