Corporate Social Responsibility
Prior to discussing the specifics of corporate social responsibility (CSR) in the modern business world, it is necessary to define major terms and concepts that will be utilized further in the paper. CSR can be referred to as the major business initiative enabling companies to operate in a sustainable environment (Lu et al., 2019). Such major challenges as climate change, discrimination, poverty, inadequate living conditions, among others, jeopardize the necessary setting for the proper functioning of organizations. CSR activities tend to address these issues and ensure sustainable growth of companies and communities. The primary areas of concern include environmental and social aspects such as carbon dioxide emissions, waste, the use of resources, inequality, famine, poverty, limited access to resources and health care (Yusliza et al., 2019). Countries and communities encounter a set of such challenges depending on various factors, including but not confined to geographic peculiarities and historical aspects.
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CSR gained momentum several decades ago when environmental and social issues human society faced became rather alarming. Climate change, deteriorating living conditions in many places of the globe (including developed countries) have made people more conscious about these challenges (Renouard and Ezvan, 2018). In addition to the need to ensure sustainable environments, consumers’ views play an important role motivating businesses to exploit more balanced approaches. People expect that companies will be more responsible and instead of concentrating on profit will contribute some part of their gains to the development of the society. Consumers are more likely to buy from companies that have diverse and strong CSR activities, which creates an additional competitive advantage for these players (Contini et al., 2020). At that, the link between CSR operations and customer loyalty or organizations’ benefits differs across countries and industries.
CSR activities of energy utility companies in developed countries have certain peculiarities. Lu et al. (2019) found that CSR activities of such organizations largely depended on institutional factors rather than consumers’ attitudes and loyalty. It was found that companies tried to engage in CSR operations in order to comply with the standards introduced by governments, while consumers attitudes were almost disregarded. At that, communication strategies are still associated with a focus on CSR as companies make sure these efforts are properly publicized.
As far as AGL is concerned, the organization pays substantial attention to CSR activities and informs diverse stakeholders about the most recent and relevant changes regarding the matter. The organization is committed to its decarbonization goals and other objectives aimed at improving the environment, as well as the social wellbeing of communities (AGL, 2021b). AGL has introduced innovative optional carbon-neutral prices products and aims at further advancement in this area. The company is an active player in the voluntary carbon market in Australia (AGL, 2021b). The company tries to minimize its environmental footprint and has been a role model for many businesses. AGL sees transparency as a method of addressing the established goals regarding environmental sustainability. Hence, the organization employs transparent approaches to managing environmental projects. The company also invests in the creation of new sustainable sources of energy (AGL, 2021b). The organization under analysis collaborates with different partners to develop new sustainable sources of electricity. For instance, AGL collaborates with Vena to develop grid-scale batteries.
As for social aspects, AGL has introduced numerous incentives that can be instrumental in addressing the most urgent issues. For example, the organization launched Affordability Initiatives in 2014 aimed at helping communities, as well as the company’s employees, to address the most urgent issues (AGL, 2021c). The organization invested two million U. S. dollars in farming projects to assist Australian farmers in such areas as loans, solar energy systems establishment, and other incentives. Through diverse human resources management initiatives, the company has aimed to address such issues as domestic violence and discrimination.
It is necessary to note that these practices and incentives contribute to achieving short- and long-term organizational goals. The short-term goals include the company’s compliance with the standards existing in the country, as well as adherence to the standards established by the company itself (AGL, 2021b). The reduction of certain gas emissions and continuous development of sustainable projects (solar batteries, sustainable energy systems, and so on) are also short-term goals. These objectives are met with the help of the initiatives mentioned above. As far as the long-term goals are concerned, these are associated with contributing to turning Australia into a carbon-neutral and energy superpower (AGL, 2021b). The incentives implemented by the organization are characterized by a positive impact on sustainable energy production, which can help in creating the carbon-neutral society. Hence, it is possible to note that AGL can reach the set short- and long-term goals with the help of the initiatives as well as its strategic plans related to environmental and social sustainability.
Corporate Risk Management
Central Concepts Defined
Prior to considering corporate risk management operations at AGL, it is important to define the basic terms and concepts. Risk management can be referred to as a company’s operations of identifying and analyzing potential uncertainties and creating plans to mitigate the negative outcomes (Tricker, 2019). Corporate risk management can be defined as the risk management incentives developed and implemented by the board to ensure the sustainable development of the company. Corporate risks can be defined as the “gain or loss that might be incurred by an uncertain future event” (Tricker, 2019, p. 207). According to Tricker (2019), the risk involves such statistical aspects as the probability of an expected risks and potential outcomes. It is noteworthy that modern corporate codes include quite detailed descriptions of risk management initiatives. Tricker (2019) notes that this attention to risk management and particular strategic planning became a result of the 2008 financial crisis and a more recent COVID-related crisis. Importantly, the major task of the board in risk management is not to avoid risks or eliminate them completely but neutralize potential effects and mitigate adverse outcomes.
