Chapter 2

THE DRIVERS OF CSR

One of the greatest testaments to the rise and success of corporate social responsibility as a global business concept comes, ironically, from one of its staunchest critics. Writing in the Economist in 2005, Clive Crook (then deputy editor) lamented the rise of CSR. The movement for corporate social responsibility has won the battle of ideas, he wrote. CSR commands the attention of executives everywhere and it would be a challenge to find a recent annual report of any big international company that justifies the firms existence merely in terms of profits rather than service to the community.1 While not confirming CSRs universal acceptance, numerous studies document the growth of CSR and its associated practices. For example, a 2006 study by the U.K.-based consultancy Context, in partnership with CorporateRegister.com, examined the reporting practices of the top 100 public companies in Europe, the United States, and a broad grouping described as the Rest of the World. The study was undertaken to determine the number of companies that published a public report to address environmental and social/community issues. The findings showed that the vast majority of companies are publicly reporting on such issues with Europe leading the way at 90 per cent, followed by the Rest of the World at 61 per cent and the U.S. at 59 per cent.2 Similarly, a study undertaken by Canadian-based Stratos Consulting in 2007 found that 80 per cent of companies listed on the Toronto Stock Exchange (TSX) composite index included sustainability (i.e., environmental, social, and community) information in their annual report or in a stand-alone report.3 This showed a considerable increase compared to the findings of earlier Stratos studies, which showed a reporting rate among TSX composite

__________
1 2

C. Crook, A Survey of Corporate Social Responsibility The Economist 374:8410 (January 22, 2005) at 3. Global Corporate Responsibility Reporting Trends: Reporting in Context 2006 (n.p.: Context, 2006) at 11, online: Context <http://www.econtext.co.uk/cover_scans/InContext2006.pdf>. Stratos, Canadian Corporate Sustainability Reporting: Best Practices 2008 (Ottawa: Stratos, 2008) at 4, online: Stratos <http://www.stratos-sts.com/publications/Best_Practice_Study_ 2008.pdf>.

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index companies of 35 per cent in 2001, 60 per cent in 2003, and 70 per cent in 2005.4 The rise in CSR reporting, however, is not the only measure of growth in this field. Interviews conducted by McKinsey and Company in 2007 with over 400 CEOs and top executives from around the globe, showed that nine out of ten corporate leaders were doing more to incorporate environmental and social issues into their core strategies than they were five years ago.5 By 2006, nearly half of all MBA programs in the United States required students to take at least one course dealing with CSR.6 Most of the worlds largest consulting firms now offer specialized advice to their corporate clients in this area.7 A multitude of CSR-related newsletters, websites, and magazines have now emerged, while every year a countless number of business conferences are devoted to the subject. The academic community has also weighed in on this issue, with the publication of a plethora of recent journal articles and books dissecting the pros and cons of the business trend towards environmental and social responsibility.8 Even the relatively conservative legal community now acknowledges CSR to be more than a passing fad, with some law firms having established specialized practice areas built around the concept.9 Others have gone so far as to release their own CSR report.10 Why then, to cite Crook once again, has the corporate world surrendered and gone over to the other side?11 This chapter will set about answering this question by identifying some of the major drivers behind CSR and its ever-increasing acceptance within the corporate sector.

__________
4

8 9

10

11

Stratos, Canadian Corporate Sustainability Reporting: Best Practices 2008 (Ottawa: Stratos, 2008) at 4, online: Stratos <http://www.stratos-sts.com/publications/Best_Practice_Study_ 2008.pdf>. McKinsey and Company, Shaping the New Rules of Competition: UN Global Compact Participant Mirror (July 2007) at 5. R.B. Reich, Supercapitalism: The Transformation of Business, Democracy, and Everyday Life (New York: Alfred A. Knopf, 2007) at 168. See, e.g., the description of advisory services offered by PricewaterhouseCoopers (Canada) in the area of Sustainability, online: PWC <http://www.pwc.com/extweb/service.nsf/ docid/5986BE34B13C36B6852570CA00177297>. See the examples cited in subsection 2.1 of this chapter. See, e.g., Danish firm, Global CSR (formerly Lawhouse), which has built its entire legal practice around CSR and human rights, online: <http://www.global-csr.com/>. Law firm, Freshfields Bruckhaus Deringer, in 2006 claimed to be the first law firm to publish a CSR report: Freshfields Bruckhaus Deringer, Media Release, Law Firm Releases CSR Report (January 18, 2006), online: Freshfields Bruckhaus Deringer <http://www. freshfields.com/news/mediareleases/mediarelease.asp?id=759>. C. Crook, A Survey of Corporate Social Responsibility The Economist 374:8410 (January 22, 2005) at 3.

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2.1 CSR DRIVER: COMMUNITY AND NGO PRESSURE

The life of the average citizen in developed countries is inextricably linked with corporate activity. Corporations are our principal employers. They produce the products and services that clothe and feed us. They supply our energy, transportation and communication needs. They build the infrastructure that makes a modern economy function and provide the resources that drive research and development. In fact, for the vast majority of us, hardly a moment goes by when we are not in contact with a corporation in one way or another. Yet, despite the obvious benefits, there has been an increasing level of community concern about the negative environmental and social consequences flowing from corporate activity and the level of influence they now have over our daily lives. Nongovernmental organizations (NGOs) and, indeed, the wider community are now calling for corporations to acknowledge their responsibilities to society and to account for any failures to live up to those responsibilities. Responding to such pressure, corporations have come to embrace the concept of CSR as a means of meeting evolving expectations. Concern about corporations and their impacts on society is by no means a present day phenomenon. As early as 1776, Adam Smiths celebrated work, The Wealth of Nations, raised concerns about the potential for corporations to suppress competitive market forces.12 Leap forward to the late 19th century, and U.S. legislators felt compelled to introduce anti-trust legislation, notably the Sherman Act of 1890, in an effort to break up corporate monopolies and stamp out other unfair business practices. As Joel Bakan has observed, President Franklin D. Roosevelts 1934 package of regulatory reforms designed to restore economic health to the United States, known as the New Deal, also was partly aimed at curbing the powers and freedoms of corporations.13 However, some commentators argue that the recent era of deregulation and privatization by national governments around the world, accelerated after the collapse of the Soviet economic model in 1989, and combined with the emergence of rules that promote global free trade and investment, has been the perfect breeding ground for a new, and unprecedented, corporate rise to power.14 A study undertaken by the Washington-based __________
12 13

