Paul Hohnen Sustainability Strategies

This article was published in The World Today in March, 2006.

Bubble or Boom

The trial of former Enron Chairman, Ken Lay, and Chief Executive, Jeffrey Skilling, is drawing renewed attention to standards of company conduct. But pressure on business practice is also coming from an entirely different direction. Intentionally or not, companies have always been more than providers of jobs, goods and profits. Good ones have shown sensitivity to changing markets and opportunities in ways that balance economic, social and environmental interests. Corporate social responsibility is a reminder of these core values. Listening to workers, customers and nongovernmental organisations can help business do what it does best. So why are there such sharply divided views on the sector's role in improved social and environmental conditions?

It is clear to most people that this is a decisive period in human history. While modern technologies demonstrate benefits in communications, medical treatment and engineering, unimaginable in previous eras, neither science, politics nor market economics has a solution for all our problems.
    Human rights continue to be abused around the world. The divide between rich and poor grows wider in many places. Poverty, ill-health, and malnutrition all high priorities for action in the United Nations Millennium Development Goals remain endemic. Profound changes are also occurring in the earth's life-supporting physical and biological systems. Climate change and the extinction of species are just two examples of a disturbingly long list in the UN Millennium Ecosystem Assessment.
    Governments are struggling to cope in this rapidly changing world. Critics blame them for either encouraging or frustrating economic globalisation; giving too much or too little responsibility to the private sector; and over or under-protecting the environment. Depending on whom you believe, economic growth is either the problem or the solution.
    Safe and healthy working conditions and products, a clean environment and efficient use of resources, the development of technologies and goods to make life better. Who should be responsible for ensuring these, what is the business sector's role, and how does it relate to that of government and other sectors of society? These are some of the questions that corporate social responsibility addresses.

Cause or Cure?
For some, business is the cause of many of the problems. Advocacy groups, for example, call for measures to force it to reduce its negative social and environmental impacts. For others, business the main provider of jobs and technologies is a dynamic force for change, to be harnessed and encouraged to do good. So is it a trade-off between jobs and the environment, or human rights?
    The debate is far from theoretical. Recent surveys show that while there is solid global public support for the free market system, there are deep concerns about unethical business behaviour and the level of business influence on government.
    Polls, such as January's Voice of the People international survey show that the public believes that as well as ensuring economic growth, governments should give more attention to issues such as closing the gap between rich and poor, protecting the environment and eliminating poverty. These are rated higher than fighting terrorism and preventing wars. Worldwide, there is a strong public expectation that business should do more to address social and environmental problems.
    Narrowly, the corporate social responsibility debate is about whether, and how far, business should be responsible for helping improve the social and environment landscape. More widely, it is can be seen as the beginning of a deeper debate about how all sectors of society can most effectively contribute to the urgent challenges. So what are the central issues, and how might they play out?

Responsibility is...
One of the problems begins with a lack of consensus on whether business has any responsibilities beyond those defined by law. Some argue that a company's sole task is to add value for the benefit of its shareholders, and to provide goods and services in compliance with local laws. This, they contend, is corporate responsibility. Business creates jobs, which share wealth, and foster enhanced social and environmental awareness and conditions.
    While accepting the primary duty to a company's owners, others recognise that responsibility is not only defined by shareholders and regulators. Employees, suppliers, customers, local communities, investors, advocacy groups and other stakeholders with an interest in, or affected by the business, may also have views on responsible behaviour.
    A business making toys is responsible for ensuring their toys work as advertised. This is usually required by law. There may be agreement among most consumers that toys ought to contain no harmful chemicals or packaging, but how far should a company go, for example, in ensuring the factories where the toys are produced do not use child labour, respect the workforce's right to form a union, or use technologies that minimise pollution, where these are not legally required?
    Although it is now increasingly accepted by mainstream business that companies should take into account the impacts of their operations on employees and third parties, several major questions remain outstanding. These include how far those responsibilities extend, who should define the risks and rewards, and whether government agencies and authorities, and non-profit organisations, have similar duties.
    It seems likely the corporate social responsibility debate will move toward recognising that all organisations share a common, if proportional, responsibility to consider the impacts of their activities on the interests of those affected by them. Equally, it seems inescapable that governments remain responsible for creating the policy environment that defines and encourages responsible behaviour. Is it fair, for example, that a company whose corporate social responsibility performance is better, should be under-cut by a company that flouts labour and environmental standards? Should not governments show the way by favouring companies whose performance best matches government-agreed voluntary standards? Discussion of what policy instruments work most effectively to drive change will probably include better, although not necessarily more, regulation, and increased market-based incentives.

