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Corporate Social Responsibility and sustainable development

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Chapter 3 Corporate Social Responsibility and sustainable development
Abstract: As the business contribution to sustainable development, CSR has many
complementary themes which are revisited in the first section of this chapter because
it is important for the reader to get a sense of context. The definition of sustainable
development and global sustainable development agenda along with the relationship
between business and sustainable development is then discussed. The UN global
compact as an example of generalising CSR initiatives towards the more
comprehensive goal of sustainable development in a global scale is looked into in the
following section. After knowing the concepts and trends of CSR and sustainable
development, it is important to evaluate them so as to make real changes. Hence we
discussed on how to measure CSR in detail at company level and corporate
sustainability at a global level.
Key words: Sustainable development, indicators and indices
Introduction
As noted in the previous chapter, CSR has traditionally been seen as an obligation to
pursue policies to make decisions and to follow lines of action which are compatible
with the objectives and values of society (Bowen, 1953). In the early phases,
especially in America, this often involved a firm following a standard profit
maximising strategy but then donating some of its profits through charitable
foundations; as we saw with Andrew Carnegie and Julius Rosenwald in Chapter 2. In
more recent years, we have shifted away from this two-stage process (profit
maximising and then redistribution) towards a concern with how profits are made in
the first place. A truly socially responsible firm will be one that attempts to minimise
costs to the environment and society and maximise benefits to both. There have
always been enlightened industrialists (like the Cadbury’s Family or Lever Brothers)
who have recognised the process of making profits as being significant and in
particular have recognised the impact that this process had on communities around
them. These attitudes are now being embedded into the CSR framework. The
European Commission (2001), for instance, has defined CSR as:
A concept whereby companies integrate social and environmental concerns in their
business operations and in their interaction with their stakeholders on a voluntary
basis.
Measuring company performance according to this definition would require what
many refer to as a triple bottom line (an economic, social and environmental
performance target) approach as distinct from the single bottom line with a sole
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focus on financial performance.
CSR implies that corporate performance is judged not just by the services, products
and profits that businesses make but also by the impacts they have on social well-
being and on the local and global environment. The rise of instant media services
with radio and especially television during the 1950s and 1960s and social media via
the World Wide Web since the 1990s has increased the speed with which information
about corporate misbehaviour travels. This has increased pressure on firms to accede
to sustainable development objectives, particularly in terms of their social and
environmental targets. This has recently been reflected in Europe’s 2013 meat
adulteration scandal which publicised the fact that horse meat was found in products
that were labelled as beef in 13 European countries (Box 3.1).
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Box 3.1 Horsemeat-gate
In 2012 and 2013 it was discovered that some meat being sold in shops as beef was in fact
from horses. Such testing was possible because of rapid advances in DNA technology.
Horse DNA is different from that of beef DNA and it is possible to take samples of the
meat, extract and multiply the DNA inside and test the species it is from. In some meat
samples, it appeared that up to 40% of the content was horse meat and some beef even had
meat from pigs.
The resulting sandal has sometimes been referred to as horsemeat-gate (after the
Watergate bugging scandal in the USA during the 1970s that led to President Richard
Nixon’s resignation; Abbots and Coles, 2013) and hit the media headlines. The scandal
broke in Ireland and the UK but then spread throughout Europe. The problem was firmly
placed at the door of a few processing plants and the motive was assumed to be cost;
horsemeat is much cheaper than beef. There were important ramifications from the scandal:
1. Consumer confidence was badly shaken and sales of some products such as burgers
dropped by over 40%. Bear in mind that the horsemeat scandal had come on the
back of other food scandals in Europe such as that caused by Bovine Spongiform
Encephalopathy (BSE), commonly known as mad cow disease.
2. Health repercussions. As horse meat is not consumed in many countries there are
drugs (e.g. Phenylbutazone) that are used for horses which could be detrimental to
human health if consumed. There was much fear at the time that such drugs may
have found their way into the human food chain.
3. Regulation. Much blame was directed towards what some saw as the relatively
weak nature of the regulatory regime in the UK and other countries. Indeed, it is
still unclear whether the original discovery in Ireland was a result of random testing
by authorities or whether there had been a tipoff from someone in the industry.
4. Culture. In some religions (Islam and Judaism) it is forbidden to consume pig meat
and the fact that some of the beef had pig meat did cause concern. A further
consideration is that there is nothing intrinsically wrong in consuming horsemeat
subject to the safety concerns noted above (Abbots and Coles, 2013). While the
trust and human health issues noted above were key drivers in the scandal, it was
also spurred by a cultural antipathy towards the consumption of horsemeat in many
cultures in Europe except in times of hunger. Why this should be the case is
intriguing. It has been suggested that one reason for an aversion towards
consumption of horsemeat is the historical role that horses have played in human
society as companions and workers. But this aversion is by no means universal and
some countries (e.g. China) where horses have also provided much
companionship and work do consume a lot of horsemeat. Culture can play a big
role and it is a mistake to base any CSR on an assumption that they must be the
same as me.
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Similarly, publicity has been attached to the use of children as young as twelve in
making Olympic merchandise by firms that produced licensed goods for the 2008
Beijing Olympic Games in Guangdong Province in China (Zhang, 2012). This has
also been true of the damage caused to marine and wildlife habitats and the fishing
and tourism sectors by BP’s oil disaster in the Gulf of Mexico (Cherry and Sneirson,
2010). The news of all these events did not just spread very fast but the availability of
electronic social networks via Facebook, Twitter and others allowed people to
exchange their views. It would be a brave politician indeed who ignored these
pressures. As a result, corporations, whether large or small, are under increasing
scrutiny regarding the social impact of their business activities. Such scrutiny has
incentivised firms to shift towards better or more sustainable ways of making
profits.
Sustainable development has famously been defined as:
development that meets the needs of the present without compromising the ability of
future generations to meet their own needs (WCED, 1987, p8)
This implies increased output, of course, but not at the cost of the environment or of
social cohesion. The way in which the output is produced therefore becomes central to
the notion of sustainable development taking us back (at firm level) to the notion of
CSR. Thus, we can think of CSR as the firm-level equivalent of sustainable
development (a societal concept).
Complementary themes to CSR
Since the 1980s, people began to consider the basis and implications of adopting CSR,
and the core concerns of CSR were recast via some complementary concepts, theories,
themes, and models (Carroll, 2008). Corporate social responsiveness, corporate social
performance, public policy, business ethics, and stakeholder theory/management
became frequently cited within the CSR literature during the 1980s, and for the reader
this can seem like a bewildering and unnecessarily complex set of developments. But
if nothing else it does indicate that CSR was becoming more mainstream and people
were beginning to think about what it meant in terms of both theory and practice.
Some of these developments will be covered here.
Corporate social responsiveness (CSR2)
The concept of Corporate Social Responsiveness emerged in the 1970s when
Frederick (1994) termed it CSR2 (as opposed to CSR/CSR1 which is Corporate Social
Responsibility). He defined it as:
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“Corporate social responsiveness refers to the capacity of a corporation to respond
to social pressures. The literal act of responding, or of achieving a generally
responsive posture, to society is the focus.” (p6)
While CSR was seen as the assumption of an obligation to society and places the
emphasis on definition and motivation rather than action/performance, CSR2 was
intended to imply a move beyond attempts to define the responsibility of firms and
instead focus solely on corporate action as a result of social demand. The latter
stresses the responsiveness of the company to demands placed on it and stresses the
literal act of achieving a responsible posture towards society (Frederick, 1994). This
may appear to have some overlap with Corporate Social Responsibility mentioned
earlier, and indeed the differences can become quite nuanced. It may also appear to be
unnecessary. After all, if CSR is all about definition and motivation then surely one
can consider interventions by the company to put those into practice as a separate
phase of CSR rather than requiring a whole new term such as CSR2. It seems rather
convoluted to suggest that Corporate Social Responsiveness is distinct from Corporate
Social Responsibility. But the use of terms such as CSR1 and CSR2 does highlight that
businesses have to go beyond thinking and talking about their social responsibility.
Various scholars have tried to describe corporates' responses to social issues (Figure
3.1). For example, Ian Wilson (1974) suggested four categories of corporate responses
- reaction, defence, accommodation, pro-action. McAdam (1973) saw four other types
of corporate responsiveness including fight all the way (fight against the call for
social responsibility), do only what is required (take as little responsibility as
possible), be progressive (at taking social responsibility), and lead the industry (by
being responsible). Sethi (1979) proposed a conceptual basis for CSR2 in his typology
of corporate responses which spans reactive, defensive, responsive and proactive. The
types of corporate responsiveness of McAdam (1973) and Sethi (1979) are related to
each other as shown in Figure 3.1, and in effect span a spectrum from do nothing at
one end to do a lot at the other.
[insert Figure 3.1 here]
Figure 3.1 Categories of social responsiveness
Source: Adapted based on Carroll (1979).
Corporate social performance (CSP)
The earliest reference to corporate social performance (CSP) was in the 1970s and
provided by Sethi (1975), Preston (1978) and Carroll (1979). Carroll (1979) presented
a three-dimensional conceptual model of CSP that integrated responsibility,
responsiveness and social issues as set out in Figure 3.2. According to this model,
CSR2 is the philosophy/strategy that businesses have to set up to respond to social
responsibility and social issues. CSP has some overlap with CSR2 in that it
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emphasises implementation, distinguishing it from the more philosophical and
theoretical emphasis in CSR. Proponents suggest that CSP includes three dimensions:
1. The range of social responsibilities the company has towards society (i.e.
economic, legal, ethical, and philanthropic responsibilities). This equates to
CSR.
2. Social issues that the company has a responsibility to address.
3. Social responsiveness (i.e. the strategy of responding to the social issues) or
what is referred to as CSR2.
Another way of looking at this model is:
Outcome (CSP) = defining (CSR) + what to act on + acting (CSR2)
On the one hand, CSP is trying to make peace between the concepts of CSR/CSR1 and
CSR2, while on the other hand, it emphasizes the outcomes/results of socially
responsible initiatives, i.e. the result of taking a specific social responsibility in a
specific way on a specific social issue (Carroll, 1979; Wartick and Cochran, 1985;
Wood, 1991). This focus on outcomes in CSP makes it possible to measure the results
of CSR related practices (Ackerman, 1973; Murray, 1976; Carroll and Shabana, 2010).
The differences between CSR/CSR1, CSP and CSR2 are outlined in Table 3.1.
[insert Table 3.1 here]
The model in Table 3.1 is sequential in the sense that a company must first have a
motivation and a definition of what it wishes to achieve with regard to its social
responsibility (i.e. CSR). The second phase (CSR2) is the implementation of activities
designed to make the vision of CSR a reality. The third phase (CSP) is an assessment
of the activities in terms of outcomes.
