Objectives: The main objective of this chapter is to understand the contents and requirements of the three components of corporate responsibility: economic, environmental and social responsibility.
The aim is also to see the interconnected role and impact of these components to the changing operative environment and stakeholder requirements of companies and businesses.
Contents: Meaning and basic content of corporate responsibility in general, its benefits and challenges, corporate codes of conduct, the triple bottom line: economic, environmental and social responsibility and their role and impact on companies
"The first thing people need to understand around corporate social responsibility is that the business case is very strong. If you look at any survey, all other things being equal (such as price and quality), the consumer will buy from the company that has a responsible attitude towards its community. In recruitment, people want to work for a company with a responsible social attitude."
International chairman Michael Rake
"A recent survey by PricewaterhouseCoopers of 140 chief executives of U.S.-based multinational companies found that 85 per cent of them believe that sustainable development will be even more important to their business model in five years than it is today.
International Institute for Sustainable Development, "ISO 26000 (CSR Guidance)," 2008. www.iisd.org/pdf/2009/annrep_2008_en.pdf
What is corporate responsibility then, what does it mean? And, from the point of view of business, why should companies be involved in sustainability when their primary role is to provide goods and services and make profit? First, it might be useful to keep in mind that there are several terms that are used to mean more or less the same, at least in everyday language: corporate responsibility, corporate social responsibility CSR, corporate citizenship. One can also hear people talking about green business, environmental business, clean technology, even green marketing which are all focused on a much narrower, environmental approach.
World Business Council for Sustainable Development defines corporate responsibility to be "continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as the local community and society at large" (WBCSD 1999: Making Good Business Sense.) An other way to define corporate responsibility is to see it as "a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis" (EU Green Paper 2001 on CSR 2001). It can also be seen as a comprehensive approach that a corporation takes to meet, or even exceed, the expectations of stakeholders and interest groups concerning revenue, profit and legal obligations. In other words companies strive to manage the interconnected economic, environmental and social impacts of their business activities voluntarily and, above all, strategically, by going over and above legal requirements. This means that companies should be accountable for their impact on people (social responsibility) and the planet (environmental responsibility) by balancing the interests of a wider group of stakeholders, not only shareholders. (Kinder in Hunnicutt 2009, 44; Thorpe & Prakash-Mani 2004, 18.)
As a term, company responsibility is actually nothing new. In the old days there were lots of companies in numbers of countries that established social services e.g. housing, schools, churches, day care etc. for their employees. Nowadays, however, the meaning of company responsibility has changed. Still there is no legislation to unambiguously define company responsibility. (Siltaoja & Takala 2003, 2). Instead, there are several attempts and recommendations how to define CSR. What they usually have in common is, that it is regarded as companies´ overall responsibility for business actions and their impact on people and the planet on all levels: locally, nationally and globally.(Kinder in Hunnicutt 2009, 44; Siltaoja & Takala 2003, 72.) This includes two assumptions: first, CSR is something much more than just legal compliance and definitely something else than philanthropy (Kinder in Hunnicutt 2009, 44; Siltaoja & Takala 2003, 72.); second, it is based on changing requirements of different stakeholders.
The Economist writes in its article "Do It Right" as follows: "The CSR industry, as we have seen, is in rude health. Company after company has been shaken into adopting a SCR policy: it is almost unthinkable today for a big global corporation to be without one. Climate change has added further impetus. Investors are taking an ever greater interest. New and surprising sorts of co-operation are springing up: with NGOs, with competitors, with other companies. The message is moving across supply chains and spreading around the world."
