Fundamentals of Corporate Social

Responsibility
Presentation to CSR Asia
6 September 2006

Michael Kerr, Senior Consultant, Natural Advantage

Lead Counsel, CISDL
www.naturaladvantage.ca

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Fundamentals of Corporate Social

Responsibility
CSR is now a mainstream approach to

business:
The movement for CSR has won the battle of
ideas CSR commands the attention of
Executives Everywhere. (Economist 2005)
In 2006, as this movement gains momentum

and mainstream acceptance, it is time for

people that work or have an interest in this
area to take stock and take a closer at the
fundamentals of CSR.
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Fundamentals of Corporate Social

Responsibility
As part of this exercise, fundamental questions should be
asked:
What is CSR?
How does it relate to other concepts? (e.g. sustainable

development, corporate governance, corporate

responsibility, corporate citizenship)
Same/different/related?
Is CSR purely voluntary or does it now have legal

dimensions?

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Fundamentals of Corporate Social

Responsibility

This presentation will focus on answering

these fundamental questions.

Will draw on research I am currently

undertaking for a book project.

Turning to first question- what is CSR?

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What is CSR?
Concept of CSR often criticized because of lack of legally

defined or commonly accepted definition.

Is this criticism justified?

Should it matter that CSR is not legally defined or subject

to a single universal definition?

By comparison, the term corporate governance is not in

itself legally defined or subject to a commonly accepted

definition- the term is associated with concepts, ideas and
principles that evolve over time.

Arguably, CSR should never be given a fixed definition.

This will foster evolution.

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What is CSR?

Despite the lack of a single definition, my own research

has shown that by examining different definitions from

around the world, it is clear that there are commonly
held understandings about what constitutes CSR.

Lets firstly examine some of these definitions----- then

I will address the common understanding.

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What is CSR?

Canadian Government:
CSR is generally understood to be the
way a company achieves a balance or
integration of economic, environmental
and social imperatives while at the
same time addressing shareholder and
stakeholder expectations.

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What is CSR?

UK Government:
The Government sees CSR as the
business contribution to our sustainable
development goals. Essentially it is about
how business takes account of its
economic, social and environmental
impacts in the way it operates maximising
the benefits and minimising the
downsides.

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What is CSR?

European Union:
[CSR is] a concept whereby companies
integrate social and environmental
concerns in their business operations and
in their interaction with their stakeholders
on a voluntary basis.

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What is CSR?

World Business Council for

Sustainable Development:
We define CSR as business' commitment
to contribute to sustainable economic
development, working with employees,
their families, the local community, and
society at large to improve their quality of
life.

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What is CSR?
The Kennedy School of Government (Harvard
University), CSR Initiative:
The term [CSR] is often used interchangeably with
others, including corporate responsibility,
corporate citizenship, social enterprise,
sustainability, sustainable development, triplebottom line, corporate ethics, and in some cases
corporate governance. Though these terms are
different, they all point in the same direction:
throughout the industrialized world and in many
developing countries there has been a sharp
escalation in the social roles corporations are
expected to play.

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What is CSR?

What do these definitions tell us about CSR?

What are some of the common

understandings that emerge?

How does CSR relate to other concepts?
What other issues arise?

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What is CSR?

Common Understanding One:

CSR is an idea whereby

companies integrate economic,
social and environmental
concerns in their business
operations

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Common Understanding One: Integration

Corporate Social Responsibility: The Integrated
Approach to Business in the 21st Century
Exchange
Rates

Consumer
Confidence

Interest
Rates
Regulation/Policy

Governance
Economic

Corruption

Climate
Change
Waste

Environment

Social

Communities

Labour/
Workplace

Biodiversity
Resource
Use

Human
Rights

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Common Understanding Two: Stakeholders

Common Understanding Two: CSR relates to the idea

whereby a business addresses and balances the needs

of stakeholders.

Who/what are stakeholders? Individuals and groups

who may affect or be affected by the actions, decisions,

policies, practices or goals of an enterprise .
Examples:
Shareholders and other investors
Employees
Customers
Governments
Local communities
NGOs
Environment
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CSR and Related Concepts: Sustainable

Development
Many definitions describe CSR as the business pursuit of sustainable development.
Sustainable development: development that meets the needs of the present without compromising the ability of future

generations to meet their own needs. (1987 Brundtland Report).

