Corporate Social Responsibility. Don’t Put All Your Eggs in One Basket

What do we have in mind when we speak about sustainability? I have to confess that twenty years ago I was not particularly thrilled by the concept. Sustainability had the flavour of something static, a standstill, not change, only more of the same. It seemed boring and dull. I did prefer innovation, renewal, progress, and growth.

However, I learned to understand that growth can wreck development, which will result in regress rather than progress, or in progress for some, but regress for many. That would mean more poverty, more inequality and fewer chances for many more children to survive, let alone to be happy.

So, sustainability demands fundamental change. It is the opposite of a boring status quo. Sustainability is a challenge, an adventure. It requires a forward looking approach and a fighting spirit.

That was the spirit which prevailed at the World Summit on Environment and Development, in Rio de Janeiro, in 1992, where we adopted a new agenda for the future: Agenda 21.

However, since then we have not made much progress:

• Still one third of world population is poor or very poor. Inequalities have increased, between and within countries
• The international economic system shows signs of bankruptcy: financial crisis, resulting in economic distortions, both globally and nationally.
• Erosion of values, resulting in unbalanced priority setting: abundance of luxury goods, but shortages of basic amenities such as primary health care, nutrition and drinking water.
• Deterioration of the natural environment: floods and water shortages, pollution, climate change, deforestation, and less fertile land, risking the poor today more than the middle classes, and risking future generations across the board.

These phenomena manifest themselves in all countries. In Bangladesh you have your proper share of all of them.

Addressing these tendencies does not only require embracing new concepts and new broad agenda’s, but concrete action: new priorities, new policies, new decision making procedures, and new forms of cooperation, including partnerships between all stakeholders.

Let me share with you some lessons of experience gained during our efforts to translate concepts such as sustainability and responsibility into action. Here are seven do’s and don’ts:

 

First: Do not fake sustainability.

Sustaining sustainability, so to say, requires fundamental structural change in patterns of investment, production, trade and consumption. To continue harming people’s welfare and the natural environment, though providing compensation for harmful effects, is nothing more than buying off unsustainable behaviour, faking sustainability. Planting trees in order to compensate for ongoing CO2 emissions is no solution. Climate change ought to be modified and slowed down, not indulged and made good. Providing financial assistance to developing countries in order to buy a license for fishing ships from abroad, using sophisticated technologies to clear out coastal fishing waters, is an ostrich policy. Let us not fool ourselves by focusing on compensation for unsustainable practices, rather than turning back those very practices themselves.

 

Second: Do not romanticize CSR

Win-win – ‘everybody will benefit’ – is an attractive option. But it is not always possible. On the contrary: all societies are full of inherently conflicting interests. Choices must be made.

Corporate social responsibility (CSR) is a fascinating concept. What would provide greater satisfaction than corporate behaviour in the interests of all people everywhere, labourers, consumers and shareholders, present people and future generations, and also in the interest of nature, our planet, and our physical environment? Who wouldn’t go for this? However, don’t be romantic. Markets are ruthless. The main interest of a corporation is to stay in the market and to continue its operations. That is legitimate, but it will limit the viability of CSR.

Why? Because corporate social responsibility implies a different cost benefit analysis. CSR means that the corporation sees after its own interests, including those of its workers, but also respects consumer’s rights and the rights of people affected by its operations, present people and future generations. In a market economy many of these interests are considered to be external effects, not included in market prices. This holds true both for so called external benefits (such as an enhancement of public health due to corporate hygiene) as well as external costs (such as pollution).

Corporate behaviour short of CSR implies that the corporation will be guided first and foremost by the costs and benefits it will carry and cash itself, both short and long term. CSR goes beyond these considerations. As long as a CEO believes that meeting sustainability conditions is sound business, because it will enhance the image of the corporation, it will be rational to bear the costs involved. The costs are known, but to which extent external benefits to society will result in gains for the company itself, is uncertain.  When the aspirations of competitors diverge from CSR, cost differences will rise, and initial CSR benefits for the corporation will disappear, in particular when consumers would no longer be willing to pay higher prices. The company will then have no other option than discarding CSR, on penalty of steadily increasing losses, shrinking activities and bankruptcy. Markets may be liberal, but they are not generous.

