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Fundamentals of Corporate Social
Responsibility

Presentation to CSR Asia
6 September 2006

Michael Kerr, Senior Consultant, Natural Advantage
Lead Counsel, CISDL

www.naturaladvantage.ca



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Fundamentals of Corporate Social Responsibility


CSR is now a mainstream approach to
business:
The movement for CSR has won the battle of
ideas CSR commands the attention of
Executives Everywhere. (Economist 2005)

In 2006, as this movement gains momentum
and mainstream acceptance, it is time for
people that work or have an interest in this
area to take stock and take a closer at the
fundamentals of CSR.


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Fundamentals of Corporate Social Responsibility


As part of this exercise, fundamental questions
should be asked:

What is CSR?

How does it relate to other concepts? (e.g.
sustainable development, corporate
governance, corporate responsibility,
corporate citizenship) Same/different/related?

Is CSR purely voluntary or does it now have
legal dimensions?



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Fundamentals of Corporate Social Responsibility




This presentation will focus on answering
these fundamental questions.

Will draw on research I am currently
undertaking for a book project.

Turning to first question- what is CSR?




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What is CSR?


Concept of CSR often criticized because of lack of
legally defined or commonly accepted definition.

Is this criticism justified?

Should it matter that CSR is not legally defined or
subject to a single universal definition?

By comparison, the term corporate governance is not
in itself legally defined or subject to a commonly
accepted definition- the term is associated with
concepts, ideas and principles that evolve over time.

Arguably, CSR should never be given a fixed definition.
This will foster evolution.



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What is CSR?



Despite the lack of a single definition, my own research
has shown that by examining different definitions from
around the world, it is clear that there are commonly
held understandings about what constitutes CSR.


Lets firstly examine some of these definitions----- then
I will address the common understanding.



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What is CSR?


Canadian Government:

CSR is generally understood to be the
way a company achieves a balance or
integration of economic, environmental
and social imperatives while at the
same time addressing shareholder and
stakeholder expectations.



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What is CSR?


UK Government:

The Government sees CSR as the
business contribution to our sustainable
development goals. Essentially it is about
how business takes account of its
economic, social and environmental
impacts in the way it operates
maximising the benefits and minimising
the downsides.



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What is CSR?


European Union:

[CSR is] a concept whereby companies
integrate social and environmental
concerns in their business operations and
in their interaction with their stakeholders
on a voluntary basis.



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What is CSR?


World Business Council for
Sustainable Development:

We define CSR as business' commitment
to contribute to sustainable economic
development, working with employees,
their families, the local community, and
society at large to improve their quality of
life.



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What is CSR?

The Kennedy School of Government (Harvard
University), CSR Initiative:

The term [CSR] is often used interchangeably with
others, including corporate responsibility,
corporate citizenship, social enterprise,
sustainability, sustainable development, triple-
bottom line, corporate ethics, and in some cases
corporate governance. Though these terms are
different, they all point in the same direction:
throughout the industrialized world and in many
developing countries there has been a sharp
escalation in the social roles corporations are
expected to play.



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What is CSR?



What do these definitions tell us about CSR?

What are some of the common
understandings that emerge?

How does CSR relate to other concepts?

What other issues arise?


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What is CSR?


Common Understanding One:

CSR is an idea whereby
companies integrate economic,
social and environmental
concerns in their business
operations

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Common Understanding One: Integration



Economic


Social
Environment
Biodiversity
Resource
Use
Climate
Change
Waste
Human
Rights
Governance
Regulation/Policy
Labour/
Workplace

Corruption
Interest
Rates
Exchange
Rates
Communities
Consumer
Confidence
Corporate Social Responsibility: The Integrated
Approach to Business in the 21
st
Century
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Common Understanding Two: Stakeholders

Common Understanding Two: CSR relates to the idea
whereby a business addresses and balances the needs
of stakeholders.

Who/what are stakeholders? Individuals and groups
who may affect or be affected by the actions, decisions,
policies, practices or goals of an enterprise.

Examples:
Shareholders and other investors
Employees
Customers
Governments
Local communities
NGOs
Environment





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CSR and Related Concepts: Sustainable Development
Many definitions describe CSR as the
business pursuit of sustainable development.

Sustainable development: development that
meets the needs of the present without
compromising the ability of future
generations to meet their own needs. (1987
Brundtland Report).

