The Next Steps For

WWF Discussion paper

Corporate Social Responsibility, CSR - an overview

1.Introduction

The role of business and industry is rapidly changing. The past decade has seen the growth and increased influence of transnational corporations in all matters including those relevant to sustainable development.The world’s top one hundred corporations – based almost exclusively in developed countries – are today principal drivers of international production, investment and trade, wielding considerable power and influence as a result.[1]

Transnational corporations (TNCs) affect society and ecological systems in a number of ways, both directly through investments and production and indirectly through R&D and lobbying. Their contribution to sustainable development can be both positive and negative. On the one hand, investments by corporations can positively contribute to increased productivity and facilitate the use of more efficient and equity enhancing technologies/applications, new environmentally friendly technologies as well as better working practices.

On the other hand, growing investments can also result in depletion of natural resources, increased CO2 emissions, spreading of toxic substances, destruction of local economies, and a lowering of environmental standards through lobbying. In the case of poor countries, the imbalance in power between investor and host country can seriously limit the host countries’ economic and environmental policy options. The scale and pace of operations undertaken by TNCs – for example in the extractive sectors – can cause pernicious detrimental impacts on both the natural and social environment. Other issues include exploitation of cheap workforces, eco-dumping, and a “race to the bottom” with lowering of environmental standards to attract investments.

Positive initiatives have been launched where consumers, through independent environmental and social labelling schemes, have been able to use market mechanisms in a positive way. Internalisation of environmental externalities through economic measures has also been successful in a number of cases such as taxes on toxic substances.

WWF has experience of the benefits and potential of voluntary initiatives first-hand, through partnerships with key industry sectors including the establishment of the Marine Stewardship Council and the Forest Stewardship Council, Climate Savers and many other partnerships. Yet WWF’s experience in working on issues of global concern such as fisheries, forests, climate, toxics, freshwater and species makes itclear that the existing voluntary initiatives are not enough. The overarching goal must be to ensure that corporations operate in a manner that supports sustainability and that companies that move in a sustainable direction are supported, not disadvantaged. In order to address the current failures WWF believe that a new approach is needed

1. First of all there exists a need for legally binding global rules (Corporate Accountability, CA), especially with respect to transnational companies, to help ensure minimum acceptable levels of responsible corporate behaviour and practices in every country in which they operate. Where companies operate transnationally, voluntary initiatives alone have not proved adequate to address the needs of sustainable development.[2]

2 Secondly there is a need to support proactive front runners that integrate sustainable development into their core business strategies (Corporate Social Responsibility, CSR). This paper will focus on the implications of adopting CSR as a core business strategy.

2. CSR in a dynamic business environment

Although CSR is not well definedit has spurred an intensive discussion about the role of corporations in society. WWF welcomes the discussion about the role of corporations but is worried that the environmental leg is missing, or not given enough attention, in a lot of CSR work. Some companies seem to use CSR only as an add-on (e.g. philanthropic giving) but do not attempt to integrate CSR into their core business decisions. Another challenge in the CRS discussion is that some seem to think that CSR is making binding rules unnecessary. From WWFs perspective it is obvious that the question is not whether we need binding rules or voluntary initiatives, we need both.

The role of binding rules is to stop the worst offenders and to create an environment where proactive engagement from leading companies in encouraged. The real question is: what is the right mix between binding rules and voluntary initiatives

One major challenge in developing a sustainable framework for corporations has to do with the fact that corporations are very different in their approach to the existing rules and sustainable development. At least five different approaches can be distinguished. It is important to remember that these different approaches do not only exist at a company level, they also exist within different parts of companies. If we only focus on the worst companies, binding rules are of course the most relevant, and if we look at the leading companies voluntary initiatives are of course the most interesting.

From WWFs perspective it is important that all attempts to develop a comprehensive framework take all categories of corporations into account.

The first category of companies are those that are breaking the law and exploit the lack of regulations in order to maximise their profit at any cost. The number of companies in this category might not be very high, but the harm they can do to nature and humans is significant. It is important to include this category when we discuss the need for a new framework for corporations, as binding rules with a strong compliance regime are important tools for stopping these companies from exploiting natural and human resources in ways that cause irreversible damage.

