The role of government regulation of business in building the concept of Corporate Social Responsibility

By Eryomin Constantine0/1301, World EconomySt. Petersburg State University of Economics

2

Content

1. Corporate Social Responsibility: definition and

targets

2. The role of governments in building CSR concept

3. Top-5 CSR trends in 2013

4. CSR concept in Russian Federationo The role and understanding of CSR in Russia

o CSR spheres of activity

o Tasks and objectives of Russian companies in SCR

5. Conclusion

3

What is Corporate Social Responsibility?• “CSR can be described as attempts by businesses to balance and

integrate their economic, social, and environmental responsibilities

in a way that minimizes societal harm and optimizes societal benefit

while providing wealth to business owners and shareholders”.

(Kernaghan Webb of Carleton University in Ottawa)

• “CSR is not a static concept—it is a moving, evolving target. There

is no solid definition of CSR; however, it is not a replacement for the

governmental role and responsibility in meeting challenges of

sustainable development”. (Norine Kennedy of the U.S. Council on

International Business)

4

Development of understanding CSR concept

• Creating of multinational corporations

• Additional responsibility of business for society

Kessler, 1930

• One hundred ninety-one UN member states endorsed the Millennium Declaration

• 18 MDGs grouped around eight goals, most of them having 15–20 objectives

• implications for corporate responsibility, environmental, and health issues

Millennium Development

Goals (MDGs), 2000

• Creation of more open atmosphere to nongovernmental organizations (NGOs) and business

• business performance in corporate responsibility and other areas

World Summit on Sustainable

Development, 2000-2004

5

World Summit on Sustainable Development and aims of CSR conception

• Sustainable patterns of consumption and production that enhance

corporate environmental and social responsibility;

• Sustainable development in a globalizing world that actively promotes

full development and effective implementation of intergovernmental

agreements, initiatives, partnerships, regulations, and continuous

improvement in corporate practices in all countries;

• Health and sustainable development, a linkage between health and

environmental protection, reduction of environmental health threats,

access to health care services, etc.;

• Strengthening of institutional frameworks that promote corporate

responsibility and accountability and exchanging of best practices.

6

Here is the results of Burson-Marsteller social interview in USA on the question about definition of CSR

7

Burson-Marsteller organized social interview in USA. While consumers say CSR is very important for

healthcare (88%), automotive (85%) and financial service (85%) companies, these industries scored poorly

on their CSR performance (35%, 38% and 27% respectively).

8

Corporate Social Responsibility in the context of regulation

Many companies today realize that they are responsible for the

future of the world, and they no longer accept the maxim that the

business of business is business only. Corporations are citizens of a

global society and therefore owe a duty to participate in that

general society. Many governments in the world have basic

capacity for addressing the complex societal challenges. Global

problems have a health component. Often it is not possible for

individual governments to address them. So, corporations have to

help address social environmental issues that affect humankind.

—Eric Orts

The role of Governments in Corporate Social Responsibility

Government

Civil SocietyPrivate Sector

9

Governmental support of private initiatives

Meeting social needs

Effective interaction

10

CSR initiatives and law

Strengths

• command-and-control regulatory approaches articulate societal positions on important issues;

• command-and-control approaches have made considerable progress in improving the lives of people around the world.

Limitations

• inconsistent and inadequate implementation and enforcement;

• tendency toward very inflexible and formal approaches that can lead to adversarial and legalistic behavior.

The new approaches should be applied as supplements to the laws, not as replacements for them. In some cases,

they may act as precursors, and sometimes industry asks that these voluntary initiatives become law.

11

TOP-5 CSR trends in 2013

1. Governments are back! governments are no longer all that happy to just take ethical

business behavior on trust alone;

companies therefore in some ways have an interest in levelling

the playing field through regulation;

lobbying interests through political impact

12

2. Make-or-Break on Climate Change! Climate Change is on the agenda for business;

While global agreements provide a long term framework for

adapting to the issue, business now is confronted with a

patchwork of approaches, systems and jurisdictions;

Climate change importance connected with natural disasters

TOP-5 CSR trends in 2013

13

3. Beware of CSR Fatigue! In a recent book just published authors talk about ‘The end of

CSR’;

CSR has become a mainstream;

Companies should think about shaping CSR programs

TOP-5 CSR trends in 2013

14

4. The Action is Moving South! In the 2013 ranking of Global 100 Most Sustainable Companies in

the World, launched in Davos this week, the number two is the

Brazilian Natura Cosmeticos, one of five Brazilian companies who

made it into the top 100;

