Table of Contents
2 The Responsibility of Businesses
3 Beyond Corporate Social Responsibility
4 Businesses as Harbingers of Sustainable Development?
List of References
In 1972, the simulation study Limits to Growth issued a warning on perpetual economic growth within the system of finite resources of planetary boundaries (Meadows et al., 1972). Since the threats of ceaseless growth have been recognized, the pursuit of sustainability has been high on the global agenda (Atkinson, 2000). The term is premised on the definition of sustainable development from the report Our Common Future, which limits the satisfaction of present needs to the extent it hampers future generations to satisfy their own (WCED 1987). It triggered an accruing plethora of diverging definitions, each taking a different angle on the concept in order to meet the manifold prerequisites of its convoluted nature (Hopwood et al., 2005; Redclift, 2005; White, 2013).
Due to the ambiguous interpretations of sustainability, there is no objective ‘ideal state’ societies can aim for. Coomer (1981) elaborates that sustainable societies seek to find “an equitable relationship with the physical environment (…) [and] will not generate changes that may seriously impair that which sustains [them] […]” (Coomer, 1981, p. 25), which emphasizes the notion of development rather than achievement. Paired with the ‘Brundtland+’ definition by Van de Kerk and Manuel (2008), sustainable societies effectuate sustainable development while “each human being has the opportunity to develop itself in freedom, within a well-balanced society and in harmony with its surroundings” (Van de Kerk and Manuel, 2008, p. 229) and “looking for alternative ways of growing” (Coomer, 1981, p. 25).
However, corporations are often accused of exceeding the limits of growth by solely focusing on economic welfare while their unethical business practices contribute to the planet’s under-development widespread inequalities, and poverty (Hiller, 2013; Scheyvens et al., 2016). Thus, this essay analyses the role of businesses in creating sustainable societies and how current voluntary activities contribute towards sustainable development. By showing the limitations of corporate social responsibility (CSR) practices, traditional business models treating sustainability efforts as required expense are questioned and the paradigm shift needed for businesses to contribute to global governance around sustainable development is elaborated.
2 The Responsibility of Businesses
Advocates of Milton Friedman’s approach to the responsibility of businesses argue, that social and environmental aspects should only be considered when contributing to a company’s fiduciary obligation to maximise shareholder value; otherwise, they should be dealt with by politicians and non-governmental organizations (NGOs) (Friedman, 2007; Porter and Kramer, 2011). However, Scheyvens et al. (2016) reason that due to failure of governments to combat environmental degradation and social injustices , sole shareholder precedence as the only premise of economic activity has long become obsolete. Blowfield (2012) even defines businesses as ‘development agents’ and therefore as proactive participants in the international development arena. At least since the publication of the United Nations 2030 Agenda for Sustainable Development, the private sector has been given an important role in the international development process and is called upon to pave the way to a sustainable future (Coomer, 1981; Pedersen, 2018; Scheyvens et al., 2016). However, environmentalists and human rights activists have voiced criticism about their self-interested and careless relationship to the social environment and the planet (Hiller, 2013). Numerous natural disasters, such as the Exxon-Valdez oil spill, or human right violations, e.g. in deplorable working conditions in factories supplying big fashion brands, originate from unsustainable business behaviour (Utting, 2005). Businesses are now under constant pressure to demonstrate their contributions towards sustainable development and therefore sustainable societies (Atkinson, 2000). The number of voluntary initiatives implemented by companies to improve their business practices is therefore increasing (Utting, 2005). Since the 1980s, business leaders, government officials, and academics have participated in the design and mobilization of the CSR agenda (Reinhardt and Stavins, 2010; Utting, 2005). The growing interest in CSR activities can be attributed to both external pressure of stakeholders as well as intrinsic motivation of business managers to maintain and shape the environment they operate in (Utting, 2005). One the one hand has the awareness level of civil society surged, with numerous NGOs, consumer associations, and trade unions advocating for institutional change to improve social and environmental nuisances (Utting, 2005). On the other hand do businesses intend to proactively mould and influence the discourse on a social, economic, and political level (Utting, 2005).