The second category of companies is taking a different approach, they don’t like rules that stop them from polluting the environment or harming nature and people. WWF sometimes engages in constructive dialogue with these companies and informs them of the short and longterm consequences of their activities. Many times these companies act from a short-term profit perspective where they often ignore the costs to society and nature

The third category is the biggest and houses the majority of companies. These companies focus on their core business and follow the existing laws and regulations. Many of them care about issues like the environment and human rights, but do not see themselves playing an important leadership role in this. Standards for reporting and transparency will be important for these companies as well as a general shift in culture where all companies reflect on the contribution they make to society.

The last two categories consist of companies that, to different degrees, have moved beyond compliance and are taking a proactive approach. As corporations are so influential today, and we are in a state of social and environmental emergency there is a need for leadership in all parts of society. This leadership is needed to promote and demonstrate corporate environmental responsibility, develop environmental best practices and catalyse change at sectoral and political levels. WWF therefore encourages companies that are willing to move ahead but believes that the long-term vision ought to include a regulatory framework so companies don’t need to be proactive in order to be sustainable.

The fourth category consists of the companies that respect existing standards and are moving beyond compliance. WWF encourages these companies and works together with companies in this category to make a business case out of this approach.

The fifth category of companies consists of the companies that not only move beyond the existing standards, but also take part in the development of tomorrow’s framework for sustainable development in order to be able to move even further down the sustainability road.

3. Looking beyond marginal changes

We live in a time where technologies exist that could create welfare for every person on this planet and at the same time reduce mankind’s total footprint on the planet. If we are to harvest the fruits of these solutions we must realise that there is no single path to a sustainable future and countries and regions will follow different ways. The shift to sustainability will however require associated socio-economic and institutional changes. It is also necessary to take into account the differences in the distribution of technological, natural and financial resources among and within nations and regions, and between generations, as well as differences in costs.

Although some problems can be addressed by new technologies, we must realise that the solution to the challenges we face can’t be found in a ”technological fix” only. Efficiency is an intermediate stage, not an end in itself. We need to acknowledge the fact that many of the current laws and regulations pursued by governments and the international institutions actually lead us away from a situation where poverty is eliminated an environmental degradation is halted.

The above ‘efficiency’ trend is enforced by a culture in the markets where the main focus is on short-term financial gains. This is exemplified by the drive for quarterly reporting of company performance. The result is a situation where the current system is often reinforcing the power of those who have emerged over decades as the most able to gain access to, and control of, environmental assets for their personal benefit. Unless that path is altered, the cost to society in terms of social instability, environmental disruption, and lost productivity will outweigh the gains offered by the short-term returns from the marketplace.

There is a fundamental lack of synchronicity between the short-term focus of corporations and the long-term issue of sustainability: theirs and the planet's.

We must therefore look beyond marginal changes and focus on the shifts that are needed in order to achieve long term sustainable development. As sustainable development is a dynamic state the solutions needs to be flexible so that they can be improved and changed as new needs emerge and new information becomes available.

Looking beyond marginal changes requires that we also acknowledge the fact that companies have constraints when they want to move towards sustainability. These constraints exist on many different levels. A few examples: Today there is a lack of consumer knowledge regarding the environmental and social consequences of different kinds of products and services, which results in a situation where the market signals do not communicate these issues.Many consumers are not aware about the impact of their consumption, and much of the current marketing, TV, films, etc exacerbate this. There is also a lack of clear support from governments to companies that move in a sustainable direction. A fixation on simple market economics means that democratically elected governments are reneging on their responsibility to lead society – instead they follow. Finally the financial markets demand high returns on capital without taking into account the externalities. These constraints must however not be used as an excuse for not doing anything. All proactive companies should instead present concrete suggestions for how these challenges can be addressed.

4. Six guiding principles for a proactive company

Every company is unique and exists in a unique environment. All serious work aimed at developing a sustainable agenda for companies must therefore start from every company’s specific situation. The sector, employees, customers, suppliers, current business models all affect the way the CSR-work can be developed.

