Masdar Capital: Business Ethics and Sustainability

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Introduction

Masdar Capital was established in 2006 in the United Arab Emirates (UAE). The firm is a subsidiary of the Mubadala Development Company, which is owned by the Abu Dhabi government. The company has established its operations in three main industries, which include real estate, renewable energy, and clean energy. Masdar Capital specializes in the commercialization of clean technology. Masdar Capital operations are facilitated through a US$ 540 million fund, which includes the DB Masdar Clean Tech Fund (DBMCTF) and the Masdar Clean Technology Fund (MCTF). MCTF fund is estimated to be worth $ 250 million, while DBMCTF is worth $ 290 million. Masdar Capital is focused on maximizing its returns. The two funds are managed in partnership with the Deutsche Bank and Credit Suisse.

Mubadala Development Company (2014) asserts that Masdar Capital “seeks to build a portfolio of the world’s most promising renewable energy and clean technology companies” (par. 1). The two funds are managed through an active management investment strategy. Additionally, Masdar Capital intends to maximize its profitability through strong risk-adjusted returns. The firm conducts a comprehensive analysis of a business idea before investing its funds.

The analysis is aimed at ensuring that the firm only selects investments that have the greatest potential for success. Masdar Capital operations also entail the provision of expert advice management and capital management companies. Since its inception, Masdar Capital is focused on promoting renewable technologies across the UAE. In a bid to achieve an optimal market position, it is imperative for Masdar Capital to address the concepts of business ethics with specific reference to corporate social responsibility and sustainability.

Major Corporate Social Responsibility issues

The contemporary business environment is experiencing remarkable changes, which are affecting firms’ operations. The changes emanate from both external and internal business environments. The survival of organizations in such an environment is dependent on their ability to adjust to the prevailing business dynamics, which is a fundamental element in achieving competitive advantage. Joyner, Payne, and Raiborn (2002) emphasize that business operations are affected by changes in society. It is essential for organizational managers to ensure that their operations take into account the prevalent diverse societal interests. Joyner, Payne, and Raiborn (2002) add that organizations’ contribution to society influences their level of profitability.

The significance of society in an organization’s competitiveness has led to an increased appreciation of the significance of the concepts of CSR. In a bid to survive in such an industry, Masdar Capital should focus on a number of CSR aspects, which include developing a high level of integrity, ethics, business values, and operating responsibility (Joyner, Payne & Raiborn, 2002). Ethics refers to what is perceived as good or bad behavior.

The issue of ethics is mainly concerned with assisting businesses to deal with ethical dilemmas arising from their operations. Some of the corporate social responsibility issues that the firm should take into account entail operating in an environmentally conscious manner, ensuring optimal employees’ safety and public health, amongst other variables. The increased appreciation of business ethics and corporate social responsibility has arisen from the increased knowledge on the view that some companies operate irresponsibly. Porter and Kramer (2013) argue that the “heightened corporate attention to corporate social responsibility has not been entirely voluntary” (p. 2).

The attention on corporate social responsibility arose from the increased public concern on irresponsible business operations. Subsequently, the incorporation of CSR will play a remarkable role in improving Masdar Capital’s survival, hence its long-term competitiveness. Joyner, Payne, and Raiborn (2002) assert, “Values, ethics, and corporate social responsibility are not mutually exclusive; on the contrary, they are interrelated and somewhat interdependent” (p.115).

Review of Masdar Capital commitment to CSR and sustainability

Since its inception, Masdar Capital has been committed to achieving a high competitive advantage through its commitment to CSR and sustainability. Porter and Kramer (2013) are of the opinion that the concepts of CSR and sustainability can be explained through four main arguments, which include a moral obligation, corporate reputation, license to operate, and sustainability. The firm’s commitment to achieving competitiveness is evidenced by its effective implementation of strategic management practices. For example, Masdar Capital has incorporated a comprehensive code of ethics, which outlines the rules and regulations, procedures, policies, and standards that employees are required to follow in the course of implementing their duties. Masdar Capital has successfully addressed a number of CSR issues, as illustrated below.