14

An observation made by D. Korten, When Corporations Rule the World (London: Earthscan Publications, 1995) at 74. An observation made by J. Bakan, The Corporation: The Pathological Pursuit of Profit and Power (Toronto: Viking Canada, 2004) at 20. See generally, D. Korten, When Corporations Rule the World (London: Earthscan Publications, 1995) and J. Bakan, The Corporation: The Pathological Pursuit of Profit and Power (Toronto: Viking Canada, 2004).

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Institute for Policy Studies, Top 200: The Rise of Corporate Global Power, would seem to support such assertions. After comparing the corporate sales of the largest 200 corporations as listed by Fortune in 1999, with the Gross Domestic Product (GDP) of the worlds nations for the same year, the study found that of the 100 largest economies in the world, 51 were corporations with the remaining 49 being countries. Together, the sales of the top 200 corporations were the equivalent of 27.5 per cent of world economic activity by the late 1990s.15 A follow-up survey, conducted in 2003, resulted in almost identical findings.16 As Jagdish Bhagwati and others have pointed out, these figures are not exactly apples-to-apples comparisons, because unlike GDP measures, corporate sales figures are not value-added. Nonetheless, however one defines the precise measure, the overall point remains valid: it is difficult to miss the tremendous rise in the power of multinational corporations and their effect on the daily lives of the worlds inhabitants. Today, large and even small and medium-sized corporations are based throughout the world and their impact is increasingly transnational as opposed to strictly national, leading to the concern that they are effectively unregulated by any legal regime.17 The environmental, social, and political consequences of the corporate rise to power have been the subject of a recent up-swell in academic and popular literature. Prominent examples include Kortens When Corporations Rule the World,18 Dobbins The Myth of the Good Corporate Citizen,19 Glasbeeks Wealth by Stealth: Corporate Crime, Corporate Law, and the Perversion of Democracy,20 Bakans The Corporation: The Pathological Pursuit of Profit and Power21 and, more recently, Reichs Supercapitalism.22 These writings provide a critique of the corporation as a legal and economic institution, inviting the reader to question the role of corporations __________
15

16

17

18 19 20

21

22

S. Anderson & J. Cavanagh, Top 200: The Rise of Corporate Global Power (Washington, D.C.: Institute for Policy Studies, 2000) at 3, online: Corpwatch <http://www.corpwatch.org/ article.php?id=377>. S. Anderson & J. Cavanagh, Corporate vs Country Economic Clout: The Top 100 (Washington, D.C.: Institute for Policy Studies, 2003). For a recent assessment of the reach of transnational corporations, see UNCTAD, World Investment Report 2007: Transnational Corporations, Extractive Industries and Development (New York: United Nations, 2007), online: UNCTAD <http://www.unctad.org/ en/docs/wir2007_en.pdf>. D. Korten, When Corporations Rule the World (London: Earthscan Publications, 1995). M. Dobbin, The Myth of the Good Corporate Citizen (Toronto: Stoddart, 1998). H. Glasbeek, Wealth by Stealth: Corporate Crime, Corporate Law, and the Perversion of Democracy (Toronto: Between the Lines, 2002). J. Bakan, The Corporation: The Pathological Pursuit of Profit and Power (Toronto: Viking Canada, 2004). R.B. Reich, Supercapitalism: The Transformation of Business, Democracy, and Everyday Life (New York: Alfred A. Knopf, 2007).

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in society. It is worth noting that two of these books were written by legal academics (Bakan and Glasbeek) both of whom underscore the role the law has played in shaping the current corporate landscape which, in their view, is characterized by a lack of responsibility and accountability. Bakans book also inspired a Canadian documentary film that went on to win 24 international awards.23 The fact that a film that critiques the corporate form (a subject that a decade ago would have been an unlikely box office hit) managed to achieve mainstream international success, appears to indicate a far-reaching community concern and awareness surrounding the issue of CSR. At the forefront of this public awakening has been the NGO movement. Whereas in the early 1960s there was only a smattering of globally active NGOs, today there are thousands active internationally and even registered as having consultative status at the United Nations. A number of todays NGOs have a central mission that revolves around the issue of corporate responsibility and accountability. One such example is U.S.-based CorpWatch, established to [investigate and expose] corporate violations of human rights, environmental crimes, fraud and corruption around the world [and to] work to foster global justice, independent media activism and democratic control over corporations.24 Similarly, the major international environmental and social NGOs, such as Greenpeace,25 Friends of the Earth,26 World Wildlife Federation,27 Amnesty International,28 and Oxfam,29 have developed specific campaigns and programs targeting the corporate sector. The campaigns typically focus on the neglected duties of market actors to avoid negative human rights, labour, corruption, and environmental abuses and externalities, rather than challenging the right of responsible businesses to operate. Working in the NGOs favour have been recent advances in the modern communication network. With tools such as the Internet, cell phones, and pocket-sized digital cameras it has become easier for NGOs to track corporate activities and disseminate information about them.30 Put simply, corporate actions in any isolated part of the world are now capable of being the next days headline news on CNN.