So, sustaining sustainability cannot be left to the market. Don’t be romantic. Public political choices are unavoidable: create a level playing field for all companies on the market, enforce corporate behaviour in accordance with public and people’s interest.

 

Third: Build up countervailing public market power.

Governments should not lean backwards, relying on NGO’s, hoping that a stakeholder dialogue between NGO’s and big corporations can keep the latter on track. Admittedly, there are quite a few CEO’s with sound business judgement, willing to take a risk in favour of CSR. There are also many highly dedicated professionals, applying technological solutions and business practices in accordance with conditions of sustainability. Since a decade or two scores of students, highly committed to hold up principles of social responsibility and environmental sustainability, have found a job within a corporation. But they have to face shareholders, most of whom having a completely different mind-set: short term maximization of profits and fast accumulation of capital, rather than securing people’s welfare and preserving the planet. When big financial power is involved, there is no balance between people, planet and profit. Profit will always win. When push comes to shove, in a stakeholders dialogue NGO’s, defending the interests of people and planet, cannot but lose.

Confronted with corporate power NGO’s may choose a strategy of accommodation, betting on the long run, negotiating some slight successes, hoping that in the end reason will prevail and big financial corporations will convert to sustainability. I am afraid that history demonstrates the opposite. Big oil and gas companies, minerals corporations, power plants, large plantations (timber, palm oil, biofuels), pharmaceutical and chemical industries, food and beverage industries, commercial advertisement, the arms industry and - last but not least - transnational financial corporations and banks, demonstrate a pattern of behaviour which is bound to clash with requirements of sustainability. Misapplication of insecticides and pesticides, forced introduction of genetically modified crops, emission of greenhouse gasses, insufficient testing of possibly hazardous chemicals, pollution of seas, rivers, ground-, surface and drinking water, irreversible cutting of forests, risky mining, and so on, these practices can only be curbed with the help of strong public countervailing power. The power of NGO’s, irrespective of the number of people they represent, will always be smaller than the power of capital. Codes of behaviour, for instance regarding child labour, minimum wages or a safe working environment, will never be sufficient. They are easily dodged and violated, with impunity.

So, governments should not shy away from law making, imposing rules and regulations, forceful inspections, effective compliance mechanisms, enforcement, and vigorous sanctions. Striving for sustainability is not a game, but a fight.  

 

Fourth: PSR is a precondition for CSR.

Achieving sustainability demands that public authorities represent the interests of the people and the planet, and act accordingly. This implies vigorous action against corruption, to ensure that governments, parliamentarians and the bureaucracy will not be lured into serving merely the interests of capital and profit. It means zero tolerance for double bookkeeping, full transparency of public decision making and a halt to commercial lobbying behind the scenes. It also implies democratisation of public decision making, broad information of the general public and full accountability of public authorities to their constituencies. All these political conditions should guarantee public social responsibility. PSR is a precondition for CSR to become a solid basis for trustworthy market operations.

 

Fifth: Be ambitious, but cautious

Achieving sustainability requires urgent and radical changes in economic behaviour. However, be cautious: radical and urgent is not the same as trading off one particular risk - say, climate change - for another, such as nuclear disaster. Exchanging unsustainable conditions into sustainable directions is a process. The focus ought not to be on end states considerations only, but also, and perhaps more importantly, on the necessary transitions towards that end. Timing and directing transitions and choosing the valid characteristics of those transitions requires precaution. This holds true for all transactions that are initiated in order to establish sustainable social and economic circumstances: the energy transition, greening the economy, urban renewal, waste reduction and recycling, and transitions in sanitation, and clean and safe water supply. Mistakes which have irreversible consequences will wreck the very objective of sustainability. Confronted with fragile ecological conditions it is better to go for ‘small and slow’, rather than ‘big and fast’. Learning from experience and fostering resilience implies making choices in favour of reversible change.    

 

Sixth: Go in stages and stay within your own domain.

Changing an unsustainable status quo sometimes will demand a jump in the opposite direction. However, policy wise it may be preferable to widen the scale of change gradually, introducing experiments and pilot schemes and scaling them up to the level of the sector as a whole, and sideways to other regions.    

