Over the past decade, there has been increasing interest in the concept of corporate social responsibility (CSR) and the proposition that corporations should take into account the interests of stakeholders other than their shareholders. Support for this idea has come not only from corporations themselves, but from national governments, extra-national organizations such as the United Nations, and non-governmental organizations. As a result, recent years have seen legislative efforts to encourage or even mandate some form of CSR, with the reporting of CSR activities recently enshrined in Danish law, and proposed legislation in Canada which seeks to regulate the activities of Canadian mining companies in developing nations.
However, questions have arisen as to whether CSR advances a consistent set of interests and principles, and whether it effectively serves the societal interests it purports to advance. CSR may be viewed as the principle that corporations should respond to interests apart from, and in addition to, those of their shareholders. However, the definitions of CSR advanced by governments and international organizations have tended to focus on corporate efforts to balance their economic activities with broader stakeholder interests.
For example, the Government of Canada takes the position that “CSR is generally understood to be the way a company achieves a balance or integration of economic, environmental and social imperatives, while at the same time addressing shareholder and stakeholder expectations.”
It also suggests that CSR is “an evolving term that does not have a standard definition or a fully recognized set of specific criteria.”
A similar definition was adopted by the European Commission in 2006 as part of its most recent policy communication on CSR, which defined it 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.”
The United Kingdom defines CSR as “how business takes account of its economic, social and environmental impacts in the way it operates — maximizing the benefits and minimizing the downsides.”
Finally, what may be the broadest definition is offered by the United Nations: “CSR can be defined as the overall contribution of business to sustainable development.”
The World Business Council for Sustainable Development (WBCSD) provides 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.”
A single definition for CSR may be elusive or even undesirable, clear themes emerge when one considers corporate efforts to behave in a socially responsible manner. In particular, CSR activities appear to focus on four common ends: human rights, labour standards, safety standards and issues relating to occupational health and safety and environmental responsibility.
It has been reported that majority of companies currently publicly report their efforts on environmental and social issues, with approximately 90 per cent of European companies and 59 per cent of American companies including such information in their annual reports, or separate companion reports.
In Canada, such activities appear to have increased dramatically over the past decade. While the reporting rate for companies listed on the Toronto Stock Exchange was 35 per cent in 2001, it had since risen to 60 per cent in 2003 and stands at 80 per cent as of 2007.
Meanwhile, even critics of CSR note that it has “won the battle of ideas.” The impetus behind this dramatic rise in participation in CSR comes from several sources, including public demand, the activities of NGOs, government encouragement or legislation, as well as voluntary action stemming from a corporation’s own business interests.
Public concern
In Canada, growing public concern over the role of corporations led to the establishment of the Canadian Democracy and Corporate Accountability Commission (CDCAC), a privately funded body which studied how to encourage greater CSR on the part of Canadian corporations. CDCAC conducted public opinion polls and found that “72 per cent believe that corporate executives should take social responsibility concerns (impacts on communities, employees, the environment and charitable activity) into account in pursuing profits.” In contrast, only 20 per cent believed that the only responsibility of a corporation was to enhance its competitiveness and profits.
Concern over corporate activity amongst the general public is reflected in the establishment of NGOs to advocate particular policy positions. These bodies have grown in number from the 1960s onwards, with some achieving considerable influence, including consultative status at the United Nations.
Many major international NGOs, including Greenpeace, the World Wildlife Federation and Oxfam, have specifically targeted the corporate sector to encourage action in areas as diverse as human rights, the environment, labour and other externalities, areas frequently advanced as a component of CSR.
Governments have responded to the public pressure regarding the effects of corporate conduct on both the environment and the community at large with both legislation, and support for voluntary CSR initiatives. These efforts may be illustrated by observing that a number of countries, including Canada, the U.K., Germany, France and the European Commission have departments, which have specifically undertaken considerations of CSR.
Business case
A number of studies have supported the argument that corporate involvement in CSR activities may serve to enhance profitability. As early as 2001, the Financial Times noted that “even on a sector-by-sector basis, shares of companies with a superior environmental or human rights record appear to outperform.” Similar observations have been in the mutual funds industry, with socially responsible investing growing at a rate markedly faster than the industry as a whole.
These beliefs are reflected in the practice of socially responsible investing (SRI), which has taken hold among some investors, and encourages the consideration of the “social and environmental consequences of investments.”
In the United States, SRI has been observed to be growing at a faster rate than all other investment assets under professional management, with the total value of SRI assets estimated at $2.71 trillion in 2007. Thus, the adoption of a corporate position on CSR may be seen in part as a response to shareholder demand.
The suggestion that corporate actors need to engage in CSR activities to benefit society has been criticized by those who believe that companies run solely to profit their shareholders. That the pursuit of profit may serve a social purpose has been recognized from the emergence of free market systems in the 18th century.
In the modern context, it has been suggested that profit may be viewed as a measure of the value that a corporation creates for society, if the price that people are willing to pay for goods reflects the value that people attach to them, and the costs associated with production reflects the cost incurred by society in their production. A company run solely for profit would further benefit the public by supplying its employees with wages, its customers with a product they desire, and may in turn act as a customer to companies which supply it with the goods and materials it needs to conduct its own business.
Further, if the company is to persist, all of these groups must be satisfied in their transactions with it. Thus, the company’s self-interest provides a powerful incentive to benefit groups with a direct interest in the corporation’s actions, provided that it is properly situated in a competitive market.
