Chapter for Ethics

8/11/2019 Chapter for Ethics

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Natural AdvantageCorporate Social Responsibility and

Sustainability Consulting Services

Fundamentals of Corporate SocialResponsibility

Presentation to CSR Asia6 September 2006

Michael Kerr, Senior Consultant, Natural Advantage

Lead Counsel, CISDL

www.naturaladvantage.ca


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Fundamentals of Corporate Social Responsibility

As part of this exercise, fundamental questionsshould be asked:

What is CSR?

How does it relate to other concepts? (e.g.sustainable development, corporategovernance, corporate responsibility,

corporate citizenship)Same/different/related?

Is CSR purely voluntary or does it now havelegal dimensions?


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Fundamentals of Corporate Social Responsibility

This presentation will focus on answeringthese fundamental questions.

Will draw on research I am currentlyundertaking for a book project.

Turning to first question- what is CSR?


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What is CSR?

Concept of CSR often criticized because of lack of

legally defined or commonly accepted definition.

Is this criticism justified?

Should it matter that CSR is not legally defined orsubject to a single universal definition?

By comparison, the term corp orate governance is notin itself legally defined or subject to a commonlyaccepted definition- the term is associated withconcepts, ideas and principles that evolve over time.

Arguably, CSR should never be given a fixed definition.This will foster evolution.


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What is CSR?

Despite the lack of a single definition, my own researchhas shown that by examining different definitions fromaround the world, it is clear that there are commonlyheld understandings about what constitutes CSR.

Lets firstly examine some of these definitions----- thenI will address the common understanding.


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What is CSR?

Canadian Government:

CSR is general ly understood to be the

way a company ach ieves a balance or

integrat ion of econom ic, env ironmentaland social imperat ives whi le at the

same t ime add ress ing shareho lder and

stakeholder expectations.


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What is CSR?

UK Government:

The Government sees CSR as the

business contribution to our sustainable

development goals. Essentially it is abouthow business takes account of its

economic, social and environmental

impacts in the way it operates

maximising the benefits and minimisingthe downsides.


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What is CSR?

European Union:

[CSR is] a concept whereby companies

integrate social and environmental

concerns in their business operations andin their interaction with their stakeholders

on a voluntary basis.


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Natural AdvantageCorporate Social Responsibility andSustainability Consulting Services

What is CSR?

World Business Council for

Sustainable Development:

We define CSR as business' commitment

to contribute to sustainable economicdevelopment, working with employees,

their families, the local community, and

society at large to improve their quality of

life.


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What is CSR?

The Kennedy School of Government (HarvardUniversity), CSR Initiative:

The term [CSR] is often used interchangeably withothers, including corporate responsibility,corporate citizenship, social enterprise,sustainability, sustainable development, triple-

bottom line, corporate ethics, and in some casescorporate governance. Though these terms aredifferent, they all point in the same direction:throughout the industrialized world and in manydeveloping countries there has been a sharp

escalation in the social roles corporations areexpected to play.


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What is CSR?

What do these definitions tell us about CSR?

What are some of the common

understandings that emerge?

How does CSR relate to other concepts?

What other issues arise?


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What is CSR?

Common Understanding One:

CSR is an idea whereby

companies integrate economic,social and environmentalconcerns in their business

operations


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Common Understanding One: Integration

Economic

SocialEnvironment

Biodiversity

Resource

Use

Climate

Change

Waste

Human

Rights

GovernanceRegulation/Policy

Labour/

Workplace

Corruption

Interest

Rates

Exchange

Rates

Communities

Consumer

Confidence

Corporate Social Responsibility: The Integrated

Approach to Business in the 21stCentury


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Common Understanding Two: Stakeholders

Common Understanding Two: CSR relates to the ideawhereby a business addresses and balances the needsof stakeholders.

Who/what are stakeholders? Individuals and groupswho may affect or be affected by the act ions , decision s,

pol ic ies, pract ices or goals of an enterpr ise.

Examples: Shareholders and other investors Employees Customers Governments Local communities NGOs Environment


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CSR and Related Concepts: Sustainable Development

Many definitions describe CSR as thebusiness pursuit of sustainable development.

Sustainable development: development th atmeets the needs of the present wi tho ut

comprom is ing the abi l ity of futuregenerations to meet their own needs. (1987Brundtland Repo rt).

Like CSR, sustainable development is alsorecognised as having three fundamentalpillars: economic development, socialdevelopment and environmental protection.


