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Corporate Social Responsibility (CSR) - Background

Private enterprises are main actors in trade and investment. Their activities have not only a major economic impact, but also in social and environmental terms the influence of companies may be strong. The outcome of corporate behaviour is not always favourable for the communities that host the activities of companies. Some enterprises inflict damage on the environment through their activities, or abuse weak legal frameworks, for example in the case of child labour. There is a growing consensus that companies should be held responsible for the effects of their corporate behaviour. From an economic, social, political and ethical perspective they are expected to conduct their economic affairs in good faith and in accordance with proper standards of economic activity, while also observing fundamental principles of good socio-political and ethical conduct (UNCTAD, 2001). This idea is conceptualised in the principle of Corporate Social Responsibility (CSR).

Recently, there has been renwed interest in and research on the topic of CSR. In 1999 UN Secretary General Kofi Annan proposed the Global Compact initiative, which aims to make business part of the solutions to problems of sustainable development. In 2000 the OECD updated its voluntary Guidelines for Multinational Enterprises of 1976 . The European Union has started to promote CSR as well. For example, it initiated the EU Multi-Stakeholder Forum on CSR (CSR EMS) in which representatives from business, trade unions and NGOs participate. Some countries have established awarding systems for companies which adhere to CSR principles. In other cases they have established laws through which companies can be held responsible by their national government for business practices abroad (foreign direct liability). At the corporate level companies have started to implement CSR through codes of conducts which aim to guarantee sound economic, social and environmental behaviour of individuals and groups within an organisation. There are also joint initiatives in which private companies co-operate in the establishment of codes for proper business practices. An example is the World Business Council for Sustainable Development which is supported by 160 international companies.

Research on the issue is conducted in reference to two main questions. What are the incentives for private business to implement CSR? And what are the best ways of implementing and enforcing CSR?

Motivations for implementing CSR

Stakeholders have different motivations for promoting CSR. For governments and NGOs, CSR can serve as a means to achieve objectives of sustainable development. For companies there are different reasons to adopt CSR policies. One of the considerations for implementing CSR is the need for private businesses to build up and maintain a good reputation among consumers and employees. This is in particular relevant for the consumers and employees in developed countries, but also in developing countries CSR helps to create goodwill among the local stakeholders in the community which hosts the activities of a certain company. In addition to the reputation and the brand image factor, CSR offers possibilities to save costs, for example as a stimulus for labour productivity or through an efficient use of materials.

The benefits of CSR promotion within companies cannot be realised without incurring costs in the implementation of CSR policies. Some people argue that the short-term costs of implementation will be compensated by the long-term benefits. This will contribute to long run profitability. Others, however, believe, that short-term costs put constraints on the use of present scarce resources, which in the end will diminish future profitability. From this perspective, companies which focus on short run profitability will tend to avoid the costs of CSR implementation, as they maximise short run profits. An example are companies which are listed on stock markets; the stockholders might favour short-term profits over long-term profits. Companies which seek long-term profits will be more inclined to adopt CSR provided that they regard the concept as a means for higher future returns. An example are family-owned ventures. Another factor for CSR implementation is that small, family-owned companies are more likely to dependent on a certain community in a developing country than large, globally operating MNEs.

Ways of CSR implementation and enforcement

As is shown above, the incentives for companies to implement CSR are differing and therefore, the existence of the CSR-concept is not a guarantee that private business abides with demands from stakeholders for sound corporate behaviour. The question remains how communities can ensure that companies accept their social, environmental and ethic responsibilities. Should CSR be enforced through binding/mandatory principles, or through non-binding voluntary codes of conduct?

Companies are generally in favour of keeping guidelines for CSR voluntary. They argue that this is necessary since circumstances differ among countries. They believe that mandatory rules at the international or national level will limit their freedom in coping with these different circumstances. Contrary to the opinion of business, many developing countries and NGOs are in favour of binding codes at the international level, especially when it concerns the activities of large MNEs. They regard mandatory principle as the only way to ensure that companies are conducting sound corporate behaviour. Mandatory principles at the national level will be harmful as it affects a country’s competitiveness compared to other countries, which do not apply mandatory principles. Until now, there have been attempts to set international principles such as the OECD Guidelines of 1976/2000 and the United Nations Centre for Trans-National Corporations (UNCTNC) Codes of Conduct for TNCs of 1977, but these initiatives remain voluntary.

