NEED FOR REGULATION OF CORPORATE SOCIAL

RESPONSIBILITY IN RESPONSE TO GREENWASHING

Manjari Rammohan1 & Soofiya Shah2

INTRODUCTION

Ethical and green consumerisms have emerged as formidable factors that drive corporations
to achieve sustainable modes of production. The concept of ethical consumerism is a
practice wherein the consumer consumes only those goods that are ethically viable and have
been produced by ethical means.3 The consideration of ethics has only come to the forefront
of corporate behaviour during the last decade. It is perhaps interesting to note the parallel
between the emergence of environmental, labour and humanrights activist networks and the
growth in the ubiquity of global corporations. The rapid development of a consumers ethical
consciousness which govern their purchasing decisions has developed as a reaction to the
perceived unethical behaviour of multinational corporations. The retail giant Primarks
economic performance during the mid-2000s is illustrative of plunging profits due to the
dissemination of polemic information devoted to exposing the deplorable labour standards
and rampant use of child labour in factories in India which constituted the corporations
global supply chain.4 The term negativity bias, which means that individuals are more
receptive to negative information than positive information, explains the likelihood of even
the most loyal consumers to react to the negative information surrounding a corporation.

Similarly green consumerism is a concept wherein the consumer is highly conscious about
the environmental impact of consuming a particular good and goes to the extent of switching
to another good to reduce the hazardous impact on the environment, even though it may
entail a higher cost5. Existing literature on the concept of green consumerism indicates that
consumer behaviour changes towards sustainable development that are driven by
1
III year Student, BA LLB (Hons.) School of Law, Christ University, Bangalore
2
III year Student, BA LLB (Hons.) School of Law, Christ University, Bangalore
3
Abhishek Gupta, Consumerism & Indian Culture, (Omics Online 2013) < http://omicsonline.org/scientific-
reports/2167-0234-SR-708.pdf> accessed 30 July 2016
4
Michelle Min Hwa Lee, Reacting to Bad Publicity over Sweat Shop Issue: The Case of Primark (2011) JIM
https://journalofinternationalmanagement.wordpress.com/2011/05/16/reacting-to-bad-publicity-over-sweat-
shop-issue-the-case-of-primark/>, accessed 31 July 2016
5
Sankar Sen, C.B. Bhattacharya , Does Doing Good Always Lead to Doing Better? Consumer Reactions to
Corporate Social Responsibility (2001) Journal of Marketing Research <
http://journals.ama.org/doi/abs/10.1509/jmkr.38.2.225.18838> accessed 31 July 2016

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environmental citizenship considerations is more likely to last than behaviour driven by
financial incentives.6 As awareness spreads about the need to preserve the environment as
well as labour issues, society has started to gain consciousness with respect to the goods they
consume.

POSITION OF GREEN CONSUMERISM AND ETHICAL CONSUMERISM

At the heart of this trend, lies the assumption that purchasing choices not only express price
and quality preferences but also norms, values, and beliefs. This is exactly where the two
trains of green and ethical consumerism seem to meet. By consuming green products and
boycotting those that exploit nature, consumers feel like they are fulfilling their moral and
social obligations, thereby becoming good human beings. Together, it can be seen that
consumption is more tightly connected to our social and ethical behaviours in directions and
domains other than previously thought. With growing humane feelings as awareness spreads,
comes growing restlessness to end the status quo. They not only wish to consume goods that
cause less damage to the environment during production and consumption, but also seek to
fulfil their moral duty to stop deplorable labour conditions. Consumers wish to buy green
products as it reflects on how morally and ethically duty bound they are. This is how there is
an inter connectivity between the two. There have been many laws in India that penalize
industries and producers who break through the peripheries of environmental damage, such
as Environment Protection Act, 1986, Public Liability Insurance Act, 1991, Hazardous Waste
Handling and Management Act, 1989. On July 1, 2010 India introduced a nationwide carbon
tax of 50 rupees per metric tonne ($1.07/t) of coal both produced and imported into India. 7
But this is where the need for change arises. Many economists are of the belief that only
when there is a demand for a particular product, the supply will rise. Along these lines, when
the consumers gain environmental and ethical consciousness, they demand for only those
products that have been ethically produced and harm the environment least. Thus, sellers will
be forced to adopt ethical and green means of production which can work in tandem with
laws that penalize them if environmental standards are not followed.