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AGL Corporate Risk Management
AGL’s board of directors is responsible for presenting risk management data along with other financial statements on a regular basis. The board of directors includes Graeme Hunt, the Managing Director, and non-executive directors Peter Botten, Mark Bloom, Jacqueline Hey, Patricia McKenzie, Diane Smith-Gander, and John Stanhope (AGL, 2021a). The Board is responsible for approving and monitoring the implementation of risk management policies. Another important role conducted by the Board is monitoring the company’s compliance with the obligations AGL has (AGL, 2021d). The Board established the Audit and Risk Management Committee (ARMC) that concentrates on risk management activities. The Committee reviews and provides recommendations regarding the risk management policy and activities. The ARMC also reviews the effectiveness of risk management policy and provides recommendations aimed at improving the existing operations and procedures.
The Board identified a number of key risks that can undermine the strategic development of the company. These major risks are defined as Tier 1 Strategic Risks and are associated with electricity pricing, government policy, and climate change response, as well as COVID-related issues (AGL, 2021a). The Board identified the following Tier 1 risks: wholesale market pricing, government interventions, climate change response, critical infrastructure resilience, organizational culture, stakeholder trust, gas access, market disruption, cybersecurity resilience, investment planning, and compliance. As defined by the Board, the following risks have seen a significant increase in risk level: climate change response, government intervention, and organizational capability and culture.
One of the climate-related risks is the availability of water for the thermal coal fleet and hydro assets, as extreme heat and fire events can substantially reduce the facilities’ access to water. Extreme rainfall and flooding are additional climate-related risks identified by the Board as substantial during the current year and the near future (AGL, 2021a). These events can have a significant negative impact on the company’s assets. The Board also reported some of the primary steps to be undertaken to mitigate the risks. These measures include proper planning, appropriate allocation of funds and investment, as well as the use of diverse types of hedge contracts.
The existing risk framework seems adequate and can be instrumental in mitigating the current and potential risks. The company under consideration has an effective structure with the corresponding bodies responsible for risk management. Transparency is one of the key features of the current risk management policy that has a positive influence on the implementation of policies. AGL’s Board and the ARMC detected the key risks the company as to face in the current year, as well as near future. A deeper analysis of the risks can shed more light on the effectiveness of the risk management policy.
8 Key Risks Identified
The Board has identified the key risks effectively, and they are related to the following areas. The most likely challenges are critical infrastructure resilience, climate change response, government interventions (see Table 1). The least likely issues can be linked to organizational culture, wholesale market prices fall, access to resources, cybersecurity resilience, and market disruption. Due to the apparent climatic changes, Australia is becoming increasingly vulnerable to considerable adverse effects related to such events as fires, floods, storms (AGL, 2021b). These natural disasters have caused substantial damage to infrastructure, and more alarming events are expected in the future. Such major natural disasters of the past decades as the 2011 Tohoku earthquake show infrastructural vulnerabilities that need to be considered by power production companies.
The COVID pandemic also revealed energy markets’ dependence on the fluctuations of the global market as people’s reduced consumption and limited mobility led to the dramatic fall of oil prices. Recent events also show that cybersecurity should become the highest priority as the events related to the US infrastructural facilities have unveiled the vulnerability of such systems. AGL facilities should be properly protected so that no disruptions could take place and affect the company’s customers.
Risk Mitigation Policies
In order to address the identified risks, it is necessary to utilize such basic measures as avoidance, mitigation, and retention (see Table 2). The strategy to be employed depends on the nature of the risk, its likelihood, and potential impact (Tricker, 2019). The company’s capacity and availability of resources are also important factors to be analyzed. For instance, mitigation can be the most appropriate response for such risks as critical infrastructure resilience, government interventions, wholesale market price fall, and market disruption.