Going in stages requires choosing the right order of those stages. Sustainability and corporate social responsibility should be brought in right at the beginning of a business enterprise. Starting up a business with the sole objective of financial sustainability, with the intention to incorporate social and environmental sustainability only later, may be rational, given prevailing market conditions, but may result in postponing socially responsible behaviour indefinitely. What may look rational is not yet reasonable. After all, risk taking is part of good business behaviour. And taking risks does not mean unloading risks on to others, passing the buck.

Governments can help businesses accepting reasonable risks by guaranteeing a level playing field with the help of rules and regulations, equally binding all corporations, both foreign and domestic. However, again, governments must be trustworthy themselves and demonstrate transparent political behaviour. Governments will have to define ambitious long run sustainability objectives, for public policies as well as market operations, but in doing so governments should understand that market partners will only invest in green technologies, if they can trust that policies will not change arbitrarily.

Establishing Public Private Partnerships (PPPs) can be the right approach towards agreeing on transitions such as the ones mentioned earlier. Neither governments, nor business can do it alone. However, be aware of your own particular domain. For governments this means: proper (democratic) setting of rules. For business: proper (social) market behaviour. And between them: proper allocation of responsibilities.

Can subsidies play a role in bridging conflicting interests between the government and private business? Here again caution should prevail. Private business cannot claim that striving towards sustainability is only affordable if they are rewarded out of public funds. And even when everybody agrees that such efforts are in the interest of the general public, governments should be reluctant applying this instrument rather than setting rules. Public subsidies often are an easy way out: costly in terms of finance, but relatively cheap compared to the alternative: standing firm against powerful corporations seeking their own profits only. Public rule setting may be politically more difficult, but it is the best way: democratic, equitable, without discrimination.   

This is not only the case for individual nations, but also internationally. Western industrialized countries, subsidizing private business companies in order to enable those meeting public and environmental standards, are putting developing countries, which lack adequate means, in a disadvantaged position. International cooperation resulting in common rules is a much better alternative.           

 

Seventh: People first

Sustainability is often seen as an environmental problem only. It is not. There is an environment-poverty nexus. Environmental degradation and deterioration of livelihoods result in ongoing deprivation. The poor in our world have been pushed towards the worst places on planet earth. They are the first victims of environmental disasters, climate change, water pollution, soil erosion and other dysfunctions of the present economic system. So, environmental sustainability, besides being a major objective in its own right, is also a precondition for social and economic justice.

The opposite is also true. Putting an end to poverty, besides being a first moral and political imperative, is a condition sine qua non for meeting environmental sustainability targets. Achieving overall sustainability requires people’s participation, all people, first and foremost well-to-do and middle class people, but also the poor. The poor are not in a position to give high priority to environmental sustainability, if they consider this a luxury, affordable to the rich, but not to them. Widening economic inequalities and persisting absolute poverty are a major drag on sustainability.

So, we need a two track approach. Both tracks should lead to greater people’s welfare: present people and people yet unborn. Our responsibility concerns also the protection of the developmental capabilities of future generations. People first.

After all, development is for, of and by people. Development implies guaranteeing human rights: the rights of workers, women, children and the yet unborn. Development requires people’s participation, and a bottom up approach. Where people are in control of their own resources, their own habitat and livelihood, they will take care of them, and make the right choices, right for themselves, right for their offspring, right to planet earth and its people.   

In many societies we witness excellent small scale bottom up initiatives towards sustainability. This is a reason for optimism. However, let us not fool ourselves by relying on such initiatives only. Both environmental sustainability, social justice, people’s welfare and overall human development require political choices beyond the capacity of local communities, grass root movements, NGO’s and private business. Such initiatives are crucial, but not sufficient. At the end of the day, achieving a sustainable society, in which all stakeholders can be held responsible for people’s welfare as a whole, is a matter of politics, at both the local, the national and the international level.

 

 

Jan Pronk

Keynote Address, 2^nd Conference on Global Social Responsibility

Dhaka, Bangladesh, 28 February, 2013