CSR for ALL NATIONAL REVIEW STUDY

- Montenegro -

SUMMARY -Research was conducted in July-August 2013 and included 121 companies -It showed continual awareness raising on concept and its importance, but its implementation is still not at the satisfacory level -Most important reasons: structure of Montenegrin economy and lack of institutional and legislative support -Companies mostly express their interest for supporting CSR initiatives, BUT there is a little evidence on implementation -In most cases, companies do not or rarely use CSR tools nor they participate in UN Global Compact initiative -BUT respondents expressed their interest in participating in the trainings later during the project -Main external organization that companies turn to for help and assistance is EMPLOYERS ORGANIZATION

I. INTRODUCTION National Review Study conducted by DeFacto consultancy agency

Consists of two parts: 1) Desk review methodology by IOE; general information on national social structure, political and economic situation, general classification of enterprises, national framework and current state of CSR, legislation and its compliance 2) Survey aiming to assess the inclusiveness and accountability of the private sector participation in CSR, covering 10 different topics

Survey covered 113 (94,4%) SMEs and 8 (6,6%) large companies The most represented sectors of activity are: wholesale and retail trade (28,1%), construction (19%) and other service activities (15,7%) More than half of companies (55%) operate only at the Montenegrin market, 10% have operations in two countries, 13% of all interviewed companies have economic activities in three countries, and after percentage decreases significantly

II. COUNTRY PROFILE POPULATION Montenegro regained its independence in May 2006 and became 192nd member of UN, with its current Constitution passed in October 2007 Civic, democratic, ecological and social justice state (Constitution of Montenegro) Montenegro is a parliamentary republic with independently elected President According to the latest census (2011), Montenegro has 620,029 inhabitants, of which adult population represents 76,5% of all; 49,4% men and 50,6% women Most people live in urban areas (63,2%) National absolute poverty line is 175,25 EUR and 9,5% of population live below poverty line

II. COUNTRY PROFILE ECONOMY Macroeconomic environment in 2012: reduction of economic activities, negative trends in industry, construction and forestry; motor of growth is still tourism Inflation rate in 2012 5,1% (in comparison with 2,8% in 2011) Financial sector maintained stability, although there is a growth in late credit payments and number and amount of non-performing loans Deficit of state budget in 2012 was 4,9% of GDP; public debt was 51,1% of GDP Net inflow of foreign direct investment growth of 18,6% (mostly investment in companies and banks, real-estate and inter-company debt) Relatively high rank in WB Doing Business 2013 report at 51st place among 185 countries, but some aspects still poorly regulated (issuing business permits, contract enforcement, property registration)

II. COUNTRY PROFILE ECONOMY (cont.) Global Competitiveness Index (2012-2013) 72nd among 144 countries GDP per capita 5.356 EUR; based on purchasing power parity, ranked 68th among 180 countries (World Bank)

II. COUNTRY PROFILE LABOUR MARKET Unemployment rate 21,5% Employment to population ratio (percentage of working-age population employed) 45,9% in Q1 2013, very low in comparison to other European countries (average of 65,3% in OECD countries) High youth unemployment rate 45,3% Employment by sector: 17,4% in central/local government, NGOs and humanitarian organizations; 28,3% in government/municipality owned companies; 51,3% in privately owned companies Estimated informal sector 20% of GDP

III. NATIONAL CSR CONTEXT MOST IMPORTANT ACTIVITIES 2005 MEF Ethical Code of employers in line with UN Global Compact and UN MDG 2006 Center for development of NGOs Survey on CSR among 57 companies (2006) 2007 Center for development of NGOs and OSCE Round table Development of CSR in MNE Ministry of finance, Association of municipalities, MEF, Center for development of NGOs Analysis of legislation for CSR development (intersector working group) Association for democratic prosperity ADP ZID Yearly reward for volunteerism (ongoing)