The employees’ rights

Masdar Capital ensures that its employees understand the importance of observing the values stipulated in the ethical code of conduct. Moreover, the firm’s adherence to the code of ethics is evidenced by its commitment to observe human rights. This aspect has played a remarkable role in improving the relationship between the firm and its internal and external stakeholders such as suppliers, credit financiers, and government agencies. Masdar Capital ensures that its employees’ rights are not violated. One of the ways through which this goal is achieved is by eliminating any form of discrimination based on age, race, gender, sexual orientation, or opinion. For example, over 30% of the company’s workforce is comprised of women. Masdar Capital is committed to improving the employees’ working environment. The firm’s management team ensures that employees work in a secure and safe environment.

Community involvement

Porter and Kramer (2013) assert that organizations must understand that their success is dependent on the effectiveness with which they interact with society. First, organizations derive their profits from the society in which they operate. On the other hand, society benefits through the products and services offered by the firm. Consequently, the importance of anchoring society in an organization’s strategic management practices cannot be underestimated.

Porter and Kramer (2013) further emphasize that organizations need societies in order to succeed. Masdar Capital has integrated community involvement as one of its strategic management elements. Its community involvement practices go beyond its relationship with suppliers and customers, and it incorporates the general society. Its focus at community involvement emanates from the commitment to position itself as a global market leader.

In its pursuit of global leadership, Masdar Capital is committed to fostering a meaningful relationship with different external stakeholders such as learning institutions, the government, global and local communities, and civil society organizations. The company has attained a high level of community involvement through two main avenues, which include corporate philanthropy and policy contributions.

With regard to policy contribution, Masdar Capital engages various stakeholders such as the government in the public policy formulation process. On the other hand, corporate philanthropy is achieved through corporate alliances and sponsorships. For example, the firm participates in the Young Future Energy Leaders [YFEL], which was developed by the Masdar Institute. The program is aimed at nurturing youths to be future advocates of sustainable development. The firm also visits schools in an effort to sponsor students who are interested in research and development of renewable energy (Masdar, 2012). Its participation in philanthropic activities has played a remarkable role in improving the firm’s corporate image.

Climate-smart

The high rate of climate change being experienced contemporarily is a threat to organizations’ long-term survival. Environmental pollution leads to global warming, which in return threatens the existence of human beings on earth. This threat to human survival endangers the survival of companies as they depend on human beings for continuity. One of the reasons that explain climate change is the high rate of environmental pollution. A significant proportion of greenhouse gas emissions emanates from organizations’ operations. Thus, it is imperative for organizations to take responsibility and minimize their greenhouse gas emissions.

In its pursuit of CSR, Masdar Capital is committed to achieving sustainable development. Sustainability is concerned with community and environmental stewardship. Alternatively, Porter and Kramer (2013) define sustainability as the process of “meeting the needs of the present without compromising the ability of the future generations to meet their own needs” (p. 4). Organizations can achieve sustainable development through three main dimensions. These dimensions include economic, social, and environmental sustainability.

The environmental sustainability dimension is concerned with ensuring that the environment is protected adequately by desisting from practices that can contribute to pollution, which is one of the antisocial behaviors. In an effort to achieve environmental sustainability, Masdar Capital has taken into account four main elements, which include

Clean energy
Energy and material efficiency
Environmental services
Environmental resources

Masdar Capital appreciates the view that the utilization of hydrocarbon-based sources of energy is one of the major sources of greenhouse gases, which increase the rate of global warming, and hence climate change. In an effort to achieve sustainable operations, Masdar Capital has incorporated the concept of clean energy. For example, the firm has implemented the concept of renewable energy by generating energy from naturally renewable sources such as wind and solar. Its ability to utilize renewable sources of energy effectively has arisen from the implementation of effective technologies that improve its ability to generate and store energy.