What's in a name?
Which brings us to the problem of the name corporate social responsibility. The concept has had many titles over the last decade, described variously as `responsible entrepreneurship', `corporate environmental and social responsibility', `corporate citizenship', and `social responsibility'. The core idea is that society expects the business sector should increase the good things it does, and decrease the bad, whether or not this is required by law. Voluntary actions to respond to these expectations form corporate social responsibility.
    The rise in interest in the topic has broadly tracked the dual trends of growing globalisation, and the expansion of the size and influence of business. Rising public expectations of business reflect both recognition of the sector's unparalleled power for positive and negative impacts on such things as human health, working conditions and ecosystems, and its success in arguing for greater use of the market to deal with global problems.
    For some, the pendulum of power has swung too far from governments. Advocacy groups are not alone, many in business are concerned that the trend towards giving business more responsibility is an attempt by governments to pass off their own duties.
    Both name and content will continue to evolve, reflecting changing expectations and experience. While interest in the contribution of the business sector will remain lively, the government role is likely to attract greater attention. Work by the International Organization for Standardization on a social responsibility standard for use by all organisations may point to the ultimate choice of name. Pro-active business will increasingly use superior corporate social responsibility standards to enhance brand profile where traditional advertising is becoming less effective.

Spoiled for Choice?
One of the indicators of the vitality of the movement since the early 1990s has been the sheer number and range of initiatives. Literally hundreds of different social and environmental principles, codes of conduct, norms, and initiatives have been developed. Many of these are well documented in Deborah Leipziger's book, The Corporate Responsibility Code Book. In the main, these seek to answer questions such as `What is expected of me?', `Who are my stakeholders?', and `How do I show I am responsible?'
    Some of these have been developed by business groups for business. The International Chamber of Commerce Business Charter and the chemical industry Responsible Care initiative are examples. Others, such as the Organisation for Economic Co-operation and Development Guidelines for Multinational Enterprises, have come from governmental bodies, sometimes with advice from business, labour and nongovernmental organisation (NGO) sectors. Still others, like the International Organization for Standardization environmental management standards and the Global Reporting Initiative, are the result of partnerships between business, labour, and NGOs, often with government support or inputs.
    Most of these aim to help raise awareness of, clarify, and implement, existing human rights, labour and environmental norms defined by government.
    While the creative chaos that has produced the huge number of initiatives has ensured organisations have a wide range of approaches to choose from, there are problems. Adopting a corporate social responsibility policy involves cost. The proliferation of initiatives has led to a degree of fatigue in the corporate sector, with a good deal of confusion about what approach to use, how and why. Taking an à la carte approach, many larger companies use several at the same time.
    There are, however, limits to how many initiatives can be used. While some new schemes cannot be excluded, especially for specific sectors, such as climate and energy, those that respond closest to market needs will flourish, while others may flag or fail. There could also be a move to align and refine existing approaches, and greater interest in why many companies, public authorities and NGOs are not using them.

Does it work?
A consistent theme is the need for greater transparency. Who is doing what, where, and with what social and environmental impacts? What are the costs and benefits? Better data benefits everyone: managers, investors, regulators, employees and communities. You cannot manage what you do not measure.
    Partly as a result of their relative newness, many initiatives face exactly this problem. Not only is it often unclear whether an organisation has a policy, or uses a particular initiative, it can be difficult to measure its effects. Meanwhile NGOs and labour organisations are deeply sceptical about whether voluntary arrangements make any real difference.
    But corporate social responsibility can result in meaningful change. It has helped companies develop partnerships with NGOs, introduce new products such as fair trade, reduce emissions of greenhouse and toxic gases, and be more open about employment conditions. The search for hard corporate social responsibility data will intensify. Research is likely to support the view that companies which understand and openly respond to social and environmental trends and stakeholder expectations will command higher levels of trust, and superior financial results. Because this involves aspects of performance not traditionally measured by financial reports, interest from the investment community will continue to be a key factor.
    Research should also show that voluntary initiatives produce measurable social and environmental improvements, and are therefore an important policy tool to complement government regulation. It will also indicate that corporate social responsibility has not yet become mainstream. The majority of business organisations around the world, including many large companies, either do not have, or apply, such policies. The issue of corporate social responsibility performance will attract more attention, especially from governments seeking to encourage better behaviour.

Debate On
The debate will neither boom nor bust. Rather, it will continue, providing a dynamic and invaluable framework for an ever-broader public dialogue. Two core issues to which there are no firm answers will be:

• How to specify evolving societal definitions and expectations regarding human rights, labour and environmental standards, and how to achieve them?
• What is the right balance between the roles of government, business and the non-profit sector?

CORPORATE PROGRESS PRINCIPLES:
Over two thousand companies and other organisations have committed to the UN Global Compact's ten principles on human rights, labour, environment and anti-corruption.

BUSINESS STRATEGY:
Launching its Ecomagination programme last year, General Electric put sustainable development at the heart of its business strategy.

TRANSPARENCY:
Over seven hundred major companies worldwide, 82 of them in Britain, now routinely use the Global Reporting Initiative Guidelines when assessing their economic, social and environmental performance.

ENERGY:
By 2004, telecoms provider BT had cut carbon dioxide emissions by over 42 percent on 1996 levels, and saved over $210 million since 1991.

WORKPLACE:
Sporting goods manufacturer Nike has independent auditing of its workplaces and publishes the addresses of its suppliers.

FAIR TRADE:
Big food brands including Nestlé and Starbucks have introduced products from fair trade sources.

HEALTH:
Leading mining companies including Anglo-American and Rio Tinto have HIV/Aids and other healthcare programmes for workers and their families.

FINANCE:
Over thirty banks have signed the Equator principles, raising environmental and human rights standards for project with loans of over $50 million