III. NATIONAL CSR CONTEXT 2008 Center for development of NGOs, MEF, Telecom, Telenor Training of trainers and consultants of CSR Center for development of NGOs, MEF, Telecom, Telenor Trainings on CSR and inter-sector cooperation (2008-2012) Chamber of Commerce of MNE Seminars on CSR (ongoing) UNDP, CEED Baseline study on CSR in MNE Chamber of Commerce of MNE CSR Reward (ongoing)

III. NATIONAL CSR CONTEXT 2009 Center for development of NGOs First Regional Conference on CSR Development of CSR in MNE and in the region: examples from practice Fund for active citizenship (FAKT) Reward for Philanthropy (ongoing) Center for development of NGOs Regional Network of NGOs active in CSR 2010 Center for development of NGOs CSR Newsletter Center for development of NGOs, MEF, National Agency for SMEs, UNDP CSR Forum Center for development of NGOs, MEF, National Agency for SMEs, UNDP Conference Launching UN Global Compact in MNE; establishment of UN Global Compact Network FAKT Corporative Philanthropy as an Investment publication; Regional Conference Role of the Media in development of Philanthropy FAKT, Open Society Institute Corporate Philanthropy in Montenegro publication

III. NATIONAL CSR CONTEXT 2011 Center for development of NGOs Training on reporting on CSR in line with GRI and UN Global Compact Center for development of NGOs Lectures on CSR in academic community UNDP, MEF, National Agency for SMEs, Center for development of NGOs and DeFacto consultancy agency CSR Survey MEF Business guidelines on Principles of Labour Rights of UN Global Compact Department for support to the National Council for Sustainable Development Membership in regional network for SMEs CSR Department for support to the National Council for Sustainable Development, Government of Netherlands Encouraging Dialogue and partnership for sustainable development between Government and business sector in MNE (conference)

III. NATIONAL CSR CONTEXT 2012 FAKT, NGO Need Round table Social Responsibility MEF Women in business potential of Montenegrin economy survey and round table PUBLIC POLICIES Encouraging culture of giving and CSR within Strategy of Cooperation between the Govt and NGOs (2007-2011) Estimation of level of CSR awareness within Strategy of development of SMEs 2011-2015 Defining strategic framework for sustainable expenditure, production and promoting of CSR within National sustainable development Strategy (20112012)

IV. COMPANY SURVEY RESULTS Information on the survey sample: Regional distribution central 58,6%, south 31,4%, north 9,9% Distribution according to the main industry wholesale and retail trade 28,1%, construction 19%, other service activities 15,7%, financial and insurance 10,7%, accommodation and food services 9,9% Type of ownership structure 73,3% limited liability company, listed company 16,6%, cooperative 6,6% Origin of the capital 85% mainly domestic, 15% mainly foreign capital Number of employees: micro and small enterprises - 70,2%, medium 23,1%, large 6,6% Origin of companies operations 55% no foreign operations, 10% operate in 2 countries, 13,7% in 3 countries, 3,7% in 4 and 8,7% in 5 Regional presence of business partners: 90,9% domestic, 55,4% EU, 46,3% Western Balkans, 9,1% Asia

IV. COMPANY SURVEY RESULTS Information on the survey sample: Regional presence of direct suppliers: 81,8% domestic; 55,4% EU; 46,3% Western Balkans; 8,3% Asia Regional presence of costumers: 97,5% domestic; 40,5% EU; 39,7% WB; 8% Asia

IV. COMPANY SURVEY RESULTS Information on the survey sample:

29.8% export oriented domestic market oriented 70.2%

IV. COMPANY SURVEY RESULTS General awareness of CSR

No, 30.00% Yes, 70.00%

General awareness of CSR The most aware are respondents from financial and insurance companies (92%), while the least aware are those working in other services (47.4%) More companies that have foreign capital are aware of the term then those with the domestic which could be explained by the fact that in these cases from abroad with the capital comes also a more developed business culture all representatives of the large companies within our sample are aware of the CSR
Less then 1 year 1-3 4-6 7-9 10+ Missing

19.0% 36.9% 16.6% 5.9% 19.0% 2.3%

CSR Governance in Your company Does a company have a specific department responsible for CSR?

