Excerpt
Table of Contents
EXECUTIVE SUMMARY
INTRODUCTION
1. THE ROLE OF BUSINESS IN SOCIETY AND THE EMERGENCE OF CSR
1.1 FROM SMITH TO LIPPMANN
1.2 THE BEGINNINGS OF CSR
1.3 CORPORATE SCANDALS AND MATURING OF CSR
1.4 CONTEMPORARY CSR
1.4.1 CSR AND SUSTAINABLE DEVELOPMENT
1.4.2 CONTEMPORARY CSR DEFINED
1.4.3 CSR IN PRACTICE: MEASUREMENT OF CORPORATE FOOTPRINT
2. CSR AND INTEGRATED REPORTING
2.1 THE EMERGENCE OF A CONCEPT
2.2 INTEGRATED REPORTING AND ITS RELATION TO CSR
2.3 KEY CONCEPTS OF INTEGRATED REPORTING
2.3.1 THE CONTENT OF INTEGRATED REPORTING
2.3.2 THE MEASUREMENT OF NONFINANCIAL PERFORMANCE
2.4 THE IMPLEMENTATION OF INTEGRATED REPORTING
2.5 THE DESIRED EFFECTS OF INTEGRATED REPORTING
3. NEOLIBERAL PROPERTY ECONOMY: INSTITUTIONAL FOUNDATIONS, ECONOMIC IMPERATIVES AND INSTRUMENTALITY OF CSR
3.1 INSTITUTIONAL FOUNDATIONS OF THE ECONOMY
3.2 ECONOMIC IMPERATIVES OF PROPERTY REGIMES
3.3 REGULATION AND CORPORATE INTERESTS IN PROPERTY REGIMES
3.3.1 A BRIEF HISTORY OF MNC REGULATION
3.3.2 (SELF-) REGULATION AND CSR
3.3.3 (SELF-) REGULATION AND INTEGRATED REPORTING
3.4 INSTITUTIONAL LIMITS OF CSR AND INTEGRATED REPORTING
4. INTEGRATED REPORTING FOR “SUSTAINABLE DEVELOPMENT”? A CRITICAL APPRAISAL OF ITS CHANCES AND LIMITATIONS
4.1 WHAT IS SUSTAINABLE DEVELOPMENT?
4.1.1 SUSTAINABLE DEVELOPMENT IN LINE WITH CAPITALIST RATIONALE
4.1.2 ECO-SOCIAL VIEW OF SUSTAINABLE DEVELOPMENT
4.1.3 CSR, INTEGRATED REPORTING AND SUSTAINABLE DEVELOPMENT
4.2 THE LIMITATIONS OF INTEGRATED REPORTING
4.2.1 FAILURE TO CRITICALLY ASSESS THE NATURE AND ORIGIN OF SUSTAINABILITY CRISES
4.2.2 FAILURE TO ASSESS UNDERLYING INSTITUTIONAL CONSTRAINTS OF THE NEOLIBERAL, PROPERTY-BASED ECONOMIC SYSTEM
4.2.3 FAILURE TO ACCURATELY MEASURE THE SOCIAL AND ENVIRONMENTAL FOOTPRINT OF CORPORATE ACTION
4.2.4 FAILURE TO CRITICALLY ASSESS THE CAPACITY OF THE MARKET ECONOMY TO SOLVE SUSTAINABILITY CRISES
4.3 THE CHANCES OF INTEGRATED REPORTING
5. CONCLUSIONS
LIST OF ACRONYMS
REFERENCES
Executive Summary
There is wide-spread awareness about the fact that business has caused or aggravated many significant global crises, calling into question the sustainability of our current economy. Proponents of the emerging concept of Integrated Reporting, however, argue that corporations can reverse this trend by reporting their financial information together with information measured in CSR reports about at what costs to environment and society, also called footprint, a corporation has achieved its profits. Such opening up to disclosure, so the argument, creates incentives for corporations to reduce their footprint; and reputation and capital allocation will then reward well-performing, sustainable corporations leading to a dynamic mechanism that will contribute to sustainable development.