This CSP model addresses major questions of concern to academics and business
managers, including what should be included in social responsibility, what are the
social issues that the business must address and what is the business’s philosophy of
social responsiveness? Social responsibility includes the four-part framework of
responsibilities (economic, legal, ethical and discretionary) which was later developed
as a pyramid of CSR (economic, legal, ethical and philanthropic responsibilities)
shown in Figure 2.2 in chapter 2. The social issues that the organization must address
have changed over time and so has the organization’s interest in them. Currently, the
popular issues include product safety, occupational health and safety, business ethics,
environmental protection, consumerism, food security and employment
discrimination. However, different issues might be of interest to different
organizations, depending on the sector they are in. For example, banks might be more
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interested in consumerism than environmental pollution, while manufacturing firms
might be interested in both. The factors that influence corporate managers’ decisions
in terms of selecting areas of social involvement were investigated by Holmes (1976),
and include the following:
1. Whether the corporate has the resources to address a particular social need;
2. How serious is the social issue;
3. Whether the social issue is of interest to the top executives;
4. Importance of the socially responsible action to public relations;
5. Pressure from the government.
[insert Figure 3.2 here]
Figure 3.2 Model of Corporate Social Performance (CSP)
Source: Carroll (1979).
The concept of CSP as distinct from CSR and CSR2 continued to draw interest in the
1980s. Wartick and Cochran (1985) tracked the evolution of CSP and extended
Carroll’s (1979) three-dimensional model of CSP to another three-dimensional model
of CSP which includes: social responsibility - economic, legal, ethical and
discretionary responsibilities, social responsiveness - providing the approach to
realizing social responsibility, and social issues management - the method for
operationalizing social responsiveness (Figure 3.3). Wartick and Cochran (1985)
argued that CSP is built on the:
“principles of social responsibility, processes of social responsiveness and policies
of social issue management” (p767).
Wartick and Cochran (1985) and Wood (1991) recast Carroll’s three-dimensional
CSP into a framework of principle, processes and policies. In effect, the ethical
component of social responsibility defined by Carroll should be considered as the
principles, social responsiveness should be considered as the processes, and social
issues management should be considered as the policies. By doing so, they built a
coherent, integrative framework for business and society research.
Wood (1991) tried to link CSP with related theories in organizational studies and to
construct a CSP model that is more practical and managerially usefully. She
conceived of CSP as a set of descriptive categorizations of business activities, with a
focus on the impacts and outcomes for society, stakeholders and the firm itself. Hence,
she refined the three-dimensional model, and framed the principles/philosophies of
social responsibility at the institutional, organizational, and individual managerial
level as set out in Figure 3.4. She then considered the second part of the CSP model
(social responsiveness) as an action dimension, in which she included environmental
assessment, stakeholder management and issues management. Wood also proposed
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three types of outcomes of corporate social behaviour:
1. Social impact of the corporate behaviour;
2. Programmes employed to implement CSR;
3. Policies developed to address social issues and stakeholder conflicts.
Despite all the efforts made by its proponents, the CSP model has not been widely
adapted in the academic and business arena. The reason, as Wood and Jones (1995)
puts it, is the lack of a clear and objective measurement of CSP. It is often said that to
manage you need to measure, and CSP does equate to a rather complex concept that
provides challenges for measurement. In addition, Rowley and Berman (2000) agreed
that current and previous research on CSP/CSR is an attempt to justify it to corporate
managers and is therefore only concerned with finding a positive relationship between
corporate financial performance and CSR/CSP. Thus, current research is trying to find
that CSR is either “benign” or “to the firm’s best economic interests” (p400).
Rowley and Berman further argued that “CSP, as a theoretical and operational
construct, is fatally flawed” because it is not clearly defined and empirical CSP
research, especially into the relationship between CSP and financial performance has
reported many disappointing” results (i.e. inconclusiveness) but offered few
valuable remedies (p398). They further stated that current CSP research does not
make any academic contribution apart from attempting to justify the credibility and
legitimacy of CSP researchers and the importance of the business and society field.
Rowley and Berman argue that this was largely because the current CSP construct is
neither theoretically nor empirically viable. They concluded that the current version of
CSP is “dead” (p398), and most of the issues in current empirical CSP research
cannot be solved without deconstructing the construct. They argue that CSP research
in the 21st century needs to address three critical questions: What is CSP? What does
it mean/how is it measured? Where does the future lie in CSP?
Griffin (2000), however, questioned Rowley and Berman’s (2000) rationale for what
is wrong with CSP and suggested that research in related disciplines (such as
marketing and human relations) could help accelerate our understanding of CSP.
[insert Figure 3.3 here]
Figure 3.3 Wartick and Cochran’s model of corporate social performance
Source: Wartick and Cochran (1985).
[insert Figure 3.4 here]
Figure 3.4 Wood’s framework of corporate social performance
Source: Wood (1991).
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Business ethics
The widely reported ethical scandals in the 1980s, the most famous (or infamous) of
which was the Savings and Loan Crisis during which the Savings and Loan industry
in the United States collapsed because of poor investment choice and fraud, brought
the public’s attention to managerial and corporate wrong-doing. Against this
background, business ethics formally came to the forefront in CSR discussions and
indeed became something of a complementary theme to CSR. Frederick (2008)
regarded the 1980s as the beginning of corporate/business ethics which carried on
into the 1990s and the 2000s catalysed by the Enron and Wall Street Financial
scandals mentioned in chapter 2. Firms started highlighting their ethical stance in the
hope of distancing themselves, from these business scandals. Along with globalization
and the coming of the information age, the concern for ethics in business continues to
this day.
Business ethics is a form of applied ethics that examines ethical principles and moral
or ethical challenges that arise within a business environment. It applies to all aspects
of business conduct and is relevant to the conduct of individuals and entire
organizations (Marcoux, 2008). Thus companies consider the interests of society by
taking responsibility for the impact of their activities on stakeholders as well as the
environment, and this goes beyond the statutory obligation of companies. If a
company chooses to adopt CSR it will inevitably have to integrate ethical concerns
into its activities including any interaction with stakeholders, although the company
may not necessarily be aware that it is doing so. Ethical considerations help ensure
that CSR activities generate positive impacts for the community, although it should be
noted that not all ethical behaviours are socially responsible. For example, selling
alcohol and tobacco is not necessarily against business ethics, but it is arguably
against the principle of CSR given the negative impacts of smoking on society, while
selling them to teenagers would be against the principles of both business ethics and
CSR. Thus, selling tobacco can have significant negative repercussion for society.
Stakeholder theory/management
As a complementary theme, Stakeholder theory (also called theory of stakeholder
management) was brought into being by Freeman’s (1984) classic book: Strategic
Management: A Stakeholder Approach. But who are the stakeholders that have been
referred to so often in this chapter? At one level the answer is very simple a
stakeholder is anyone having an interest in the activities of the company but at
another level the answers are complex what do we mean by ‘interest’ and indeed
‘activities’? Stakeholder theory helps identify specific groups of society which firms
are responsible to and provides a basis for legitimising and prioritising stakeholder
influence on corporate decisions. Therefore, stakeholder theory is viewed as “a
necessary process in the operationalisation of CSR, as a complementary rather than
conflicting body of literature” (Matten et al., 2003, p111), and it has potential as an
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integrating theme for the business and society discipline (Wood and Jones, 1995).
Although Freeman’s (1984) book primarily focused on strategic management, it has
had great influence in the field of business and society. According to his theory, a
socially responsible firm is a firm that is responsible simultaneously to all of its
stakeholders; namely anyone who has a stake, which can be broadly defined as an
interest rather than narrowly on ownership or being an employee, in the firm. A
stakeholder can be someone in the supply chain or perhaps its customers. These
groups would obviously have a strong financial interest in the performance of the
company. But beyond them are groups such as the community within which the
company is geographically embedded which may experience both the benefits of the
company’s presence and its negatives (e.g. employment, traffic congestion and
pollution). Other stakeholders may be more distant communities which suffer from
negative impacts of the company and its services and products, government and even
NGOs and other groups involved in minimising the negative impacts of the company.
Some of the groups may be geographically distant from the company; perhaps
thousands of miles away. An example would be a company that produces a lot of
‘greenhouse gasses’ such as carbon dioxide i.e. a company with a large carbon
‘footprint’. This pollution may not have immediate negative consequences for local or
distant communities, but the resulting increase in global temperature could be
devastating for future generations, especially for poorer communities having little
ability to adapt. Thus, a stakeholder does not have to be physically close to a company,
or even temporally close. But clearly there are trade-offs here in terms of how the
company addresses the concerns of these groups. On the one hand, managers must
conceive and implement strategies that will make their business competitive, while on
the other hand, some of the strategies might lead to actions that could be considered as
damaging or even offensive by some stakeholders. Effective stakeholder management
can help handle ethical dilemmas, for example whether or not to inform customers in
a timely fashion of an internal strike over payments to employees or when and how to
recall a faulty product (Freeman, 1984; Freeman and Gilbert, 1988; Harrison and St.
John, 1996; Harrison and Freeman, 1999; Miles, 2012).
Hence at an operational level, business ethics implies that the corporate unit functions
in such a way that its CSR ambitions reach out to society, while stakeholder theory
helps to identify the potential stakeholders in the present and the future who would be
impacted by businesses’ ethical or non-ethical behaviours and define their positions
and functions in relation to one another. By identifying the stakeholders who might
benefit or lose from corporate actions, stakeholder theory goes some way to
addressing the shortcomings of the CSP model i.e. that social performance could not
be measured.
Corporate citizenship (CC)
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Rather than being pushed into being socially responsible, business managers like to
see themselves as good corporate citizens in society living alongside other citizens,
with the company being part of the community rather than being seen as separate
from it. In this context, the new term Corporate Citizenship (CC) emerged in the
1990s, mainly driven by business practitioners, emphasizing the rights and
responsibilities that all members of the community, including businesses, have to each
other. CC has become popular in the realm of business management and began to
compete with existing concepts such as CSR, CSP, stakeholder theory and business
ethics (Carroll, 2008; Matten et al., 2003). Indeed, the 1990s and 2000s were the
period of global corporate citizenship (Frederick, 2008). CC certainly has the
advantage of being a less ‘technical’ term than CSR, CSR2 and CSP, and emphasises
this sense of ‘citizenship’. Hence CC could arguably have a greater resonance with
non-specialists such as the general-public, politicians, and the media. Corporate
citizenship may be both broadly or narrowly conceived. Matten and Crane (2005)
defined CC from three perspectives. The first is the limited view of CC where CC is
seen as strategic philanthropy which focuses on charitable donations and other forms
of community actions (the other two views of CC are discussed later in this
paragraph). Carroll (1991) clearly indicated this on the fourth level of his pyramid of
CSR (Figure 2.2 of Chapter 2):
“philanthropy encompasses those corporate actions that are in response to society’s
expectation that businesses be good corporate citizens” (p42).
It is about giving back to the communities where firms operate, which would make
them better places to live and work which, in turn, would make them better places to
do business (Matten and Crane, 2005). Meanwhile, some researchers have explored
whether CC is really a good social investment that builds a corporation’s social
capital and enhances its reputation, which in turn provides financial benefits. This is
similar, of course, to the debates raised earlier in the chapter regarding the cost benefit
ratio to the company of CSR. Matten and Crane also presented the “equivalent view
of CC” where CC is regarded as equivalent to CSR, though described differently.