Yes, 28.50%

No, 71.40%

CSR Governance in companies As the company is larger, its capacities are higher 70% of large companies and only 26% of SMEs have a special CSR unit By sector, 53,8% of financial and insurance businesses and 45,5% of companies providing accommodation and food services have special CSR units 36% of companies with foreign capital and only 26% of those with domestic capital have CSR units CSR unit is a part of which department?
Department for corporative activities Department for human resources

25.0% 14.2% 3.5% 53.5% 3.5%

Department for environment

CEO office Fondations and associations

CSR Priorities Highest responsibility - towards employees (53.3%), fair business behavior (38.3%) and respecting human rights (31.6%) Lowest responsibility anticorruption behavior (43.8%), toward environment (40%) and engaging in supply chain (34.8%) Indifferent towards philanthropy (76.9%), securing jobs (60%) and anticorruptive behavior (50%)

CSR Activities 1) Commitment towards employees - My company promotes healthy and safe work environments 95,9% (strongly) agree - My company has in place policies to ensure non-discriminatory behavior with regard to gender, age, ethnic background, religion, sexual orientation 95,9% agree BUT - My company undertakes measures to the recruitment and employment of disabled people 27,7% disagree/strongly disagree

CSR Activities 2) Respecting human rights - Percentage of companies agreeing with the general statements is higher than those agreeing with specific ones: Respecting human rights is a priority of my company (95% agree) vs. My company has started to implement the UN Guiding principles for Business and Human Rights (only 35,9% agree) 3) Community engagement - Highest support to social initiatives (69.5%) and cultural projects (68.6%), smallest interest in small infrastructure initiatives (51.3%) 4) Environmental activities - Most companies try to reduce energy consumption (87.4%) and pollution emissions (78.3%) - Interesting: 51.7% stated that they are unsure if they have environmental management system or standard in place

CSR Activities 5) Engaging with the supply chain - Most companies integrate ethical, social and environmental criteria in its purchasing, distribution and contracting policies 69.5% - Only 31.4% audits the social and ecological performance of suppliers, 18.8% provides training on different topics to suppliers and only 11.2% participate in supply chain initiatives like BSCI. For these 3 statements, over 50% respondents were not sure 6) Fair business behavior - 93.4% identify risks of corruption and implement policies and practices against it and 82.4% have clear rules on responsible political involvement and conflict of interest

CSR Activities 7) Providing remedy - Majority of companies provide for remediation in cases when they cause or contribute to a human rights abuse (77.6%) and have stakeholder engagement processes in place for employees of business partners to raise concerns (68.6%)

Reasons for engaging in CSR Main reasons: culture of the company (43.7%), attracting and motivating employees (22.7%) and attracting clients (20.2%) Least important reasons: NGOs campaigns (2.5%), interest from government (3.4%) and reputational risk concerns (5%) Interesting 18.5% dont have any particular reason!

Use of CSR instruments, tools and initiatives 40% of companies are aware of UN Guiding principles for Business and Human Rights, 24.8% with ISO 26000 and least aware of GRI (5.7%) BUT, usage of these instruments and tools is low 83% dont use them, and those who stated that are using couldnt provide specific answer on what particular instruments and tools are they using

Participation in voluntary initiatives like UN Global Compact very low!