Such an argumentation is simplistic and does not hold. Property economics establishes that within a property-based economy, corporations are faced with specific economic requirements as a result of the capitalization process, namely requirements to grow and secure profitability across time and competition. Such requirements leave corporations with no option than to subdue social and environmental considerations to their pursuit of profitability. The latter, in return, dictates that corporations use strategies like Integrated Reporting, arguing for voluntary corporate self-regulation in regards to costs imposed on society and environment, in order to shape a regulatory framework that accommodates their ability to respond to economic requirements. Corporations are moreover not likely to voluntarily report on any measure that will threaten their profitability. The concept of Integrated Reporting can not simultaneously be a corporate tool for shaping a specific legal framework that subdues environmental and social considerations; as well as a contribution to sustainable development, at least not as long as the latter is analyzed from an eco-social perspective that requires that economic interests be subdued to social and environmental considerations. Integrated Reporting can, however, play a role in informing society about the footprint of a given corporation if regulation establishes what is to be measured by corporations when disclosing their footprint.
Introduction
Recent global crises like the collapse of the American banking system and ongoing economic crises, but also sustained and ongoing global environmental and poverty crises as well as repeated corporate scandals have raised widespread public concern about the sustainability of the current economic and financial system. While many corporations show large and ever-increasing profits in their mandatory corporate financial disclosure, these profits are to a varying extent achieved at the expense of the natural and social environment. For more than a century, historians, sociologists, and economists have pointed to the problem of social costs, termed externalities, imposed by business on society; and many of them have argued in favor of regulating corporate activities in order to curtail externalities. The answer of corporations, however, has been profoundly different: corporations have in response to public pressure about negative externalities and in prevention of government regulation taxing such externalities started to instrumentally engage in Corporate Social Responsibility (CSR) strategies. Such strategies aim to display a corporation’s social and environmental sensitivity, and within such strategies, often vague promises are made to improve corporate impact on society and environment. Despite such promises, however, there is globally a widespread absence of requirements for corporations to disclose at which expense to society and environment profits were achieved.
Integrated Reporting, a movement initiated by the Prince of Wales’ Accounting for Sustainability project, the Global Reporting Initiative, the International Federation of Accountants as well as corporate leaders and industry groups; aims to deliver a reporting framework for corporations in which they can disclose financial and nonfinancial performance in an integrated report; giving shareholders, investors and societal interest groups a comprehensive view of corporate performance. Pivotal to the concept of Integrated Reporting is the idea that corporations as part of their CSR strategies systematically start to measure their footprint on the natural and social environment, and that this disclosure will provide strong incentives for corporations to improve their nonfinancial performance. Indeed, its proponents argue that Integrated Reporting disclosure will lead corporations to include sustainability into all its strategic operations, forcing corporations to end the pursuit of shortterm profits and engage in long-term strategies that will benefit the corporation and its shareholders, the environment as well as society as a whole. Integrated Reporting claims that its implementation will lead to the internalization of externalities and thus contribute to sustainable development as it leads to “sustainable strategies for a sustainable society” (Eccles & Krzus, 2010, p. 3).
Such a substantial claim deserves closer attention, and that is where the focus of our paper lies. Our research question is whether Integrated Reporting of corporate financial and nonfinancial information can truly contribute to sustainable development as claimed by its proponents. In order to respond to our research question, we will investigate the origin and nature of underlying CSR strategies. We will then use property economics to analyze and explain not only the presence of externalities, but also the institutional constraints that actors face in the economy. In order to answer our research question we will further use concepts of evolutionary economics in our assessment of what sustainable development exactly means. We argue that only with a sound theoretical foundation it is possible to evaluate whether a voluntary corporate reporting concept can truly lead to the internalization of externalities.
Our paper proceeds as follows: chapter one assesses the origins of the general debate about the role of business in society and externalities caused, and shows how CSR strategies emerged as a response to the latter. Such an understanding is crucial as we proceed in chapter two to define contemporary CSR strategies first, and then show that Integrated Reporting is both, a particular case of CSR as well as a progression from the latter. We further outline in detail the key features, implementation and the stated outcomes of Integrated Reporting, the concept at the heart of our contribution. Chapter three proceeds using property economics to explain the institutional foundations of our economy as well as the economic imperatives faced by its actors as a consequence of the process of capitalization enabled by the property regime. Such economic imperatives, as shall become evident, explain the presence of externalities shifted by business onto society and the environment; as well as they explain how corporations use strategies like CSR and Integrated Reporting in an instrumental way to shape a regulatory framework that will allow them to continuously meet economic imperatives distinctively present in property-based economies. Based on this analysis, we proceed in chapter four to analyze first how the economic requirements shape a particular capitalist rationality on what sustainable development means; which is in inherent conflict with an eco-social view of sustainable development as we shall outline using concepts of evolutionary economics. Having earlier established the instrumentality of CSR and thus Integrated Reporting as well as economic imperatives faced by corporations; we can then proceed in chapter four to answer our research question whether Integrated Reporting can contribute to sustainable development from an eco-social perspective. It shall become evident that the institutional foundations and economic imperatives of the property-based economy seriously curtail the possibility of corporations to contribute to such a goal using a voluntary concept of self-regulation; as it is the economic imperatives that will force corporations to subdue social and environmental considerations to their economic interests. An internalization of corporate externalities, as well as true and accurate reporting thereon, requires government regulation beyond just a corporate voluntary initiative, an argument that we will briefly outline at the end of chapter four. A conclusion sums up our paper.