__________
23 24 25 26 27 28 29 30

Material about the documentary film is available online: <http://www.thecorporation.com>. CorpWatch, online: <http://www.corpwatch.org>. Greenpeace International, online: <http://www.greenpeace.org/international>. Friends of the Earth International, online: <http://www.foei.org/campaigns/index.html>. WWF International, online: <http://www.wwf.org>. Amnesty International, online: <http://www.amnesty.org/en/campaigns>. Oxfam, online: <http://www.oxfam.org>. Co-author and editor Chip Pitts has called this form of NGO activity WikiAdvocacy, a subject discussed in more detail in Chapter 12.

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In parallel to the NGO activity have been calls from the wider community for a shift in corporate behaviour. The results of the Millennium Poll on Corporate Social Responsibility, conducted by Environics (now GlobeScan), were a strong early indicator of community sentiment on this issue. During 1999, interviews were conducted with over 25,000 people from 23 countries on six continents. The Millennium Poll asked people to choose between the traditional role of a company in society, making a profit, paying taxes, employing people and obeying all laws, and the following: to exceed all laws; set a higher ethical standard; and help build a better society for all. The findings painted a compelling picture. Majorities of respondents in all but three of the countries surveyed thought companies should go beyond the minimum definition of their role in society.31 In Canada, for example, 88 per cent of respondents felt companies needed to go beyond the traditional business role, with 43 per cent saying companies must set higher ethical standards and help build a better society, and 45 per cent falling somewhere in between the two positions.32 More recent surveys conducted by GlobeScan confirm that public opinion in Canada along these lines is as strong, if not stronger. By 2005, 93 per cent of Canadians felt that CSR should be as important to companies as profit and shareholder value.33 The importance of community opinion and sentiment as a driver of CSR cannot be overstated. Just as the average member of society is dependent on corporations, so too are corporations dependent on society; the relationship is one of mutual dependency. As explained below, citizens across the globe are using their views on CSR to inform their decisions about the companies with which they will work or invest and the goods and services they buy. Companies are fully aware of this new dynamic and are reacting accordingly, sometimes with public relations initiatives that may backfire if not matched by substantive actions that demonstrate the company walks the talk and understands the demands stemming from current social expectations. Governments are also responding. Sensing the growing shift within their electorate, governments are implementing new mechanisms to promote CSR-like behaviour from the corporations that operate in their jurisdictions. __________
31

32

33

See Environics International, The Millennium Poll on Corporate Social Responsibility: Executive Briefing (Toronto: Environics International, 1999), online: GlobeScan <http://www. globescan.com/news_archives/MPExecBrief.pdf>. Environics International, The Millennium Poll on Corporate Social Responsibility: Executive Briefing (Toronto: Environics International, 1999) at 3. Cited in HP Canada, Media Release, Expectations for Corporate Social Responsibility Rising With Clear Consequences For Not Measuring Up (April 20, 2006), online: HP Canada <http://h41131.www4.hp.com/ca/en/pr/04202006a.html>.

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2.2 CSR DRIVER: THE CORPORATE MORAL IMPERATIVE

Partly in response to community concerns and the associated pressure from NGOs, many companies are now acknowledging that they have social responsibilities, a sentiment reflected in this statement from HSBC Chairman, Sir John Bond:
We start from the premise that HSBC has a wide range of responsibilities. Our first duty is to be successful We cannot record our success purely as an amount of money in our annual report. This is not the whole story. The true story is about how the people of HSBC behave at all levels of the company, so one of my tasks is to set an example. HSBCs understanding of a broader role in society has been embedded in its values since our inception in 1865. We have always believed that we have a responsibility to the communities in which we operate.34

Yet while an acknowledgement from a company that it has social responsibilities still can be viewed in some quarters as radical, an internal recognition from a company that it has a responsibility to society can also act as the impetus for company programs and initiatives that address important environmental and social issues. Such a recognition establishes something akin to a corporate moral imperative to act. This moral imperative is today best exemplified by calls for corporate action on climate change, which has been described by former U.S. Vice President Al Gore as a moral issue, one that affects the survival of human civilization.35 With similar moral undertones, News Corporations Chairman and CEO, Rupert Murdoch, describes in a 2007 speech an important driver behind his companys decision to become carbon neutral in an effort to avert the consequences of climate change:
News Corporation, today, reaches people at home and at work when theyre thinking when theyre laughing and when they are making choices that have enormous impact. The unique potential and duty of a media company are to help its audiences connect to the issues that define our time. We are only at the beginning of this mission, and we have a long way to go.36

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34

35

36

Sir J. Bond, Address (Speech delivered at the Climate Group Launch, April 27, 2004), online: HSBC <http://www.hsbc.com/1/PA_1_1_S5/content/assets/news/speech_climate_ group_launch.pdf>. A. Gore, Moving beyond Kyoto The New York Times (July 1, 2007), online: <http:// www.nytimes.com/2007/07/01/opinion/01gore.html>. See also Gores film, An Inconvenient Truth (Paramount Pictures, 2006) and his Nobel Lecture (delivered December 10, 2007), online: <http://nobelprize.org/nobel_prizes/peace/laureates/2007/gore-lecture_en.html>. R. Murdoch, Address (Speech delivered at the Hudson Theatre, New York, May 9, 2007), online: News Corporation <http://www.newscorp.com/energy/full_speech.html>.