Yes, 4.30%

No, 95.70%

Use of CSR instruments, tools and initiatives

50.9% of interviewed companies said they had a public commitment to CSR, but only 6 of them could provide an internet link where this commitment could be accessed By sector, public commitment is highest in financial and insurance activities (83.3%) and lowest in trade (33.3%) 69.6% of foreign ownership companies, 51.5% of export oriented and 75% of large companies have stated commitment to CSR Majority of companies have code of conduct (74.2%), but in 47% of cases it hasnt made known to suppliers; in 66.6% of cases, companies follow code of conduct of another company In 76.7% cases, companies do not publicly report on CSR activities, but when they do, its usually done through meetings with stakeholders (54.2%) and information on the Internet (41.7%) Majority of companies (60%) dont consult external stakeholders to understand their responsibilities, but of those who do in most cases they consult employers association (47.6%), media (21%) and NGOs (19%)

Challenges implementing CSR Most important challenges: general economic, social and environmental situation (29.2%), lack of time and resources (26.5%), difficulties implementing self-commitments (25.7%) and lack of leverage over business partners (25.7%) Problems with smallest level of influence: availability of CSR tools in mother tongue (7.1%), lack of senior management support (8%) and difficulty to translate policies into specific measures (8%)

Assessing governmental policies towards CSR Most respondents havent heard of any governmental policies toward CSR 82.9%, but majority of those who have heard find them useful (78.1%) Overwhelming majority of 98.2% believes that the state should support CSR through measures such as information, awareness raising, awards or tax benefits Recommendations by respondents: Disseminate more info through media Awarding prizes and recognitions Tax and other benefits Education Investment or co-investment into CSR projects Public recognition of CSR companies

Future development of CSR 83.9% of respondents believe that significance of CSR in Montenegro will grow, while none of them said it will decrease The most important fields of CSR growth are: responsibility towards employees (41.7%), towards environment (37.4%) and securing jobs (33%). Smallest growth is expected in engaging with the supply chain (13.9%)

Need of training Almost half of respondents (45.3%) expressed their interest in participating in the trainings later on in the project Most interested are those in accommodation and food service companies (72.7%) and those employed in financial and insurance business (53.8%) More interested are those with foreign ownership (57.7%) and domestic market oriented (46.9%). Large companies are more interested than SMEs (62.5% vs. 44%) Recommendations for the focus of the trainings: Security of jobs Human rights Responsibility towards employees Support to culture Environmental protection Fair business Media and CSR

Some excerpts: It would be good if the state could provide specific stimuli for companies that enforce CSR (such as tax benefits) We have many more important things than CSR. CSR comes at the very end Culture of doing business will take decades to improve until we reach EU level. We lag even behind Slovenia, Croatia

V. CONCLUSIONS Number of companies aware of CSR importance increases in time, but most companies dont have a specific organizational unit responsible for CSR, which indicates that its not planned and strategically positioned, but in most cases an ad hoc activity Large and organizationally strong companies are more dedicated to CSR, which means that SME oriented Montenegrin economy can be institutional challenge to the CSR Highest priority within CSR has been given to employees, fair business behavior and respect of human rights; lowest priority shown to anticorruption behavior, environment and engagement in supply chains Main reasons of being socially responsible companys culture, attraction of clients and motivation of employees Prevailing number of companies dont participate in UN Global Compact

V. CONCLUSIONS (cont.) Public expression of commitment to CSR usually doesnt have evidence in official public reporting Clarifications on CSR are mostly asked for from employers organization Typically, companies are not informed about governmental policies toward CSR, but would consider them useful Suggested measures for government by companies information and education, awarding prizes, tax benefits, investment into CSR projects, better legislation in this field Almost half of respondents are interested in participating in training during the project!

RECOMMENDATIONS Shift focus to providing trainings and practical examples of CSR to introduce it in the management routine Make CSR tools and instruments more familiar to the companies with an emphasis on their use and utility Make governments activities more public and able to reach wide range of potential stakeholders Clear need of governments incentives for CSR, such as tax benefits, recognition etc. Intensify role of EO in mediation and information process Further promotion of initiatives such as UN GC Continuation of efforts in transforming legal framework to include CSR principles Stronger cooperation between government, NGOs and EO should be promoted and established