6
Andrew Dobson, Environmental Citizenship: Towards Sustainable Development (2007) Available at <
http://onlinelibrary.wiley.com/doi/10.1002/sd.344/abstract> accessed 31 July 2016
7
Mukherjee, Krittivas, India eyes millions in green funds from coal tax Reuters (New Delhi, 26 February
2010)

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The ethical and environmental concerns relating to consumer products could be categorized
into three areas:

i. The use and disposal of the product such as energy consumption and sustainability,
ii. The production and transport of the product, including the materials used,
iii. The final area is the general corporate responsibility activities of different categories
of companies.8

The final area of consumer interest which is the general corporate responsibility activities of
corporations shall be analysed in relation to the influence they have on consumer behaviour
with particular attention being focused on the phenomenon of green-washing which is the
practice of deceptive environmental advertising to lure consumers into buying their products
based on half-baked promises used in these very advertisements9. The use of corporate social
responsibility initiatives as a marketing mechanism directed towards ethical and green
consumers may prima facie appear innocuous; however, oftentimes corporations undertake
corporate social responsibility activities that do more harm than good. This paper shall be
focused on observing the impact of perceived corporate social responsibility activities on
consumer behaviour.

CORPORATE SOCIAL RESPONSIBILITY INFLUENCE ON ETHICAL

CONSUMERISM

In a constantly evolving world where the boundaries of globalization are pushed further every
single day, there has never been a more dire need to regulate the transparency and
accountability within these corporate giants to tackle issues such as child labour, anti-
corruption mechanisms and human rights protection in the realm of CSR activities. In India
the Companies Act, 201310 mandates that the corporations that qualify under the relevant
provision spend 2% of their average net profit on socially responsible initiatives. However,
besides the legal ramifications that would ensue if a corporation failed to adhere to the
required expenditure on CSR, it is urged that undertaking these activities are beneficial to the
8
William Young, Kumju Hwang, Seonaidh McDonald & Caroline J. Oates, Sustainable Consumption: Green
Consumer Behaviour when Purchasing Products (Econ Papers 2010) available at
<http://econpapers.repec.org/article/wlysustdv/v_3a18_3ay_3a2010_3ai_3a1_3ap_3a20-31.htm> accessed
on 5 August 2016
9
Lane, Eric L., Greenwashing 2.0 (2013) Columbia Journal of Environmental Law Available at
<http://ssrn.com/abstract=2089078> accessed on 5 August 2016
10
Companies Act 2013, s 135.

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corporations themselves. As elaborated upon in the previous paragraphs ethical consumers
wish to buy products that are a reflection of their moral and ethical values.

INSTANCES OF GREEN-WASHING THROUGH CSR ACTIVITIES

Since the dawn of the 2000s, many companies have been undergoing probes due to their
scandalous activities under the cloak of Corporate Social Responsibility. Issues ranging from
unfair labour standards, to child labour to environmental degradation seem to be an
unwarranted by-product of the Corporate Social Responsibility trajectory. The dearth of
public regulations in most countries that allows companies to adopt whatever means they
please under the aegis of fulfilling their social obligation but such activities often culminate
in disaster. This, coupled with green washing has resulted in calamitous consequences as the
consumer is vulnerable to being misled by corporations who undertake these activities.

In 2007 Coca-Cola initiated Live Positively, a programme which dealt with incorporating
sustainable principles in beverage benefits, healthier lifestyles, initiatives on energy and
climate, sustainable packaging and water management11. This was followed up by several
reports and studies indicating the appalling presence of pesticides in the beverages that
exceeded global standards as well as pesticides in large amounts of groundwater extracted in
and around the plants12. Similarly, Walmart developed its first Code of Conduct (COC) in
pursuance of its policy of social responsibility included suppliers, customers and associates in
2005. It entailed a strict no-child labour policy13. However, the Code was amended at the end
of 2005 to include a warning-based system on child labour instead of a direct cessation of
operations when it made the news for using child labour at two factories in Bangladesh14. The
factories were found to be employing children aged 10-14 years for less than $50 a month to
help make products of the Walmart brand to export to Canada15. Another multinational
embroiled in the CSR controversy is the case of Apple and the suicides in Foxconn due to

