2016: CSR is dead! What’s next?

By Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct

A couple of months ago I met an expert in the field of corporate responsibility who asked me the following question: ‘So, are you the guy who killed CSR?’ Normally being labelled a killer can get you behind bars, but in this case it was meant as a compliment. However, I didn’t do it! So why was I a suspect? The reason is likely that I chair the OECD Working Party on Responsible Business Conduct, a group of 46 governments that deal with business ethics issues by promoting and implementing the OECD Guidelines for Multinational Enterprises (OECD MNE Guidelines).

The OECD MNE Guidelines are the world’s most comprehensive multilateral agreement on business ethics and are the only international corporate responsibility instrument with a built-in grievance mechanism.[1] Under the OECD Guidelines – this year 40 years old – the term ‘’CSR’’ is not used, rather they discuss ‘’responsible business conduct “(RBC). Responsible business conduct means that businesses should make a positive contribution to economic, environmental and social progress with a view to achieving sustainable development and that businesses have a responsibility to avoid and address the adverse impacts of their operations. While the concept of CSR is often associated with philanthropic corporate conduct external to business operations, RBC goes beyond this to emphasize integration of responsible practices within internal operations and throughout business relationships and supply chains.

By actively promoting this broader concept, I was caught with a knife in my hands and a motive. However, I am only one singer in the choir of business leaders, journalists and academics that have declared CSR dead.[2]

That being said, nowadays CSR is a global industry. Most companies employ CSR managers, vice presidents, and experts; armies of CSR consultants are on offer and hundreds of CSR awards are distributed every year. In addition, countries are increasingly implementing CSR laws, action plans and even CSR ‘taxes’[3]. Given the widespread recognition of CSR, is it really necessary to bury it six feet under?

The Line of Defence

Let’s be clear: I didn’t kill CSR, nor did the OECD. Ultimately, CSR killed itself! Several characteristics attributed to CSR contributed to its ultimate demise.

CSR as social philanthropy vs. sustainable development

Firstly, CSR is often associated with philanthropy and volunteer work in the social sphere, rather than long-term sustainable development. This is especially true in some regions in the world where CSR activities are limited to companies building schools, or sponsoring local activities. Indeed, company CSR reports are often largely of descriptions of feel-good projects and activities that ‘give back’ to society.

CSR as an optional activity

Secondly, CSR is often understood to be an optional add-on external to core business operations.[4]  For example the scope of a CSR managers’ responsibility is often limited to voluntary initiatives while responsibility for non-voluntary obligations falls to procurement officers, human resources or legal counsel. Therefore corruption issues are often not considered a CSR issue and are not dealt with by CSR managers. Corporate tax responsibility, an integral part of the OECD MNE Guidelines, likewise is most often not on the radar screen of a CSR manager.

This division is problematic for several reasons. For one, the ‘voluntary’ association of CSR severely limits the role of CSR managers within their companies as they often only deal with issues that are viewed as peripheral.  In contrast, responsible business conduct, as promoted by the OECD, provides a more integral perspective; it is a core business function, and as such must be integrated within corporate governance, procurement, finance, and so on.

Additionally, core elements of responsible business conduct as outlined in leading international policy such as the UN Global Compact or the OECD MNE Guidelines are not at all voluntary in most jurisdictions. Bribery is a crime in all OECD states, non-financial disclosure will be mandatory in the EU for large companies, and many issues of competition and consumer interests also covered by the OECD Guidelines are legally binding in most countries.

Lastly the ‘voluntary’ association with CSR also suggests there are no consequences attached to non-compliance. That is also a misconception. Research clearly demonstrates that there is a strong business case for companies to behave responsibly. Responsible business practices can result in positive outcomes such as improved reputation and productivity. On the other hand, irresponsible business practices can lead to significant financial liabilities as well as impact access to finance. Investors who take environmental and social issues into account in their investment decisions today represent a portfolio of at least $59 trillion in assets under management[5].