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News Corporation is far from the only company to address climate change on the basis of a perceived responsibility, or duty to act. In 1997, global energy giant BP was one of the first companies to publicly acknowledge the need to take steps against climate change. The company still sees itself as having a responsibility to take a leading role on this issue:
Today, climate change has become an incontrovertible reality and how to address the threat of the increasing temperature of our planet has become one of the greatest challenges we face As a major provider of energy, BP believes that it has a responsibility to take a lead role in finding and implementing solutions to climate change.37

Similarly, a number of business executives have expressed moral concerns about the conditions of the communities in which they do business. Even hard-nosed former General Electric CEO Jack Welch stated that these times will not allow companies to remain aloof and prosperous while the surrounding communities decline and decay.38 Some academics maintain that, as a fictional entity, a corporation has no capacity to act morally. A classic statement of this view is attributed to Lord Chancellor (Edward) Thurlow of England in the 18th century, to the effect that corporations have no soul to damn, no body to kick.39 The charge is made more recently by Robert Reich in his book Supercapitalism40 and it lies behind Joel Bakans description of the corporation as pathological.41 While Bakan is undoubtedly correct in describing some corporate action in this fashion, society at large has undeniably cast its lot with the existence of corporations, seeking to harness the benefits of job creation, innovation, quality goods and services, tax revenues, and contributions to the economy as a whole. Therefore, as actors in this world with both positive and negative impacts, corporations are best seen not as inherently immoral or moral but as __________
37

38

39

40

41

BP (Advertisement Feature), BP tackles climate change threat with 200m boost for energy efficiency Telegraph (October 25, 2005), online: Telegraph <http://www.telegraph.co.uk/ money/main.jhtml?xml=/money/exclusions/supplements/bp05/bp1.xml>. J.F. Welch, Jr., What Corporate Social Responsibility Means to Me: Wanted: Teachers and Leaders (Spring 1992) 81 Business and Society Review 87 at 88. J.C. Coffee, Jr., No Soul to Damn: No Body to Kick: An Unscandalized Inquiry into the Problem of Corporate Punishment (1981) 79 Mich. L. Rev. 386 at 386 (quoting Edward, First Baron Thurlow). Thurlows statement echoes the prior statement by 17th century jurist Edward Coke that corporations cannot commit treason and be outlawed or excommunicated, for they have no souls. J. Micklethwait & A. Wooldridge, The Company: A Short History of a Revolutionary Idea (New York: Random House, 2003) at 33. R.B. Reich, Supercapitalism: The Transformation of Business, Democracy, and Everyday Life (New York: Alfred A. Knopf, 2007). See J. Bakan, The Corporation: The Pathological Pursuit of Profit and Power (Toronto: Viking Canada, 2004).

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collections of human beings who act together as agents with moral consequences for good or ill. Insofar as those human beings who wish to avoid pathological behaviour themselves and do not wish to take part in an immoral organization, the moral imperative driving CSR hold significant potential. As the discussion below will show, however, not all companies view their CSR initiatives as a product of their moral responsibility. In a number of cases, corporate self-interest is the strongest driving factor for these programs.

2.3 CSR DRIVER: THE BUSINESS CASE (ENLIGHTENED SELF-INTEREST)

Increasingly, there is a growing recognition within the corporate sector of the business value that can be derived from CSR. The business case for corporate social responsibility is something that is clearly evident in this excerpt from a newspaper opinion piece penned by Chip Goodyear, CEO of BHP Billiton, aptly titled, Social Responsibility Has a Dollar Value:
The debate around the role of corporations in the community versus their role in maximising shareholder profits seems to fire up again and again. What surprises me is that a debate exists at all. The business case for corporate social responsibility is clear. For BHP Billiton, corporate social responsibility isnt a case of a stockholder versus stakeholder argument, but is a critical part of maximising shareholder returns. Simply, corporate social responsibility is in the best interests of our shareholders and is fundamental to profit creation and sustainability.42

The notion that profitability should act as a driver for CSR has prompted a description of such behaviour as a form of enlightened selfinterest, a concept borrowed from the realms of ethics and liberalism, which holds that persons who act to further the interests of others ultimately serve their own self-interest.43 The next section explores the __________
42

43

See C.W. Goodyear, Social responsibility has a dollar value The Age (July 27, 2006) online: theage.com.au <http://www.theage.com.au/news/business/social-responsibilityhas-a-dollar-value/2006/07/26/1153816252246.html>. For a discussion on the links between the concepts of enlightened self-interest and CSR, see Australian Government, Commonwealth, Parliamentary Joint Committee on Corporations and Financial Services, Corporate Responsibility: Managing Risk and Creating Value (Canberra: Senate Printing Unit, 2006) at para. 4.32, online: Parliament of Australia <http://www.aph.gov.au/Senate/committee/corporations_ctte/corporate_responsibility/report/>. Further, in the United Kingdom, the official government position is that the new directors duties implemented through the Companies Act 2006 (U.K.), 2006, c. 46 enshrine in statute the concept of Enlightened Shareholder Value which recognizes that directors will be more

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business case for CSR and how it can act as an important source of profit creation.

2.3.1 Cost Savings, Productivity, and Operational Efficiency

Many companies now report that environmental initiatives associated with CSR result in considerable cost savings. For example, in 1995 Dow Chemical set a goal to reduce energy per pound of production by 20 per cent within ten years. The company reached the target in 2004. During that period, Dow claims to have saved approximately USD$3 billion in energy costs.44 Another prominent example is Interface Carpets. Between 1995 and 2007, the company estimates that it has accumulated savings of over USD$372 million as a result of its waste elimination activities.45 Cost savings associated with environmental efficiency are also a well-known rationale for the entry of that corporate behemoth, WalMart, into the CSR field.46 It is not just environmental initiatives that are benefiting the company bottom line, however. For example, Gap Inc. has implemented a number of policies and practices aimed at protecting workers rights in its global supply chain and creating a worker-friendly environment for its 150,000 employees. The company recognizes that there are clear benefits from taking such action: When factories treat workers well, they also tend to produce higher-quality product and deliver it on time. The more we respect and empower our own employees, the more creative and innovative our products and marketing tend to be.47 Likewise, Noranda/ Falconbridge introduced a program designed to improve worker safety that resulted in a reported decrease of approximately 39 per cent in the