Carroll (1998) defined CC with four facets, economic, legal, ethical and philanthropic,
exactly the same as his description of the levels of CSR. After reviewing the previous
literature on CC, Matten and Crane (2005) regarded CC as just a label being used to:
“re-brand and re-launch existing ideas about business-society relations, probably to
make them more accessible and attractive to business audiences”.
But is this necessarily a bad thing? After all, if CC is a term that resonates with a
wider audience than CSR then surely that must be a positive contribution? In fact,
Birch (2001) considers CC as an innovation to the CSR concept in the sense that CC
emphasizes business as part of a public culture, while CSR stresses social
responsibility almost as an external affair. There is little mention of citizenship in both
the limited and equivalent views of CC. Matten and Crane presented an ‘extended
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view of CC’ in that:
“CC is the administration of a bundle of individual citizenship rights social, civil,
and political conventionally granted and protected by governments” (p166).
This view of CC implies that the corporation is not just a citizen but an agent that
administers certain citizenship rights i.e. social rights, civil rights, and political rights
for its other ‘constituencies’ including traditional stakeholders and the ones with no
direct transactional relationship to the company’ (p173).
Corporate sustainability (CS)
Corporate sustainability is another complementary theme to CSR and, again gained
significance amongst researchers in the 1990s. Its definition evolved from a focus on
the natural environment towards a more encompassing concept that covers the larger
social and stakeholder environment spanning economic, environmental and social
dimensions (Dyllick and Hockerts, 2002; van Marrewijk, 2003). Corporate
sustainability requires the improvement of both eco-efficiency and socio-efficiency of
the business. Eco-efficiency is the measurement of economic value added of a
company with regard to its aggregated ecological impact, and the typical indicators
include energy efficiency, water and resource efficiency and pollution intensity
(Dyllick and Hockerts, 2002). Socio-efficiency is the calculation of economic value
added in relation to the firm’s social impacts. To achieve socio-efficiency, a firm
would have to reduce its negative social impact and increase its positive social impact.
Van Marrewijk (2003) differentiated corporate sustainability from CSR with a
diagram (Figure 3.5). He considers CS as the ultimate goal of corporate development
and CSR (or the CSR-CSR2-CSP model if preferred) being the way to achieve it. In
addition, the firms’ responsibilities as indicated by Carroll’s pyramid of CSR reflect
the three aspects of CS (economic, social and environmental) to three elements (profit,
people, planet). Hence CSR (or CSR-CSR2-CSP) is a means, a tool, towards the
achievement of corporate sustainability.
[insert Figure 3.5 here]
Figure 3.5 Relationship between Corporate Sustainability and CSR
Source: Van Marrewijk (2003)
Complementary Themes: A Summary
In a nutshell, the complementary themes to CSR such as CSP, CSR2, stakeholder
theory, business ethics, corporate citizenship, corporate sustainability and indeed
others not covered here have surfaced since the 1980s due to the pressure to search for
and accurately describe a truth about CSR. However, with decades of development
of CSR theory and its complementary themes, implementing CSR is still considered
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to be very challenging. The reasons are summarized by Matten et al. (2003). First,
market competition demands that businesses must pursue profit first and foremost and
the business’s decision on social and ethical investment is dependent upon whether or
not such investment would bring a profit. Second, the business world does not like
terms such as business ethics and corporate social responsibility as they sound like
additional ethics and responsibilities that businesses must comply with.
Needless to say, since the 1970s when CSR has grown in terms of popularity it
remained the base-point for these complementary themes. Corporate Social
Responsiveness (CSR2) underlines the response that businesses have towards social
issues. The concept of CSP further integrates CSR (i.e. economic, legal, ethical and
philanthropic responsibilities), CSR2 (i.e. the process of social responsiveness) and
social issues, forming a complete framework for overall analyses of business and
society. Business ethics originated in the context of high profile business scandals.
Stakeholder theory has helped us to identify specific non-shareholder stakeholders
that businesses should be ethical to. Finally, the term Corporate Citizenship cast this
not as a responsibility that businesses bore but instead as a voluntary role they played.
With these CSR theories and complementary terminologies, the ultimate goal of
businesses is to achieve corporate sustainability. But while these terms have emerged
and evolved, it can be argued that CSR remains an umbrella term that captures both
the conceptualisation and ‘doing’ of business responsibility towards society. For all
the efforts placed into teasing apart or restating CSR, it arguably remains as the
banner, the ‘call to arms’, of this form of business-society engagement. It is the reason
why we have used it in the book to encompass this terrain.
Sustainable Development
The concept of sustainable development is a very old one (Grober, 2012) and predates
CSR. It is often said to have its origins in forest management in Europe during the
17th century. Timber at that time was a critical resource for fuel and building, there
were few alternatives, making people concerned that the cutting of trees would exceed
the rate of replenishment. Given that timber was also critical for merchant and
military shipbuilding, it is not difficult to imagine why these concerns mattered to
those with power. In later years the same sort of issues surrounding the ability to
sustain usage of a natural resource were seen in the exploitation of whale populations
(19th century) and fish stocks to name but two. Examples mounted where whale and
fish stocks were almost wiped out because the rate of harvest exceeded the rate of
replenishment. Indeed, the importance of the whaling industry in the 19th century
helped spur the notion of a scientific management of a natural resource (Box 3.2).
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The Dust Bowl in the USA and Canada during the 1930s and the environmental
problems caused by indiscriminate use of pesticides in the 1950s and 1960s were
further wake-up calls that poor management of a resource can lead to its degradation
and even destruction. The popular media at the time picked up on these events, which
even became reflected in books such as John Steinbeck’s Grapes of Wrath
(dustbowl; published in 1939), Rachel Carson Silent Spring (environmental damage
caused by pesticides; published in 1962) and movies such as Hitchcocks’ ‘The Birds
(released in 1963). The latter is said to have been influenced by real events, most
notably the accidental poisoning of seabirds with domoic acid that took place in
California in 1961. Domoic acid is a neurotoxin produced by phytoplankton, which
began to grow very fast because of the release of nitrogen found in fertilizers and
sewage into waterways. This increased levels of domoic acid which then passed
through the food chain and eventually into birds. The strange behaviour of seabirds
Box 3.2 Whales and the rise of sustainable management
In the 19th century, most scientists believed that marine fisheries were inexhaustible.
The great Victorian zoologist, T. S. Huxley, famously argued “nothing we do seriously
affects the number of fish. Humans were just one predator among many; fishing was just
an increased natural mortality for large fish” (Finley and Oreskes, 2013).
This idea of an inexhaustible resource also applied to whales and provided much peace of
mind. After all, whales were an important resource in the 19th century providing meat,
blubber (fat) and oil.
A severe decline in the whale populations in the Antarctic during the early 20th Century
provided a wake-up call that helped inspire scientists to devote effort to understanding the
population dynamics of whales. Johan Hjort, a Norwegian fisheries scientist, was
instrumental in appreciating the impacts of over-fishing by the whaling industry and the
development of what later became known as the Maximum Sustainable Yield (MSY).
The MSY is the number of animals that can be taken from a natural population without
destroying the stock, and remains at the heart of efforts to conserve fish stocks while
allowing fishermen to maintain their livelihoods.
Nonetheless, despite the work of scientists like Hjort, whaling continued well into the
20th century and stocks also became exhausted. The International Whaling Commission
(IWC) was established in 1946 to help control whaling and conserve stocks. In 1982 the
IWC introduced a moratorium on commercial whaling although this is opposed, to this
day, by some countries having significant whaling industries. Indeed, a loophole in the
moratorium was the allowance of some whaling for ‘scientific purposes’ and this has
been exploited by some to allow ‘business as usual’.
15
was widely noted that year and was said to have been caused by this poisoning. It
apparently fascinated Alfred Hitchcock who frequently vacationed in Santa Cruz. As
noted in Chapter 2, there were also many protest marches in the 1960s that had an
environmental theme, and the rise of electronic media played a part in publicising all
of this.
Given the above, it is perhaps not surprising that the very first global conference was
the United Nations sponsored conference on the Human Environment held in June
1972 in Stockholm. The same year (1972) saw the publication of the Limits to
Growth; a report which became a book, exploring the interaction between population
and economic growth and a world with finite resources. The report was commissioned
by the Club of Rome, a global Think Tank formed in the late 1960s with members
from the arenas of science, economics, politics, amongst others. The report called into
question the sustainability of high rates of growth into the future on the grounds that
the known reserves of many key minerals were likely to be exhausted if current rates
of consumption were maintained. It forecast an apocalyptic end to growth and life if
consumption was not curtailed. The limits to growth thesis was criticised on a number
of grounds. First, it was argued that scarcity would increase the price of scarce
resources, leading to a decrease in the demand for the resource so that scarcity of the
kind envisaged in the Report was unlikely. Additionally, it was argued (and has been
seen through experience since then) that as prices increase, marginal reserves of these
resources become profitable to explore; techniques are improved to minimise the use
of the resource and new substitutes are found. Overall, the predictions of the report
have not been confirmed by experience in the four decades since it was published
though worries about human impact on resources and also on the environment have
not diminished.
Another landmark event in the history of sustainable development took place some 10
years later when the UN facilitated the creation of what was called the World
Commission on Environment and Development (WCED; 1984 to 1987). It is often
referred to as the Brundtland Commission, as the Chair was Gro Harlem Brundtland,
a politician who served a number of terms as the Prime Minister of Norway. WCED
provided what has become the most widely quoted definition of sustainable
development and while we have given it at the start of the chapter it is worth repeating
it here as it has been highly influential:
development that meets the needs of the present without compromising the ability of
future generations to meet their own needsWCED (1987, p8).
It is often called the ’Brundtland definition’ of sustainable development and in
common with definitions of CSR covered in Chapter 2 it is quite vague. After all,
what is meant by ‘needs’ (and who determines what the needs are?) and also who are
the ‘future generations’? In this context, a sustainable growth policy would be one
that maintains an ‘acceptable’ rate of growth without depleting the natural capital or
16
environmental stock (Turner, 1988, p12).
Thus, the notion of sustainable development has become associated with fears that a
rapid growth of economic activity across the globe was leading to costs that were not
sustainable. Significantly, it was argued that this was because many of the costs of
such activity, for instance, on the environment, were not actually internalised and this
resulted in over-production. In particular, the costs of growth on the environment
were seen to be of two types: excessive use of the earth’s resources (as per the ‘Limits
to Growth’ ideas set out above) and excessive costs on the environment through the
pollution emitted by economic activity. The latter relates to the inability of the
environment to absorb the effluents caused by human production. Scientists have
shown that the earth’s temperature is controlled by greenhouse gases which radiate
solar radiation back into the atmosphere and keep the earth cooler. Global warming
arises when fuels like coal, gas and oil are burnt and release CO2 or when
chlorofluorocarbons (CFCs) are released into the atmosphere. As such emissions are
increasing and the ability of the earth’s atmosphere to absorb them is reaching a limit.
This could cause average global temperatures to rise by 2 - 3°C within the next few
decades (Stern Review; Box 3.3) which would result in ice caps melting, increased
evaporation from the seas and therefore increased precipitation.
