Corporate Social Responsibility: Emerging good practice for a new era

Are global companies improving their environmental, social and governance performance? There is good reason to be optimistic, though there is much work to be done.  

Some 93% of the world’s largest 250 companies now publish annual corporate responsibility reports, almost 60% of which are independently audited. That means companies from sectors as diverse as financial services, information technology and consumer goods to oil, gas and mining making billions of dollars of public commitments to help solve societal challenges.

Yet, the negative headlines persist, fuelled by reports of sweat-shops in low-income countries producing cheap goods for OECD markets, fatal tragedies such as the collapse of the Rana Plaza garment factory in Bangladesh in 2013 and the Turkish mining disaster in 2014, and catastrophic environmental accidents. Moreover, the legacy of the global financial crisis, concerns about corporate tax practices and challenges such as youth unemployment and climate change have forced corporations to lift their sights further above the bottom line and to judge their performance against wider social goals. Economic growth must now be more inclusive and more sustainable. The onus is on firms to produce more jobs, products, services and infrastructure for more people, while putting more emphasis on decent work and fairness, and less strain on natural resources. .    

It is in this context that the field of Corporate Social Responsibility (CSR) has matured over the past decade. Progress has been driven by a combination of evolving global guidelines, increased stakeholder expectations and more demanding corporate disclosure requirements. Voluntary action by corporate leaders themselves has also played a role, both individually and collectively, to embed CSR into core business practices, account publicly for performance, and scale up impact. CSR has become as central to some businesses as, say, accounting or human resource management. Yet, this progress is happening at neither the speed nor scale needed to drive the type of systemic change that is required to address social and environmental challenges.

Two crucial pillars underpin an effective CSR strategy, regardless of industry sector or location:

First is responsible business conduct. This refers to the commitment of companies to comply not only with laws and regulations everywhere that firms operate, but also to adhere to relevant global guidelines, normative frameworks and industry-wide voluntary principles and standards. It means proactively identifying, mitigating and, where necessary, offsetting negative environmental, social or governance impacts wherever they occur along global value chains.

The second pillar is that of shared value creation. This refers to the strategic decision of companies to address explicit social and/or environmental challenges in a manner that also benefits their business.

Although the arguments for effective CSR are increasingly clear, challenges remain in embedding good practice within individual company operations and scaling up this effort across complex global value chains, sectors and countries. Within firms, there is a need to strengthen policies, management and reporting systems, skills and incentives to drive better decision-making, performance, transparency and accountability.

External barriers must also be confronted. They range from governance gaps, such as corruption and weak rule of law, to market failures and short-termism among investors and consumers. The sheer complexity, number and diversity of actors operating along global value chains create another major challenge.

In addition to ongoing work by individual companies and governments, three areas of joint action offer particularly strong potential for overcoming some of these barriers.

First, collective action by corporations: This has been one of the most important developments over the past decade, helping companies operating in the same industry or location to scale up their public commitments to promote specific goals or public policies.

In some cases these collective efforts are entirely business-led. Take the Consumer Goods Forum, for example, which brings together some 400 retailers and manufacturers with combined sales of €2.5 trillion, and has made commitments to help achieve zero net deforestation by 2020, begin phasing out the use of HFC refrigerants in 2015, and improve consumer health and wellness across the industry. Or consider the International Council of Mining and Metals, which brings together over 20 of the world’s largest mining and metals companies explicitly to address core sustainable development challenges, or the International Council of Toy Industries and its common framework for improving safety and working conditions among producers. Also noteworthy are cross-industry global networks, such as the World Business Council for Sustainable Development and the Corporate Leaders Network for Climate Action, as well as country-level collective action, such as the Accord and Alliance groups set up in Bangladesh following the Rana Plaza tragedy and the National Business Initiative that emerged out of political transition in South Africa.

In other cases, these collective initiatives rely on multi-stakeholder platforms that also include governments, NGOs, unions and investors. The Extractive Industries Transparency Initiative is one such platform that brings together 25 compliant countries with over 80 of the world’s largest oil, gas and mining companies to improve the transparency of their vast revenues. In 2013, it disclosed revenues worth over US$1 trillion, giving citizens better information with which to hold both companies and governments to account. The New Alliance for Food Security and Nutrition is another example: this joint initiative between African leaders, the private sector and development partners promotes responsible investment in agriculture and aims to lift 50 million people out of poverty by 2022. As of 2013, participating governments had made some 97 policy reform commitments and over 80 companies had made investment commitments. Clearly, such alliances need to be better understood and encouraged.

 

The convening role of multilateral institutions is a second area driving progress: By bringing together disparate and often rival parties to agree on common frameworks and standards for achieving more systemic and transformational change, international organisations can help expedite progress using inter-governmental processes. The OECD Guidelines for Multinational Enterprises, the IFC Performance Standards and the UN Guiding Principles on Business and Human Rights have been particularly useful. The OECD continues to reinforce this work in areas such as responsible investment, anti-bribery and fair taxation, as well as through sector-specific efforts to provide guidance on responsible business conduct in mining and agricultural supply chains. Meanwhile, the UN Global Compact provides another multi-faceted platform for dialogue and shared learning, which is now being implemented at the country level through local networks. 

Third, the campaigning, organising and capacity building role of trade unions and civil society organisations: NGOs must continue to play what has proven to be a vital role in campaigning against bad corporate practices, providing advice and insight to companies that are serious about CSR, and helping workers, communities and small producers to become better organised, to negotiate, and to stand up for themselves in abusive cases. Oxfam International, Consumer International, Save the Children, Amnesty International and Greenpeace are just a few examples of NGOs engaging with businesses across this spectrum from campaigning to co-operation.

Through these three platforms for scaling up action, the twin pillars of responsible business conduct and shared value creation offer real hope of progress. But it is everyone’s responsibility to keep up momentum. If there is to be any hope of achieving the type of systemic change that is needed to tackle increasingly complex social, environmental and governance challenges, and to ensure long-term business success and resilience, then our action must be as thorough as it is constant. As Professor John Ruggie has put it: “…. the era of declaratory corporate social responsibility is over. It is no longer enough for governments to act as though promoting CSR initiatives somehow absolved them of their obligations to govern in this domain, and to do so in the public interest. It is no longer enough for companies to claim they respect human rights; they must know and show that they do. And it is no longer enough for rights-holders merely to harbour the hope that governments and companies will fulfil their respective obligations; they are entitled to demand remedy for harm done.” The OECD has a vital leadership role to play in catalysing and encouraging both the public policies and business practices needed for a new era of results-driven corporate social responsibility.

References

Grayson, David and Jane Nelson (2013) Corporate Responsibility Coalitions: The Past, Present and Future of Alliances for Sustainable Capitalism. Greenleaf Publishing and Stanford University Press.

KPMG (2013), Survey of Corporate Responsibility Reporting

Ruggie, John G. (2013), Remarks at UK government launch: action plan for implementing the UN Guiding Principles, London, 4 September.

See http://oe.cd/Fw and http://oe.cd/Bj

See also http://oe.cd/Bg

©OECD Observer No 299, Q2 2014




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