Like CSR, sustainable development is also
recognised as having three fundamental
pillars: economic development, social
development and environmental protection.


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CSR and Sustainable Development
2002 World Summit on Sustainable
Development (Johannesburg) confirmed link
with CSR.

Paragraph 49 of the J ohannesburg Plan of
Implementation calls for action at all levels to:

Actively promote corporate responsibility and
accountability, based on the Rio principles, including through
the full development and effective implementation of
intergovernmental agreements and measures, international
initiatives and public-private partnerships and appropriate
national regulations, and support continuous improvement in
corporate practices in all countries.


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CSR and Related Concepts: Corporate Governance
Many definitions highlight the link between
CSR and corporate governance.

Is CSR a subset of corporate governance or is
corporate governance a subset of CSR?

In my view this is a pointless question. Both
concepts are closely related which ever way
you look at it.






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CSR and Corporate Governance
Related in definition:

1994 Report of the Toronto Stock Exchange Committee on
Corporate Governance in Canada:

Corporate Governance means the process and structure
used to direct and manage the business and affairs of the
corporation with the objective of enhancing shareholder
value. The direction and management of the business
should take account the impact on other stakeholders such
as employees, customers, suppliers and communities.


Principle 4 of The OECD Principles of Corporate Governance
(2004) underscores the need of a corporate governance
framework to encourage active co-operation between
corporations and stakeholders in creating wealth, jobs, and
the sustainability of financially sound enterprises.


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CSR and Corporate Governance
Related in Management:

Many companies are now using company codes of conduct
to address conduct issues that relate to both corporate
governance issues (conflict of interest, market disclosure,
whistleblowing, corruption, fraud & accounting) and CSR
issues (human rights, environment & labour standards)

Related in Investment:

Mainstream investors now consider environmental, social
and governance issues (known collectively as ESG issues) in
their investment decisions.

Example: United Nations Principles for Responsible
Investment Launched in April 2006, now has support of
investors with combined worth of $4 Trillion.


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CSR and Other Related Concepts



The term CSR is often used interchangeably
with the terms corporate responsibility,
corporate citizenship and triple bottom line.

In my opinion, these terms describe the same
concept to that of CSR.

Companies choose the terminology they feel
comfortable with.










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IS CSR a Voluntary Concept?

Some definitions (e.g. European Union)
describe CSR as a voluntary concept.

Given the multitude of initiatives that promote
CSR (e.g. Global Compact, Global Reporting
Initiative, OECD Guidelines) in a voluntary
fashion- not surprising CSR is perceived in
this way

However, recent legal developments suggest
CSR is no longer a voluntary concept.

Two major areas of development: Reporting
and Directors Duties






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Mandatory CSR Reporting

Backed by increasing calls from investors and the
community for more disclosure and reporting on CSR
issues, many jurisdictions have now introduced
mandatory corporate reporting requirements on
environmental and social matters:
Australia
France
South Africa
Sweden
Canada
Denmark
Netherlands
Norway
And very soon the UK.


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Directors Duties and CSR

New ways of interpreting and conceiving directors
duties that align with concept of CSR.

The duty: To act in the best interests of the company.

Traditional, conservative interpretation: Shareholders
are the company- Duty is to raise profits for benefit of
shareholders. Environmental and social considerations
not relevant.

The current, progressive interpretation: Supreme Court
of Canada, in Peoples v. Wise (2004)
We accept as an accurate statement of law that in determining
whether they are acting with a view to the best interests of the
corporation it may be legitimate, given all the circumstances of a
given case, for the board of directors to consider, inter alia, the
interests of shareholders, employees, suppliers, creditors,
consumers, governments and the environment.

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Directors Duties and CSR

New UK directors duty set to be introduced this year
through Companies Bill. (Waiting on Royal Assent)

Section 173 Duty to promote the success of the company

(1) A director of a company must act in the way he considers, in good
faith, would be most likely to promote the success of the company
for the benefit of its members as a whole, and in doing so have
regard (amongst other matters) to:
(a) the likely consequences of any decision in the long term;
(b) the interests of the companys employees;
(c) the need to foster the companys business relationships with
suppliers, customers and others;
(d) the impact of the companys operations on the community and
the environment;
(e) the desirability of the company maintaining a reputation for
high standards of business conduct; and
(f) the need to act fairly as between members of the company.
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Questions & Discussion