The Economist, "Do It Right", January 19, 2008. (Opposing Viewpoints s. 47)
Stakeholder requirements concerning corporate responsibility may reach companies from several directions: First, the legislation and regulation of environmental and social issues are rapidly changing on both national and international level. On the other hand, globalization of business actions has also resulted in increasing influence of international institutions that function beyond the level of individual nation states, e.g. the United Nations, the European Union, the World Trade Organization, the International Monetary Fund, the World Bank etc. In addition, different industries have built their own environmental programmes and recommendations and may pressure individual companies to get involved. In order to manage own image and responsibility aspects companies set requirements also for their suppliers and possibly for the whole supply chain. The consciousness and knowledge of customers and the public have increased which means they require more sustainable products and services. In many cases nowadays insurance and financing companies want to know how their customers deal with e.g. their risk management and other environmental issues. Different NGOs and the media are these days more powerful than ever. It can be argued that in recent years we have seen a dramatic change in the nature of global communications and media networks. The significant evolution of information technology and the growth and accessibility of communication tools e.g. the internet, have clearly changed the way individuals, groups and companies communicate, whether in business or in social terms. It has been said that it takes 20 years to build a good reputation but only a few to destroy it. In any case, balancing between different requirements is not always easy and therefore companies often strive to develop and strengthen the trust of their essential stakeholders e.g. through cooperation, networking and participation. (Burchel 2008,8)
Due to stakeholder requirements, responsibility issues can not be ignored by companies any more. Especially bigger companies are supposed to justify their political and economic power by carrying their environmental and social responsibility. Keeping stakeholders in mind, it can be argued that the financial value created by a company is usually associated with a stakeholder value that can be either positive or negative. Positive stakeholder value is created when a business adds to the capital or well being of the individuals and constituencies it impacts. Negative stakeholder value, in turn, is created when a company reduces customer capital or undermines their well being. (Laszlo 2005, 107; Siltaoja & Takala 2003, 2.) Tim Osborn-Jones agrees by saying that responding to the challenge of sustainable development is critical for long-term competitive edge by driving greater efficiencies, innovation, and positive reputation. In his opinion, aspects of responsibility are drivers of reputation, and reputation in stakeholder relationships is a key driver of business success. (Osborn-Jones in Hunnicutt 2009, 87.)
Chris Laszlo (2005), in turn, connects CSR with so called new ethics. Even though business ethics are largely handled in WP2, a few viewpoints are introduced here, too. According to Laszlo, this new ethics is market-driven but values-based. It originates from changing requirements of e.g. consumers, business partners, investors, employees as well as local communities, and environmental activists. It is not seen as political because it does not try to impose the beliefs of one group on another group; it is not moralistic because it does not exhort companies to adopt one or another moral ideology. By market-driven, Laszlo means that the underlying logic is "if you want your business to succeed, here is a new set of measurable performance standards you have to meet." (Laszlo 2005, 17.)
Instead of local thinking, this new ethics can be described as global because it expands the code of business conduct to the whole globe. It shifts the moral basis of action from abstract questions of right and wrong to a more practical consideration of whether a company is operating in a sustainable way. Stakeholder requirements can concern various interests like the market or social and environmental issues. These interests call for companies to integrate stakeholder objectives as part of the way they operate. In this sense, the new ethics can be seen as a dynamic standard for pursuing profitability that allows future generations an equal opportunity to do so. In other words, It echoes the Brundtland Commission´s definition of sustainability: "the ability to meet today´s global economic, environmental and social needs without compromising the opportunity for future generations to meet theirs." (Laszlo 2005, 17-18.)
In general it can be said that sustainability represents a paradigm shift in business concerning the interaction and balance of power between the state, business and civil society. It places corporations in a new role and raises questions regarding what roles and responsibilities businesses should undertake within this new set-up. (Burchell 2008. 8). Laszlo (2005) compares this shift with the new role of national institutions they got in political governance after 1648 when the influence of the church declined and argues that "capitalism is reaching a watershed moment in history in which the purpose of the corporation - if it is to survive as an institution - will need to be transformed". He writes further: " As Willis Harman has said, ´Business has become, in this last half century, the most powerful institution on the planet. The dominant institution in any society needs to take responsibility for the whole - as the church did in the days of the Holy Roman Empire.´" (Laszlo 2005, 24.)
Due to its large definition and diverse contents, CSR has been given a new focus, at least in more academic context. For example Tarja Ketola (2006) argues that during the past few years, the discussion on corporate responsibility has been expanded to cover a larger subject, responsible business. This means, in short, that the triple bottom line (economic, environmental and social responsibility) is regarded as an essential part of profitable business. This, in turn, means that responsibility should be integrated in all actions. (Ketola 2006, 48). Or, like Kinder puts it: "Company responsibility is not about anyone´s - shareholder, stakeholder, or manager - disdain for profit". (Kinder in Hunnicutt 2009.44.)
Codes of Conduct
At the moment, there is no consensus on the precise definition of a code of conduct. Codes can range from one-page broad statements to detailed benchmarks and guidelines on how to conduct business practices globally. Voluntary approaches are based either on a self-regulation model or a co-regulation one between firms, citizen groups, and governments.
