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Corporate social responsibility and the role of the state: where do we draw the line?

Time (GMT +00) 13:00 14:30

Halina Ward, International Institute for Environment and Development
Roger Cowe, journalist specializing in corporate responsibility/sustainability
Eddie Rich, Department for International Development

1. Eddie Rich - If the business case for socially responsible business/corporate social responsibility (CSR) is as strong as we say it is (in terms of increasing productivity, reducing risk and qualifying for socially responsible investment funds etc.) then is it right that government should stay out of the debate and only intervene in the case of market failure?

2. Roger Cowe - Presentation draws on three pieces of work: (i) a recently published book titled "No Scruples?", authored by Cowe, Spiro Press, on various aspects of corporate responsibility; (ii) a report on the business-case for CSR in emerging markets, compiled by SustainAbility in cooperation with the International Finance Corporation; and (iii) a forthcoming report for Forum for the Future with Jonathan Porritt, on the limits to the business-case for CSR.

3. CSR is often interpreted as philanthropy and business 'doing things on the side'. More lately it has come to mean the overall impact of a company on society. Once you start talking about responsibility, it is difficult to 'fence it in', and so CSR becomes everything a business does and all the ways it does it: from the design and distribution of products and services, to the impacts these have on the people throughout the value chain, to impacts a business has on local communities just by being there.

4. Both business and government have to get past the idea that the business-case is all we need to worry about, i.e. that if one can persuade business that it is in their commercial interest to be more responsible then this will be a sufficient incentive for better business practices. While government has now gone beyond this position, not everyone in business has done likewise.

5. The business-case for CSR will differ with different business, at different times and in different market places. In emerging markets, the benefits of CSR in the form of cost-saving (e.g. energy efficiency) and better access to international markets are arguably stronger than benefits such as human resource retention, brand recognition and reputation assurance, which challenge more European and US businesses. The need to mitigate the adverse impacts of business on local communities is also a CSR issue that seems more prevalent in emerging markets.

6. Thus there is no one generalised business case for greater corporate social responsibility. The sorts of cases made above apply more so to bigger, high-profile, branded business, exposed to pressure from consumers, potential employees, investors and NGOs. The business-case for CSR is perhaps less strong for small and medium sized companies. This suggests that there might be limits to the business-case for CSR.

7. The public sector can make a number of interventions to help lower these limits:

a) In the last 10-20 years expectations of business have changed. Political leadership can help to raise expectations of business behaviour in at least four stakeholder groups: employees, consumers, investors and NGOs; and
b) Government can help 'tilt the market' so that socially and environmentally responsible products are more attractive to consumers and so that good business behaviour is rewarded.

8. But there are many examples of where, no matter how socially responsible a company would like to be, financially it is not viable. This is where government needs to intervene. The 'mosaic' of government intervention includes: leadership, to raise issues up the corporate and public agenda; improve transparency, to encourage the disclosure and availability of information; the use of economic instruments to determine what are the basic needs of society and to tax the remainder; and command and control/regulatory regimes to 'make things happen' which would not happen otherwise.

9. On this last point, although there would appear to be a business-case for companies to produce safe products and to treat its employees well, government is needed in the form of product safety law, employment regulations etc. to ensure that standards are applied as a matter of routine and uniformly across each industry.

10. Halina Ward - the International Institute for Environment and Development have recently completed a study for the World Bank on the Role of the Public Sector in strengthening CSR.

11. What do we mean by CSR? A common, lens through which to view the CSR agenda is the steps a company 'voluntarily' takes in social, environmental or ethical matters beyond the minimum standards required by the state, i.e. CSR is about going 'beyond compliance'. But this raises a number of questions. What do we mean by 'voluntary'; when business responds to incentives is this really voluntary action?

12. In the context of this definition, the role of the state is about facilitating businesses to go beyond compliance. The compliance part itself is simply not part of the picture if you take this definition. Examples in emerging economies of this include: (a) in The Philippines where CSR Week is a presidential decree in the first week of July; and (b) the annual Green Business Award scheme run since 1992 in Taiwan as a way of rewarding best environmentally-performing companies.

13. But the "voluntary versus compliance" definition of CSR is distorting, for a number of reasons:

a) it downplays the broader context for CSR - economic globalisation and good governance challenges are important drivers of CSR initiatives;
b) there is a role for the state in emerging economies to act as an advocate for particular stakeholder groups in order to redress the charge that the CSR agenda is driven by protectionist Northern concerns (for example, in 1998 the Colombian government made representations to the WTO concerning private European ecolabelling schemes for cut flowers and the potential negative implications of this for access to European markets);
c) it does not recognise that trade and access to markets is a major driver, for example the Egyptian Environmental Affairs Agency has initiated its ISO 14001 Preparatory Program for local business;
d) it fails to comprehend that voluntary CSR practices can drive mandatory requirements, such as corporations requiring compliance with child labour standards within their procurement contracts with suppliers. For example, as a result of the pressures that their producers were increasingly facing through supply chain demands, the Thai Ministry of Labour and Social Welfare set up an Office on Labour Standards Development to address the lack of enforcement on labour issues and to promote compliance to voluntary labour standards; and
e) it prevents trans-national legal risk management, compliance and enforcement issues becoming part of the debate. For example, the South African government recently intervened as a third-party in favour of the Claimants against a company, reinforcing a message that grossly exploitative investors are not welcome in the new South Africa.