Entire new areas of CSR, such as social innovation or social

entrepreneurship have been initiated from the Global South

TOP-5 CSR trends in 2013

15

5. Watch Social Media!

the change is not the that social media is used in the CSR

context, but that as a tool that covers huge market

audience;

the main channels of engagement and communication for

business are changing – it is about informing on a regular

basis, close to events, with responses and updates in real

time

TOP-5 CSR trends in 2013

16

CSR concept in Russian Federation

17

The role and understanding of CSR in Russian Federation

• In Russia CSR is largely new, but it could become

increasingly significant due to the global orientation of the

Russian economy;

• A basic understanding of the perception of social

responsibility by companies is present especially in large

Russian companies, but it still requires development;

• Great impact of governmental structures in development

of CSR concept in Russia

18

37%

30%

17%

17%

Involving in international CSR of Russian structures (2010)

Large companiesSmall and medium-sized companiesCompany associationsNGOs

Officially, according to information from the UNDP, 30 partners are registered in the Global Compact.Only 4 companies participate with the corresponding reports and information about their CSR actions. The type and scope of their involvement cannot be assessed

19

The role and understanding of CSR in Russian Federation

Overall, the impression is that companies depict their CSR

activities publicly in order to attract media attention without

actually being able to prove their involvement. In 2004, a

social charter for Russian business was drawn up, which was

formulated by the Russian Association of Industrialists and

Companies (RSPP) and passed in 2008. It describes voluntary

self-commitments whose adherence participating companies

can evince by signing the charter. Currently, 106 companies

have signed.

20

Spheres of SCR activity in Russian Federation

1.Poverty

2.Education

3.Health

4.Political involvement

5.Participation in society

6.Environment

21

Poverty

BASIC INFORMATION• Infant mortality: 10.81

deaths/1,000 births (2008 est.);• Malnutrition: 3% (2002/04)• Access to clean water: 97%

(2004)• Access to sanitary facilities: 87%

(2004)• Gini Index: 41.3 (2007)• Population below the poverty

line: 15.8% (2007)

PARTICIPANTS• Organizations for development

cooperation (GTZ, CIM etc.), chambers of commerce, trade associations, trade unions, ministries and political foundations;

• Non-governmental organizations;• Government: President, Prime

Minister, Ministry of Health and Social Development and associated federal agencies and services, corresponding structures of the regions and municipalities; state Duma, federal parliaments, Russian Pension Fund, scientific institutions, employers, unions

During the past five years, real wages have increased by 12% per year on average. Income development varies sharply by region. The situation of retirees is especially difficult; situation can only be improved with the help of costly pension adjustments.

22

Poverty levels have gone down in Russia since the late 1990s, when over 20% of the population was below the poverty line.

23

Russia’s economic development will depend in the coming years largely on the sufficient availability of trained employees and managers. Already now, there is a dearth of trained employees in the economically-striving regions.The Russian government has recognized the need for reform in the area of vocational training and integrated it into the “national project” education.

Education

BASIC INFORMATION• Public spending on education (share of

GDP): 3,8% (2005)• Mandatory school attendance: 6 – 15

years• Rate of school enrollment: 91% of

children who are required to attend school (2004)

• Literacy (definition: those over the age of 15 who can read and write): Total population: 99.4%;

• HDI Education Index: Ranking 67 out of 177: 0.956 (1 = max., 0 = no education))

• Average years of education: Total population: 14 years

PARTICIPANTS• Schools, colleges, Universities and Scientific

Centers;• Government: President, Prime Minister,

Ministry of Health and Social Development and associated federal agencies and services, corresponding structures of the regions and municipalities;

• International organizations: ILO, UNDP, WHO, UNESCO;

• “Dinastia” programs and other such foundations;

• “Otkrytoye Obrazovaniye“ (“Public education“) foundation

• “Vladimir Potanin Foundation“ welfare fund;• Russian Entrepreneurial Association (AG

vocational training

24

• 88% of the adult population have attained at least upper secondary education and 54% have a tertiary qualification. Only three countries have a higher tertiary attainment rate among 25-34 year-olds than the Russian Federation (55%).

• Despite large increases in national income invested in education in recent years, expenditure on education represents 5.5% of GDP, a much lower value than the OECD* country average (6.3%).

• Only 43% of expenditure on education is devoted to primary, secondary and post-secondary non-tertiary education – the lowest proportion among OECD and other G20 countries.

*International organization helping governments tackle the economic, social and governance challenges of a globalized economy.