1. The Role of Business in Society and the Emergence of CSR
Global crises that were at best furthered and at worst triggered by corporate profitmaximizing behavior, as mentioned in the introduction of this paper, have in recent years and decades greatly increased public awareness about the fact that such corporate behavior creates situations where it clashes with environmental and societal interests. This awareness, however, is by no means a recent phenomenon: historians, sociologists, anthropologists, and economists for more than a century have pointed to the (negative) externalities caused by business, and the resulting adverse effects on environment and society. The potential of clashing interests and goals presupposes that business in its current institutional framework is removed from a wider socio-ecological context. In this chapter we will show that this is a relatively recent development in the history of mankind with powerful implications: the growing awareness, first in academic social and economic theories and later also in public, of what Kapp called The Social Costs of Private Enterprise. By this review it will become evident that evolving discourses and public awareness about externalities ignited the adoption of Corporate Social Responsibility (CSR) strategies by corporations. The link of the debate about the role of business in society, and arguably the debate about the separation of business from society; to the emergence of CSR strategies provides a crucial understanding and prerequisite for chapter two, where we portray contemporary CSR strategies and their link to and relevance for the concept of Integrated Reporting.
1.1 From Smith to Lippmann
In the eighteenth century, as a revolting reaction against mercantilist and medieval systems of government regulations, the new school of classical economic thought emerged. It was the time of new scientific discoveries that led among thinkers and scientists to the wide-spread belief of a natural order of the universe. Kapp (1950) stated “they believed that not only nature but society, and with it the production and distribution of wealth, were subject to natural laws which it was the task of the political economist to discover and which it was possible to reduce to certain fundamental principles” (p. 3). As a result, a system of natural liberty was born that reduced the economic process to “prices, costs, profits, wages, rent and capital [...] within a coherent system as an exemplification of the natural and beneficial order of economic life” (Ibid., p. 4). Everything that was not quantifiable or that did not have a price was considered “noneconomic” (Kapp, 1950). The assumption of a homo oeconomicus making rational choices that lead, on aggregate, to rational and predictable economic outcome; was born and with it, the science of economics. The basic belief of classical liberal economy, based on Adam Smith’s theory of the invisible hand, was that rational, profitmaximizing individuals would engage their capital in such a way that (automatically) maximizes societal welfare. The market automatically, in absence of government regulation, maximizes welfare in a more efficient way than if rational individuals made conscious efforts to do so (Smith, 1937).
Not only became the concept of efficient, unregulated markets the cornerstone of economic thought, the school itself gained in importance and soon became standard thinking in Western countries during the times of industrialization in the eighteenth and nineteenth centuries. Anthropologist David Goodfellow (as cited in Heinsohn, 2008) stated, “It has long been recognized that the formulations of economic theory have in them a certain universality. [...] The aim [...] is to show that the concepts of economic theory must be taken as having universal validity” (p. 245). It happened what later the famous anthropologist, economics professor and philosopher Karl Polanyi in his book called The Great Transformation, published 1945, argued: with the dawn of industrialization, the birth of the corporation and modern capitalism, business/the economy became an own entity detached of social (and thus societal) relationships. Polanyi states “in modern market economies the needs of the market determine social behaviour, whereas in pre-industrial and primitive economies the needs of society determined economic behaviour” (as cited in University of London, 1997).1
American economist and sociologist Thorstein Veblen became one of the earliest and most influential critics of the implications of the separation of economic and social life. In his book The Theory of Business Enterprise, he observes the implications of the then modern industrious corporations for society. Veblen (2011 [1904] ) states “the large business man controls the exigencies of life under which the community lives. Hence, upon him and his fortunes centres the abiding interest of civilized mankind” (p. 3). Because of the institution of private ownership that underlies the corporation and the resulting anonymity of business2, Veblen (Ibid.) argued that business no longer serves what Adam Smith named The Wealth of Nations, but indeed only served its own profit: “the vital point of production with [the business man] is the vendibility of the output, its convertibility into money values, not its serviceability for the needs of mankind” (p. 51).