The number of voluntary initiatives promoting compliance with numerous CSR standards has expanded in recent years so that they now number in the thousands. As they are created without the need for a legislative process, such initiatives may be implemented more quickly than a legislative response. As such, they may offer a means to address sudden or rapidly developing issues.
Furthermore, as such standards are privately adopted and implemented, they do not require administrative or financial support from the government in order to operate.
Voluntary initiatives
The lack of a legislative process also provides a greater ability for voluntary initiatives to be tailored to the needs of the industries they are targeted at. This stems in part form the fact that they may be drafted and implemented by the very corporations or industry groups they are ultimately intended to apply to. In turn, this adaptability to corporate needs may encourage greater compliance, or more rapid adoption. The process of drafting, adopting and implementing voluntary CSR programs may also encourage cultural changes within the corporation, promoting proactive actions by the management responsible for adopting the standard.
However, while voluntary initiatives do have several advantages, they have been criticized, particularly with regard to their non-binding nature, which has lead to questions regarding their effectiveness in practice. In fact, a 2003 study by the Organization for Economic Cooperation and Development has suggested that few voluntary initiatives with respect to the environment have resulted in improvements significantly above the outcome that might have bee expected without them.
Several explanations may be offered for this lack of effectiveness. First, due to their voluntary adoption, voluntary CSR initiatives inevitably fail to capture all industry members. This problem may be particularly acute where those corporations that resist the adoption of voluntary standards are also those with the worst records in the field the standards address. Furthermore, in the absence of effective enforcement measures, even those companies that do adopt a voluntary code may be able to disregard it where they are motivated to do so by other business interests.
Legislative measures
While several organizations such as the European Commission have defined CSR to encompass only voluntary initiatives, others, such as the government of Denmark, have passed legislation which mandates some minimum forms of CSR.
Legislative measures are also being contemplated in Canada. Bill C-300 would regulate the behavior of Canadian mining companies in developing countries. Such mandatory initiatives, whether they arise from legislation or other sources, have a number of benefits that are missing in voluntary initiatives.
The clearest difference between mandatory CSR initiatives and voluntary initiatives is the enforceability of the former. Where mandatory CSR requirements emerge from legislation, the specific mode of enforceability may be provided by that legislative document, and may include specific penalties which transgressors will be subject to, often through access to the courts.
The penalization of those who contravene mandatory CSR requirements might be expected to encourage higher levels of compliance with mandatory requirements. For example, the threat of a sufficiently substantial monetary penalty would be expected to engage the self-interest of the corporation so as to encourage it to proactively comply with the standard. This ability may be particularly important in situations where it is necessary to force corporate compliance with a CSR standard that is unlikely to be adopted voluntarily. Such situations may arise where the CSR initiative will require dramatic corporate outlays to achieve, or will require the drastic alteration of normal business practices to achieve a pressing social or environmental need.
As this enforceability applies equally to all corporate actors who are subject to the CSR requirement, mandatory requirements avoid to some extent the problem of the refusal of some corporations to sign on to voluntary initiatives.
As in the United States, the corporate law of Canada has a tradition of shareholder primacy. However, it also has a greater tendency to recognize stakeholder interests to a greater degree through the regulatory actions of the federal government. Exemplary of this is legislation that was recently introduced in the Canadian Parliament, which if passed will specifically regulate the behavior of corporations in the mining and gas industries when they operate in developing countries. Bill C-300 would require the ministers of foreign affairs and international trade to issue guidelines to corporations involved in these sectors.
The ministers would be empowered to investigate complaints that companies in that sector had violated the guidelines, and, if a complaint was found to be substantiated, to take action that would prevent that company from gaining access to government support through the Export Development Canada for its foreign activities.
While a set of potential guidelines under Bill C-300 have not been released, the bill specifies that they will incorporate the IFC’s Policy on Social & Environmental Sustainability, the Performance Standards on Social & Environmental Sustainability, and the Environmental, Health and Safety General Guidelines. As such, they would include requirements to provide workers with a “safe and healthy work environment”, and to mitigate the conversion or degradation of natural habitats.
By adopting standards initially adopted by another organization, Bill C-300 provides an example of the use of legislation to both expand the application of, and provide enforcement means for existing CSR standards.
Bill C-300 has received support from NGOs such as Amnesty International, which declared support for the bill and called for the Canadian government to “adopt stronger legal and policy frameworks to hold corporations to account for their abuse of human rights”. However, whether this bill will become law remains uncertain. To date, it has passed both first and second reading in the House of Commons, and was referred to the standing committee on foreign affairs and international development. While the committee is not currently sitting due to the prorogation of Parliament on December 30, 2009, it appears that it has heard criticism of Bill C-300 from both industry members, and Export Development Canada. As such, it is not possible to state whether the bill will pass as currently drafted, will face amendments, or will die on the order table.
OHS professionals will undoubtedly have to become more familiar with CSR to integrate occupational health and safety initiatives, standards and accountabilities with the broader mandate of many organizations.
Becoming familiar with the principles of CSR has been the purpose of this article. The Bill C-300 discussion has yet to be fully resolved in Canada at a political level. However, in my opinion, this private members bill is just the first of many similar legislative initiatives that fall within the CSR mandate. Therefore, a growing understanding of the principles of CSR, its drivers benefits is an important aspect of every OHS professional’s growing responsibilities.
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Norm Keith leads the national OHS practice at Gowling Lafleur Henderson LLP. You can reach him at (866) 862-5787 ext.85699 or by email at [email protected]