44

45

46

47

likely to achieve long-term sustainable success for the benefit of their shareholders if their companies pay appropriate regard to wider matters such as the environment and their employees. For a collection of U.K. Ministerial statements to this effect, see online: <http://www.berr.gov.uk/files/file40139.pdf>. Alexis de Toqueville characterized this as la doctrine de l'intrt bien entendu the principle of self-interest rightly understood and viewed it already in 1840 as a characteristic of American commerce: De la dmocratie en Amrique II deuxime partie, chapitre VIII (Paris: Gallimard, 1986). Innovest, Carbon Disclosure Project 2005 (Innovest, 2005) at 57, online: Innovest <http:// www.innovestgroup.com/index.php?option=com_content&task=view&id=50&Itemid=39>. Interface Carpets, Global Metrics, online: Interface Carpets <http://www. interfacesustainability. com/Media-Center/Ecometrics/Global-EcoMetrics.aspx>. See information about Wal-Marts environmental initiatives, online: Wal-Mart <http://www. walmartstores.com/sustainability>. Gap, 2005-2006 Social Responsibility Report (Gap, 2007) at 12, online: GAP <http://www. gapinc.com/public/SocialResponsibility/sr_report.shtml>.

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rates of injuries between 2002 and 2004, with an annual benefit to the company of approximately USD$15 million.48 These efficiency, productivity, and operational savings elements of the business case emphasize long-term returns to shareholders, but can also yield benefits for stakeholders and to the corporate enterprise as a whole from reduced friction and better relations all around. While not undisputed,49 the positive aspects of CSR for corporate productivity and profitability are increasingly recognized.50 A recent survey by Grant Thornton of 510 senior U.S. business leaders found that 77 per cent subscribed to the view that corporate responsibility programs enhance profitability.51 Similarly, a 2008 survey of over 1,200 corporate executives by the Economist Intelligence Unit showed that a majority of the surveyed executives believe the benefits of pursuing sustainable practices outweigh the costs. An additional significant finding from this survey relates to the link between corporate sustainability and strong share price performance.52 Of the companies examined in the survey, those with the highest share price growth over the past three years paid more attention to sustainability issues, while those with the worst performance tended to do less.53 It might be tempting to question the relevancy of the findings of the Economist survey given that it preceded the recession that swept the globe in the latter half of 2008. Would these same executives still see value in corporate sustainability during hard economic times when the pressure is on to cut departmental budgets and corporate spending? Although the verdict is pending, many companies have come to realize that the cost savings and business benefits associated with CSR are a strong justification for maintaining CSR strategies and initiatives even and perhaps especially during difficult economic conditions. For example, Intels Senior Manager of Corporate Responsibility, David Stangis, when __________
48

49

50

51

52

53

Yachnin & Associates, Sustainable Investment Group Ltd., and Corporate Knights Inc, The SdEffect, Translating Sustainable Development into Financial Evaluation Measures (February 2006) at 13, online: The sdEffect <http://www.sdeffect.com/report.html>. For example, D. Henderson (former chief economist of the OECD) has been an open critic of the concept of CSR on the grounds that it increases company costs and impairs performance: D. Henderson, The Case Against Corporate Social Responsibility (2001) 17:2 Policy 28 at 30. See, e.g., M. Kelly, Holy Grail Found: Absolute, Positive, Definitive Proof that CSR Pays Off (2004) 18:4 Business Ethics 4. Grant Thornton LLP, Corporate Responsibility: Burden or Opportunity? Grant Thornton LLP Survey of U.S. Business Leaders, 15th ed. (Grant Thornton LLP, 2007) at 5, online: Grant Thornton <http://www.grantthornton.com>. Economist Intelligence Unit, Doing Good: Business and the Sustainability Challenge (The Economist Intelligence Unit, 2008) at 5. Economist Intelligence Unit, Doing Good: Business and the Sustainability Challenge (The Economist Intelligence Unit, 2008) at 6.

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musing over the question of whether CSR can survive a recession, turns the question on its head and asks:
Will the Recession put an end to Saving Money through Conservation Efforts? Good Corporate Decision Making? Treating Employees and Communities Fairly? Applying Corporate Know-How to Societal Challenges? or Competing for the Environmentally Aware Consumer? CSR, Sustainability and Green arent supplements to business success; they are the key ingredients for success in the 21st century.54

2.3.2 Risk Management

As Kytle and Ruggie point out in their working paper, Corporate Social Responsibility as Risk Management, CSR programs have an important role to play in managing risk.55 For example, a CSR approach to business will help reduce exposure to the risks associated with climate change, such as regulatory compliance costs, carbon taxes or claims for damages that arise from climate change litigation. Kytle and Ruggie argue, however, that this type of risk, a form of economic or political risk, would most likely be captured within a traditional risk management framework even if a company were not engaged in the practice of CSR. In their view, where CSR has the greatest potential is in managing an emerging type of risk known as social risk. This form of risk occurs when a stakeholder takes up a social issue and applies pressure on a corporation (exploiting a vulnerability in the earnings drivers e.g., corporate reputation), in the hope that the company will change policies or approaches in the marketplace.56 Prominent and costly examples include allegations of human rights violations and environmental damage by Shell in Nigeria and of sweatshop labour by Nike. CSR provides the tools through which to identify and mitigate such risks, particularly through effective stakeholder engagement.57 In fact, as the accounting firm KPMG has noted, because most general business risks derive from non-financial factors, how organizations manage their business risks can influence their __________
54 55

56

57

D. Stangis, Can Sustainability, Green or CSR Survive a Recession? (April 2008), onl ine: CSR@Intel <http://blogs.intel.com/csr/2008/04/can_sustainability_green_or_cs.php>. B. Kytle & J.G. Ruggie, Corporate Social Responsibility as Risk Management: A Model for Multinationals (Working Paper No. 10, John F. Kennedy School of Government, Corporate Social Responsibility Initiative, March 2005), online: CSRI <http://www.hks.harvard.edu/mrcbg/CSRI/publications/workingpaper_10_kytle_ruggie.pdf>. B. Kytle & J.G. Ruggie, Corporate Social Responsibility as Risk Management: A Model for Multinationals (Working Paper No. 10, John F. Kennedy School of Government, Corporate Social Responsibility Initiative, March 2005) at 6. B. Kytle & J.G. Ruggie, Corporate Social Responsibility as Risk Management: A Model for Multinationals (Working Paper No. 10, John F. Kennedy School of Government, Corporate Social Responsibility Initiative, March 2005) at 10.