It was during that time in the late nineteenth and early twentieth century that socialist writers started to raise awareness about the negative externalities that corporations cause in their course of business and pursuit of profits. Karl Marx in his famous work Das Kapital (as cited in Kapp, 1950) in 1867 wrote “capital production [...] develops technology, and the combining together of various processes into a social whole, only by sapping the original sources of all wealth-the soil and the laborer” (p. 36). To Marx, it was clear that the capitalist economy only advanced at the expense of the environment and workers. What was implicit to Marx was made explicit in 1912 by economist Arthur C. Pigou in his work Wealth and Welfare: Pigou established a formalized concept of production externalities, an idea that was introduced by Pigou’s mentor and influential British economist Alfred Marshall already in 1890 but had received scant attention hitherto (Barnett & Yandle, 2009). Pigou defined externalities to exist in a situation where “a part of the product of a unit of resources consists of something, which, instead of being sold by the investor, is transferred, without gain or loss to him, for the benefit or damage of other people" (as cited in Hausman, 1992). He outlined that because of the difference between private costs (costs accruing to the corporation) and social costs, a factory for example would produce an amount of smoke that surpasses the optimal amount (Hill, 1992). In general, Pigou’s argument was that private (corporate) productive activities can lead to a shifting of costs onto society in an unregulated market economy. Rationally behaving actors will thus tend to not consider in their price calculations the effects of their externalities onto others. In order to efficiently allocate the true performance of a business (Pigou used the example of a railroad), the true social net product must be evaluated by including all positive and negative effects of a business operation on everyone who is affected; a daunting task clearly not being established neither then nor now (Simpson, 1996). The private industry thus fails to maximize national dividend. His remedy was to introduce government measures such as taxes in order to raise the cost of shifting costs over to society (Kapp, 1950). However, Pigou was also aware that government measures have to be treated with caution: “It does not of course follow that wherever laisser faire falls short, government interference is expedient: since the inevitable drawbacks and disadvantages of the latter may, in any particular case, be worse than the shortcomings of private industry” (as cited in Simpson, 1996, p. 71).
Another social economist treating the issue of externalities was Oskar Lange in the 1930s. His argument, in short, was that under socialism monopolies and externalities would cease to exist because a socialist economy would introduce these factors into cost calculations of corporations, which is clearly not so under capitalism (MacKenzie, 2005). Criticism about the capitalist system was thus hitherto mainly voiced by socialist whose political undertone was calling for a socialist system that they saw as the alternative or antipole vis-à-vis the capitalist system. The critics put, generally and with exceptions, their focus on human social costs more than on environmental social costs, meaning externalities.
This changed in 1950 with the publication of German economist Karl William Kapp’s influential work The Social Cost of Private Enterprise. Kapp, who became widely known as one of the founders of ecological economics, was influenced in his thinking by amongst else, Thorstein Veblen (Kapp Research Center, n.d.). Kapp’s principal argument was that despite earlier criticism about negative externalities of private enterprise, id est social costs, the latter are generally not included in the price calculations of corporations because of the lack of regulation that would mandate corporations to do so. He underlined and quantified externalities in the ecological as well as social realm: social cost resulting from the impairment of the human factor of production, air and water pollution, depletion of animal and energy resources, soil erosion and -depletion, deforestation, technological change, unemployment and idle resources, monopolies, as well as social costs of distribution and transportation (Kapp, 1950). To Kapp, it was clear that the root of these social costs dated back to the still valid basic assumptions of classical economy, having an abstracted view of markets and welfare disconnected with wider societal realities, and that a solution to the problem of social costs of private enterprise could only lie in the reformation of those very assumptions within the economic system. The following quote from his book is worthy to be cited in full length (Kapp, 1950, p. 261):
“Thus, only by abandoning the philosophical premises of the seventeenth and eighteenth centuries, by reformulating and enlarging the meaning of its basic concepts of wealth and production, and by supplementing its study of market prices by a study of social value, will economic science finally achieve an impartial and critical comprehension of the economic process. [...] Indeed, by including social costs, social returns and social value within the range of its analysis, economic science would become “political economy” in a deeper and broader sense than even the classical economists conceived of the term.”