The challenges posed by these two problems have become central to global
discussions and agreements, and became a central focus of the UN Conference on
Environment and Development (UNCED), often called the ‘Rio Summit’ or ‘Earth
Summit’, which was held at Rio de Janeiro in 1992. The Conference called upon all
industrialised countries to support investments in developing countries in health,
sanitation, conservation, education and technical assistance (Agenda 21, UNCED). It
was hoped that this would incentivise the South to co-operate in decreasing CO2
emissions and preserving biodiversity, so that the resulting development would be
sustainable. Subsequent UNCED conferences have taken place at 10 yearly intervals;
Johannesburg in 2002 (Rio +10) and Rio again in 2012 (Rio+20 or Rio Earth Summit
2012). UNCED became the United Nations Conference on Sustainable Development
(UNCSD).
The inability to reach agreement on these issues and the increasing ecological and
social costs of growth and of globalisation caused significant unrest in the years that
followed. This was reflected in the vigorous protests by NGOs at the 1999 WTO
meeting in Seattle which resulted in WTO members making development-related
issues a focus of trade discussions at the Doha Summit in 2001. This was a change in
direction because the WTO has greater enforcement capabilities than most other UN
bodies. This was followed by the World Summit on Sustainable Development (WSSD)
held in Johannesburg in 2002 which adopted environmental and development goals.
The environmental goals included goals on climate, the earth’s ozone layer,
biodiversity, oceans, rivers and lakes, soil conservation and natural resources. Thus,
trade, globalisation, growth and environment came together in the international
17
institutional framework leading to a holistic discussion of sustainable development.
The issue of climate change came to the fore again with the Kyoto Protocol which
was signed on 16th February 2005, obliging signatories to reduce ‘green house’ gas
emissions. As part of this, the EU initially committed itself to reducing greenhouse
gas emissions by 8% from 2008 to 2012 compared to 1990 (UNFCCC, 2008).This
commitment was later increased to a reduction of at least 40% by 2030 (UN, 2015)
after the Paris Agreement. This Agreement was signed by all 196 countries which
attended the United Nations Climate Change Conference (COP 21) in Paris in 2015. It
included China and the USA for the first time. All 196 countries agreed that they
would "pursue efforts to" limit temperature increase to 1.5 °C. The problem with
COP21 was that there was no detailed timetable or country-specific goals for
emissions, unlike the previous Kyoto Protocol.
The sustainable development debate is founded on the notion that societies need to
Box 3.3: The Stern Review (2006)
The Stern Review was commissioned by the Chancellor of the UK Exchequer and was
intended to assess existing evidence and increase understanding of the economics of
Climate Change. It published its Report in 2006.
The Review argued that the causes and consequences of climate change are global and
therefore its solution has to involve international collective action. Climate change is the
greatest market failure the world has ever seen, and it interacts with other market
imperfections. The current level of greenhouse gases in the atmosphere (around 430 parts
per million (ppm) CO2), is significantly higher than the 280ppm that existed before the
Industrial Revolution. Stern argued that, if allowed to continue unchecked, greenhouse
gases “could more than treble by the end of the century, giving at least a 50% risk of
exceeding 5°C global average temperature change during the following decades”. This
would result in a melting of glaciers and ice caps, increasing risk of floods and a rise in sea
levels, decreasing crop yields especially in Africa and an attendant risk of famine. With 5-
C warming, global GDP could fall by 5-10% and the GDP of poor countries by more
than 10%.
The solutions it urges are international co-operation to set targets and achieve them. This
includes the building of international institutions like those set up by the Kyoto Protocol.
In addition, international carbon pricing will be necessary and will need to be
implemented through tax, trading or regulation. Other actions include innovation and the
deployment of low-carbon technologies; and action to remove barriers to energy
efficiency, and to inform, educate and persuade individuals about what they can do to
respond to climate change.
18
manage three types of capital (economic, social, and natural), which may be non-
substitutable and whose consumption might be irreversible. The natural capital and
environmental stock (Pearce and Turner, 1990; Dasgupta and Maler, 1991) includes
ecosystems, environmental stock and cultural diversity.
Ecosystems are part of the natural capital of the world and the rates of recovery and
regeneration must ensure that its quality is not depleted.
Environmental stock includes all living organisms, large and small and requires the
preservation of biodiversity.
Cultural diversity includes the preservation of the cultural diversity of the world.
In this context, sustainability requires that the rates of utilisation of resources are
approximately equal to the rates of replacement of these resources. Thus, in the final
analysis, sustainable development must involve overall development (Barbier, 1987,
p103) because a narrow, technical definition of sustainable development would
encourage ‘environmental managerialism’ and would result in attempts to find
solutions to environmental problems on a piecemeal basis rather than within a broader
framework.
While it is possible that we may find ways to replace some natural resources, it is
much more unlikely that we will ever be able to replace eco-system services, such as
the protection provided by the ozone layer, or the climate stabilizing function of the
Amazon rainforest. In fact, natural capital, social capital and economic capital are
often complementary. A further obstacle to substitutability lies in the multi-
functionality of many natural resources. Forests, for example, not only provide the
raw material for paper (which can be substituted quite easily), but they also maintain
biodiversity, regulate water flow, and absorb CO2, functions which are harder to
substitute.
Another problem of natural and social capital deterioration lies in their partial
irreversibility. The loss in biodiversity, for example, is often permanent. The same can
be true for cultural diversity. For example, with the advance of globalisation, the
number of indigenous languages being spoken has dropped at an alarming rate.
Moreover, the depletion of natural and social capital may have non-linear
consequences. Consumption of natural and social capital may have no observable
impact until a certain threshold is reached. A lake can, for example, absorb nutrients
for a long time while actually increasing its productivity. However, once a certain
level of algae is reached, the lack of oxygen causes the lake’s ecosystem to break
down suddenly. Based on this, Arrow et al. (2004) identify a weak criterion for
sustainable development the requirement that the wealth of a society, including
human capital, and natural capital (as well as produced capital) should not decline
over time.
19
The substance of this definition is that it places development, as an economic and
social process, into an environmental context. It argues that economic growth,
primarily through industrialization, should only be achieved in a way that at the very
least sustains environmental quality. The economic dimension, including not only the
growth of economies but also their structural transformation, has long been regarded
as being at the core of development (UNIDO, 1998), and a sustained economic
growth is the most important precondition for the fulfilment of human needs and for
the long term improvement of living conditions. But with sustainable development the
argument is that without environmental protection, it is not possible to have sustained
economic growth. In turn, when people’s quality of life increases along with
development, their demand for better environmental quality will increase as well as
their ability to achieve this through improved technology (Beckerman, 1992). The
Brundtland definition noted above also emphasizes equal rights within and between
generations. The ultimate aim of sustainable development is to seek social progress
and to improve the quality of life of humans. However, environmental capacity can
constrain the range of economic activity and hinder the speed of social progress.
The sustainable development agenda has therefore required new ways of thinking and
doing things. We can end this section with Sustainable Development Commission’s
approach to sustainable development. The Commission held the UK government to
account to ensure that the needs of society, the economy and the environment were
properly balanced in its decision making. It closed in March 2011. The Commission
argued that living within our environmental limits is one of the central principles of
sustainable development. However, sustainable development is broader than just the
environment. It's also about ensuring a strong, healthy and just society; meeting the
diverse needs of all people in existing and future communities; promoting personal
wellbeing; social cohesion and inclusion; and creating equal opportunity. Regarding
the trade-off between the present and the future, the present need not lose out.
Sustainable development is about finding better ways of doing things, both for the
future and the present. This will, of course, require businesses to be on board.
Whether their involvement in pushing towards sustainable development is voluntary
(through their CSR type activities) or regulated by the state is open to question but
their active involvement in this agenda is indispensable. An attempt to achieve this
was put forward by the UN Secretary General, Kofi Annan in the UN Global
Compact. We will consider this in the next section.
The final point to note here is that in 2016 the UN published a set of 17 Sustainable
Development Goals (SDGs; Table 3.2).
[insert Table 3.2 here]
Each of the 17 SDGs in Table 3.2 has a set of indicators that are meant to be used to
check progress.
20
From the list of SDG headings given above it is clear that businesses have a role to
play in all of them. It is the SDGs that will be a major force in driving the global
sustainable development agenda until at least the year 2030.
Businesses and sustainable development
Industrialization has often been seen as necessary for social transformation and
modernization (Hewitt, 1992, p6). For example, the Industrial Revolution in the
UK brought with it an increase in population and urbanization, improved the standard
of living, created a new working class, widened the gap between the wealthy and
working class and improved the status of women as they began to work alongside
men. In today’s world, the power and influence of businesses has never been greater,
along with their increasing ability to bring economic prosperity and social progress.
More specifically, there seem to be at least three ways in which the industrial sector
can help achieve the social dimension of sustainable development:
1. Industries create wealth for society (e.g. through taxation) which facilitates
social development programmes.
2. Income generated by the industrial sector through employment directly or
indirectly supports other sectors i.e. agriculture or service sectors.
3. Industry facilitates social transformation and integration through employment,
urbanisation, creation of new social classes, and the highlighting of women’s
rights as an issue (UNIDO, 1998).
Despite relatively wide acceptance of the consequences of non-sustainable growth and
development, businesses and governments have not taken systematic action towards
sustainability. Cohen and Winn (2007) point to four types of market failure as
possible explanations for this failure. First, while the benefits of natural or social
capital depletion can usually be privatized and therefore accrue to the individual
businesses, the costs (on the environment or society for instance) are often
externalized (i.e. they are borne not by these businesses) (see Box 3.4). There is no
obvious coherent and strong interest group to lobby in favour of the environment and
society. Second, natural capital is often undervalued by society since we are not fully
aware of the real cost of the depletion of natural capital. Information asymmetry is a
third reasonoften the link between cause and effect is obscured, making it difficult
for actors to make informed choices. Finally, of course, many firms are not perfect
optimizers and so they do not optimize resource allocation because they are caught in
a business as usual mentality (Cohen and Winn, 2007). With increasing awareness
of the environmental and social costs, however, the costs to business of not meeting
these requirements have increased. This has given rise to attempts to achieve these
goals by voluntary (rather than regulated) action by firms i.e. CSR.
21
In this context, we see that companies that slavishly pursue a profit motive without
concern for their wider stakeholders lack sustainability. This was true of the horse
meat scandal in Britain (Abbots and Coles, 2013) as well as the Macondo oil disaster
that befell BP (Wade and Hays, 2015). However, it is not only important for a
business to realize that competitive advantage cannot be sustained without the
adoption of a broader approach to seek external social legitimacy and reputation
building. This broader approach has to be consistent with good governance,
transparency, stakeholder engagement and partnership. Actually investing in external
social legitimacy creates the positive effects of a good reputation, which may
reinforce and differentiate the firm’s capability and eventually lead to sustained
competitive advantage (Hart, 1995).
22
Having said this, there are also many examples across the world of firms thinking
beyond their profit margin. The World Business Council on Sustainable Development
(WBCSD) states that:
Corporate social responsibility is the commitment of business to contribute to
sustainable economic development, working with employees, their families, the local
community and society at large to improve their quality of life.
Box 3.4: Environment and the Welfare Framework in Economics
Economics uses the framework of social and private costs and benefits to try and understand
‘externalities’ like climate change and pollution (Figure 3.6).