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financial success.58 CSR can thus contribute via risk management to cost savings ranging from avoiding losses to brand value and market capitalization, to lower insurance premiums, self-insured losses, and litigation costs and liabilities.

2.3.3 Employee Recruitment, Retention, and Motivation

A companys CSR performance can have a positive effect on employee recruitment, retention and motivation.59 Surveys show that business students overwhelmingly prefer employers perceived as socially responsible, and would even accept a lower salary to work for such a firm.60 Properly constructed, a CSR program can help inspire employees to see, create and seize business opportunities including those over the horizon and from emerging trends, and make better informed, higher quality decisions than before. Conversely, negative CSR performance can be profoundly demotivating, harming morale, productivity, creativity, and innovation. According to some recent studies, people in the market for employment seek out companies with a reputation for worker-friendly practices and, increasingly, an employer that shares their own social and environmental values and concerns. For example, a 2005 survey conducted by GlobeScan in Canada found that 91 per cent of respondents stated a preference to work for a company that is socially and environmentally responsible.61 Surveys also show that business students overwhelmingly prefer employers perceived as socially responsible, and they would even accept a lower salary to work for such a firm.62

2.3.4 Attracting Customers

In addition to questioning Canadians about their employment preferences, the GlobeScan survey (see above) also asked Canadians what __________
58

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60

61

62

KPMG, Beyond the Numbers: How Leading Organisations are Linking Value with Values to Gain Competitive Advantage (KPMG, 2002) at 6, online: KMPG <http://www.kpmg.ca/ en/services/audit/beyondthenumbers.html>. The 2007 survey of over 500 U.S. business leaders conducted by Grant Thornton LLP showed that employee recruitment and retention are one of the top benefits of CSR programs: Grant Thornton LLP, Corporate Responsibility: Burden or Opportunity? Grant Thornton LLP Survey of U.S. Business Leaders, 15th ed. (Grant Thornton LLP, 2007) at 4. G. Weber, The Recruiting Payoff of Social Responsibility (January 2005), online: Workforce Management <http://www.workforce.com/section/06/article/23/93/45.html>. Cited in HP Canada, Media Release, Expectations for Corporate Social Responsibility Rising With Clear Consequences For Not Measuring Up (April 20, 2006). G. Weber, The Recruiting Payoff of Social Responsibility (January 2005), online: Workforce Management <http://www.workforce.com/section/06/article/23/93/45.html>.

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influence a companys CSR performance had on their purchasing habits. The survey results showed a strong trend. A large majority (92 per cent of those surveyed) said the more socially and environmentally responsible a company is, the more likely they are to purchase the companys products or services.63 Clearly, companies that can capitalize on the environmental and social credentials of their products and image, as GE has done with its ecomagination product range, gain a considerable competitive advantage.64 But the reverse is also true: consumers, through boycotts and other forms of activism, have also shown that they are willing to punish companies for alleged environmental and social indiscretions. Prominent consumer boycott and activism campaigns include the following: Nike, over labour practices in its shoe and garment factories;65 McDonalds, for a range of labour, health and environmental reasons;66 Shell, because of alleged human rights violations and its environmental record;67 Wal-Mart, due to its position on union labour and for the alleged violation of labour standards by its suppliers;68 and Home Depot, because of its use of wood products sourced from old growth forests.69 In some cases, the consumer action has been successful in shifting corporate behaviour towards social responsibility. For example, Nike, since the boycott against it began in the 1990s, has taken considerable steps to improve labour practices in its factories by introducing a Code of Conduct backed by an extensive monitoring and reporting system. The code addresses issues such as forced and child labour, wages, health and safety, and hours of work. To ensure effective implementation, compliance with the code is monitored and audited independently through the Fair Labor Association.70 Likewise, after being the target of considerable consumer activism in the late 1990s, Home Depot announced it would __________
63 64

65

66

67

68

69

70

Cited in HP Canada, Media Release, Expectations for Corporate Social Responsibility Rising With Clear Consequences For Not Measuring Up (April 20, 2006). Information on the GE ecomagination product range is available online: Ecomagination <http://ge.ecomagination.com/site/index.html#>. See details of the Boycott Nike campaign run by Vietnam Labor Watch, online: Boyco tt Nike <http://www.saigon.com/~nike/>. For some background on some of the issues that are behind this ongoing campaign, see online: McSpotlight <http://www.mcspotlight.org/beyond/index.html>. See details of the Boycott Shell campaign, online: Essential Action <http://www. essentialaction.org/shell/>. See details of the Boycott Wal-Mart campaign, online: Meet Up <http://boycottwalmart. meetup.com/>. The campaign against Home Depot primarily took place between 1997 and 1999. Instrumental in the campaign was the Rainforest Action Network which, amongst a range of actions, organized a series of protests in front of over 100 Home Depot stores located across Canada and the United States. Nikes Code of Conduct is available online: Nike <http://www.nike.com/nikebiz/ nikeresponsibility/tools/Nike_Code_of_Conduct.pdf>.