In its effort to utilize clean energy, Masdar Capital has invested a substantial amount of its resources in research and development on renewable energy. Consequently, the firm has been in a position to develop sustainable biofuels. Its commitment to the utilization of renewable sources of energy has greatly increased the effectiveness with which it minimizes its contribution to environmental pollution. Subsequently, the firm’s operations can be described as being eco-friendly.

In line with its commitment towards sustainability, Masdar Capital intends to assist the Abu Dhabi’s leadership in protecting the environment by positioning itself as a change agent. Masdar Capital has been involved in the environmental policy formulation processes. Its involvement in policy formulation arises from the need to assist other businesses in the UAE to incorporate sustainable development projects and renewable sources of energy. For example, in 2012, Masdar Capital participated in the United Nations Conference for Sustainable Development, which is commonly referred to as the RIO+20 Summit (Masdar, 2012).

With regard to environmental services, Masdar Capital invests in two main services, which include business services and environmental protection. The investments are undertaken through two established funds, namely the DBMCTF and the MCTF. In 2009, the firm invested $45 million in three main clean technology funds. The investments are aimed at promoting the incorporation of renewable technologies in the organization’s operations.

Masdar Capital’s commitment to achieving environmental sustainability and ethical business operations is also illustrated by its investment in protecting environmental resources. This goal has been achieved through the adoption of the re-use, re-cycle, and reduce [the 3R strategy]. This strategy has enabled the firm to be effective in managing its waste. One of the components that the firm is concerned within its effort to manage waste relates to water. The firm urges its employees and customers to ensure that water is used efficiently. In a bid to minimize the costs involved in recycling water, Masdar Capital ensures that the water used is not contaminated with chemicals.

Every year, Masdar Capital identifies an organization to collaborate within its efforts to promote the concept of recycling. For example, in 2011, the firm collaborated with industry and Operations Smile UAE [OS UAE] in a project dubbed ‘Recycle to Smile.’ The campaign was designed with the objective of assisting Masdar Capital to raise funds through the recycling of different types of electronic wastes such as mobile phones and computers. The funds generated through the campaign were donated to the OS UAE in order to enhance its ability to offer free surgery to kids with different forms of facial deformities. The firm’s employees were amongst the individuals who offered their unwanted electronic goods. By adopting this strategy, Masdar Capital has positioned itself successfully as an environmental steward.

The firm’s operations are also committed to ensuring efficient energy utilization. One of the ways through which the firm has been in a position to achieve this goal is by ensuring that all its buildings are fitted with eco-friendly lighting systems. Subsequently, the firm has managed to reduce its energy consumption significantly in addition to eliminating carbon dioxide emissions in its operations.

Strategic Corporate Social responsibility

Developing competitive advantage is a critical element in organizations’ efforts to survive in an environment that is increasingly becoming dynamic. However, competitive advantage can be attained through the integration of effective strategic management practices. One of the aspects that firms should consider in their strategic management relates to corporate social responsibility (CSR). Porter and Kramer (2013) are of the opinion that achieving a competitive advantage entails ensuring that an organization positions itself uniquely in the market. Thus, a firm’s operational strategies must be unique from those of its competitors.

One can argue that Masdar Capital operations have adhered to strategic corporate social responsibility as described by Porter and Kramer (2013). The firm has recognized the society as a critical component in its quest for competitive advantage. Subsequently, the firm has identified the various intersection points between the firm and society. In an effort to develop an environment conducive for working, Masdar Capital has ensured strict observance of its employee’s rights. This goal has been achieved by providing employees with an enabling working environment.

The firm has also focused on the external dimension by assessing the prevailing social issues in the UAE that can be resolved. Over the years, the firm has ensured that its operations do not contribute to environmental pollution. The firm has continuously ensured that its operations are environmental friendly by incorporating the utilization of clean sources of energy such as electricity, wind, and water. Masdar Capital intends to increase consumption of clean energy in Abu Dhabi by 7% by 2020 (Masdar, 2014). Its commitment to protecting the environment has played a remarkable role in enhancing the firm’s competitiveness (Porter & Kramer, 2013).