Even if it is impossible to develop a general guide for the implementation of CSR for all companies WWF has collected six guiding principles for companies that want to integrate CSR into their core business.

i. From reactive and passive to proactive

In most areas businesses are still reactive, or passive, when it comes to environmental challenges. Two things are important to address for those companies that want to move towards a proactive approach.

First of all an inventory of the current policies must be conducted. What policy positions is the company supporting? Are all parts of the company working in the same direction and how do they relate to sustainable development? Almost all companies today are supporting a number of questionable positions through different interest groups that act on behalf of a large number of companies. While these interest groups rarely have full support and often represent a lowest common denominator it is however something that is considered as an acceptable position by the business community. It is therefore very important for companies to list and analyse what interest groups they support and what they want them to do.

Secondly there is a need to develop business models for passive companies that create few problems but have potential solutions to a number of challenges, to become proactive. In many of these companies there are often individuals who are willing to move, but due to internal dynamics, find it hard to get from insight to action. This cannot be the case in the future. We must find ways to support these companies as they move from passive to proactive.

One relevant criticism of CSR, from both grassroots organisations and some Friedmanite economists, is that companies should not be proactive in a way that undermines democratic bodies. Here it is important to distinguish between agenda setting and implementation. Companies can be proactive when it comes to implementing environmental goals, but should not engage in agenda-setting lobbying that takes important decisions for society away from democratic institutions and excludes relevant stakeholders.

ii. From risk assessment and branding to a change of business model

Today too much of what companies call a proactive approach to sustainable development is not really proactive. Instead it is nothing more than a part of either a risk strategy or a branding exercise. In the first case the potential costs of continuing business-as-usual, or making marginal changes, are often the driving force and in the case of branding it is sometimes the attempt to reach certain key consumer groups that pushes companies to make symbolic investments in different areas.

While both strategies can be a good beginning, they can also easily turn into dead ends, or even counter-productive green-washing exercises, as they do not necessarily support the long-term goals that need to be reached. In many cases these strategies do not involve the board and senior management which is also an indication that they do not relate to the companies core decisions. A company that is serious about sustainable development must therefore look to the core business strategy and look at the contribution to sustainable development in a wider context.

For those companies that perceive themselves as truly proactive there is a lot to be done. Senior managers need to identify and assess the current business model and how it relates to sustainable development. Then potential business responses must be assessed against different strategic options and scenarios. Communicating the outputs of these types of analyses, and how they have been reached, is essential if all stakeholders are to gain an appreciation of the broader imperatives that a company is trying to address and if they are serious in the way they address the challenges.

iii. From goods to service

One important shift in perspective where progressive business can contribute a lot, is the shift from goods to services. During the industrial era we have become used to solving our energy, transport, food, and housing needs in a certain way. This has resulted in a situation where society is structured around goods like oil, cars, roads, pesticides, cement, etc. This is often a problem as institutions and knowledge are structured in ways that primarily result in marginal improvements to the old ways of meeting our needs.

We have already seen how a number of companies are making the transition from supplying goods to providing services with interesting results. Instead of “oil companies” we now see an increasing number of actors claiming to be “energy companies”, instead of “car companies” we start to see discussions about “communication/transport companies”, etc.

The shift from product to service is important as it can result in a situation where the company communicates possibilities and opportunities instead of problems, making citizens realise that the shift to sustainability is not only possible but also exciting.

All companies should ask themselves what welfare they create today and how can that welfare can be achieved with an ecological footprint that is sustainable? In doing this it is possible to create an open business culture where old technologies are replaced by new less environmentally harmful ways of achieving the same service.

Of course the attempt to shift from goods to services can also be nothing more than a PR-stunt without any real implications. The outcome will depend on how different stakeholders react and how the new approach is integrated when core business decisions are shaped.

iv. From win-win-win to strategic investments

There is a tendency for companies that start to engage in the discussion about sustainable development to only focus on win-win-win situations. While some of these are very important and without problems this approach usually has some serious problems.