Module 4 – Business Ethics, CSR and Sustainability

Overview

Ethics derives from the Greek word ethos – meaning “character.” Ethics is concerned with
understanding right and wrong and how conduct should be judged to be good or bad.

Three general areas constitute a framework for understanding ethical theories: metaethics, normative
ethics, and descriptive ethics.

Metaethics is the study of the nature of ethics. It considers where one’s ethical principles “come from,
and what they mean.” Metaethical focuses on issues of universal truths, the will of God, the role of
reason in ethical judgments, and the meaning of ethical terms themselves.

Normative ethics is the study of ethical action. It deals on the practical side of the ethics. It tells the
people what to do and what not to do.

Descriptive ethics is the study of people’s views about moral beliefs. It also relates to presenting –
describing but not interpreting or evaluating – facts, events, and ethical actions in specific situations
and places.

When the ethical principles and methods of analysis are applied to business, it is called business
ethics.

Laura Nash defined business ethics as “the study of how personal moral norms apply to the activities
and goals of commercial enterprise. It is not a separate moral standard, but the study of how the
business context poses its own unique problems for the moral person who acts as an agent of this
system.”

Business ethics is an organization’s policies and standards established to ensure certain kinds of
behavior by its members. It must be a fundamental aspect of mission, since everything the
organization does flows from that. Managers responsible for strategic decision-making should
consciously apply ethical rules to all their decisions in order to filter out potentially undesirable
developments.

Course Objectives

After studying this module, you should be able to

• Define the components of business ethics.

• Formulate ethical decision in business
• Understand the concept, applicability, and reporting in respect to Corporate Social Responsibility and
Sustainability.
• Explain the concept of corporate citizen and intergenerational responsibility.

Course Materials

Business Ethics

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 The Board should adopt a Code of Business Conduct and Ethics and ensure its proper and efficient
implementation and monitoring of compliance.

Code of Business Conduct and Ethics provides standards for professional and ethical behavior, as
well as articulate acceptable and unacceptable conduct and practices in internal and external dealings.
It explains what behavior is expected of all employees and provides the standards that guide the work
of the company and how the employees should relate to customers, competitors, vendors, and to other
employees.

The Code of Business Conduct and Ethics shall cover and apply equally to all employees. Failure to
comply with the standards contained in the Code will result in disciplinary action, including termination
of employment. In some cases, civil and criminal actions are warranted.

Most large companies adhere to the following ethical principles and values described as follows:

• Accountability. Taking full responsibility for business decisions, actions/inactions, and conduct.
• Integrity. Acting righteously, morally and legally and under the highest standards of ethics.
• Fairness. Uphold the value of justice and fair play amongst everyone we deal with, both internally and
externally.
• Transparency. Uphold the value of truthfulness in everything we do coupled with the quality of being
open to scrutiny as we provide and disclose accurate material information in a timely manner.

Some of the commitments of the Company, its directors, officers and employees in their behavior and
various business dealings are relate to the following:

• Honesty and Fair Dealing.

• Compliance with laws
• Conflicts of Interest and Corporate Opportunities.
• Corporate Entertainment/Gifts
• Creditor Rights
• Creditor Rights
• Confidential Information
• Accounting of Funds
• Proper Use of Property

Ethical reasoning is required in business for at least three reasons. First, many times laws do not cover
all aspects or “gray areas” of a problem. Second, free- market and regulated- market mechanisms do
not effectively inform owners and managers how to respond to complex issues that have far reaching
ethical consequences. A third argument holds that ethical reasoning is necessary because complex
moral problems require “an intuitive or learned understanding and concern for fairness, justice, [and]
due process to people, groups, and communities.

Corporate Social Responsibility

Corporate Social Responsibility or CSR is defined by the World Bank as the commitment of business
to behave ethically and to contribute to sustainable economic development by working with all relevant
stakeholders to improve their lives in ways that are good for businesses, the sustainable developments
agenda, and society at large.

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 CSR-related activities include the following: Charitable programs and projects, Scientific research,
Youth and sports development, Cultural or educational promotion, Services to veterans and senior
citizens, Social welfare, Environmental sustainability, Health development, Disaster relief and
assistance, Employees and worker welfare related activities.

CSR activities becomes strategic when they are concerned with the long-term success of the business
and should therefore be beneficial to the business as well as to society.

Examples of strategic CSR initiatives might include:

• A pharmaceutical company funding the training of medical staff, in the hope that when qualified they
will source drugs from that company.
• A bank providing free internet training for senior customers, who might then be disposed to buying
financial products.
• Encouraging employees to nominate and get involved in good causes, in order to develop loyalty to
the company.
• Sponsoring sports teams in return for advertising space on shirts, other merchandise, and at the
ground.