MPC = marginal private cost of production is the cost that a firm undertakes to produce a good. It
includes the material and labour costs but not the costs to the environment.
MSC = marginal social cost is the cost of the production to society at large and therefore will include
the costs to the environment (rivers, lakes, atmosphere, communities) of the pollutants that result
from the production.
Marginal social costs of production are usually greater than the marginal private costs in the
presence of pollution.
[insert Figure 3.6]
Figure 3.6 Environment and the welfare framework in economics
Source: authors
Similarly, we can think in terms of marginal private benefit (MPB) to the individual and marginal
social benefit (MSB). The latter are less appropriate in the case of pollution but become crucial in the
context of positive externalities like a vaccination programme which will have higher social benefits
than private benefits.
Where MSB = Marginal Social Benefit; MPC = Marginal Private Cost; MSC = Marginal Social Cost
A producer looking at the above will produce at point (A) i.e. quantity Q and price P. This is because
the producer is not taking social costs into account. However, at production quantity Q, MSC >
MPC. If the social costs were taken into account, the price should be above P (at point C). The figure
above tells us that, in the presence of externalities like pollution, a firm will over-produce the good
because it doesn’t take the external costs into account. The equilibrium quantity that takes these costs
into account is Q1.
While traditional neo-classical economics might suggest taxes (subsidies in the case of benefits) as
ways of internalising these costs for the firm, CSR implies that even when such taxes are not
imposed, firms might take these costs into account.
23
The WBCSD is led by CEOs of approximately 200 international companies and
focusses on the link between business and sustainable development. The companies
include General Motors, Du Pont, Royal Dutch Shell and Nestle amongst others. It
was created in 1995 and advocates, creates conditions for, promotes and demonstrates
the contribution of business towards finding sustainable development solutions. The
WBCSD is one of the most influential bodies on CSR issues. It argues strongly that
business is good for sustainable development, business cannot succeed in societies
that fail and that good governance is essential. It also argues that innovation and
technical development and economic efficiency are important for sustainable
development.
Similarly, the UN Global Compact was launched in 2000 with Kofi Annan asking
business to work alongside the United Nations (UN) to:
initiate a global compact of shared values and principles, which will give a human
face to the global market (UN, 1999).
The UN Global Compact is a voluntary initiative that relies on public accountability,
transparency and the enlightened self-interest of companies. It encourages the
voluntary involvement of companies within the area of human rights, labour rights,
environmental degradation and anti-corruption.
Of course, businesses are central to economic growth (which is important for
sustainable development) as well as to the creation of employment (which is
necessary for distribution). They are therefore important in the fight against poverty
and for development. This has led researchers to ask whether businesses are
development tools or development agents (Blowfield and Muray, 2014, p.84). Are
businesses accountable for causing, preventing and alleviating poverty? As a
development tool a firm may create jobs but as a development agent, the firm would
be responsible for the kind of jobs created, their location and quality. Sustainability
and CSR see firms as development agents rather than tools. In fact, CSR is
increasingly being regarded as the business contribution to the sustainable
development agenda (CEC, 2002; Dahlsrud, 2006).
Moon (2007) develops some of these contributions of CSR. First, in a context where
governments are facing challenges in meeting societal expectations with regard to
social welfare, CSR can help fill the gap. This is true both in developed and
developing countries. Further, in many developing countries, governments lack
implementation capacity and have been unwilling to prioritise social welfare facilities.
In these cases, the provision of health services, education and other welfare services
by the corporate sector can be crucial in filling a gap. Third, and more controversially,
multinational corporations can help establish standards and systems that monitor these
through collective or individual self-regulation. Of course, this requires high levels of
24
altruism on the part of the businesses, which may not be forthcoming, despite their
engagement with CSR activities (Moon, 2007).
There have been various attempts to make businesses more ethical, more sustainable,
more transparent, and more humane (van Marrewijk, 2003) including the greening
business (Davis, 1991; Stephen, 2000; Starkey and Walford, 2001; Utting, 2002) and
sustainable business (van Kleef and Roome, 2007). As a way of realizing greening
business and sustainable business, the concept of corporate environmental
responsibility has been put forward (Mazurkiewicz and Crown, 2004; Jamison et al.,
2005), but as the name implies this concept focuses mainly on the environmental
aspects of sustainable business. In recent years, CSR has frequently been part of the
‘greening business’ discussion (Wilson, 2003). Given the history of CSR noted in
chapter 2, it is perhaps unsurprising that the role and responsibility of corporates is
discussed within the WCED report published in 1987 although the term ‘Corporate
Social Responsibility’ is, perhaps surprisingly, not actually used. We therefore see a
convergence between CSR which embraces sustainability as part of its requirement to
help address concerns and objectives of society.
Businesses have reacted positively to the WCED’s call for sustainable development
(van Marrewijk and Werre, 2003; Wilson, 2003). The International Chamber of
Commerce (ICC) responded three years after the WCED report was published by
issuing its Business Charter for Sustainable Development. The charter’s objective
was to help businesses of all sectors, geographical locations, and sizes to improve
their environmental performance, to set up management practices that bring about
such improvements, to measure their progress, and to report this progress to both
internal and external audiences (ICC, 1991). Eco-efficiency was another attempt by
global business to respond to the call for sustainable development. This was
introduced by the WBCSD in 1999. The prefix eco stands for both economic and
ecological efficiency:
Eco-efficiency combines environmental and economic performance to create more
value with less impact. It calls for resource efficiency to reduce costs, improve
profitability and deliver higher profits. (WBCSD, 1999, p10).
However, critics of eco-efficiency pointed out that it ignores the social dimension of
development, and relies too heavily on effortless technological change as the
means to resolve the conflict between economic growth and environmental
degradation (Ehrenfeld, 2000; Veleva and Ellenbecker, 2000; Hockerts, 2001, p3).
Those who think that sustainability is only a matter of pollution control are missing
the bigger picture, said Hart, director of the Corporate Environmental Management
Programme at the University of Michigan (Elkington, 2010, p527).
Welford (1997) suggested that firms interested in long-term sustainability have to
25
show progress in a number of important areas, including environmental protection,
employee empowerment, economic performance, business ethics, employment
creation, equity, and employee training. Thus, social sustainability of a company has
increasingly been included in the sustainability agenda.
A landmark event for the idea of ‘triple bottom-line reporting took place in 2002
when WSSD heard a series of sustainability reports from 22 industrial sectors ranging
from aluminium production to chemical manufacturing, and from tourism to finance.
It was the first time that individual industrial sectors had integrated economic, social
and environmental dimensions of sustainable development and reported their progress
on a global scale (SustainAbility and UNEP, 2002). Hence the concept of industrial
sustainability expanded from two dimensions (economic and environmental as
proposed by the United Nations Industrial Development Organization (UNIDO) and
WBCSD) to three dimensions: economic, social and environmental. A company must
be economically sustainable to contribute to sustainable development, but economic
sustainability will not ultimately be achieved if local environmental and social needs
are ignored.
Many business groups have established units specializing in CSR. For example, the
organisation ‘Business for Social Responsibility’ (BSR) was formed in 1992 and has
offices in the US, Europe and Asia. BSR aims to provide business organizations with
expertise on CSR and also gives opportunities for business executives to advance their
knowledge of CSR in theory and practice and learn from each other. The London-
based Ethical Corporation, which was launched in 2001 as an independent media firm,
is another business association that organizes and holds highly influential conferences
on CSR, sustainability and business ethics. The purpose of Ethical Corporation is to
encourage debate and discussion on responsible business practices and help
businesses around the world do the ‘right thing’.
There are also some good examples of business contribution to sustainable
development in developing countries. For example, MEADOW (Management of
Enterprise and Development of Women), in Dharmapuri, India, which was formed as
a result of the partnership between Titan Industries and MYRADA, an NGO for social
causes. Through MEADOW, Titan has made a significant contribution to sustainable
enterprise and female employment in Dharmapuri, a place that had been suffering
from high rates of female infanticide and high levels of poverty. The MEADOW
project provided women with education and helped to make them self-sufficient and
better able to take care of their family. Uneducated young women, mothers, and
widows were trained in all aspects of jewellery making, such as stone sorting, cutting
and modelling, stone setting and polishing. A self-help group was also formed by
these women. They set up a factory (with three women directors and employing 200
women) and acted as owners being responsible for profit sharing and recruitment.
This initiative has benefited two hundred families in the area, and has also allowed
Titan to improve its social image, enlarge its circle of influence within the NGO
26
sector, as well as create a sustainable supply chain from which it benefits (Basuvaiyan,
2013). There are many other examples of this kind. Hewlett-Packard’s ‘i-Community’
in Kuppam, India provides access to greater social and economic opportunities to
women and the local consumers. Not only has it ensured the development of new
products, but it has also helped build a network of contacts that positioned HP as a
better competitor in these regions. Cemex, a cement company is in partnership with
the international NGO Ashoka to try and find business solutions to poverty in the
slums of Mexican cities. Holcim, one of the world’s leading materials companies, has
formed community advisory panels to work with local communities on initiatives
related to sustainable community development, education and training, and local
infrastructure improvement (Morrison, 2009).
Other examples include the Atlanta Agreement signed in 1997 between the
International Labour Organization (ILO), United Nations International Children's
Emergency Fund (UNICEF) and the Sialkot Chambers of Commerce in 1997. This
agreement outlawed the use of child workers in the sports equipment industry in
Pakistan. It aimed to improve the working conditions and incomes of families in
Sialkot so that children would not be forced to miss school in order to earn a living
making footballs. The Agreement helped to decrease child work but is often criticised
for making families worse off. Similarly, the Bangladesh Garment Manufacturers
Association signed a Memorandum of Understanding (MOU) in 1995 with the ILO
and UNICEF to allow children displaced or fired from the garment industry to receive
education, vocational and skills training. The programme was called ‘The Placement
of Children Workers in Schools Programme and the Elimination of Child Labour’.
We can see from the above that in the context of low levels of development and
poverty, CSR has taken on objectives of community development, community
empowerment and also of addressing community problems more generally.
In Latin America, the most advanced country as far as CSR is concerned is arguably
Brazil, which Haslam (2004) sees as being closer to Canada in this regard than to
other Latin America countries. de Abreu et al. (2012) suggests that Brazilian firms
have more CSR practices in place than Chinese firms. Brazilian CSR, which is driven
by domestic concerns and a range of stakeholders, tends to focus on labour conditions,
biodiversity, consumer rights and transparency (da Abreu et al., 2012). In fact, it has
been argued (see Matten and Moon, 2008) that the neo-liberal shift towards a market-
friendly approach to the economy which undermined the role of the state in Brazil in
the 1980s, helped highlight the role that Brazil’s firms can play in pushing forward
social strategies including workers’ rights, community development etc. (see also
Damiano-Teixeira and Pompermayer, 2007). Brazilian firms have also been
increasing their attention on the environment and this has been reflected in the
ISO14001 certification that has become attractive to Brazilian investors (De Oliveira
et al., 2010). Cappellin and Giuliani (2004) see CSR as being used by Brazilian firms
to clean up their image, and Muller and Kolk (2008) also find that environmental
concerns feature strongly in the CSR undertaken by Mexican auto-part companies.
