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An Overview of Corporate Social Responsibility

Rajkumar Adukia , Last updated: 12 March 2014  

Origination of Corporate Social Responsibility

Corporate Social Responsibility (CSR) is associated with the conduct of corporations and in particular whether corporations owe a duty to stakeholders other than shareholders. While the phrase ‘Corporate Social Responsibility’ may be gaining momentum, the concept itself is not new. The question as to whether corporations owe duties to broader stakeholders has been debated at various times throughout the twentieth century.

Corporate history provides many examples of company’s pursing profit without regard to relevant CSR matters, including:

• Nike factories in Asia were criticised for extremely poor working conditions and for employing young children;

• Nestle received criticism in relation to its’ practices including unethical marketing and utilising a supply chain that uses child bonded labour;

• Ford Pinto scandal whereby Ford, although aware of a fatal design flaw, decided it would be cheaper to pay off possible law suits with regard to resulting deaths instead of recalling and fixing the affected cars;

• Shell’s joint venture with the Nigerian government where, in 1995, Ken Saro-Wiwa and eight others were executed largely due to leading a nonviolent campaign against environmental damage associated with the operations of multinational oil companies, including Shell and British Petroleum. Shell was criticised for not using its power to intercede with regard to the executions; and;

• Enron manipulated electricity in order to maximise profits at the expense of Californian citizens.

Historically, a narrow view of corporate responsibility has been enforced whereby a corporation’s responsibility extends only to maximising profits. In today’s global environment, CSR has gained significance largely due to the following:

• Globalisation and the proliferation of cross-border trade by Multinational entities resulting in an increasing awareness of CSR practices relating to areas such as human rights, environmental protection, health and safety and anti-corruption;

• Organisations, such as the United Nations, the Organisation for Economic Co-operation and Development (OECD) and the International Labour Organisation (ILO), have developed compacts, declarations, guidelines, principles and other instruments that outline norms for acceptable corporate conduct;

• Access to information and media enables the public to be more informed and to easily monitor corporate activities;

• Consumers and investors are demonstrating increased interest in supporting responsible business practices and are demanding more information as to how companies address risks and opportunities relating to social and environmental issues;

• Recent high profile corporate collapses have contributed to public mistrust and the demand for improved corporate governance, accountability and transparency;

• Commonality of expectations by citizens of various countries with regard to minimum standards corporations should achieve in relation to social and environmental issues, regardless of the jurisdiction in which the corporation operates; and

• Increasing awareness of the inadequacy of current regulations and legislation with regard to CSR matters and the regulation of Multinational entities.

Meaning of Corporate Social Responsibility (CSR)

Corporate Social Responsibility can be defined as the corporate initiative to assess and take responsibility for the company's effects on the environment and impact on social welfare.

The term generally applies to company efforts that go beyond what may be required by regulators or environmental protection groups.

The three pillars of CSR are:

• Environment,

• Society and

• Commerce

Together, these create long-term sustainable development. A single globally accepted definition of CSR does not exist, as the concept is still evolving. The language used in relation to CSR is often used interchangeably with other related topics, such as corporate sustainability, corporate social investment, triple bottom line, socially responsible investment and corporate governance. However, various individuals and organisations have developed formal definitions of CSR, some of them being:

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.

- World Business Council for Sustainable Development

Corporate Social responsibility is essentially a concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment.

- European Commission; Employment & Social Affairs

Operating a business in a manner that meets or exceeds the ethical, legal, commercial and public expectations that society has of business

- Business for Social Responsibility

A set of management practices that ensure the company minimises the negative impacts of its operations on society while maximising its positive impacts

- Canadian Centre for Philanthropy

The integration of business operations and values whereby the interests of all stakeholders including customers, employees, investors, and the environment are reflected in the company’s policies and actions

- The Corporate Social Responsibility Newswire Service

It is important to differentiate CSR from charitable donations and ‘good works’, i.e. corporate philanthropy. Corporate philanthropy and CSR are two different things.

Business Ethics and Corporate Social Responsibility

Very Simply put, ‘Ethics’ is ‘a set of principles of right conduct’. Business ethics is the application of these principles in a business environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations.

The term 'business ethics' came into common use in the United States in the early 1970s. By the mid-1980s at least 500 courses in business ethics reached 40,000 students, using some twenty textbooks and at least ten casebooks along supported by professional societies, centers and journals of business ethics. The Society for Business Ethics was started in 1980. European business schools adopted business ethics after 1987 commencing with the European Business Ethics Network (EBEN). Firms started highlighting their ethical stature in the late 1980s and early 1990s, possibly trying to distance themselves from the business scandals of the day.