CSR is a broad concept of corporate citizenship, which provides that as a citizen, a corporation has
social, cultural, and environmental responsibilities to the community where is operates, as well as
economic and financial ones to its shareholders and immediate stakeholders.

House Bill 9061 seeks to institutionalize corporate social responsibility in corporations, whether
domestic or foreign, partnership and other establishment performing business in the country.

It also allows corporation to retain surplus profits in excess of 100 percent of their paid-in capital stock
for corporate social responsibility projects and programs approved by the board of directors.

Sustainability

SEC issued Sustainability Reporting Guidelines for Publicly Listed Companies (Memorandum Circular
No. 4, series of 2019) to promote sustainability reporting in the Philippines. The Guidelines adopted
the comply or explain approach for the first three years upon implementation.

Based on the Guidelines, Sustainability is defined as “development that meets the needs of the present
without compromising the ability of future generations to meet their own needs.” It focuses on how a
company manages its economic, environmental and social impacts, risks and opportunities.

Sustainability is not the ability of the business to continue as a going concern. Rather, it involves
developing strategies so that the organization only uses resources (inputs) at a rate that allows them
to be replenished (in order to ensure that they will continue to be available). At the same time emissions
of waste (outputs) are confined to levels that do not exceed the capacity of the environment to absorb
them.

Sustainability has three pillars: economic, environmental, and social. These pillars are also referred to
as people, planet, and profits.

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 The phrase “the triple bottom line” was first coined in 1994 by John Elkington, the founder of a British
consultancy called Sustainability. His argument was that companies should be preparing three
different (and quite separate) bottom lines.

• People means balancing up the interests of different stakeholders and not automatically prioritizing
shareholder needs.
• Planet means ensuring that the business's activities are environmentally sustainable.
• Profit is the accounting measure of the returns of the business.

The aim of the triple bottom line is to measure the financial, social and environmental performance of
the corporation over a period of time. Only a company that produces a TBL is taking account of the
full cost involved in doing business.

The Reporting Principles for defining report quality guide choices on ensuring the quality of information
in a sustainability report, including its proper presentation. The quality of information is important for
enabling stakeholders to make sound and reasonable assessments of an organization, and to take
appropriate actions.

The Guidelines provides a Sustainability Reporting Framework for Philippine PLCs that builds upon
four of the globally accepted frameworks, which companies use to report on sustainability and non-
financial information, namely:

• Global Reporting Initiative’s (GRI) Sustainability Reporting Standards

• International Integrated Reporting Council’s (IIRC) Integrated Reporting (IR) Framework
• Sustainability Accounting Standards Board’s (SASB) Sustainability Accounting Standards
• Task Force on Climate-related Financial Disclosure (TCFD).

Broadly, sustainability performance is measured in the way the corporation conducts its business, and
how it manages its key economic, environmental and social impacts. Disclosures should reflect these
impacts.

Disclosure are also required on how companies are able to contribute to the United Nations
Sustainable Development Goals (SDGs) through their products and services. SDGs are a universal
call to action, to end poverty, protect the planet and ensure that all people enjoy peace and prosperity
and includes seventeen (17) goals.

Under the Doctrine of Intergenerational Responsibility, minors have personality to sue on behalf of the
succeeding generations insofar as the right to a balanced and healthful ecology is concerned. Such a
right considers the "rhythm and harmony of nature." Nature means the created world in its entirety.
Such rhythm and harmony indispensably include, inter alia, the judicious disposition, utilization,
management, renewal and conservation of the country's forest, mineral, land, waters, fisheries,
wildlife, off-shore areas and other natural resources to the end that their exploration, development and
utilization be equitably accessible to the present as well as future generations. Needless to say, every
generation has a responsibility to the next to preserve that rhythm and harmony for the full enjoyment
of a balanced and healthful ecology. Put a little differently, the minors' assertion of their right to a sound
environment constitutes, at the same time, the performance of their obligation to ensure the protection
of that right for the generations to come.

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Activities/Assessments

One2Three Corporation hired you as internal auditor. Your first engagement is to evaluate the
environmental, social, and governance landscape of the company. During the internal audit, you raised
to the management the issue that the company had no code of business conduct and ethics nor
policies on corporate social responsibility and sustainability. The management, then, asked your
advice so they can at least improve these areas. Provide at least one recommendation. Your
recommendation may be in the form of a provision to be added to the code of business conduct and
ethics, a policy or activity regarding corporate social responsibility and sustainability.