14. There are two ways of drawing the line for government involvement in CSR:

a) External boundaries: the line between the various roles of the state and the roles of other stakeholders in the CSR agenda; and
b) Internal boundaries: the line between different government roles. There is almost no work to look at the value/effectiveness of different public sector roles in strengthening CSR.

15. You can talk about pollution control or environmental management systems to public-sector officials, but not about CSR. There are at least 32 different types of public sector activity (public instruments) for CSR engagement. We need now to analyse this diversity. "In many developing countries the notion of CSR itself is meaningless".

16. IIED's study for the World Bank identified four roles for the public sector in promoting CSR: Mandating; Facilitating; Partnering and Endorsing CSR initiatives. There are five key challenges that need to be addressed if we're thinking about ways to enable the public sector to engage with the CSR agenda, and therefore about where to draw the line: (i) awareness of overall shape of the agenda; (ii) enabling public sector players to set the terms of the debate, especially with regard to 'southern' stakeholders; (iii) building a stable environment for pro-CSR investment, such as the ability to collect and distribute tax revenues; (iv) engaging the private sector more directly in public policy processes; and (v) providing support for the public sector to evaluate the merits of different approaches to CSR.

17. Eddie Rich - The message that is coming through is very much about how contextualised the business case is, and the complexity of finding the right role for the various players. To whom are we referring to when we talk about CSR and the role of government? Is the role of government just to influence the big businesses, or is it also, perhaps, to influence smaller producers?

18. Discussion. A number of points were raised:

a) Where is tax in this debate? Large business, and to some extent SMEs, are increasingly talking about CSR on the one hand but on the other hand are paying very little tax. The responsible thing for business to do is to contribute to the society where they do business through the tax system. There is a financial side of CSR that has yet to come out. Roger Cowe - The tax issue is difficult because it is hard to do 'the right thing'. We all try to avoid tax and it is a legal judgement that you shouldn't pay more tax than you absolutely have to. The important thing is to have good systems of tax collection and distribution.

b) If businesses only lobby on issues where there is a proven business case, does this mean that they will they lobby 'against' or 'for' greater corporate responsibility? Roger Cowe - What companies say in the corridors of power is part of their overall corporate responsibility. It is also an opportunity for companies to do things that are not necessarily in their own interest. For example, companies can go to governments and say: 'this is what needs to be done, but we can't do it on our own'. On the other side of the argument, individual companies should lobby more transparently and ought to be prepared to make demands of government directly rather than through institutions like the CBI. They should also demand that governments do things and not just lobby against government action.

c) There is a sense that you (the presenters) have either just argued yourself out of a job or tried to take over the world. The way you've defined CSR is actually as 'industrial policy'. If there is a clear difference, then please explain this to me. It seems to me that CSR is about rectifying market failure. If so, then what are the different kinds of market failure we should be looking at? Externalities? Asymmetric information? Oligopoly? There is a whole literature on industrial policy and market failure. Roger Cowe - There is indeed a danger of 'CSR creep', but I don't think there is an alternative, you cannot fence it in if you talk about corporate 'responsibility'. If you want to argue that CSR is only about philanthropy then you could call it 'Corporate Community Involvement'. Most people however want to talk about corporate impact on society across a range of issues, and tax is an excellent example.

d) Businesses can choose to train their workforce, but they are not 'responsible' for training their workforce. There is a market failure when the demand for, and supply of, skills does not balance, which is one of the reasons why the company or government might step in. But that is more about industrial policy than CSR. On the other hand, if the company voluntarily contributes towards funding training institutes then this would be CSR. Roger Cowe - The question is 'do we want people to be trained?' If so, then how is this going to happen? One solution - the CSR solution - is to ask what you can do to get companies to provide more training, they could be required by government to train their employees, or government could facilitate voluntary training through grants. In this example, whether government-facilitated training within companies is part of CSR or industrial policy depends upon which way you look at it. If you look at it as a macro question of training and the structural nature of the economy then it is not really CSR. But if you look at it from the point of view of what individual companies are doing, then it is CSR. I don't think there are clear lines - it is, perhaps, more a mosaic.

e) What suggestions do you have for involving more Southern voices in the Northern debate on CSR?

f) Looking in terms of the role of the state, our work at Christian Aid has shown that some Developing Country governments are deeply concerned about raising standards or improving enforcement for fear of disincentivising FDI and TNC investment. Is there then a role for an international response to address some of those issues?

19. Halina Ward - At IIED we are not looking to 'take over the world' with a broad definition of CSR. We're looking at areas where the current shape of the CSR agenda prevents a move towards better mitigation of negatives and improved enhancement of positives. I have talked about four ways in which the current voluntary vs mandatory dichotomy is preventing us from making progress. What is needed is to target those areas where the shape of the agenda locks you into polarised positions. At IIED we think there are three ways the current agenda is deficient: (i) the lack of Southern voices in the CSR debate; (ii) issues of equity, i.e. who benefits from the way in which businesses manage their value chains; (iii) the role of government in promoting CSR.

20. Eddie Rich - We've seen that there are many different roles that can be played by corporations and the state and there are many different ways of interacting. I view CSR as an entry-point into some of these wider discussions on the national agenda. It's a way business can feel comfortable about entering the policy discussions. Thank you.

Jon Fowler and Michael Warner, ODI, 14th November 2002


This event discussed the fact that both business and government have to get past the idea that the business-case is all we need to worry about, i.e. that if one can persuade business that it is in their commercial interest to be more responsible then this will be a sufficient incentive for better business practices.