Business ethics reflects the philosophy of business. If a company's purpose is to maximize shareholder returns, then sacrificing profits to other concerns is a violation of its fiduciary responsibility. Corporate entities are legally considered as persons in most nations. The 'corporate’ as ‘legal person' is legally entitled to the rights and liabilities due to citizens as persons. Economist Milton Friedman writes that corporate executives' "responsibility... generally will be to make as much money as possible while conforming to their basic rules of the society, both those embodied in law and those embodied in ethical custom".

Ethical issues include the rights and duties between a company and its employees, suppliers, customers and neighbors, its fiduciary responsibility to its shareholders. It also includes issues concerning relations between different companies and related issues like corporate governance, corporate social responsibility etc.

Corporate social responsibility resting on the foundation of Business Ethics, is a form of corporate self-regulation integrated into a business model. CSR policy functions as a built-in, self-regulating mechanism whereby a business monitors and ensures its active compliance with the spirit of the law, ethical standards, and international norms. The goal of CSR is to embrace responsibility for the company's actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere who may also be considered as stakeholders.

International Initiatives

Most attempts to regulate CSR have resulted from public international bodies and non government organisations (NGOs). Codes of conduct relating to CSR matters such as bribery, environment and human rights are voluntary and not legally binding, however, may represent subtle diplomacy by NGOs towards a consensus amongst governments which in turn may be embodied in national legislation or universally accepted standards. The trend in developed nations is to support the reporting of CSR without introducing legislation to mandate CSR practices, instead, governments appear to be content relying on initiatives introduced and championed by NGOs such as the Organisation for Economic Co-operation and Development (OECD), United Nations (UN) and The Global

Reporting Initiative (GRI).

OECD Guidelines for Multinational Enterprises

The OECD Guidelines for Multinational Enterprises (MNEs), first adopted in 1976, are the longest standing initiative for the promotion of high corporate standards. The Guidelines contain voluntary principles and standards for responsible business conduct in areas such as human rights, supply chain management, disclosure of information, anti-corruption, taxation, labour relations, environment, competition, and consumer welfare. The Guidelines aim to promote the positive contributions of MNEs to economic, environmental and social progress. The Guidelines express the shared values OECD members and some non-member countries as well. While observance of the Guidelines is voluntary for companies, adhering governments make a formal commitment to promote their observance among MNEs.

Global Sullivan Principles

In 1977, the Reverend Leon Sullivan launched the original Sullivan Principles, which were designed to help persuade US companies with investments in South

African to treat their African employees the same as they would their American counterparts. These princples were then relaunched in 1999 as the Global Sullivan Principles for Corporate Social Responsibility.

The Global Sullivan Principles (GSP) released in 1999 consists of eight principles. It is a voluntary code of conduct seeking to enhance human rights, social justice, protection of the environment and economic opportunity for all workers in all nations.

International Labour Organisation’s (ILO) Tripartite Declaration of principles concerning multinational enterprises and social policy (MNE Declaration) The ILO, founded in 1919, is a specialised agency of the United Nations focusing on labour issues. In the 1960s and 1970s, the activities of multinational enterprises (MNEs) provoked intense discussions that resulted in efforts to draw up international instruments for regulating their conduct and defining the terms of their relations with host countries, mostly in the developing world.

Labour-related and social policy issues were among those concerns to which the activities of MNEs gave rise. The ILO’s search for international guidelines in its sphere of competence resulted, in 1977, in the adoption by the ILO Governing Body, of the Tripartite Declaration of Principles concerning Multinational

Enterprises and Social Policy (MNE Declaration).

The principles laid down in this universal instrument offer guidelines to MNEs, governments, and employers’ and workers’ organizations in such areas as employment, training, conditions of work and life, and industrial relations. Its provisions are reinforced by certain international labour Conventions and Recommendations which the social partners are urged to bear in mind and apply, to the greatest extent possible. The adoption of the ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up in 1998 highlighted the importance of the fundamental Conventions in realizing the objectives of the ILO, and consequently, the MNE Declaration takes into account the objectives of the 1998 Declaration.