In developed countries the chances of introducing effective mandatory rules are more likely. Developed countries have better legal frameworks and enforcement mechanisms than developing countries. Still, since this will affect the competitiveness of companies in developed countries, governments will opt for positive incentives rather than negative incentives. In cases where there are no legal means to enforce CSR, there is an important role for NGOs as watchdogs against improper corporate behaviour.

In this section you will find information on CSR in business practices. The documents examine the characteristics of the CSR-concept, the effectiveness of the instrument and implementation procedures.

Corporate Social Responsibility, Proceedings of session during the EU-LDC Conference 2002 “Improving global governance for development: issues and instruments”. For the proceedings click here.

Publications

Corporate accountability in search of a treaty? Some insights from foreign direct liability, Ward, H., 2002, Briefing Paper No. 4, May 2002, Royal Institute of International Affairs, London

This paper was written ahead of the World Summit on Sustainable Development in Johannesburg in 2002. It was intended to serve as input for the discussion on binding codes of conduct for companies. The author discusses the issue from a legal perspective. The paper focuses on two cases of foreign direct liability. It tries to answer two questions. Should governments in developed countries have influence on relocation policies of firms to countries with weaker legal frameworks? Will international binding agreements improve corporate accountability? The author concludes that no clear answers to these can be found. Therefore, she suggests that all parties involved in the discussion on CSR should define their roles in the process of corporate accountability. A balance is necessary between the responsibilities of home and host countries. The concept of foreign direct liability underscores the shared responsibility of both home and host countries. It offers an opportunity for co-operation between these two kinds of countries. In addition to the intergovernmental agenda, support from private companies needs to be strengthened.

For the document click here. 

Public Sector Roles in Strengthening Corporate Social Responsibility: A Baseline Study, Fox, T., Ward, H., Howard, B., 2002, IIED/World Bank, London/Washington

This report is prepared for the World Bank CSR Practice Private Sector Advisory Services Department of the World Bank. It discusses the roles of public sector agencies in mandating, facilitating, partnering and endorsing CRS activities. The report draws from experience in developing countries with CSR policies or policies containing CSR elements. The authors argue that the challenge for the public sector is to identify priorities and incentives to promote/implement CSR, building on existing initiatives and capacities. Main problems raised in the document are a lack of capacity in enforcement of minimum standards and other capacity constraints. As a result, the authors find little evidence that developing countries’ governments are involved in the definition and implementation processes of international, voluntary CSR standards. According to the report there are significant opportunities for developing countries to engage more in CSR.

For the document click here.

Regulating corporate behaviour, Chatterjee, S., 2002, Briefing Paper No. 4/2002, CUTS Centre for International Trade, Economics and Environment, Jaipur, India

The paper gives an overview on the attempts to set codes of conduct for TNCs in international investment agreements. The author believes that the success of the attempts has remained limited. However, these attempts have contributed to the common understanding of the need for codes of conduct in corporate behaviour. The weakness of the existing codes of conduct such as the OECD guidelines is the fact that the guidelines have a voluntary character. In the opinion of the author, voluntary guidelines are an insufficient means to ensure sound corporate behaviour, as the guidelines have yet not been able to prevent recent cases of irresponsible corporate behaviour. The author believes that binding rules will put more pressure on companies to monitor the activities of themselves and of their subsidiaries/partners. An international agreement regulating corporate behaviour should however also promote clauses on security and investment opportunities as an incentive for TNCs to co-operate with the realisation of an international agreement.

For the document click here.

OECD Guidelines for Multinational Enterprises – Annual Reports, OECD, Paris 

The OECD publishes these reports on the occasion of the annual meetings of the National Contact Points (NCPs) for the MNE-guidelines (link naar link). The first part of the publications deals with the policy aspects of the guidelines. The second part contains contributions from business-, NGO- and trade union representatives. The contributions are made during a roundtable event which is held together with the annual meeting:

Annual Report 2002 – Focus on responsible supply chain management, OECD, 2002, Paris

The central theme of the contributions in this report are improvements in supply chain management. In the summary the roundtable participants agreed that the solution to responsible supply chain problems are depending on appropriate frameworks of rules and regulations, which are still lacking a large number of countries. The OECD guidelines together with other international agreements should give companies sufficient benchmarks to formulate their policies. Among the participants there were different views concerning the scope of codes of conduct for corporate entities. 