CSR associated with ‘classic’ social audits

Thirdly, CSR is strongly associated with the ‘old school’ social audit system[6]. While audits are necessary, they are an insufficient means to fulfilling responsible business conduct.  The voluntary, peripheral connotations of CSR has been reflected in the audit system in the sense that often there is little follow-up done to shortcomings identified in social audits unless they have bearing on other, generally economic, aspects of business operations. Systematic research by Prof. Richard Locke, has shown that the audit system is failing to deliver desired results in terms of addressing social and environmental impacts. [7] The best real life example of a failure of the audit system has been the Rana Plaza collapse. Some of the brands sourcing from Rana Plaza had performed audits of the factory prior to its collapse and continued to source from it, despite the clear existence of serious workplace safety issues. Responsible business conduct nowadays goes beyond auditing and stresses the importance of a continuous process of due diligence, which in addition to identifying risks also requires prevention and mitigation as well as addressing negative impacts where they do occur.

CSR as a greenwashing exercise

Finally, CSR has often been used primarily as a PR tool which has contributed to the perception that it is merely a greenwashing exercise. In the words of Michael Townsend[8]: “Corporate Social Responsibility is, at best, only a partial solution — one which can be misused to create an illusion of responsibility.” Indeed, experience has shown that misuse of the concept to create an illusion of responsibility is a common occurrence: Volkswagen, prior to its emissions rigging scandal, used to claim the number one spot on the Dow Jones Sustainability index. Enron has received CSR awards in the past and scores of companies display CSR-logo’s on their website while in practice ignoring major corporate responsibilities. Fortunately, as increasing scandals have exposed the hollowness of some CSR programs more and more companies have begun to move their CSR functions out of their PR or communications departments.

So, what’s next?

“CSR is dead. It’s over!” So declared Peter Bakker, president of the World Business Council for Sustainable Development[9]. Bakker’s key argument was that leading companies are already going way beyond traditional CSR by integrating sustainability into all aspects of their business operations in recognition that business cannot succeed if society fails. He urges us to innovate — to align with facts, to redesign what we mean by good performance and to get inspired by new definitions of success. Indeed what Bakker is suggesting is exactly in line with the responsible business conduct agenda of the OECD: integrating sustainability as a core aspect of business operations[10].

in practice there is no contradiction between corporate sustainability and responsible business; indeed company sustainability is essentially derived from responsible business conduct. Thus, while CSR as a term may be dead, the concepts of corporate responsibility and corporate sustainability are still very well alive and may well live forever!

 

[1] National Contact Points for the OECD MNE Guidelines have a mandate to engage in promotional activities, handle inquiries, and provide a mediation and conciliation platform for resolving issues that arise from the alleged non-observance of the Guidelines. Responsible Business Conduct Matters, OECD.

[2] You can find declarations of the death of CSR in many forms: ‘CSR is dead: long live social enterprise’, ‘CSR is dead, long live social value’, ‘CSR is dead, long live shared value’.

[3] India, Companies Act 2013

[4] As John Morrisson states in ‘The Social Licence’: “The unfortunate reality is that CSR has become a conceptual sideshow and a conceptual ceiling at the same time”.

[5] Recently, Morningstar, a market research company, announced it will soon launch a service comparing environmental and social performance of a large proportion of the 200,000 funds it tracks. This initiative is likely to further raise the profile of these issues amongst investors.

[6] A related misconception is that CSR suggests that ‘social’ is only about labour related issues, and not about the environment, human rights, bribery and other areas of responsible business. Jo Confino, former editor for the Guardian proclaimed CSR dead largely for this reason.

[7] The Promise and Limits of Private Power Promoting Labor Standards in a Global Economy Prof Richard Locke, 2013

[8] CEO of Earthshine

[9] Sustainability Science Congress

[10] This view is also increasingly being reflected by policymakers. For example, the 2011 the EU updated its definition of CSR to be understood as: “The responsibility of enterprises for their impacts on society. To fully meet their social responsibility, enterprises should have in place a process to integrate social, environmental, ethical human rights and consumer concerns into their business operations and core strategies in close collaboration with their stakeholders.” This is a strong definition, despite the fact that the term CSR itself has already been spoiled.

 

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