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phase out selling old growth wood.71 It now claims to sell more wood that is certified by the Forest Stewardship Council (FSC) than any other company in the United States.72

2.4 CSR DRIVER: INVESTORS

An increasing number of investors (individuals and institutional) are now factoring CSR values into investment decisions. This is in response to growing community awareness about such issues and the realization that a companys environmental and social performance can have an impact upon shareholder returns. Publicly held companies that wish to maintain or extend their position as a viable investment option are reacting by implementing policies and strategies to increase their attractiveness to such investors. A strong reflection of this investment trend is the growth of socially responsible investment (SRI), an investment process that considers the social and environmental consequences of investments, both positive and negative, within the context of financial analysis.73 The three core strategies that most commonly define SRI include investment screening, shareholder advocacy, and community investing.74 In the United States, it was estimated that by 2007 total funds under management using one or more of the core SRI strategies was USD$2.71 trillion, which represents more than one out of every nine dollars under professional management.75 In Canada, it was estimated that SRI in 2006 amounted to CDN$503.61 billion,76 while in Europe it accounted for over 1 trillion.77 SRI is also popular in Australia and Japan while advancing in the emerging markets of Africa, Latin America, and the Asia Pacific region.78 The needs of __________
71

72

73

74

75

76

77 78

Rainforest Action Network (RAN), The Old Growth Campaign Victory How Did We Do That?, online: RAN <http://understory.ran.org/2008/06/20/the-old-growth-campaignvictory-how-did-we-do-that/>. Home Depot, Wood Purchasing Policy, online: Home Depot <http://corporate.homedepot. com/wps/portal/Wood_Purchasing>. For further discussion of the FSC, see Chapter 6, subsection 6.4.2.2, and Chapter 10, subsection 10.3.2.4. Social Investment Forum, 2005 Report on Socially Responsible Investing Trends in the United States (Washington, D.C.: Social Investment Forum, 2006) at 2. For a more detailed description of the core SRI strategies, see Social Investment Forum, 2005 Report on Socially Responsible Investing Trends in the United States (Washington, D.C.: Social Investment Forum, 2006) at 3. Social Investment Forum, 2007 Report on Socially Responsible Investing Trends in the United States Executive Summary (Washington, D.C.: Social Investment Forum, 2007) at ii. Social Investment Organization (SOI), Canadian Socially Responsible Investment 2006 Review (Toronto: SOI, 2007) at 5. EURSIF, European SRI Study 2006 (EUROSIF 2006) at 5. Social Investment Forum, 2005 Report on Socially Responsible Investing Trends in the United States Executive Summary (Washington, D.C.: Social Investment Forum, 2006) at 37.

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investors who follow an SRI mandate have been met by specially designed sustainability indexes which track the performance of listed companies with a proven record on environmental and social issues. The Dow Jones Sustainability Index Series and the FTSE4Good Index Series are two prominent examples. However, the environmental and social performance of a company is not just a concern to investors falling into the category of socially responsible investors. It has now also become a concern of mainstream investors who have not sought to classify their investment approach or products as SRI. This is reflected in the establishment of two mainstream investment initiatives: The Carbon Disclosure Project, and the United Nations Principles for Responsible Investment described in sequence below. The Carbon Disclosure Project (CDP) provides a central process whereby institutional investors collectively sign a single global request for voluntary disclosure of information on climate change-related issues. The first CDP information request in 2002 (CDP1) was signed by 35 institutional investors and was sent out to the worlds 500 largest publiclyowned companies (FT500). By 2008, the sixth CDP information request (CDP6) had expanded to include 385 signatory investors with combined total assets under management of USD$57 trillion dollars and was forwarded to 3,000 companies worldwide, including the FT500.79 Paul Dickinson, CDPs coordinator, describes the reasoning behind the project as follows:
The numerous indications of accelerating human induced climate change make it clear that there are business risks and opportunities that have implications for the value of investments in corporations worldwide. Examples include changes in weather patterns; political and regulatory momentum moving against significant carbon emitters; the development of emissions-sensitive technologies, products and services superseding those existing today; and shifts in consumer sentiment due to a corporations stance on climate change. This makes it necessary for investors to improve their understanding of climate change risks and opportunities. The data to assess these issues is not always available, sometimes lacks comparability or is of poor quality. The Carbon Disclosure Project aims to encourage the development of a common emissions measurement methodology and to facilitate its integration into general investment analysis.80

__________
79 80

See Carbon Disclosure Project, CDP6 Letter and Questionnaire (February 1, 2008), online: CDP <http://www.cdproject.net/questionnaire.asp>. Carbon Disclosure Project, Press Release, $31 Trillion Investor Coalition Seeks Further Greenhouse Disclosure from Worlds Largest Corporations (February 1, 2006), online:

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For further details on the CDP, please refer to Chapter 7 (7.3.2). Launched in April 2006, the Principles for Responsible Investment (PRI) is a joint initiative of the United Nations Environment Programme Finance Initiative (UNEP FI) and the UN Global Compact. The PRI are a voluntary set of principles through which investor signatories commit to integrate environmental, social, and governance (ESG) issues into investment analysis and decision-making processes.81 By 2008, the PRI had been signed by over 240 of the worlds leading institutional investors, representing more than USD$10 trillion in assets under management.82 The preamble to the PRI provides a clear sense of why institutional investors are choosing to sign on to the principles:
As institutional investors, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social, and corporate governance (ESG) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time). We also recognise that applying these Principles may better align investors with broader objectives of society.83

2.5 CSR DRIVER: LENDERS

For banking institutions, environmental and social performance has become an important criterion in the loan process. Corporations that cannot demonstrate sound environmental and social performance risk being denied loan facilities. This notion has obtained tangible expression in the UNEP Statement by Financial Institutions on the Environment & Sustainable Development, which by 2008 had been signed by over 160 financial institutions from around the globe. Paragraph 2.3 states:
We recognize that identifying and quantifying environmental risks should be part of the normal process of risk assessment and management, both in domestic and international operations. With regard to our customers, we regard compliance with applicable environmental regulations and the use of sound environmental practices as important factors in demonstrating effective corporate management. 84

81 82

83 84

CDP <http://www.cdproject.net/viewrelease.asp?id=1>. Further details on the CDP can be found at Chapter 7, subsection 7.3.2. The PRI can be viewed online: PRI <http://www.unpri.org/>. Figures are accurate as of February 2008 and were derived from PRIs list of signatories published online: PRI <http://www.unpri.org/>. See the preamble to the PRI available online: PRI <http://www.unpri.org/>. There were over 160 signatories to the statement as of August 2008. The full statement and list of signatories is available online: UNEP Finance Initiative <http://unepfi.net/>.