For the document click here. 

Annual Report 2001 – Global instruments for corporate responsibility, OECD, 2001, Paris

This report discusses the role of governments in their promotion of the OECD Guidelines for Multinational Enterprises. It also deals with the complementarity between the Guidelines and other initiatives at the global level, which are discussed in detail. 

For the document click here.

The OECD Guidelines for Multinational Enterprises, OECD, 2001, Policy Brief, June 2001, Paris

This policy brief describes the background for the adoption of the OECD Guidelines for Multinational Enterprises in 1976 and their review in 2000. The guidelines are recommendations from governments to multinational enterprises. They include voluntary codes and standards for responsible corporate behaviour. The 2000 review aimed to ensure the relevance of the 1976 guidelines. The brief pays attention to the implementation of the guidelines. The National Contact Points of the OECD are important in this process.

For the document click here. 

ERT position on CSR and response to Commission Green Paper “Promoting a European Framework for CSR”, European Round Table of Industrialists (ERT), 2001, Brussels

This document is a position paper of European business on CSR. The authors argue that voluntary codes of conduct are more effective than mandatory rules. They believe that technical, political and legal obstacles impede a global approach to codes of conduct. They add that European regulation will be a one-way process and will not achieve international acceptance. The authors regard the main role of the EU as a promoter for dialogue between different stakeholders.

For the document click here. 

Social Responsibility, UNCTAD Series on issues in international investment agreements, UNCTAD, 2001, UNCTAD/ITE/IIT/22, Geneva

This publication emphasises the role of social responsibility in International Investment Agreements (IIAs). It describes the concept of social responsibility of corporations and gives an overview on the initiatives within IIAs so far. The document provides an outline of the possible options on how to deal with CSR in the IIAs. They range from no inclusion at all to binding principles within IIAs.

For the document click here.

Links

UN Global Compact

This website provides news on the UN Global Compact initiative. The News and Events section, covers articles, statements and upcoming events on CSR.

CSR section of the European Commission, DG Trade ()

This site links to workshops and forums which have been organised by the European Commission. During the workshops business and NGO representatives have presented their ideas. These are covered in the proceedings of the events. There are also links to policy documents.

EU Multi-Stakeholder Forum on CSR (CSR EMS)

The CSR EMS Forum’s site provides information on the meetings of the forum, which brings together representatives from the EU, employers’ organisations, business networks and NGOs.

CSR Europe

CSR Europe is initiated by European businesses. The information on the site is therefore mainly useful for companies. The site offers an online CSR Info Centre with recent news items and a link to publications, one of which, CSR Magazine, is available online.

SME Key

This site is an initiative of CSR Europe. If focuses on CSR within Small and Medium-sized Enterprises (SMEs). It offers information for SMEs on how to implement CSR practices.

World Business Council for Sustainable Development 

The site of the WBCSD offers information for businesses on the implementation of CSR. There are links to other organisations, news updates and several downloadable documents on sustainable development from a business perspective.

CorpWatch

On this site the US based NGO CorpWatch aims to provide information on corporate behaviour of international companies. It discusses several issues which are relevant to CSR such as sweatshops, chemical industries, and effects of trade agreements.

OECD section on Corporate Responsibility

This section is linked to documents, news and information on events organised by the OECD. Most documents are related to the OECD Guidelines for Multinational Enterprises. The site hosts several working papers which form part of the OECD publication titled “Corporate Responsibility: Private Initiatives and Public Goals.”

International Institute for Sustainable Development’s (IISD) section on CSR within the International Organisation for Standardisation (ISO)

IISD consults ISO, which has embarked upon a feasibility study for an ISO CSR standard. On the website there are links to the project, while the site also contains IISD documents which serve as input for the feasibility study.

Discussion forum “CSR – Future leaders’ e-conference” – World Bank

This site hosts a discussion forum which the World Bank organised from March to May in 2002. In addition to the discussion itself there is a background section which includes references and links to relevant web sites.

International Institute for Environment and Development’s (IIED) section on Corporate Responsibility for Environment and Development (CRED)

This recently launched site contains up-to-date information on the role of CSR for environment and development. The site contains information on projects conducted by CRED and several publications are available on-line.

As a recently launched site, we still have some way to go towards providing a comprehensive information resource. You can help by submitting your own contributions (academic papers, position papers, analysis or comments etc.). To do this, go to Contact us.