27
Muller and Kolk (2008) used nine measures to explore CSR in the auto-industry in
Mexico, including three environmental (share of energy use from renewables, share of
waste that is recycled, environmental training to non-management employees), three
labour market (women in managerial positions, vocational training to employees,
absenteeism and illness days lost) and three community related (money spent on
philanthropy, organisational structure for dealing with CSR issues in the community,
free internships offered to school graduates). Of these, they found environmental CSR
to be most significant. They concluded that CSR in Mexico is not just ad hoc but
strategic too, and in this regard it is closer to CSR within developed countries, same
as Haslams (2004) conclusion regarding the case of Brazil. Another good example is
GrupoNueva (GN), a holding company operating across Latin America. Its pipe
plumbing equipment and water systems branch called AMANCO Argentina is
currently working with Habitat for Humanity, a not-for-profit NGO that builds simple,
decent, affordable housing with the help of volunteer labour, with plans to build
25,000 homes in Central America.
It can be concluded from the above that CSR is not only a feature of modern global
business, but also increasingly a new mode of societal governance.
The UN, CSR and Sustainable Development: the UN Global Compact
In an attempt to generalise CSR initiatives towards the more comprehensive goal of
sustainable development, UN Secretary General Kofi Annan launched the UN Global
Compact (UNGC) at the World Economic Forum in Davos in 1999. Speaking at the
Forum, he said:
I will propose that you, the business leaders gathered in Davos, and we, the
United Nations, initiate a global compact of shared values and principles,
which will give a human face to the global market… Many of you are big
investors, employers and producers in dozens of different countries across the
world. That power brings with it great opportunitiesand great
responsibilities. You can uphold human rights and decent labour and
environmental standards directly, by your own conduct of your own business.
Indeed, you can use these universal values as the cement binding together
your global corporations, since they are values people all over the world will
recognize as their own. You can make sure that in your own corporate
practices you uphold and respect human rights; and that you are not
yourselves complicit in human rights abuses. Don’t wait for every country to
introduce laws protecting freedom of association and the right to collective
bargaining (Annan, 1999).
We have to choose between a global market driven only by calculations of
28
short-term profit, and one which has a human face… Between a selfish free-
for-all in which we ignore the fate of the losers, and a future in which the
strong and successful accept their responsibilities, showing global vision and
leadership… I am sure you will make the right choice” (Annan, 1999).
Following this speech, the UN Global Compact was launched in 2000 (Box 3.5). The
UN Global Compact is a voluntary initiative that relies on public accountability,
transparency and the enlightened self-interest of companies. It calls itself the world’s
largest corporate sustainability initiative or as its website says:
a call to companies to align strategies and operations with universal principles on
human rights, labour, environment and anti-corruption, and take actions that advance
societal goals (UN Global Compact, 2017a).
It has 13,000 corporate participants in more than 170 countries and is meant to
facilitate firms which wish to take on its 10 basic principles through discussion and
networks.
The UN Global Compact is meant to support companies to act responsibly in
accordance with the above 10 principles on human rights, labour, environment and
anti-corruption. It also helps firms to take action to push forward societal goals like
the UN’s Sustainable Development Goals. In this context, it puts forward five things
that sustainable companies must do:
Box 3.5. Ten principles of the United Nations Global Compact
Businesses should:
1. Support and respect the protection of internationally proclaimed human rights; and
2. Make sure that they are not complicit in human rights abuses;
3. Uphold the freedom of association and the effective recognition of the right to collective
bargaining;
4. Work towards the elimination of all forms of forced and compulsory labour;
5. Work towards the effective abolition of child labour;
6. Work towards the elimination of discrimination in respect of employment and
occupation;
7. Support a precautionary approach to environmental challenges;
8. Undertake initiatives to promote greater environmental responsibility;
9. Encourage the development and diffusion of environmentally friendly technologies;
10. Businesses should work against all forms of corruption, including extortion and
bribery”.
Source: UN, 2012.
29
1. Operate a principled business
2. Strengthen society
3. Show leadership commitment to sustainability
4. Report progress
5. Take local action
The UNGC engages with civil society and other stakeholders to create an
environment that facilitates responsible businesses. It is not a ranking or an index.
Instead, it is a network that offers participating businesses the possibility of
exchanging experiences and learning from each other. Committing to the UNGC
requires the business to submit a report on annual progress in implementing the above
principles of the UNGC. Those firms that do not submit this report or are unable to
convince the committee that they are committed to the 10 principles are at risk of
being de-listed. Not surprisingly, this requires monitoring of compliance which varies
between countries and across firms within countries. Thus, large corporations (which
have a reputation at stake) like Nike, Gap and Puma have well-established monitoring
systems. Some smaller firms bring accountants in to monitor social and environmental
standards as well as financial performance while others do not manage even this
(Hoessle, 2014).
Criticism of the UNGC has related to its voluntary status. While businesses were clear
that they would not engage with an initiative that was not voluntary, civil society
organisations which were not part of the UNGC felt that this voluntarism led to ‘blue-
washing’. The lack of enforcement mechanisms became a major focus of criticism
(Kell, 2005). Utting (2003), for instance, argues that the voluntary approaches need to
be integrated better with legal and regulatory approaches; the former cannot be an
alternative to the latter. These criticisms gave rise to governance mechanisms that
helped shape the compact not as a membership programme but as:
an initiative with engagement mechanisms that generate concrete actions, systemic
change and convergence around universal principles (Kell, 2005, p72).
Furthermore, the same issues (the lack of institutional capacity, weak corporate
governance, a less favourable business climate and a smaller business scale) that slow
down overall economic and social development and the creation of strong private and
public sectors also hinder the development of CSR. SustainAbility and UNEP (2002)
concluded that CSR was reaching its limits in the current state and further progress
would require changes to extend the CSR agenda and strengthen implementation. In
this context, Utting (2003) argues that the CSR agenda needs to be more South-
centred.
Measuring Corporate Social Responsibility
30
Given the range of activities that businesses are undertaking and the triple bottom
lines that they are using to judge their performance, it is no longer sufficient to
analyse firm performance based purely on profits. More and more scholars and
businesses have been trying to provide a quantitative measure of CSR so as to assess
its impact on financial performance and justify their CSR investment. After all, it is a
commonly held maxim that one needs to ‘measure in order to manage’, so it is not all
that surprising to have the same sentiment expressed in CSR. Indeed, the rise of the
concept of ‘Sustainability Indicators and Indices’ as tools within the broad sphere of
sustainable development since the 1980s has been noted by many (see for example,
Bell and Morse, 1999; 2003), and was featured within the UNCED and UNCSD
reports. Indeed indicators linked to targets will be a major element of the Sustainable
Development Goals agenda, with each of the 17 goals having a suite of indicators and
targets.
However, as CSR is a multi-dimensional concept we must be fully aware of each
dimension when measuring it, which is challenging (Hillman and Keim, 2001;
Brammer and Pavelin, 2006; Benabou and Tirole, 2010; Tang et al., 2012; Belu and
Manescu, 2013). CSR has been measured in two ways in the literature:
One-dimensional data measurement. These are the easiest measures and relate to
firms measuring their performance on single indicators of environmental or social
performance. Thus, some studies employ data relating to emissions of pollution,
philanthropic activities, etc. A good example of a pollution index is the Toxic Release
Inventory (TRI
1
) which was used by Griffin and Mahon (1997). Others (Russo and
Fouts (1997), Filbeck and Goman (2004), Elsayed and Paton (2005), Guenster et al.
(2011) use more general environmental data as CSR indicators. This is true also of the
social dimension of CSR. Preston and O’Bannon (1997), for instance, used only the
social dimension of Fortune MAC ratings as a measurement of CSR. Porter and
Kramer (2002) used only corporate philanthropy as a measure of CSR. One-
dimensional data measurement has the advantage of being able to focus on variables
that are arguably more straightforward to measure and interpret. But it is obvious that
such data provides only a partial picture of a multi-dimensional concept like CSR.
Broader Multi-Dimensional Indices: A number of measures of CSR take into account
the various dimensions that it covers. We will look at some of these in the next
section but can consider the basic context using the example of the Fortune Most
Admired Corporations (MAC) index. It is a purely perceptual measure derived from
surveys of people external to a company such as financial analysts, directors, and
senior managers outside of the firm. Each interviewee uses a 10-point scale to assess
the company in terms of eight corporate reputation attributes spanning the economic,
social and environmental aspects of corporate performance. The overall rating is the
aggregation of scores of each attribute. The Fortune MAC rating has been used by
many researchers such as McGuire et al. (1988); Fombrun and Shanley (1990) and
31
Griffin and Mahon (1997). Its main advantage is that it is reliable and valid. The
rating for each individual company has varied only slightly over the years and there
has been a very strong correlation between ratings from each year. In addition,
significant associations have been found between the Fortune MAC ratings and other
evidence of a firm’s CSR practices such as corporate personnel practices, legal
problems, etc. whether favourable or unfavourable (Preston and O’Bannon, 1997).
Measurement of CSR requires considerable amounts of data. This, in turn, can be
collected in many ways:
Perceptual measurements derived from questionnaire-based surveys. These kinds of
measurements are based on the perceptions of corporate executives which are
obtained via a questionnaire. A typical example is the system devised by Aupperle et
al. (1985) who developed a scale measuring corporate executives’ attitudes towards
social responsibility. Aupperle’s et al. system is based on Carroll’s (1979) four
categories of CSR.
Measurements based on content analysis of annual reports. This part will be covered
in greater depth in Chapter 5 but here all we need to say is that content analysis is a
means by which a firm’s annual report and other documents are analysed in terms of
anticipated phrases and words. The advantage of content analysis is that it is
reasonably objective (Cochran and Wood, 1984). Examples of content analysis using
the annual reports of firms are provided by Fry and Hock (1976) and Moore (2001)
(UK).
Third-party measurements. Another category of measurements are based on data
produced by third parties specializing in CSR assessment. These are often extra-
financial/non-financial ratings, that is, no financial information is included, which
makes the measurement more valuable in social investment decision-making (Radley
Yeldar, no date). The Kinder, Lydenberg, Domini (KLD) index frequently used in
American empirical literature in the 1990s and 2000s is one such index.
To avoid any possible bias that may emerge from employing a single assessment
method, some writers attempt to triangulate information by employing more than one
measure. For example, Griffin and Mahon (1997) used four sets of data to assess the
CSR in their case study of the US chemical industry: two perceptual data sources
(KLD rating and Fortune MAC rating), and two performance based data sources (TRI
database and corporate philanthropy). Similarly, Moore (2001) employed the case
company’s annual report, fact sheets from different sources including the Ethical
Investment Research Service, Advertising Standards Authority, Independent
Television, Christian Aid and Ethical Trading Initiatives to assess CSR.