Kapp pointed to problems of economic liberalism, shifting costs to third persons, in a time where this tendency was even aggravated: it was in those years after World War II that the new economic school of neoliberalism started to take root not only in economic discourse; but also, in accordance with its believe in a supreme role of the economy in society, started to highly influence and basically dictate government economic policies. The term neoliberalism was coined at the 1938 Colloque Walter Lippmann, a conference held in Paris in honor of American writer and former advisor to President Wilson, Walter Lippmann. The latter laid the foundation of the new economic school with his 1937 book The Good Society, in which he argued „ in a free society the state does not administer the affairs of men. It administers justice among men who conduct their own affairs” (as cited in Plehwe, 2009, p. 13). Lippmann called for a new, revised economic liberalism that would surpass simple laissez faire economics and, reflecting the political climate of the time, be able to defeat collectivism and totalitarianism. Neoliberalism was defined by the Colloque in Paris to entail: the free enterprise, the system of competition, the priority of the price mechanism, and a strong and impartial state (Ibid., p. 14). In the years after the war, neoliberalism became the order of the day: corporations acted according to the maxim of profit maximization for their shareholders and, on aggregate, growth for national economies; while issues about negative externalities of corporate action were mainly treated in academia with little or no influence on public opinion, policy making or corporate considerations in the production process.
1.2 The beginnings of CSR
Parallel to the dawn of neoliberalism the concept of Corporate Social Responsibility (CSR) began to emerge, notably first and foremost in the Anglo-Saxon world where also neoliberalism had its strongest influence. Despite the existence on earlier works on the topic, the first significant publication on CSR was Howard R. Bowen’s Social Responsibilities of the Businessman in 1953. In his book, Bowen argued that it is the obligation of businessmen to pursue strategies that are in tune with overall values and objectives of society. The social responsibility of corporations, to Bowen, was rather a moral guiding principle than a strategic concept. In the 1960s, the literature about CSR expanded significantly and various authors attempted to conceptualize the idea of CSR. Amongst those was Joseph W. McGuire who argued in 1963 that “the idea of social responsibilities supposes that the corporation has not only economic and legal obligations but also certain responsibilities to society which extend beyond these obligations” (as cited in Carroll, 1999, p. 271). It is important here to realize what McGuire suggested: the social responsibilities of corporations towards society are neither economic nor legal, but are outside of such frameworks. This implicit assumption by McGuire was made explicit at the beginning of the 1970s by Keith Davis: “[...] social responsibility begins where the law ends. A firm is not being socially responsible if it merely complies with the minimum requirements of the law, because this is what any good citizen would do” (Ibid., p. 277).
From the 1970s onwards, despite the emerging literature and discussions about CSR there was general confusion and a lack of agreed upon definition about what it actually meant for corporations to be socially responsible. Preston and Post stated in 1975: “In the face of the large number of different, and not always consistent, usages, we restrict our own use of the term social responsibility to refer only to a vague and highly generalized sense of social concern that appears to underlie a wide variety of ad hoc managerial policies and practices” (as cited in Carroll, 1999, p. 280). Although the extent of social responsibility was unclear and vague, there was rising awareness of externalities caused by corporate action, which led to the formulation of some legislation, for example labor laws or environmental codes. For most corporations at that time, CSR meant that they obeyed such laws and, profits permitting, also made some philanthropic contributions to community projects or other worthy causes.
However, the 1970s also marked a widespread advancement of neoliberal policies. The market became the overriding vessel, large corporations the main entities, business the language and profit maximization the goal. From a neoliberal point of view, the responsibility of corporations was to contribute to national wealth, and they could do best so in an unregulated, free market. This was truly in the spirit of Ronald Coase, who in his article The Problem of Social Cost, published in 1960, attacked Pigou and his case for government intervention regarding the regulation externalities. Coase’s argument was that such government intervention might lead to economically inefficient outcomes, or in other words, that negative externalities might not always be undesirable in economic terms if the social net product without government intervention is greater than with government intervention. With assumptions of rationality and no transaction costs, property-based markets would be able to resolve the issue of externalities in an efficient way without regulation but instead with property expansion (Simpson, 1996).
This belief in a self-regulating market regarding externalities, one of the basic assumptions of neoliberalism, also influenced the debate about the social responsibility of corporations. Characteristically for the neoliberal paradigm is therefore famous economist Milton Friedman’s view expressed in 1970 that “in a free society [...] there is only one social responsibility of business - to use its resources and engage in activities designed to increase its profits as long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud” (Friedman, 1970). By staying within rules of the game, Friedman referred to the fact that corporations ought to obey the respective laws. However, the laws governing corporations became less and less, as the spreading of neoliberalism entailed broad deregulation in favor of market self-regulation.
