Where is CSR Heading?

The global economic crisis has shaken the manufacturing industry to its core over the last couple of years, and the impact on workers has been palpable around the world.

The economic and social turmoil placed a tremendous responsibility on all of the Fair Labor Association’s constituents to navigate the crisis in a way that is consistent with the organization’s commitment to social responsibility. The crisis highlighted the real challenges companies face in managing sustainable production and supply chain issues, including protecting workers’ rights, mitigating environmental impacts on workers and their communities, and protecting scarcer natural and energy resources.

General consumer demand for products in the United States and Europe dropped to record lows and is not likely to return to pre-crisis levels for many years, if ever. Companies face even tighter competition for market share. Consumers are more closely evaluating their purchasing decisions and taking greater stock about how the products they buy impact the world.

Studies show that even in hard times, consumers feel it’s important for companies to be socially responsible. Likewise, consumers are willing to change their buying habits for social good. They are looking for information that can help them make decisions that support social and environmental sustainability.

Companies that build strong Corporate Social Responsibility (CSR) programes into their operations and culture will have the edge in many markets, but the trend is moving toward CSR as a baseline expectation for mainstream consumers.

Below are ten points about where I believe Corporate Social Responsibility (CSR) is heading:

One, CSR is no longer an option. Once a philanthropic gesture, CSR is now something that companies have to do. Companies have to deliver public goods for the simple reason that they operate in countries where they cannot rely on government or market regulation to protect social, labor or environmental standards. Those public goods will range from labor inspection to ensuring that suppliers do not pollute the environment or poison workers. No doubt business will be on the front line of preventing or containing the spread of a future pandemic, likely with greater coherence and resources than governments in many parts of the world.

Two, companies must engage with a broad group of external stakeholders in CSR. Companies used to pick and choose where and when they got involved, and with whom, but that has changed. Companies now must proactively work with external stakeholders, including civil society, to tackle social, labor and environmental issues. Companies that do not move proactively to identify issues in their supply chains and the appropriate partners in addressing these issues will likely be forced into engagement by media and activist campaigns.

Three, business will be increasingly motivated more by consumer-driven anxiety about sustainable business than investor-driven obsession with quarterly profits. Consumers will care more about where their products come from because their lifestyle will start to be impacted by environmental change and resource scarcity. Even if their own consumer behavior has been a major contributor to environmental degradation, consumers will also become more engaged and ask more questions about how agriculture and industry are contributing to the problems. This may not be quite the shift from shareholder to stakeholder capitalism that business management theorists like R. Edward Freeman foresee, but companies will certainly be responding to a more diverse set of demands in a more inclusive way.

Four, new governance networks will emerge to manage issues that states continually fail to regulate. Those issues will range from safety and health in the workplace to the management of scarce water and energy resources. There is a growing trend of NGOs bypassing government agencies and raising human rights issues with companies and demanding that the companies cooperate in the formation of a regulatory mechanism. The most recent example is that of freedom of expression and privacy on the internet. Governments have been slow to protect those rights in the new electronic media and violations of human rights are frequent, requiring companies to take action themselves.

Five, corporate (and even government) accountability and transparency will increase. CSR reporting will become a requirement as more governments adopt legislation requiring social audits and public reporting. In some cases, this may take the form of an incentive for companies to report voluntarily, but with an understanding that mandatory requirements might be legislated if companies do not respond positively.

Six, the amount of social, labor and environmental data on products will explode. Product information data will expand as NGOs create more websites explaining what goes into producing a particular consumer item and what those components really do for the human being and their environment. Consumers may seek labels that justify the carbon, energy and water impact of products; they may also seek reassurances that no child labor was used or that the rights of indigenous people were respected.

Seven, media will play as big a role as NGOs in exposing CSR issues. We used to rely on the 24 hour news channel for our news, but that is being overtaken by YouTube, Facebook and Twitter, not to mention blogs that ensure greater, and often more faithful, coverage of issues and events.

Eight, companies will increasingly be held responsible for the raw materials in their products. The issues de jour are Uzbek cotton and the minerals/metals required to produce cell phones and other electronic products that are mined in Central Africa (often by children and slaves forced into labor) under appalling conditions in conflict zones. Great attention will be paid by civil society and the media to the entire supply chain, from farm or mine through factory to land-fill.

Nine, there will be an increase in the market share of ethical and sustainable products (such as fair trade and certified organic) in response to the growing consumer need to engage in sustainable consumption. These products will shift from niche to mainstream and the range will expand as fast as supply permits.

Ten, the interconnectedness of our global market economy means that human rights, labor and environmental issues will increasingly converge. The Declaration of Philadelphia, annexed to the Constitution of the ILO reminds us that “poverty anywhere constitutes a danger to prosperity everywhere” and that maxim is as relevant today as it was in 1944.

Amnesty International has recently pointed out that the economic crisis is resulting in violations of human rights around the world, and the Global Humanitarian Forum (founded by Kofi Annan) provides a similar analysis of how environmental degradation impacts peoples enjoyment of human rights. Another angle on this interconnectedness is that one organization, sector or country’s irresponsibility can rapidly become the problem of more responsible entities. We saw recently how the hygiene of Mexican pigs became an issue for travelers, the travel industry and indeed many other sectors worldwide, and this is just one example.

We are facing a situation reminiscent of the cold war doctrine of “mutually assured destruction” if we do not act soon to raise the levels of socially responsible, sustainable production and responsible consumption. This is most evident with respect to the environment and natural resources, but no less crucial in relation to human and labor rights.

The challenge that companies face is broader and deeper than before – namely how to ensure socially responsible, sustainable production. No organization can be socially responsible if it is not using its resources (capital, labor, materials, and equipment) in a sustainable manner. Companies that still think of CSR as just a “nice to have” in their product specifications are in for an even ruder awakening than industry has experienced the last two years. Companies must develop strong compliance programs aimed at preventing the crisis yet to come.

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Footnotes:

i Stakeholder Capitalism: R. Freeman (freemane@darden.virginia.edu), Kirsten Martin (martink@cua.edu) and Bidhan Parmar (parmarb07@darden.virginia.edu). Journal of Business Ethics, 2007, vol. 74, issue 4, pages 303-314.

ii See The Global Network Initiative: http://www.globalnetworkinitiative.org.

iii See Dara O’Rourke’s new initiative at http://www.goodguide.com/ or the Institute of Public and Environmental Affairs (IPE) China Water Pollution Map, which lists thousands of environmental quality and infraction records released by various government agencies.

iv Irene Khan writes on the Amnesty website that “The crisis is about the shortages of food, jobs, clean water, land and housing and also about growing inequality and insecurity, xenophobia and racism, violence and repression. Together they form a global crisis that requires global solutions based on international co-operation, human rights and the rule of law. Unfortunately, powerful governments are focusing inward on the narrow financial and economic consequences in their own countries and ignoring the wider world crisis. Or, if they are considering international action, they are limiting it only to finance and economy, and so recreating the mistakes of the past.” http://thereport.amnesty.org/en/introduction.

v The report estimates that climate change today accounts for over 300,000 deaths throughout the world each year. http://www.ghf-geneva.org/index.cfm?uNewsID=157.