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CSR and Sustainable Development

2002 World Summit on SustainableDevelopment (Johannesburg) confirmed linkwith CSR.

Paragraph 49of the Johannesbu rg Plan ofImplementat ioncalls for action at all levels to:

Actively promote corporate responsibility and

accountabi l i ty , based on the Rio p r inc ip les, including throug h

the ful l developm ent and effect ive imp lementat ion of

intergov ernmental agreements and m easures, internat ional

in i t iat ives and p ub l ic-pr ivate partnership s and appropr iate

nat ional regulat ions, and supp or t cont inu ous im provement in

corporate practices in all countries.


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CSR and Related Concepts: Corporate Governance

Many definitions highlight the link betweenCSR and corporate governance.

Is CSR a subset of corporate governance or is

corporate governance a subset of CSR?

In my view this is a pointless question. Bothconcepts are closely related which ever way

you look at it.


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CSR and Corporate Governance

Related in definition:

1994 Report of the Toronto Stock Exchange Committee onCorporate Governance in Canada:

Corporate Governance means the process and structureused to d irect and m anage the bus iness and affairs of the

corpo rat ion w ith the object ive of enhancing shareholdervalue. The direction and management of the businessshou ld take accou nt the impact on oth er stakeholders suchas employees, customers, suppliers and communities.

Principle 4 of The OECD Principles o f Corporate Governance

(2004) underscores the need of a corporate governanceframework toencourage active co-operat ion betweencorp orat ions and s takeho lders in creat ing wealth, job s, andthe sustainabi l i ty of f inancial ly sound enterpr ises.


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CSR and Corporate Governance

Related in Management:

Many companies are now using company codes of conductto address conduct issues that relate to both corporategovernance issues (conflict of interest, market disclosure,whistleblowing, corruption, fraud & accounting) and CSRissues (human rights, environment & labour standards)

Related in Investment:

Mainstream investors now consider environmental, socialand governance issues (known collectively as ESG issues) intheir investment decisions.

Example: United Nations Pr incip les fo r Responsib leInvestment Launched in April 2006, now has support ofinvestors with combined worth of $4 Trillion.


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CSR and Other Related Concepts

The term CSR is often used interchangeablywith the terms corporate respons ib i l ity,co rpo rate cit izenshipand t r ip le bo ttom l ine.

In my opinion, these terms describe the sameconcept to that of CSR.

Companies choose the terminology they feelcomfortable with.


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IS CSR a Voluntary Concept?

Some definitions (e.g. European Union)describe CSR as a voluntary concept.

Given the multitude of initiatives that promoteCSR (e.g. Global Compact, Global Reporting

Initiative, OECD Guidelines) in a voluntaryfashion- not surprising CSR is perceived inthis way

However, recent legal developments suggestCSR is no longer a voluntary concept.

Two major areas of development: Reportingand Directors Duties


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Mandatory CSR Reporting

Backed by increasing calls from investors and thecommunity for more disclosure and reporting on CSRissues, many jurisdictions have now introducedmandatory corporate reporting requirements onenvironmental and social matters:

Australia France

South Africa

Sweden

Canada

Denmark

Netherlands

Norway

And very soon the UK.


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Directors Duties and CSR

New ways of interpreting and conceiving directorsduties that align with concept of CSR.

The duty: To act in the best interests of the company.

Traditional, conservative interpretation: Shareholdersare the company- Duty is to raise profits for benefit of

shareholders. Environmental and social considerationsnot relevant.

The current, progressive interpretation: Supreme Courtof Canada, in Peoples v. Wise(2004)

We accept as an accurate statement of law that in determining

whether they are act ing with a view to the best interests of th e

corpo rat ion i t may be legi t imate, given all the circum stances of a

given case, for the board of directo rs to co ns ider, inter alia, the

in terests of s hareholders, emp loyees, suppl iers, credi tors,

consumers, governments and the environment.


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Directors Duties and CSR

New UK directors duty set to be introduced this yearthrough Companies Bi l l. (Waiting on Royal Assent)

Section 173 Duty to promote the success of the company

(1) A director of a company must act in the way he considers, in goodfaith, would be most likely to promote the success of the company

for the benefit of its members as a whole, and in doing so haveregard (amongst other matters) to:

(a) the likely consequences of any decision in the long term;

(b) the interests of the companys employees;

(c) the need to foster the companys business relationships withsuppliers, customers and others;

(d) the impact of the companys operations on the community and

the environment;(e) the desirability of the company maintaining a reputation for

high standards of business conduct; and

(f) the need to act fairly as between members of the company.


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