Like CSR, sustainable development is also recognised as having three fundamental pillars: economic development, social

development and environmental protection.

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CSR and Sustainable Development

2002 World Summit on Sustainable Development (Johannesburg) confirmed link with CSR.
Paragraph 49 of the Johannesburg Plan of Implementation calls for action at all levels to:
Actively promote corporate responsibility and accountability, based on the Rio principles, including through the full development and effective
implementation of intergovernmental agreements and measures, international initiatives and public-private partnerships and appropriate national
regulations, and support continuous improvement in corporate practices in all countries.

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CSR and Related Concepts: Corporate

Governance
Many definitions highlight the link between CSR and corporate governance.
Is CSR a subset of corporate governance or is corporate governance a subset of CSR?
In my view this is a pointless question. Both concepts are closely related which ever way you look at it.

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CSR and Corporate Governance

Related in definition:
1994 Report of the Toronto Stock Exchange Committee on Corporate Governance in Canada:
Corporate Governance means the process and structure used to direct and manage the business and affairs of the corporation with the objective of enhancing shareholder
value. The direction and management of the business should take account the impact on other stakeholders such as employees, customers, suppliers and communities.

Principle 4 of The OECD Principles of Corporate Governance (2004) underscores the need of a corporate governance framework to encourage active co-operation between
corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.

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CSR and Corporate Governance

Related in Management:
Many companies are now using company codes of conduct to address conduct issues that relate to both corporate governance issues (conflict of interest, market

disclosure, whistleblowing, corruption, fraud & accounting) and CSR issues (human rights, environment & labour standards)
Related in Investment:

Mainstream investors now consider environmental, social and governance issues (known collectively as ESG issues) in their investment decisions.

Example: United Nations Principles for Responsible Investment Launched in April 2006, now has support of investors with combined worth of $4 Trillion.

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CSR and Other Related Concepts

The term CSR is often used interchangeably with the terms corporate responsibility, corporate citizenship and triple

bottom line.

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

Companies choose the terminology they feel comfortable with.

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IS CSR a Voluntary Concept?

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

voluntary concept.

Given the multitude of initiatives that promote CSR (e.g. Global

Compact, Global Reporting Initiative, OECD Guidelines) in a

voluntary fashion- not surprising CSR is perceived in this way

However, recent legal developments suggest CSR is no longer a

voluntary concept.

Two major areas of development: Reporting and Directors

Duties

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Mandatory CSR Reporting

Backed by increasing calls from investors and the community for more

disclosure and reporting on CSR issues, many jurisdictions have now

introduced mandatory corporate reporting requirements on
environmental and social matters:

Australia
France
South Africa
Sweden
Canada
Denmark
Netherlands
Norway
And very soon the UK.

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Directors Duties and CSR

New ways of interpreting and conceiving directors duties that align with

concept of CSR.

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

Traditional, conservative interpretation: Shareholders are the company-

Duty is to raise profits for benefit of shareholders. Environmental and

social considerations not relevant.

The current, progressive interpretation: Supreme Court of Canada, in

Peoples v. Wise (2004)

We accept as an accurate statement of law that in determining whether they are acting with a
view to the best interests of the corporation it may be legitimate, given all the circumstances
of a given case, for the board of directors to consider, inter alia, the interests of shareholders,
employees, suppliers, creditors, consumers, governments and the environment.

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Directors Duties and CSR

New UK directors duty set to be introduced this year through

Companies Bill. (Waiting on Royal Assent)

Section 173

Duty to promote the success of the company

(1) A director of a company must act in the way he considers, in good faith, would be most

likely to promote the success of the company for the benefit of its members as a whole,
and in doing so have regard (amongst other matters) to:
(a) the likely consequences of any decision in the long term;
(b) the interests of the companys employees;
(c) the need to foster the companys business relationships with
suppliers,
customers and others;
(d) the impact of the companys operations on the community and
the environment;
(e) the desirability of the company maintaining a reputation for
high standards of
business conduct; and
(f) the need to act fairly as between members of the
company.

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Questions & Discussion

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