25

Health

BASIC INFORMATION• Public spending on health (share of

GDP): 3.7% (2004)• Medical care: 425 physicians per

100,000 residents (2000 - 2004)• HIV/AIDS prevalence rate (>15 years

of age): 1.1 % (2001 est.)• HIV/AIDS sufferers: 860,000 (2001

est.)• HIV/AIDS deaths: 9,000 (2001 est.)• Life expectancy: 65.94 years

PARTICIPANTS• Chambers of commerce, trade

associations, trade unions, ministries and political foundations;

• Non-governmental organizations (NGOs);

• Government: President, Prime Minister, Ministry of Health and Social Development and associated federal agencies and services, corresponding structures of the regions and municipalities;

• International organizations: ILO, UNDP, WHO, UNESCOIn theory, medical treatment is free of charge; however in practice, patients must

regularly make additional payments in order to receive appropriate and timely treatment. Even if the income of medical personnel has increased in recent years, it is still comparatively low.According to information provided by the federal statistical bureau Rosstat, the average monthly income of medical personnel last year was approximately 10,000 Rubles (approximately 300 EUR) with sharp regional deviations.

26

HIV/AIDS in Eastern Europe

Russia in 1995 had only 1062 total reported cases, and a mere seven were IDUs. But the next year alone, Russia detected more than 1500 infections, and three times that number in 1997—60% IDUs. A big challenge is the demographic development, which could be influenced positively through preventatively-oriented health concepts with strategies for encouraging healthy lifestyles, especially with respect to the consumption of alcohol and tobacco.

27

Political involvement

BASIC INFORMATION

• Suffrage: 18 years; universal

• Freedom of the press: 144th of 169 (2007)

PARTICIPANTS• Unions, citizens’ initiatives, e.g.

against particular construction projects; self-help groups, e.g. for motorists; NGOs that focus on citizens’ rights and social development, e.g. the institute “collective action”, Memorial, Golos; associations of the community self-administration organs; journalists‘ associations; political foundations, e.g. the Gorbatschov Foundation; the social chamber as a state-created institute for incorporating the impulses of civil society into the lawmaking process;

• Government;• International organizations

The free competition of political alternatives and the active participation of civil society in political processes are indispensable for the design of a stable democracy, yet thus far only slightly developed in Russia.Political parties hardly incorporate their constituents into opinion-forming processes and also play a subordinate role in political decision-makingCompanies are sooner reluctant to become involved in CSR projects for political participation; however they finance the “Petersburg Dialog” as a civil social forum.

28

Russia’s economic freedom score is 51.9, making its economy the 140th freest in the 2014 Index. Its score is 0.8 point higher this year, with improvements in four of the 10 economic freedoms, including control of government spending, counterbalanced by declines in trade freedom, freedom from corruption, and fiscal freedom. Russia is ranked 41st out of 43 countries in the Europe region, and its overall score is below the world average.

29

Participation in society

• Share of women in the labor force: 65% (1994-2005)

• Ethnic groups: Russian 79.8%, Tatar 3.8%, Ukrainian 2%, Bashkir 1.2%, Chuvash 1.1%, other 12.1% (2010)

• Ministry of Industry, Ministry of Small and Medium-Sized Enterprises

• Pension Fund of Russia;• Ministry of Health and Social

Development;• employers, unions

BASIC INFORMATION PARTICIPANTS

Financial support of an institution for taking care of street children, financial support of an institution for taking care of hearing-impaired children is the most important spheres of social activity in Russia.

30

Pension system as one of the main social participation direction

1. State social security

The Pension Fund of the Russian Federation pays state social security pensions to more

than 3 000 000 people.

2. Obligatory pension insurance

• old age labour pension

• disability labour pension

• survivor's labour pension

More than 40 000 000 people in Russia receive old age labour pensions.

3. Non-state (additional) pension security

During the past year the number of obligatory pension insurance clients of NSPFs

increased almost by a quarter and constituted 15,3 % from the total number of

Russians having accumulative pension portion. 118 non-state pension funds operated

in the field of the obligatory pension insurance at the end of 2010.

31

Environment

BASIC INFORMATION• CO2 emissions: 5.3% of total world

output (2004)• CO2 per capita: 10.6 t (2004)• Energy consumption: 985.2 million

kWh (2005)• Water consumption

(households/industry/agriculture): 76.67 km3/year (19%/63%/18%) (2008)

PARTICIPANTS• All-Russian Association for the

Protection of Nature, “Nature preserves,” Russian regional ecological center, Russian network of rivers, socio-ecological union.