United Nations Global Compact

Introduced in 1999, The United Nations Global Compact is a strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption. The Compact’s 10 principles enjoy consensus across many jurisdictions and are derived from:

• The Universal Declaration on Human Rights;

• The International Labour Organisation’s Declaration on Fundamental Principles and Rights at Work;

• The Rio Declaration on Environment and Development; and

• The United Nations Convention Against Corruption.

Critics argue that as adherence to the Compact cannot be enforced the Compact may be abused. The Compact itself states that a company’s participation ‘does not mean that the Compact recognises or certifies that these companies have fulfilled the Compact’s principles’.

The Compact is considered to be one of the world’s largest corporate responsibility initiative.

UN Norms

The UN Norms on the Responsibilities of Transnational Corporations and other Business Enterprises with regard to Human Rights (UN Norms) attempts to establish a comprehensive legal framework for the human rights responsibilities of companies. The Norms which endeavour to standardise existing standards are based solely on existing international law regarding human rights and labour standards and deal with issues such as workers rights, corruption, security and environmental sustainability. The UN Norms state that MNEs have an obligation to ‘promote, secure the fulfilment of, respect and protect human rights recognised in international and national law’. The UN Norms is not a formal treaty under international law and therefore is not legally binding.

Principles for Responsible Investment

The Principles for Responsible Investment (PRI), issued in April 2006, is a voluntary initiative which strives to identify and act on the common ground between the goals of institutional investors and the sustainable development objectives of the UN. The audience targeted is the global community, however the focus is on the eleven largest capital markets, with a goal of protecting the long term interests of fund beneficiaries. The PRI were borne from the perceived disconnect between corporate responsibility, and the behaviour of financial markets, which are often influenced by short-term considerations at the expense of longer term objectives.

The PRI, developed by leading institutional investors and overseen by the UN Environment Programme Finance Initiative and the UN Global Compact, includes environmental, social and governance criteria, and provides a framework for achieving higher long term investment returns and more sustainable markets. The UN Secretary General has stated ‘it is my hope that the Principles will help to align investment practices with the goals of the UN, thereby contributing to a more stable and inclusive global economy’.

Global Reporting Initiative

The Global Reporting Initiative (GRI), convened in 1997, was established to improve sustainability reporting practices, while achieving comparability, credibility, timeliness, and verifiability of reported information.

The Global Reporting Initiative (GRI) is a network-based organization that has pioneered the development of the world’s most widely used sustainability reporting framework. The reporting framework is developed through a consensus-seeking process with participants drawn globally from business, civil society, labor, and professional institutions.

To help improve sustainability reporting, many organizations have turned to the Global Reporting Initiative (GRI) as the quasi-standard setter for sustainability reporting.

To date, thousands of organizations in the auto, utility, consumer products, pharmaceuticals, financial, telecommunications, transport, energy and chemicals sectors, among others, in addition to public authorities and non-profits, have published reports that adopt part or all of the GRI Sustainability Reporting Guidelines.

The 2008 KPMG International Survey of Corporate Responsibility Reporting is a comprehensive look at the trends in the world's largest companies. It shows that corporate responsibility reporting (which covers all forms of sustainability reporting) is mainstream with nearly 80 per cent of the largest 250 companies worldwide issuing reports (but with only 4 per cent integrating corporate responsibility information into their annual reports). The survey also usefully provides good practices in corporate responsibility (sustainability) reporting and shows which reporting standards and guidelines are used by companies. More than three-quarters of the Global Fortune 250 and 69 percent of the largest companies by revenue follow the GRI Sustainability Reporting Guidelines. GRI is an independent, global organization that is a collaborating centre of UNEP. The Board of Directors has ultimate responsibility for the GRI. GRI is governed through a multi-stakeholder governance structure of:

• Board of Directors, who have fiduciary, financial, legal, and overall strategic responsibilities for GRI;

• Stakeholder Council, an advisory group on broad policy issues;

• Technical Advisory Committee, an advisory group on technical issues;

• Organizational Stakeholders, who support GRI’s mission, elect the Stakeholder Council and contribute to annual budget; and

• International Secretariat, based in Amsterdam, who implements the work plan of the Board.

Between 1997 to mid-2002, GRI was a project of CERES and the UNEP. In 2002 GRI incorporated as an independent non-profit in Amsterdam, the Netherlands. The Boston-based non-profit CERES (Ceres (pronounced “series”) is a national network of investors, environmental organizations and other public interest groups working with companies and investors to address sustainability challenges such as global climate change.

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Published by

Rajkumar Adukia
(Finance Professional)
Category Corporate Law   Report



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