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Many mainstream financial institutions are putting this commitment into practice through the integration of environmental, as well as social, considerations into their internal lending policies and guidelines.85 In a similar industry-sponsored initiative, a large collection of the worlds leading financial institutions have adopted a set of principles known as the Equator Principles.86 First adopted in 2003, these principles require signatories to ensure that the projects they finance are developed in a manner that is socially responsible and reflects sound environmental management practices. The preamble to the principles states that signatories will not provide loans directly to projects where the borrower will not or is unable to comply with the Equator Principles environmental and social policies and processes.87

2.6 CSR DRIVER: INSURERS

The insurance industry has also begun to take notice of environmental issues in their core activities. The UNEP Statement of Environmental Commitment by the Insurance Industry, which has over 70 signatories worldwide, states at paragraph 2.1:
We will reinforce the attention given to environmental risks in our core activities. These activities include risk management, loss prevention, product design, claims handling and asset management.88

Insurers are particularly vulnerable to the impacts of climate change. From an insurance perspective, the more variable the climate, the more variable the extent of the damage and the more difficult it is to estimate weather and associated risks reliably. This translates into an increased risk for the insurer of being ruined by a sudden, unexpectedly high loss burden. As a consequence, some of the worlds largest insurers have been actively involved in identifying the risks and solutions associated with climate change. A case in point is Swiss Re which in a recent publication, Opportunities and Risks of Climate Change, states that the insurance industry can assist in reducing climate risks by supporting a practicable __________
85

86

87

88

See, e.g., the integration of climate change consideration into the lending policies of mainstream financial institutions documented in D.G. Cogan, Corporate Governance and Climate Change: The Banking Sector (Boston: CERES January 2008), online: CERES <http://www.ceres.org/NETCOMMUNITY/Document.Doc?id=269>. See further discussion of the Equator Principles in Chapter 6 (subsection 6.4.2.1), Chapter 8 (subsections 8.3.1 and 8.3.3), and Chapter 10 (subsection 10.3.2). The Equator Principles and the list of signatories are available online: Equator Principles <http://www.equator-principles.com/index.html>. The full statement and the list of signatories are available online: UNEP Finance Initiative <http://unepfi.net/>.

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approach to climate protection in line with the principle of sustainability. [For example], [i]n its capacity as an investor it is able to promote the transition from fossil to renewable energy forms.89 It is for this reason that Swiss Re and other large insurance companies make up some of the 385 institutional investors who are seeking increased disclosure on corporate greenhouse gas emissions through the Carbon Disclosure Project (see details above).

2.7 CSR DRIVER: GOVERNMENTS AND REGULATION

As previously explained in subsection 2.1 above, civil society has given voice to concerns regarding the environmental and social consequences of corporate activity. The response from governments across the globe has been the proliferation in recent years of legislation and government-backed voluntary initiatives to promote CSR. Yet while government action of this nature is a reaction to CSR-related forces, it is also a powerful driver of CSR in itself. In Chapters 5 through 11, we will explore in detail many of the new regulatory and voluntary instruments introduced in Canada, the United Kingdom, the United States, and other jurisdictions, as well as the important role such instruments play in promoting environmentally and socially responsible behaviour within the corporate sector.

2.8 CSR DRIVER: GLOBAL BUSINESS, SOCIAL, AND ENVIRONMENTAL CONDITIONS

These aforementioned drivers come together in what may be termed a final CSR driver: the need for corporations to take cognizance of persistent global problems. Whether it is inequality, poverty, population, financial instability, discrimination, disease, illiteracy, hunger, refugees, conflict, access to clean water and sanitation, access to energy, pollution, climate change, loss of species, or unsustainable use of resources the problems are universal and far-reaching. Corporations are not immune to the effects of the global challenges we face. In a world interdependent as never before, the persistence of such problems means fewer and less contented consumers and employees for global business; a less secure trade and investment climate; and greater __________
89

Swiss Re, Opportunities and Risks of Climate Change (Zurich, 2002) at 24, online: Swiss Re <http://www.swissre.com/pws/research%20publications/alphabetical%20overview/ alphabetical%20overview.html>.

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risks from relatively more volatile and unstable markets. At the extreme, those risks may manifest themselves in the form of more protectionism, terrorism, and a backlash against globalization. After all, global businesses and their employees, customers, investors and other stakeholders are not isolated from the larger society but are an integral part of it hence, the calls for corporations as persons to exercise good corporate citizenship. And as is the case for citizens of other communities, respect for the environment, human rights, the rule of law, and democratic political institutions forms the pre-conditions for both business and social achievement. While the risks from these persistent global conditions may seem distant and remote to any given corporation, they pose a kind of collective action problem requiring cooperation from corporations, governments, and civil society in order to achieve a sustainable future.

2.9 CONCLUSION
As this chapter has shown, there are multiple drivers behind CSR and it is difficult to say that any one of them is the only, or even the main, factor. Whether it is out of a sense of responsibility or duty, enlightened self-interest, or the interlinked pressures the community, lenders, investors, insurers, and governments exert, the business sector generally has come to accept the necessity and the benefits of acting in an environmentally and socially responsible fashion.