As diverse as the parties with legitimate interests on business practices, are the approaches to define CSR activity in the academic literature (Garriga and Melé, 2004). In contrast to Carroll (1991), who suggests four different spheres of social responsibility, namely economic, legal, ethical, and philanthropic, McWilliams and Siegel (2001) propose defining CSR as “actions that appear to further some social good, beyond the interests of the firm and that which is required by law” (McWilliams and Siegel, 2001, p. 117), emphasizing a business’ voluntary contribution beyond legal and economic requirements. However, most theories do not provide specific instructions for their practical execution, challenging managers in the design of their company’s strategy (Dahlsrud, 2008; Garriga and Melé, 2004; Schaltegger, 2011). This results in a multitude of mechanism and activities which take effect on different levels. Based on the classifications of Utting (2005) and (Reinhardt and Stavins, 2010), these activities can be grouped into the following categories: firm-specific initiatives, industry self-regulations, and working with governments and NGOs.
Media exposure of corporate scandals, such as the neglect of labour rights, contributed to the development of codes of conduct as a CSR instrument in response to the arising mistrust towards businesses (Adam and Rachman-Moore, 2004). The International Federation of Accountants defines them as “principles, values, standards, or rules of behavior that guide the decisions, procedures and systems of an organization in a way that (a) contributes to the welfare of its […] stakeholders, and (b) respects the rights of all constituents affected by its operations” (IFAC, 2007, p. 6). Codes of conduct are commonly used to show responsible business ethics and represent a company’s practices and organizational culture (Schwartz, 2001). Erwin (2011) analysed their effectiveness by examining the relationship to a company’s overall ethical performance and found correlations between content quality and CSR performance. Since the establishment of these frameworks has become popular in the corporate world (Erwin, 2011), their existence might be seen as fulfilling a prerequisite rather than an honest effort to manifest ethical behaviour. An example for this is H&M: although the company’s Code of Conduct, which is applicable to every business it engages with, contains, that “every employee shall be treated with respect and dignity […] and no employee shall be subject to physical, sexual, psychological or verbal harassment or abuse” (H&M, 2010, p. 3), their suppliers have been repeatedly accused of sexual harassment and cruel treatment of their workers (Butler, 2012; Hodal, 2018). This example shows the necessity to apply adequate implementation methods to facilitate employee commitment, which is vital for the success of ethical standards (Adam and Rachman-Moore, 2004; Schwartz, 2001). When lacking corresponding organizational culture, these commitments do not coincide with employee behaviour and remain meaningless (Sims, 1992).
In addition to firm-specific initiatives, companies consolidate with other businesses in their sector to form industry associations. These can provide a platform to effectively implement industry-wide voluntary action plans to work towards a common goal. Industry self-regulation has especially been proven effective where governments fail to control industry practices and can contribute towards developing frameworks for sustainable behaviour (Kshetri and Dholakia, 2009). This can be exemplified by the voluntary agreements of industry associations in Japan, which successfully encouraged their members to reduce their carbon emissions (Wakabayashi and Arimura, 2016). Another example is the Mining Association of Canada (MAC), which positively influenced the CSR engagement outside of its jurisdiction (Buchanan and Marques, 2018). However, this contradicts with the findings of a different study conducted by Vivoda and Kemp (2018) on the promotion efforts of sustainable development policies, which question the urgency of approaches mining industry association, including MAC, take to encourage sustainability amongst their members. While engagement for sustainable practices on industry level can be successful in some cases, trade associations cannot hold its members accountable for their practices (Bailey and Rupp, 2006). They only become effective with a genuine implementation effort on corporate level, which links back to the imperative to adjust corporate culture accordingly.
Nevertheless, due to their scope of influence, industry consortiums can leverage their coverage and establish partnerships with governments to conjointly pursue overarching development objectives (Papaioannou et al., 2016), while providing essential inside knowledge (Chappin et al., 2008). As recognized by Moon and Vogel (2008), close business-government relations improve policies promoting CSR behaviour as a form to complement social governance and can grant legitimacy of business initiatives. However, through active participation in lobbying activities, they can shape policies that might negatively influence their business practices. Especially companies with highly polluting business models use lobbying to slow down or prevent regulations that aim to protect the environment (Grey, 2018). Thus, industry associations can misuse their power to preserve or even promote unsustainable practices.