These methods have been widely adopted for CSR measurement because they are
accessible and easy to use. But there are obvious shortcomings to some of them. For
32
example, the Fortune MAC rating has been criticized for its subjectivity because it is
heavily influenced by the previous financial performance of the firms (Brown and
Perry, 1994). With this financial halo, there is always likely to be a strong relationship
between the Fortune MAC rating and the firm’s financial performance (Fryxell and
Wang, 1994). So unless the financial halo is removed, the Fortune MAC rating cannot
be used as an unbiased measure for CSR. Brown and Petty (1994) present a method
for halo-adjustment of the Fortune rating. Logsdon and Wartick (1995), however,
believe the Fortune rating, halo-adjusted or unadjusted, is not a well-rounded measure
of CSR as it only considers the view of the business community and no other
stakeholders are included. This shortcoming applies to other reputation indices and
perceptual measurements. The content analysis of annual reports has been criticised as
involving more of a measurement of social discourse than of CSR (Ullmann, 1985).
With the obvious limitations of other measurements, the third party measurements are
being increasingly favoured by researchers. Of these, KLD stands out as the most
widely used US rating while Vigeo is known as KLD’s European counterpart (Table
3.3 provides a general comparison of these two ratings in terms of methodology
employed). In this section, we will explain these two measures of CSR in more detail
to provide an indication of what they involve.
[insert Table 3.3 here]
KLD ratings
The KLD index measures large listed companies in the US with an array of
exclusionary screens (i.e. tobacco, alcohol, gambling, etc.) and covers nine major
social areas including environment, military contracting, employee relations,
community involvement, product safety, quality programmes, excessive
compensations of executives, diversity (i.e. female and minority promotion), nuclear
power. An index is the aggregation of a number of measures and the KLD is a hybrid
of perceptual and multiple dimensions of CSR. It profiles companies by using both
positive and negative social investing criteria. Thus, each company can have both a
strength and a concern. Scores were assigned to each strength (positive score) and
concern (negative score) in the following way (Table 3.4):
[insert Table 3.4 here]
An advantage of the KLD rating compared to the Fortune MAC rating is that, instead
of just looking at perceptions of business executives and analysts, it rates firms from
the point of view of multiple sources (Griffin and Mahon, 1997). Another advantage
of the KLD rating is that because it is calculated by a third party, the result is an
independent ranking for the largest 3000 US companies by market capitalization
(RiskMetrics Group, 2010).
The KLD rating does have a few limitations. First, all dimensions of CSR are treated
33
as equally important. While this is the simplest approach to adopt with such indices, it
is open to criticism though alternative weightings are also not easily defensible.
Second, it does not give sufficient weight to historical environmental performance
leading Chatterji et al. (2009) to suggest placing more weight on historical
environmental performance within this index. In addition, the KLD rating is the result
of aggregating nine indexes into one, and previous research has found that firms with
high scores on their strengths also tend to have high scores on their concerns. An
aggregation therefore often nets out the impact of the various dimensions, so that the
dimension with a bad value, which should certainly be the focus of attention, in terms
of remedial action, is masked (Griffin and Mahon, 1997; Mattingly and Berman, 2006;
Delmas and Doctori-Blass, 2010).
Vegio ratings
Another widely used third party CSR measurement is the Vigeo database which is
regarded as the European counterpart of KLD (Cavaco and Crifo, 2014). Vigeo,
previously known as ARESE, was established in 1997 and is a leading European
extra-financial/non-financial rating agency that initially focused on European
companies but now has expanded to Asia. It evaluates the CSR performance of
companies and organizations with regard to their environmental, social and
governance (ESG) dimensions. While KLD rates all the companies annually, Vigeo
rates a few sectors every month (Chollet and Cellier, 2011). Vigeo measures CSR
(Figure 3.7) by identifying companies that are the best performers from 40 sectors,
based on 38 generic criteria covering six broad domains/dimensions:
1. Human rights
2. Environment
3. Human resources
4. Business behaviour
5. Corporate governance
6. Community involvement.
[insert Figure 3.7 here]
Figure 3.7 Framework of Vigeo rating
Source: Vigeo website; Chollet and Cellier (2011); and Cavaco and Crifo (2014)
Based on what we can find at Vigeo’s official website and information gathered from
Chollet and Cellier (2011) and Cavaco and Crifo (2014), the Vigeo rating method is
summarized here: Each of the six domains is comprised of a subset of criteria that
describe how the particular domain of CSR is managed by the company. But for the
whole sample, only part of the six domains are investigated by Vigeo, and each
business sector has its own selection of what should be included in the investigation.
The selection is determined by key CSR issues within the business sector which are
identified by an analysis carried out before the companies are rated. Vigeo then
analyse how each criterion is addressed by each company within the sector in terms of
34
leadership, implementation and results, and each criterion is scored based on
relevance of the policies, coherence of implementation and the outcomes. A
questionnaire survey is employed by Vigeo to carry out the evaluation, and the design
of the questionnaire for each criterion is based on three items i.e. leadership,
implementation and results. Finally, the questions are organized into nine elementary
analysis angles (Figure 3.8). Each criterion is assigned a weight on a scale from 1 to
3 based on the sectoral analysis done by Vigeo that shows the relative impact of the
social responsibility objectives it refers to.
[insert Figure 3.8 here]
Figure 3.8 Questioning segment for each criterion
Source: Vigeo official website
Vigeo employs the conventional rating scale organized in a hierarchy of four levels of
differential scores to evaluate each elementary angle (Figure 3.9). Each of the angles
is scored on a scale of 0 to 100, a score of 0 indicates little evidence of commitment
(very weak to weak guarantee of risk management), whereas a score of 100 shows an
advanced commitment (socially responsible objectives actively promoted). Scores
between 30 and 65 fall in between. Points given to each angle are consolidated
through a system of weighted averages to get the items’ scores, which are then all
consolidated to get the evaluation of each criterion and each domain.
[insert Figure 3.9 here]
Figure 3.9 Vigeo’s 4-level CSR assessment scale
Source: Vigeo website.
However, even with different methodologies and indeed popularity in different parts
of the world, both KLD and Vigeo are internationally recognized as third party CSR
measurements.
Global Measures of Corporate Sustainability
In addition to the UNGC which facilitates the shift of firms towards sustainability, a
range of global measures have been developed which aim to identify (and rank) firms
on the basis of their sustainability performance. We will consider three of these
measures in this section: the Dow Jones Sustainability Index (DJSI), FTSE4Good and
the Global 100. The Global Reporting Initiative (GRI) guidelines provide a
framework for reporting on social, economic and environmental performance. In
doing so, they provide a benchmark for firms with respect to reporting actions taken
to improve non-financial performance and the outcome of these actions. The
guidelines are loose but, despite this, they have helped tighten up reporting of CSR
activities.
35
Dow Jones Sustainability Index (DJSI)
The Dow Jones Sustainability Index (DJSI) was launched in 1999 and evaluates the
sustainability performance of companies listed on the more familiar Dow Jones Index.
The Dow Jones Index (more accurately, it is now called the Dow Jones Industrial
Average) is a measure of stock market valuation of a suite of selected companies
listed on the US stock exchange. It was first published in the late 19th century, and the
aim was to have an index that measured the ‘health’ of the companies upon which it
was based. If the index goes up then that reflects an increase in the average stock
market valuation (i.e. share price), and if it goes down then it suggests an average
decline in share prices. It should be noted that the index is an average; some company
shares can go up while others may go down. It also has to be noted that the Dow
Jones Index is based on a relatively small number of very large companies and does
not include all of the companies listed on the New York Stock Exchange. This has led
critics to point to a lack of representativeness with this index. Finally, share prices
may move up and down for a variety of reasons, some of which may not necessarily
be related to what is going on within the US. The share price of a multi-national
company operating across many countries will be influenced by events within those
countries and indeed by factors such as movement in currency exchange rates. Thus it
is important to be aware of the limitations of any indicator. We will return to the
limitations of indicators as well as of the challenge of representation based on samples
in Chapter 5.
The DJSI evaluates a subset of firms on the Dow Jones Index using three criteria,
economic, environmental and social, each of which has one-third weighting. In
addition, the assessment is based on industry specific criteria (57%) and general
criteria (43%). The index is meant to identify the companies that are being operated in
the most sustainable manner and considers issues like corporate governance, risk and
crisis management, codes of conduct, environmental reporting, human capital
development, labour practices, social reporting etc. In 2015, 3470 companies were
invited onto the index, of which 2500 were in the DJSI World universe and the others
were in various regional indices (DJSI Europe, DJSI North America, DJSI Asia
Pacific etc.). Companies are invited onto the index if they score at least 40% of the
highest scoring firm within the geographical sector being considered. The industry
group leaders in 2015 were Volkswagen (Germany) for Automobiles and Components,
Unilever Public Limited Company (Netherlands) for food and beverages, LG
Electronics (Republic of Korea) for consumer durables and Thai Oil Public Limited
Company for energy.
The DJSI is often criticised because it is based on self-reported data, which critics
argue rewards companies that report well rather than necessarily those that have the
best practices. Second, it tends to be biased towards large firms (which are also part of
the Dow Jones Index) unlike other indices which include smaller firms too.
36
FTSE4Good
The FTSE4Good is an index that measures the performance of companies
demonstrating strong environmental, social and governance practices. FTSE (often
informally called ‘footsie’) is an acronym for Financial Times Stock Exchange, and
the FTSE 100 is a similar measure to the Dow Jones Index discussed above only this
time covering 100 large companies listed on the London Stock Exchange. There is
also a FTSE 250 index which covers the share price of the largest 250 companies. The
FTSE4Good index has over 300 indicators, and unlike the DJSI, the FTSE4Good is
based on publicly available data and does not use information provided privately by
the company. The index is also overseen by an independent committee with experts
from NGOs, investment firms, companies, unions and academia. Companies are rated
on ESG between 0 to 5 and those companies with a rating of 3.2 or above are included
in the index. Companies with an index below 2.5 are likely to be dropped. The index
does not include any companies in the tobacco products or weapons or components
sectors and is meant to identify:
companies that better manage ESG risks and are used as a basis for tracker funds,
structured products and as performance benchmarks (FTSE Russell, 2015).
Volkswagen (VW) AG topped the 2015 list but was dropped (see Box 3.6) in
December 2015 following a review of the company’s vehicle emissions problem in
the US. A similar fate befell British Petroleum (BP) after the Deepwater Horizon
disaster in 2010 (Box 3.7).
37
Box 3.6: Volkswagen AG: The Emissions Scandal and CSR rankings
On 11 September 2015, VW reported that it had been listed as the most sustainable automaker
in the DJSI. The company website reported that “full marks were awarded to VW in the areas
of codes of conduct, compliance and anti-corruption as well as innovation management,
climate strategy and life cycle assessment. The group is also the industry benchmark for
supplier management and environmental reporting”. (Ernst, 2015)
During autumn 2015, however, it was revealed that the company had wilfully manipulated
emissions tests to make its diesel car emissions look better than they were. The scandal, also
called the ‘diesel dupe’ emerged when the Environmental Protection Agency (EPA) in the
USA found that many VW cars being sold in America had software that could detect when
they were being tested. This allowed the cars to change performance to improve results. This
was done in an attempt to increase the attractiveness of diesel cars in the American market.
VW admitted that it was likely to affect 11 million cars worldwide.
