The concept of Corporate Social Responsibility (CSR) continues to evolve rapidly, and the majority of global corporations now undertake CSR activities. The term was coined in the 1950s, including in Bowen’s groundbreaking work “Social Responsibility of Businessmen.” Bowen’s work marked a turning point, as it highlighted the fundamental requirement that companies pursue activities in an ethical manner in order to maintain their social license to operate. This notion underscores how we at Clarmondial, and many experts globally define CSR today:
CSR encompasses the legal requirement for companies to adhere to social and environmental governance practices, and the opportunities for excelling beyond these basic requirements in order to gain a competitive advantage through improved understanding of the risks and opportunities of ESG considerations.
Critically, however, the notion raised by Bowen was groundbreaking for its time. After all, it was a time where colonialism was still rife and most transnational corporations sought to maximize profits in the short run.
Industry as a whole did not give this early work much notice. It was not until the mid 1980s and early 1990s that companies began to really consider how their environmental and social governance might influence their bottom line. This realization came largely through a number of corporate scandals, including the Nestlé baby milk formula scandal, the Nike child labor campaigns and major Shell Oil disasters including the Brent Spar oil platform and speculation surrounding their involvement in the execution of Ken Saro Wiwa in 1995. While early reactions to these events were purely motivated by public relations, and avoiding false press, it formed the origin of a movement towards understanding the responsibility of a company to behave ethically. Indeed, it is no surprise that Shell has been credited as the first major company to complete a CSR report, in 1998.
This growing concern led to an industry movement to better appreciate companies’ responsibilities with respect to their social contract, and to understand and address material social and environmental issues. This has led to the creation of a multitude of standards, reporting guidelines, supply chain codes of conduct, business associations, policy frameworks, employee associations, and international watchdogs. All this to address the many fundamental questions that consumers, governments and business leaders face, including:
- How can corporations develop profitably while still adhering to basic social and environmental practices?
- To whom are corporations accountable?
- What types of environmental and social issues must they consider?
- Whose responsibility is it to monitor these actions and what can be done when the behavior of corporations violates basic ethical considerations?
Over time, the notion, also referred to by now as corporate responsibility, social responsibility, or environmental and social governance considerations, has grown to encompass much more than public relations – CSR is the political economy of companies.
Despite the growing importance of CSR, the concept continues to be more widely used in large consumer facing companies from developed economies. There are several reasons why Small and Medium sized Enterprises (SMEs), companies within the B2B (business to business) sector and companies from emerging economies are less likely to report on their CSR activities. For example, these companies are less likely to be targets of civil society anti-corporation backlash campaigns. They are also less likely to have the resources to undertake and prioritize complex and additional analysis and reporting, including in-depth supply chain analyses and to conduct voluntary reporting. They may also believe that their small scale is likely to have a small impact, which does not justify such an investment.
Nevertheless, research has shown that there is a growing trend towards CSR activities in emerging economies, and the GIZ (Deutsche Gesellschaft für Internationale Zusammenarbeit) publication Fast Growth and Big Impacts: How Emerging Market Multinationals are advancing sustainable development argues that due to their proximity to pressing Environmental and Social Governance (ESG) issues, many larger corporations from emerging economies actually have improved environmental and social governance compared with their developed economy peers. This publication highlights an important point: companies that are at the forefront of these issues can use their proximity to have a greater impact where it is most needed, and similarly harness the associated economic opportunities. For this reason there are a number of international initiatives to support CSR within SMEs, companies in emerging markets and companies within the B2B sector. Such initiatives are particularly important as they support the companies that are generally considered the driving force of emerging market economies.
CSR is likely to continue to grow and evolve in the future, and building successful companies through ‘doing well by doing good’ in emerging markets will be an interesting challenge, in particular amongst SMEs. Fostering this type of corporate development presents a great opportunity within the impact and development aid arenas, and a space that we are excited to be a part of. Some ways that we see this could be supported even further include:
- Access to concessional financing or other financial incentives for organisations that are properly considering and accounting for material issues. For example lower-interest debt, tax incentives, fast-track business administration processes or tariff reductions.
- Grant facilities to assist in materiality evaluations within specific localized sectors, and support to identify profitable opportunities, including technology-matchmaking.
- Stakeholder engagement opportunities, such as opportunities for investors who consider social and environmental considerations to connect with leading SMEs within this space.
- Recognition of best practices and development of case studies that guide SMEs.
- Improved regulatory frameworks, requiring compliance, such as ‘report or explain’ requirements for stock exchanges.
- Accounting firms developing mechanisms to incorporate ESG considerations into reporting practices for SMEs.
- Capacity building programs for CSR within emerging markets (an example of this includes the Global CSR Retreat, which Naomi developed at the United Nations Conference on Trade and Development, UNCTAD).
As the sector continues to evolve we are excited to see new and interesting ways to work with partners to support SMEs in emerging economies that want to make CSR integral to the success of their business.