1.3 Corporate scandals and maturing of CSR
In the 1980s there started to be growing global public awareness about negative externalities caused by corporate action. Famous environmental and social corporate scandals such as the Bhopal gas tragedy in 1984 or the Exxon Valdez oil spill disaster in 1989 raised profound questions about the role of business in society (Warhurst, 2011). Around the same time, the influential 1987 Report of the UN World Commission on Environment and Development (WCED) called Our Common Future, also known as the Brundtland Report, was published. In outlining growing, interlinked global ecological crises and their links with economic and social development, the report called for strong collective action by governments, business, civil institutes and individuals in fighting the dawning crisis (WCED, 1987)3.
In response to such dynamics, the concept of CSR matured during the 1980s and started to become instrumentally and strategically used by corporations, a topic to which we will return. Two trends in CSR theory and practical application by corporations emerged that are still true today. First, in response to corporate scandals as well as growing global awareness about ecological and social crises, corporations started to broadly apply CSR, including corporate philanthropy, as a “strategy adopted by certain large corporations to acquire good reputations (or avoid bad ones) for their conduct outside the strict sphere of their market operations” (Crouch & Maclean, 2011). Porter and Kramer (2002) state the example of Philip Morris, the American tobacco corporation, giving away USD 75 million to charities in 1999 and then using a USD 100 million public advertisement campaign to publicize it. The fact that CSR became an instrumental strategic management tool is emphasized by the second trend: the link of CSR performance to financial profitability. American economist and pioneer of modern management, Peter Drucker, was among the first ones to not only establish this connection, but to urge corporations to explicitly convert social responsibility into profits. He stated in 1984 that “the proper ‘social responsibility’ of business is to tame the dragon, that is to turn a social problem into economic opportunity and economic benefit, into productive capacity, into human competence, into well-paid jobs, and into wealth” (as cited in Carroll, 1999, p. 286).
A vital factor of why CSR started to become viewed as a strategic management tool was the publication of Edward Freeman’s 1984 book called Strategic Management: A stakeholder approach. This book established what became known as the stakeholder model. Freeman (1984), the pioneer of the stakeholder approach, defines a stakeholder as „ any group or individual who can affect or is affected by the achievement of the firm’s objectives “ (p. 25). Post et al. offer a different definition: stakeholders are “individuals and constituencies that contribute, either voluntarily or involuntarily, to [the corporation’s] wealth-creating capacity and activities, and who are therefore its potential beneficiaries and/or risk bearers” (as cited in Ayuso & Argandona, 2007, p. 2).. According to the stakeholder model, corporations should actively engage in managing their stakeholders and not have a narrow-minded focus on shareholders only, since the corporation’s long-term profitability is much dependant on its stakeholders. The corporation is thus now faced to manage different and sometimes competing claims of stakeholders, including the government, NGOs, the communities and its workers. Freeman established a framework that is relevant to CSR because it outlines how the corporation is supposed to manage its own position within society.
The beginning of stakeholder management has had significant consequences for corporations. The latter started to be faced with different interests and concerns raised by different stakeholders. Environmental NGOs would for example demand a corporation to pursue eco-friendly production processes while communities would expect a corporation to become actively involved in community projects. Not only did the scope of managed stakeholders by corporations increased, but during the 1990s also the claims raised by stakeholders reached new dimensions: greatly helped by globalization and the dawn of the internet, with the turn of the millennium ahead there was widespread public awareness of externalities caused by business, as outlined, and stakeholders and society as a whole have started to demand corporations to positively contribute to environmental and social development goals and move away from sole profit-maximization (Warhurst, 2011).
It is crucial to state that from the beginning of stakeholder management strategies until the present day, corporations generally emphasize the inclusion of stakeholder interests into core business as well as CSR strategies (or even only the often referred-to stakeholder dialog) as a development towards a more democratic participation of society into corporate activities, ensuring that corporate and societal goals are in harmony. Going back to Freeman’s quote cited above, however, we note that corporations generally only manage stakeholders where the latter affect the wealth-creating capacity of a given corporation, or in other words, stakeholders that either provide an economic (read: profit) opportunity for them when managed or that could pose an economic threat to them when not managed. Apart from this imperative that subjugates stakeholder management to profit considerations, there is not a unanimously agreed definition of which stakeholders are to be managed by corporations, nor to what extent stakeholder interests have to be considered and included into strategies. Thus, despite corporate marketing efforts stating the contrary, there is absolutely no guarantee that stakeholder management signifies a democratic development of societal involvement into corporate action. While this fact must limit the positive corporate contributions to wider societal goals, it is completely coherent with a capitalist rationality that aims to meet specific economic requirements present in our current property-based economy; a problematique to which we will return in the third chapter.