• “Ministry for Natural Resources and the Environment (MPRE)" with the subordinate authorities “Federal Service for Hydrometeorology and Environmental Monitoring (ROSGIDROMET),” “Federal Service for Ecological, Technological, and Nuclear Supervision (ROSTECHNADSOR)”, Federal Agency for Water Resources (ROSWODRESURGY), Federal Agency for Natural Resources (ROSNEDRA), Federal Agency for Forests (ROSLECKHOS), Federal Control of Nature Usage (ROSPRINADSOR)

Officially, protection of the environment and nature are a high priority of the Russian Federation. Article 42 of the RUS constitution specifies that every RUS citizen has a right to a clean environment as well as trustworthy information about its condition. In the conflict between the protection of nature and business interests, the former still remains the frequent loser.

32

Hazardous waste generation in Russia*

1995

2003

2004

2005

2006

2007

2008

2009

0.0

50000.0

100000.0

150000.0

200000.0

250000.0

300000.0

350000.0

Time (year)

Qu

an

tity

(1

00

0 t

on

ne

s)

*on data of Eurostat Environmental Data Centre on Waste

33

Persentage of total social investments of big business in Russia

52,30%17%

12,60%

10%staff development

resource-saving

medcine

local community development

*Rosstat

34

According to the survey among managers and common

population held by Association of Russian Managers (2010)

we have following results:  Type of social responsibility mentioned

Managers Common people

Quality of products 47,50% 46%

Law compliance 35% 35,50%

Discharge of taxes 29,50% 30,40%

Environmental protection 31,50% 30%

Improvement of working conditions

33,50% 22,50%

High salaries 11,50% 19,10%

Investments into manufacture 19% 14,80%

Help to poor people 2,50% 10,50%

Help for the regions in solving social problems

10,50% 10,40%

Education support 3% 9,30%

Transperency of accountancy 13,30% 8,70%

35

Tasks and objectives of Russian companies in SCR

• Firstly, corporate social responsibility means extra responsibility that companies

undertake by making additional contributions to pension funds (Russian Railways

(RZhD), Lukoil, GAZPROM and others), participating in voluntary medical insurance

programs (as most companies now do), financing infrastructure facilities

(playgrounds and sports areas, schools, nurseries, parks, etc.) and supporting other

programs. Virtually all my friends and acquaintances working in large companies

enjoy additional benefits provided by their employers on top of their labor benefits

under effective legislation;

• Secondly, corporate social responsibility manifests itself in numerous voluntary

services existing in the country, as well as voluntary unions set up to raise

the quality of life and help the most vulnerable social groups of the population;

• Thirdly, CSR means individual responsibility or inability to pass by a person in the

street or neighbour who needs your help and support.

36

Summary

• Companies have to take a bigger role in this process and establish creative legal strategies, so called reflexive law, that go beyond the command-and-control approach. Informational regulation in the form of mandatory disclosure of information similar to the toxic release inventory could also be used to enhance CSR.

• The idea of SCR contracts is that companies can have partnerships and work independently with NGOs or with other governments on specific issues. Laws could be passed to help promote this strategy, to create progressive atmosphere.

• The criterion for determining social responsibility is the frequency of mention of a company or a person in the media in connection with social involvement. In 2006, the first five places were awarded to Putin, the Russian government, the Duma, and ministries of the RF. Gazprom appeared in 6th place, followed by other companies. There should be doubts about whether the frequency with which social involvement is mentioned in the media is a suitable criterion for measuring social responsibility.

37

References/Sources

• http://apps.who.int/gho/data/node.country.country-RUS

• http://borgenproject.org/

• www.Burson-Marsteller.com

• http://www.csr-weltweit.de/

• http://www.heritage.org/index/country/russia

• http://nauka.in.ua/en/news/articles/article_detail/5472

• http://torussia.org/government_in_russia

• http://www.pfrf.ru/ot_en/system/

• http://russia.angloinfo.com/healthcare/health-system/

• http://www.sistema.com/about-sistema/social-responsibility.aspx

• http://sustainablebusinessforum.com/

• http://www.themoscowtimes.com/

• http://unstats.un.org/

• Education at a Glance: OECD Indicators 2012. RUSSIAN FEDERATION / Under embargo until 11 September, at 11:00 am

Paris time

• National Research Council. Global Environmental Health in the 21st Century: From Governmental Regulation to Corporate

Social Responsibility: Workshop Summary. Washington, DC: The National Academies Press, 2007.