11
N. Vedwan, Pesticides in Coca-Cola and Pepsi: Consumerism, Brand Image, and Public Interest in a
Globalizing India (2007) Cultural Anthropology <https://culanth.org/articles/132-pesticides-in-coca-cola-
and-pepsi-consumerism> accessed on 10 August 2016
12
Symons, Celina and Lamberton, Geoff, Building a Social Case for Business Sustainability (2014) Journal
of Economic and Social Policy < http://epubs.scu.edu.au/jesp/vol16/iss2/9> accessed on 14 August 2016
13
Walmart, Walmart Global Responsibility Report, 2011, p. 1 accessed on 14 August 2016
14
Maquila Solidarity Network, Walmart caught using child labor in Bangladesh, 2005 Available at <
http://www.globallabourrights.org/admin/reports/files/200610-IGLHR-Child-Labor-Is-Back.pdf> accessed
on 14 August 2016
15
Ibid

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lengthy work hours which was against their eye wash of a Code of Conduct policy16. In 2010,
two workers were also killed from the leak of a poisonous chemical used to clean iPhone
screens17. Thus we see even though companies may have Codes in place to regulate CSR as
well as non-CSR activities, it serves no purpose except to appease customers in the realm of
green and ethical consumerism. In the race to adopt techniques and policies that create a
semblance of being ethically upright and environment friendly, companies often adopt hasty
ways of carrying out day to day activities and these guidelines are nothing but tokenism.The
end result of these initiatives has been in reality been counter-productive and ruinous as there
are no enforcement mechanisms to ensure these guidelines are actually adhered to.

SOLUTIONS TO THE DILEMMA OF GREEN-WASHING

As elaborated upon earlier, the emergence of ethical consumerism in the wake of rampant
corporate malfeasance and environmental degradation has catapulted the concept of corporate
social responsibility into the forefront of corporate governance. The positive correlation
found between a corporations social responsibility and its financial performance although
slight18 is no less significant. The integration of environmentally sustainable modes of
production and a corporations green image would facilitate its entry into niche consumer
markets dedicated to ethical consumption. However, the problem arises when any effort that
is even nominally environmentally friendly gets painted with a green brush so as to mislead
consumers about a corporations environmental benefits. In essence a solution is sought for
the corporate manipulation of CSR activities to bolster its image amongst the
environmentally and ethically conscious consumers when in reality they fail produce the
projected outcomes.

a) Strict control over corporate advertising:

The Advertising Standards Council in India, (ASCI) has its primary objectives in keeping a
check on the veracity of advertisements and inspires public confidence in advertising.
However, with relentless competition and the opaque nature of the advertising industry, it is a
daunting challenge to distinguish misleading, green-washing claims from real initiatives.

16
Jenny Chan, A Suicide Survivor: The Life of a Chinese Migrant Worker in Foxconn. (2013) The Asia-
Pacific Journal <http://japanfocus.org/-Jenny-Chan/3977> accessed on 15 August 2016
17
Chinese workers urge Apple to react on n-hexane poisoning, The Guardian, (London, 22 February 2011)
18
Terence Lim, Measuring the Value of Corporate Philanthropy: Social Impact, Business Benefits and
Investor Returns (published by Committee Encouraging Corporate Philanthropy, 2010) 64

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For instance enforcing bodies in the United States of America such as the Federal Trade
Commission (FTC) and the National Advertising Division (NAD) define the standards for
environmental communications and ensure that deceptive claims are not put forth 19. It is
imperative that these enforcing bodies are tasked with judging whether a corporation in
making its CSR claims is not overstating its environmental benefits and the claims must be
accurate and clear.

b) Implementation of Comprehensive Eco-labelling Programs:

Eco-labelling programs increase awareness of environmental issues, set higher standards for
producers to meet and help reduce buyers uncertainty regarding a products environmental
benefits. For instance, ECOMARK India is a government operated seal of approval program
for environmentally superior consumer products.20 Further India Organic is a government
authority which provides national standards for all organic produce with the result that
consumers are assured that products with the label have been cultivated without the use of
chemical pesticides and fertilizers. On the international front the most widely recognised
ethical label is the FAIRTRADE certification mark.21 When the consumer product bears the
mark it serves as an indicator that the product has been traded according to international fair-
trade standards. This initiative could probably be taken a step further. So far, we see eco-
labels and ethical labels being put on products, but if we could extend that to including a
scale indicating the standard of the work conditions, not merely conditions of work
environment but also the fairness and morality in employment contracts, of the labour
involved it would give the consumer a concrete idea to help pursue their ethical goals. A
legislation will need to be passed for the compulsory inclusion of such information on
products, or an amendment to the Right To Information clause of the Consumer Protection
Act, 1986 could be initiated, wherein it would be the right of the consumer to know
repercussions of producing the particular good on the environment, as well as the degree of

19
Gingerich, Elizabeth; Karaatli, Gokhan, "Eco-Friendly" Marketing: Beyond the Label, (2015) The Journal of
Applied Business and Economics available at
<http://search.proquest.com/openview/5760f69e08ae2561e1966d1f067f85d5/1?pq-origsite=gscholar>
accessed on 15 August 2016
20
A.P. Singh, N.S. Raman and U. P. Waghe, ECOMARK SCHEME IN INDIA, (2013) International Journal of
Life Sciences Biotechnology and Pharma Research <
http://www.ijlbpr.com/index.php?m=content&c=index&a=show&catid=121&id=193> accessed on 15
August 2016
21
Raluca Dragusanu, The Economics of Fair Trade, Journal of Economic Perspectives, (2014) Journal of
Economic Perspectives <http://scholar.harvard.edu/files/rdragusanu/files/jep_firstdraft_sept10_2013.pdf>
accessed on 17 August 2016

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labour work standards involved, and make the decision of purchasing the product
accordingly.

c) Enforceable Guidelines to Direct CSR activities:

The introduction of enforceable guidelines in India which would govern the procedure
surrounding a corporations CSR activities and the disclosure of such information would
ensure the much needed transparency that consumers require in order to make informed
decisions regarding their purchasing choices. Nowadays several multinationals prepare
sustainability reports based on the Global Reporting Initiative (GRI) Guidelines on their own
accord.22These guidelines were created to induce socially-responsible corporate behaviour.23
It is proposed that a set of comprehensive guidelines be adopted in India which shall amongst
other variables mandate the following steps to be taken in relation to CSR activities:

i. Sustainability Management Systems:

Sustainability Management Systems would make it the corporations responsibility to

develop a mechanism to ensure that environment and social concerns are in tandem with the
corporations economic activities. This will ensure that CSR does not remain on the periphery
of a corporations activities but occupy centre stage in their operations.

ii. CSR Reporting:

It is essential that corporations publish their CSR related initiatives on an easy to access
public platform along with the outcomes achieved by such initiatives.

CONCLUSION

Through the course of the paper, the authors have elucidated on how unchecked Corporate
Social Responsibility activities induce an unwarranted plethora of disastrous results. Green
washing also plays a significant role in influencing consumer decisions which is more often
than not deceptive as companies do not adhere to their claims of ethical production.

22
Global Reporting Initiative, Sustainability Report, Content Index pg 52-64 Available at
<https://www.globalreporting.org/resourcelibrary/GRI-Sustainability-Report-2008-2009.pdf> accessed on
20 August, 2016
23
Cristina A. Cedillo Torres, Four Case Studies on Corporate Social Responsibility: Do Conflicts Affect a
Companys Corporate Social Responsibility Policy? (2012) <http://www.utrechtlawreview.org> Volume 8
Issue 3 (November) accessed on 20 August, 2016

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Therefore it is urged that by the implementation of the three-pronged solution proposed by
the authors, the prospect of misuse of CSR activities will be largely mitigated. The future of
the lives and property of millions across the globe either directly or indirectly under control
of multinationals would no longer reel under the semblance of uncertainty with the execution
of these concrete measures.

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