To compensate for government failure, companies partner with non-regulatory agencies to adopt labels, standards, and certifications that demonstrate compliance of their practices or products with set requirements in specific areas (Fombrun, 2005). Examples are voluntary environmental programs (VEP), which emerged to counterbalance the disadvantages of mandatory regulations in the United States. Even though they cannot compete with the scope of obligatory regulations, they still contribute towards realizing improvements with regards to a facility’s environmental impact (Borck and Coglianese, 2009). However, the acceptance of voluntary programmes depends on a company’s understanding and perception of the effectiveness of such (Ju et al., 2018). Limborg and Grøn (2014) identified, that participation of smaller firms often solely relies on adaptation efforts of their competitors, which implies that their interest is essentially based on increasing their competitive advantage and not on establishing sustainable practices. Another adequate example to support this is the widespread ‘Fairtrade’ label, which focuses on empowering smallholder producers by guaranteeing a minimum price and thereby improving relationships within the supply chain (Elliott, 2018). Although voluntary standards have proven to positively impact the welfare of producers (Bolwig et al., 2009; Chiputwa et al., 2015) as well as biodiversity conservation (Tayleur et al., 2018), they also have been criticised for their lack of involvement of producers in decision-making (Bennett, 2017) and the creation of entry-barriers for small coffee farmers (Giovannucci and Ponte, 2005). Thus, voluntary certification must be questioned whether corresponding standards actually facilitate social benefits or are simply used as a tool by companies to gain social legitimacy (Giovannucci and Ponte, 2005).
The discussion of the featured CSR activities demonstrates the complex environment businesses operate in. Despite the efforts taken by companies, CSR approaches are subject to perpetual criticism, which Scheyvens et al. (2016) summarize into two main categories: the inability of CSR to move beyond the business case and the lack of coherence of approaches. It appears that big corporations are mostly interested in the economic benefits responsible practice creates. Some argue that CSR is used as a pretext to reduce costs, enhance revenues, and enrich the competitive advantage due to improved environmental and social performance (Scheyvens et al., 2016; Rhou et al., 2016). Multiple studies investigating the correlations between CSR activity and its effects on the company’s business performance (McWilliams and Siegel, 2001; Schönborn et al., 2019; Orlitzky et al., 2003), support the argument that CSR is seen as a constraint and treated as a necessary expense to create benefits for the business. Thus, business actors might perceive contributions to sustainable development as an add-on to their core operations and objectives, whilst doing business as usual (Vogel, 2007). The subliminal focus on core business activities might even contradict with social and environmental aspects (Hahn et al., 2010). The hypocritical prioritization of CSR has been criticised to solely react to external pressure and focus on enhancing reputation without actually improving practices connected to the business (Porter and Kramer, 2011). Voluntary approaches be a form of greenwashing to please stakeholders rather than attempts to improve operational ills.
3 Beyond Corporate Social Responsibility
Although some CSR practices might mitigate the disruptive consequences of unsustainable business behaviour, they do not approach the cause of the issues, namely the “key political and economic mechanisms through which […] companies undermine […] development prospects” (Utting, 2005, p. 375). Porter and Kramer (2011) argue that managers need to move beyond CSR and focus on creating ‘shared value’ by advancing their ambit. Albeit the emphasis on creating concomitant benefits for society and businesses, their proposed concept still expects to create competitive advantages for the latter. Fundamental changes regarding the general purpose are necessary in order for businesses to truly contribute to sustainable development.
The concept of corporate sustainability goes beyond anthropocentric interests by dovetailing corporate values, discourses, and actions, connecting each activity to a holistic and in-depth approach to sustainability (Ketola, 2008). However, similar to CSR, corporate sustainability is not a ‘one solution fits all’ approach and ultimately depends on how a company structures and manifests its corresponding intrinsic motivation (Van Marrewijk, 2003). A possible approach to bridge the gap between faltering approaches and sustainable businesses are benefit corporations, an organizational structure premised on a statute in the United States. It aims to settle the tensions between sole profit motives and the interests of a company’s stakeholders by including the pursuit of a ‘general public benefit’ into the company’s legal responsibilities (Hiller, 2013) and thereby explicitly separating them from other legal structures (André, 2012). Benefit corporations can, as Hiller (2013) states, “provide the possibility for a unique kind of socially responsible business with great potential for sustainable practices” (Hiller, 2013, p. 300). However, scholars highlight a range of limitations. André (2012) criticises the obligation of delivering a public benefit, which validation is ultimately dependent on a third party and not on society or governments. Therefore, benefit corporations can only be held accountable for complying with corporate law but not for focusing on certain aspects on an operational level (André, 2012; Murray, 2012). In addition, Murray (2012) points out, that the statute lacks guidance for directors to adequately assess potential trade-offs that inevitably arise when considering multiple stakeholders, which might lead to the prioritization of self-interests. Not only is the concept too vague, but simultaneously too confining: it restricts more specific decisions in favour of the general public benefit (Murray, 2012). The legal construct of benefit corporations might even be used to secure a competitive advantage, which increases the pressure in the market environment and eventually limits the focus to creating economic advantages (André, 2012). Benefit corporations are therefore seen as for-profit versions of CSR (André, 2012) that fail to serve their original purpose.