Following disclosure of the problems, the DJSI committee undertook a Media and Stakeholder
Analysis and announced on 29 September 2015 that it would remove VW from the DJSI
World index as well as its other sub-indices. The company was no longer to be identified as a
Group Leader in the Automobile and Components industry group. The company was also
dropped from the FTSE4Good index, following a review by FTSE Russell’s independent ESG
Advisory Committee. The committee announced that VW was deemed:
to have misled government agencies and consumers over vehicle emissions through the
application of software designed to circumvent test requirements. The suspension follows an
assessment of Volkswagen through FTSE’s Controversy Monitor which considers the
significance of crises or controversies; how the company has responded; and the extent to
which it impacts wider industry”. (Blue & Green Today, 2015)
The controversy brought into question yet again the self-policing that was common in
corporate sustainability and the lack of regulation.
38
[insert Table 3.5 here]
Table 3.5 indicates that the FTSE4Good index covers a number of countries (though
mostly developed). Not unexpectedly, the largest number of companies are in the
USA (190 out of 816), followed by Japan (159) and the UK (107). Despite this,
engagement in CSR is relatively limited. Interestingly there are no Indian firms in the
FTSE4Good Global Index. In addition, there are only 265 Indian enterprises that are
part of the UN Global Compact India Network and the top five sectors are set out in
Table 3.6.
[insert Table 3.6 here]
Global 100
This is an index of the top 100 most sustainable companies in the world. It is
compiled by a firm called Corporate Knights based in Toronto. It uses a quantitative
methodology and begins by considering all firms with market capitalisation over US
$2 billion. The firms are then screened for sustainability and financial stability against
peers within their sector. The top 100 are those companies which emerge after this
Box 3.7: BP Deepwater Horizon Disaster
The Deepwater Horizon rig was drilling an oil well in Macondo in the Gulf of Mexico. The well
was owned by Transocean, which was under contract to BP. Such wells were usually plugged
with cement until they became production wells. On 20 April 2010, the casing or the cement that
blocked the well gave way and an explosion occurred. Eleven people died and 4.9 million barrels
of oil flowed out for 87 days until the well was finally successfully capped on 19 September
2010 after numerous unsuccessful attempts.
In September 2014, a US District Court Judge found BP to be grossly negligent and the company
agreed to pay $18.7 billion in fines in July 2015.
The company was dropped from the DJSI following the disaster and also from the FTSE4Good
Index. A statement said:
The committee’s decisions to remove BP followed consideration of the company’s response to
the Gulf of Mexico oil spill, the environmental and social impact and its history of similar
incidents” (Financial Times, 2010).
The DJSI also reported that with effect from 31/5/10, BP was removed from the DJSI because of
the long-term effects the oil spill would have on the environment and the community as well as
its economic effects and the long-term damage to the reputation of the company.
39
screening process. Companies are compared on key performance indicators (which
are sector specific). In particular, at least 10% of firms must disclose on a particular
indicator for it to be used. The indicators include energy productivity, carbon
productivity, water productivity, waste productivity, CEO to average worker pay,
employee turnover, safety performance etc. The final top 100 ranked firms are
revealed at the World Economic Forum at Davos annually. Like the FTSE4Good
index, this index too excludes firms in the tobacco sector and the weapons sector.
Table 3.5 includes the spread of companies in the top 100 across countries in 2015
and 2016. As with the FTSE4Good we can see that the US leads the Global 100 with
20 companies in 2015 and 18 in 2016. It is followed by France and Canada in both
years and then the UK. The vast majority of the Global 100 companies are in North
America or Europe with only Australia, China, Hong Kong, Singapore, South Korea,
Brazil and Japan even being represented on the rankings. Together, they account only
for 17 companies (or less than the USA’s 20!) (Corporate Knights, 2015; 2016).
These global measures of corporate sustainability have also been used by scholars to
measure CSR. For example, Gjolberg (2009) uses 9 indicators (including the above
mentioned 4 indices together with 5 others to create a CSR rating that corrects for the
size of the economy. After analysing the importance of CSR activity across 20
countries, Gjolberg finds that the US scores the least within her sample while
Switzerland and the Scandinavian countries score the highest. This is despite the fact
that American firms feature very strongly both in the FTSE4Good and the Global 100.
The differences might relate to two factors Gjolberg corrects for the size of the
country and also uses 9 indicators rather than a single one. In addition, Gjolberg (2009)
finds two clusters of countries with good CSR. The first group includes countries like
Switzerland, the UK, Netherlands, which are more open and globalised. In these
countries, she argues, good CSR may be the outcome of multinational enterprises
being monitored by NGOs, civil society and the media. The second group include the
Nordic countries, with strong consensualist and corporatist traditions, extensive social
and environmental public policies and participatory values. In these countries, there
are close co-operative relations between the state, business and labour and there is a
long standing commitment to involving civil society in decision making.
Summary
CSR has resonance within sustainable development. It could perhaps even be said that
CSR is a term for summarising the contribution of businesses towards sustainable
development. It is certainly true that businesses have a major role to play in
sustainable development, and this can be seen in the 17 SDGs; in each of which it is
possible to see a role for the private sector. The chapter has also highlighted the
importance of measurement in CSR under the adage that ‘management requires
measurement’. The chapter presented a number of indices that are used for assessing
CSR performance. In practice, any company engaging in CSR is likely to have a
40
number of indicators with which to assess the performance of its programme(s), and
one often comes across the term ‘Key Performance Indicator’ (KPI) in CSR reports.
Some of the issues relating to indicators and indices will be discussed further in
Chapter 5.
Further Reading
Baumohl B., 2012. The Secrets of Economic Indicators: Hidden Clues to Future
Economic Trends and Investment Opportunities (3rd Edition). Pearson Education Inc.,
New Jersey.
KPI Institute and Smartkpis Com., 2013. The KPI Compendium: 20,000 Key
Performance Indicators Used in Practice. Createspace.
Merry S. E., 2015. The Quiet Power of Indicators: Measuring Governance,
Corruption, and Rule of Law. Cambridge University Press, Cambridge.
Sachs, J.D., 2015. The Age of Sustainable Development. Columbia University Press.
Utting P., Marques J.C., 2009. Corporate Social Responsibility and Regulatory
Governance: Towards Inclusive Development? Palgrave Macmillan, International
Political Economy Series.
Discussion questions
1. Discuss how CSR could conflict with sustainable development
2. Discuss the concept of Corporate Social Performance and whether you think this
is distinctive from CSR.
3. For two companies of your choice, explore the indicators that they have
employed to assess their CSR performance.
4. Explore the motivations for companies to get involved in global measures of CSR.
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1
TRI is the abbreviation of Toxic Release Inventory. TRI is a data source of toxic chemical releases
and pollution prevention activities reported by industrial and federal facilities, it is used by the
government for the purpose of decision-making, and by some special interest groups or academics for
the purpose of research (USEPA, 2015).
... Les agriculteurs placent le problème de la pollution des sols liée à la fertilisation dans une perspective spatiale et temporelle réduite et, leur perception de l'état de l'environnement ainsi délimitée, est plutôt positive. Il s'agit là d'un problème récurrent (Dunlap et al., 1993 ;Uzzell, 2004). L'état de l'environnement et son évolution étant jugés satisfaisants dans le périmètre sur lequel les agriculteurs peuvent percevoir un lien entre leurs propres actions et les dégradations, ils ne se disent que peu concernés par une action en faveur de l'environnement. ...
... L'état de l'environnement et son évolution étant jugés satisfaisants dans le périmètre sur lequel les agriculteurs peuvent percevoir un lien entre leurs propres actions et les dégradations, ils ne se disent que peu concernés par une action en faveur de l'environnement. Uzzell (2004) fait remarquer que c'est probablement pour cette raison que les campagnes en faveur de l'environnement ont relativement peu d'impact sur les citoyens, dans la mesure où elles évoquent des dégradations locales au lieu d'attirer l'attention sur les dommages environnementaux à l'échelle globale. À cela s'ajoute que la connaissance agronomique est perçue comme imprécise et aléatoire en raison de la présence de multiples facteurs extérieurs. ...
Article
In the framework of a public awareness campaign introducing new practices of fertilization in a group of farmers, the paper analyses the conditions of professional ecological behaviors in favor of sustainable development. Verbal associations and focalized interviews were set up in order to explore the links between the perception of the environment and pro-environmental behaviors, as well as the kind of relationships farmers built up with their environment. The results showed that the type of representation, the environmental awareness, and the perceived responsibility did not explain behavioral differences. The professional occupation was dominating among the farmers in the relationship with the anthroposystem. The representation of the farmers' own professional activity and its future was explicative of their relationships with their environment, and consequently of their behaviors.
Chapter
Corporate Social Responsibility (CSR) has become a significant field of studies to stress the importance of the new role of organizations towards the society for sustainable development. Nowadays, an enormous number of authors have been participating in this field to highlight the responsibility of organizations towards the community, society and the natural environment where they are operating. Despite the growing number of researches related to CSR in the developed countries little empirical studies have been devoted to examine CSR concept and practice in the African countries, the MENA region (Middle-East and North Africa), as well as in the Golf countries. This chapter seeks to study CSR concept and practice in the emerging market economies (EMEs). It will mainly focus on the implementations of CSR by the public banking sector. We will investigate the role of the public banking sector existing in an Arab country in comparison to an Asian country to explain and analyze the similarities and differences of CSR activities in both experiences. In this comparative study we will primarily examine Banque Misr, as one of the oldest and largest public bank in Egypt and the Malayan Banking Berhad (trading as Maybank) as the largest public bank in Malaysia. After a meticulous review of literature, we propose a systemic framework to study CSR practices and policy implementations. We illustrated the CSR as a constant process where all variables are interrelated and are affecting each other in a mutual approach. In this systemic framework we advocated to study all significant variables related to CSR practice as: the history/philosophy development, core-values, CSR adopted definition, motives, key players, approaches, stake holders focus, sectors of intervention and mechanisms of policy implementations. The chapter concludes that common CSR policies exist between the Malaysian and the Egyptian experience. Nevertheless the Malaysian model has formulated an elaborated and further sophisticated CSR public banking program. Meanwhile, the Egyptian model needs to adopt more global oriented CSR public banking policies, in particular to assure the sustainable development requirements.
Chapter
The purpose of this chapter is to outline the development of the idea of "stakeholder management" as it has come to be applied in strategic management. We begin by developing a brief history of the concept. We then suggest that traditionally the stakeholder approach to strategic management has several related characteristics that serve as distinguishing features. We review recent work on stakeholder theory and suggest how stakeholder management has affected the practice of management. We end by suggesting further research questions.
Book
Using a power-knowledge framework, this volume critically investigates how major global indicators of legal governance are produced, disseminated and used, and to what effect. Original case studies include Freedom House's Freedom in the World indicator, the Global Reporting Initiative's structure for measuring and reporting on corporate social responsibility, the World Justice Project's measurement of the rule of law, the World Bank's Doing Business index, the World Bank-supported Worldwide Governance Indicators, the World Bank's Country Performance Institutional Assessment (CPIA), and the Transparency International Corruption (Perceptions) index. Also examined is the use of performance indicators by the European Union for accession countries and by the US Millennium Challenge Corporation in allocating US aid funds.