1.4 Contemporary CSR
1.4.1 CSR and sustainable development
The beginning of the 21st century has seen an intensely increased public interest in and concern about issues like climate change and global economic and social inequalities. Public opinion is often skeptical about the role that large corporations have played in contributing to such issues while making profits at a scale not seen before. The adoption of CSR strategies by large corporations in order to display some kind of social and environmental sensibility vastly increased after the turn of the millennium and nowadays one would be challenged to find a listed corporation that does not, in some form or another, issue a report about their CSR efforts. CSR has started to become known and published by corporations under many different names: corporate responsibility, corporate sustainability, corporate citizenship or also merely sustainability (Eccles & Krzus, 2010).
Whatever the word is that a given corporation uses for their CSR strategy, there is a common use by most corporations of the terms sustainability and sustainable development4 . The widely known concept and definition that most corporations thereby refer to was established by the WCED in 1987 (chapter 2.I): “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. While the WCED report referred to sustainable development in light of finite natural resources on our planet, most corporations nowadays increasingly apply this concept of sustainable development also to human and financial areas. In fact, a 2010 study of more than 700 CEOs of large multi-national corporations (MNCs), conducted by UN Global Compact and Accenture, found that “93% of CEOs believe that sustainability issues will be critical to the future success of their business” and “96% of CEOs believe that sustainability issues should be fully integrated into the strategy and operations of a company (up from 72% in 2007)” (UN Global Compact, 2010, p. 13-14). CSR and sustainability strategies, according to Eccles and Krzus, have come to mean the same thing: that companies in strategies and operations take into account limits of natural, human and financial resources (2010). Interestingly, corporations apply the terms sustainability and sustainable development not as a specific state or nature of the economy or their operations that is either reached or not, but instead talk of sustainability and sustainable development even when they make incremental efforts towards that end5.
1.4.2 Contemporary CSR defined
This vague and often unspecified discourse in CSR strategies about sustainability is not surprising and derives from generally highly vague definitions of what CSR as a concept is. There is no singly accepted definition of the contemporary concept of CSR. Three recent definitions of CSR include:
"Corporate Social Responsibility is the continuing commitment by business to contribute to economic development while improving the quality of life of the workforce and their families as well as of the community and society at large." (World Business Council for Sustainable Development, 1999, p. 3).
“CSR [is] “the responsibility of enterprises for their impacts on society”. Respect for applicable legislation, and for collective agreements between social partners, is a prerequisite for meeting that responsibility. To fully meet their corporate social responsibility, enterprises should have in place a process to integrate social, environmental, ethical, human rights and consumer concerns into their business operations and core strategy in close collaboration with their stakeholders” (European Commission, 2011, p. 6).
“Corporate social responsibility encompasses not only what companies do with their profits, but also how they make them. It goes beyond philanthropy and compliance and addresses how companies manage their economic, social, and environmental impacts, as well as their relationships in all key spheres of influence: the workplace, the marketplace, the supply chain, the community, and the public policy realm” (Harvard University, 2008 ).
All definitions share some kind of notion that corporations, through their CSR strategies, somehow should manage their impacts on society and environment, without defining neither the scope of such a contribution, nor what social and environmental sustainability exactly means. The above cited definition of the WCED report often marks the border of how far sustainability gets defined: as a vague and unspecified goal to ensure that future generations can still meet their needs. The vague definitions of CSR, and the at best simplistic and at worst absent definition of sustainability and sustainable development; and what the scope is to which corporations have to and should contribute to it, have led to a plethora of different CSR strategy implementations by corporations that include “a broad range of activities that corporations may engage in, with varying degrees of enthusiasm, to demonstrate that they are addressing important human rights, environmental and labour issues - many of which have been brought to their attention by activist groups” (Mullerat, 2010, p. 19-20). As CSR activities are branded by corporations to contribute to sustainable development or sustainability, a trend that has vastly strengthened in recent years, corporations strategically move themselves into positions where their existence and operations lies in the general interest according to Bodet and Lamarche, because of their declared pursuit of CSR strategies that are in the interest of society and future generations (as cited in Griethuysen, 2010). The seeming pursuit of societal interests by means of CSR strategies, however, is based on entirely voluntary corporate initiatives that start where the law ends: in 2006, the European Commission declared that all corporate CSR efforts and strategies are entirely voluntary, legally non binding, and that corporations are not required to show results or outcomes of their CSR efforts (Griethuysen, 2010). This definition, as outlined by Griethuysen (Ibid.) marks a change of position of the European Commission to a less ambitious definition: in 2001, it defined CSR as “going beyond compliance and investing “more” into human capital, the environment and the relations with stakeholders “ (European Commission, 2001, p. 6).