Table 1. Risk Matrix Map
|4||Critical infrastructure resilience|| |
|2||Organizational culture|| ||Cybersecurity resilience|
The most appropriate mitigation policies addressing market disruption and the fall of wholesale market prices can be hedging. This step would involve collaboration with the Australian government that would secure customers’ payments. In case of major fluctuations, the government should become the source of financial support for the company whose operations are critical for the entire country. Insurance can be another strategy that can be instrumental in addressing market-related challenges (Tricker, 2019). The company should secure a specific level of gains to ensure that its operations will be maintained even during times of extremely low prices. The major recommendations associated with the risks mentioned above and related mitigation policies include the assignment of the group of people (ARMC members) responsible for the contacts with authorities. The ARMC can create a small committee responsible for the collaboration with different Australian governmental bodies linked to financial aid.
Table 2. Risk Mapping
|Wholesale market prices fall||2||4||Mitigate|
|Climate change response||4||4||Transfer|
|Critical infrastructure resilience||4||3||Mitigate|
|Access to resources||2||4||Avoid|
As far as critical infrastructure resilience, it is necessary to mitigate potential outcomes of natural or manmade disasters by equipping facilities with the corresponding technologies. The related mitigation policies would involve the allocation of funds to invest in the development of systems that could be used when responding to different types of emergencies (Tricker, 2019). It is important to ensure the availability of these innovations, so these facilities should be available at the points where the likelihood of emergencies is highest. Continuous investment into the creation of resilient infrastructure is another mitigation policy. As mentioned above, climate change is likely to bring serious challenges to Australia, so AGL should be prepared. Collaboration with leading companies in the region, as well as multinational organizations, can be an appropriate strategy. Thus, the recommendations regarding this mitigation policy implementation include the establishment of effective communication channels with governmental bodies and other key players in the energy market. AGL can initiate the creation of a platform for the environmental project aimed at improving infrastructure resilience in Australia and worldwide.
Finally, in order to address the risks linked to government interventions, it is important to implement a multilevel strategy. On the one hand, the company should make sure that compliance with all current standards and regulations is high. The ARMC can be the body responsible for this area. Being in close contact with authorities can be a winning strategy as the company can be prepared for new requirements in a timely manner. AGL should also try to maintain high standards and develop internal requirements that are consistent with the world trends related to safety and environmental sustainability. Innovation should be a part of this strategy as the company will be able to address the changes related to requirements effectively (Contini et al., 2020). The company’s commitment to its CSR goals is critical for achieving competitive advantage and retaining its leading role in the Australian energy market.
In conclusion, AGL is a leading Australian organization operating in the market associated with numerous risks. One of the strategic priorities of the organization should be the establishment of high CSR standards and strict compliance with them. AGL should invest considerable funds to innovate and come up with novel methods to mitigate potential risks. In addition to continuous development and technological advancement, the organization has to collaborate with the government on different levels. Financial security can be enhanced with the help of this collaboration. The company will also remain compliant with the existing and new standards that will be introduced to reduce people’s environmental footprint.
Effective CSR policies are instrumental in achieving the corresponding goals. The company aims at reaching certain levels of environmental sustainability. CSR strategies will also help AGL create a sustainable environment with a limited number of risks that can potentially cause substantial harm. Proper management of risks is another approach to achieving the set objectives. The company should focus on financial security and the physical security of its facilities. Climate change is likely to bring new natural disasters and associated outcomes. AGL has to be well-prepared to avoid disruptions and mitigate adverse effects of the risks that cannot be avoided.
AGL. (2021a) Annual report 2021.
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AGL. (2021b) Our approach to the environment and climate change.
AGL. (2021c) Our commitments.
AGL. (2021d) Risk management policy.
Contini, M., Annunziata, E., Rizzi, F. and Frey, M. (2020) ‘Exploring the influence of Corporate Social Responsibility (CSR) domains on consumers’ loyalty: an experiment in BRICS countries’, Journal of Cleaner Production, 247, pp. 1-26.
Lu, J., Ren, L., Yao, S., Qiao, J., Strielkowski, W. and Streimikis, J. (2019) ‘Comparative review of Corporate Social Responsibility of energy utilities and sustainable energy development trends in the Baltic states’, Energies, 12(18), pp. 1-21.
Renouard, C. and Ezvan, C. (2018) ‘Corporate social responsibility towards human development: a capabilities framework’, Business Ethics: A European Review, 27(2), pp. 144-155.
Tricker, B. (2019) Corporate governance: principles, policies, and practices. 4th edn. New York, NY: Oxford University Press.
Yusliza, M., Norazmi, N., Jabbour, C., Fernando, Y., Fawehinmi, O. and Seles, B. (2019) ‘Top management commitment, corporate social responsibility and green human resource management’, Benchmarking: An International Journal, 26(6), pp. 2051-2078.