In addition to the above initiatives, Masdar Capital has also contributed to the society’s welfare courtesy of its donation towards the Operation Smile UAE. This move has provided children in the UAE with diverse facial deformities an opportunity to smile again and renewed hope for the future. On the other hand, the initiatives have contributed to significant improvement in the firm’s public image. Subsequently, Masdar Capital operations can be described as having achieved strategic CSR.

Ethical conflicts

In line with its commitment to using clean energy, Masdar Capital has incorporated solar energy as one its sources of energy. In 2013, the firm announced its plan to develop a large-scale solar plant in a region west of Abu Dhabi. The plant intends to generate over 100MW. The firm intends the plant to be the largest concentrated solar power plant in the world. The major stakeholders include the company, the government, and society. However, the plan was opposed by human right groups in the UAE citing the risks involved in disposing photovoltaic solar panels. The activist groups highlighted potential hazards involved in the disposal of the solar panels. In their opinion, the solar panels are powered by a solar cell, which is manufactured using hazardous chemicals such as crystalline silica. Thus, ineffective disposal of such huge solar panels at the end of their lifecycle would pose a health and environmental risk to the society.

In its response, Masdar Capital argued that it would adopt effective disposal mechanisms. The company cited that it would ensure that the chemicals used in manufacturing the photovoltaic solar panels would be neutralized before they are disposed. Additionally, the firm argued that the firm would recycle some of the components of the solar panel in order to minimize environmental pollution.

In its response to the ethical conflict faced, Masdar Capital cited the utilitarianism theory, which emphasizes the importance of maximizing the welfare of all individuals in society. Additionally, the theory asserts that it is important for a particular party to assess the consequences of a particular action. Subsequently, it underscores the importance of morals in society. With regard to sustainability, the theory argues that it is imperative for organizations to take into account the impact of their actions on the future generations (Eid, 2009).

Creation of shared value

By focusing on strategic CSR, Masdar Capital has been successful in creating shared value. For example, its investment and promotion of clean energy has played a role towards the concerted effort to reduce the rate of global warming, which is one of the major threats to the existence of the modern society. Subsequently, the firm has successfully positioned itself as a leader with regard to environmental protection, which is increasingly becoming a core aspect amongst different non-governmental organizations [NGO’s] and human rights groups. Thus, the firm has greatly benefited through improvement in its public image. Moreover, its commitment to strategic CSR has minimized interference on the firm’s operation due to non-compliance to CSR. Therefore, the firm has been in a position to eliminate negative legal consequences such as penalties and fines. This move has led to the establishment of a symbiotic relationship between the firm and society.

Conclusion

From the analysis conducted above, it is evident that Masdar Capital has implemented the concepts of corporate social responsibility and sustainability in its operations. Subsequently, one can argue that the firm has succeeded in implementing strategic CSR in its operation. Its ability to integrate business ethics has arisen from the recognition of the view that its future success will not only depend on its internal stakeholders, but also on the external stakeholders.

References

Eid, M. (2009). The ethical reasoning behind sustainable develop; a paradoxical opportunity for the reform of developing. International Journal of Urban Sustainable Development, 4(2), 236-245. Web.

Joyner, B., Payne, D., & Rainborn, C. (2002). Building values, business ethics and corporate social responsibility into the developing organization. Journal of Developmental Entrepreneurship, 7(1), 113-132. Web.

Masdar: Delivering sustainability; sustainability report. (2012). Web.

Mubadala Development Company: Masdar. (2014). Web.

Porter, M., & Kramer, M. (2013). Strategy and society; the link between competitive advantage and corporate social responsibility. Harvard Business Review, 3(2), 1-17. Web.

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