It is crucial that we understand the emergence of CSR, as well as current strategies of CSR as an instrumental corporate response to specific pressures corporations are faced with: pressure by customers to display social and environmental sensitivity (at the threat of bad reputation, resulting in lower sales and thus profits); pressure by suppliers and business partners who are themselves faced with customer pressure to display social and environmental sensitivity; and pressure by authorities in light above mentioned awareness about the negative impacts of externalities caused by business (at the threat of increased mandatory regulation). We will return to this in chapter three, where we in detail analyze the instrumentality of CSR as an answer to economic pressures faced by corporations.
1.4.3 CSR in practice: measurement of corporate footprint
How do CSR strategies in practice look like? Most corporations in the new millennium started to follow the Triple Bottom Line approach, developed by John Elkington in 1994: social responsibility towards people (for example, non-discrimination and labor rights), environmental responsibility towards the planet (for example, reduction of CO2 emissions and water consumption), and economic responsibility towards its shareholders (for example, profit targets and zero tolerance on corruption and bribery) (Mullerat, 2010). The Triple Bottom Line approach essentially concerns the same issues as the measurement of Environmental, Social and Governance (ESG) performance, a recently and increasingly used acronym by corporations to sum up what is included (and to be measured) in their nonfinancial impact, also referred to as footprint. The first two ESG categories can be readily matched to the respective Triple Bottom Line categories and the last one, governance, would fall under the category of economic responsibility.
The end of the old and the beginning of the new millennium marked the time when the implementation of CSR strategies and consequently the publication of respective CSR reports became standard for large MNCs: while there was globally a number of 464 CSR reports published in 1998, this number grew to almost 6000 CSR reports by 2011 (CorporateRegister.com, 2012). There are also a growing number of surveys trying to link the quality of corporate CSR performance to better financial performance, establishing the socalled business case for CSR: Eccles (2012), for example, found out from a sample of 180 US corporations that those who adopted ESG policies in the early 1990s outperformed those corporations who did not by as much as 4.8% in returns. For corporations not finding an intrinsic value in CSR itself, the argument goes somewhat like this: corporations operating unsustainably (for example a corporation who is a heavy emitter of greenhouse gases) will be faced in the long-run with higher costs due to increased government regulations and taxes as well as lower returns due to reputational damages, it thus makes pure business sense to implement CSR strategies.
The growing popularity of CSR strategies employed and of consequent CSR marketing efforts by corporations, however, has not lead to a cessation of corporate scandals. This became painfully clear first by the reckless and short-term profit driven behavior of several banks and loan agencies that eventually triggered the 2007-2008 financial crisis, and second by huge corporate scandals like Enron, Arthur Andersen or the BP Deepwater Horizon oil spill in 2010. Enron, the US energy giant, collapsed under its debt in 2001 after years of systematic, widespread internal accounting fraud. At the same time, while it was still operational, Enron was considered a champion of CSR: the corporation was known for their great commitment for philanthropic contributions, and also won several prices for their CSR work, including an award for corporate conscience (Bilson, 2010). One of the biggest corporate scandals, if not the biggest in recent years was the BP Deepwater Horizon oil spill in 2010, not only in regards to public outrage but probably also in regards to environmental damages caused. Like Enron, BP has been very actively pursuing and especially promoting their CSR work, also receiving awards for them. BP has had a strategy of portraying themselves as a corporation of high integrity and values; however, they also simply have not disclosed facts that would not be in line with this portrayal (Lewis, 2010).
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1 See Griethuysen (2004) for a discussion on this „normative hierarchy inversion“ (p. 224)
2 We will treat the fundamental issue of the institution of ownership and property, underlying the classical as well as neoclassical and modern economic system, in sufficient detail in chapter three.
3 We will analyze the WCED Report in chapter four.
4 We will treat the issue of the meaning and two different views on sustainable development in detail in chapter four.
5 A brief internet search of large MNCs sustainability or CSR reports will prove this point to the reader.