CSR is a subject for several global standards. The first corporate code of conduct was created as early as 1949 by the International Chamber of Commerce. As a direct response to UN initiatives in the 1970s, voluntary approaches, such as the OECD Guidelines on Multinational Corporations were developed to regulate the activities of Transnational Corporations. Later on, a number of standards and guidelines were created, e.g. the Caux Principles for Business (already 1994), the SA8000 (1998), the UN Global Compact (1999), the Global Reporting Initiative (revised 2002) etc. They all have their own approach to e.g. corporate accountability, corporate governance, business conduct, community involvement, environmental responsibility and human rights. In addition, tightened national and international legislation and regulations have set their own demands concerning social issues as well as resource usage and environmental pollution. Scientists, different NGOs and the media have a powerful influence in increasing the awareness and understanding of their audience - politicians, business people, individual citizens - concerning social and environmental problems we face. Therefore, it can be claimed that the pressure and demand for corporate responsibility issues comes largely from the civil society groups whose intense public criticism of corporate behaviour can drive away potential customers, investors and other important interest groups. For example, the public highlighting of sweatshop conditions, the use of child labour and the lack of union representation within factories etc. has raised embarrassing questions about how multinational companies conduct their business operations and, on the other hand, how the products consumers in the West buy and consume are actually being manufactured. In addition to this, a growing number of voluntary approaches to corporate responsibility has produced many different types of social and environmental initiatives and programmes (e.g. Responsible Care in chemical industry). Stakeholder requirements regarding different responsibility issues have also been extended on to the finance sector: the growing amount of socially responsible investing (SRI) is only one indicator of this increasing public awareness.Therefore, it is not too hard to understand that sometimes in companies responsibility issues are seen as adding complexity and cost. (Florini in Hunnicutt 2009, 155; Laszlo 2005, 29; Singh in Hunnicutt 2009, 164).
In order to avoid harmful publicity that could seriously damage the reputation of companies and their products and brands, numbers of companies have created their company codes of conduct. By going beyond what local legislation requires these codes are meant to protect company reputations and reassure different stakeholders that e.g. their production processes are environmentally benign and that working conditions are decent. In other words, companies provide their stakeholders with clear guidelines on what they should be able to expect of them. This kind of codes of conduct are most prevalent in manufacturing companies which have production and/or suppliers also in developing countries. Company codes of conduct can be seen as effective statements of intent in many ways. They do not only provide a clear formal statement of company values and commitments but also represent a framework within which the very company wants to be evaluated. By creating and monitoring a code of conduct, it can be argued, consumers, investors and other important stakeholders can be assured that the company is acting in a responsible way. As mentioned before, a company code of conduct can also be extended to cover the whole supply chain management by setting a clear standard to which its suppliers should act. (Florini in Hunnicutt 2009, 154)
Despite of different standards and public guidelines, the nature of company codes of conduct can still be claimed to be highly controversial. The proponents see them as a useful way to encourage companies to voluntarily adapt new, more responsible ways of acting when no government intervention would be needed. Some, more ambitious, proponents see them as a tool to gradually achieve consensus on standards of company behavior that can be implemented on a voluntary basis and only then be adopted and enforced by governments. On the other hand, there are more pessimistic voices claiming that such codes have no power. Instead, the contractual pressure of large manufacturing targets and low-cost prices set by the multinational companies leave the manufacturers, especially in developing countries, with little other option but to break the company codes concerning e.g. working hours, forced overtime etc. (Burchell 2008, 120-121; Florini in Hunnicutt 2009, 155).
Codes of conduct can be of two sorts: the so called aspirational codes are general statements of what companies aim to do, in other words they describe company intentions. This kind of codes do not require confirmation whether the company really meets its commitments or not. The second type of codes is more demanding. It requires both, specific commitment on social or environmental standards and an independent confirmation that these commitments are being met. The confirmation is made by an external auditor who can also award a specific certification for companies with full compliance with the responsibility requirements, when needed. This certification can then be used in company communication. One should keep in mind that compliance with such externally audited codes of conduct are always voluntary; There is neither binding legislation nor government enforcement. Instead, the assumption here is, shortly, that companies use certifications because they assume that customers want to purchase certified products and thus, companies can gain competitive edge by meeting the expectations of the customers. (Florini in Hunnicutt 2009, 155-157).
According to Cower and Hopkins (2009), it has not yet been possible to make a strong, causal, quantitative link between CSR actions and financial indicators such as share price, stock market value, return on assets and economic value added. Therefore, a number of analysis and researches have focused on qualitative rather than on quantitative relationships. Their results and conclusions often concern issues regarding e.g. risk management, operational efficiency, employee recruitment and motivation, human and intellectual capital, reputation, competitivness and market positioning, customer attraction, brand value and reputation etc. CSR actions have even been criticized for being used for corporate public relations and to create a positive corporate image. In the modern competitive world, a positive image as a responsible company adds significant value to a company´s business and reputation and helps it manage various risks. On the other hand, the reputation and image of products and companies are very vulnerable; they can easily be harmed and even ruined by irresponsible behavior - thanks the increasing awareness and activeness of the customers, citizens, different NGOs and the power and great influence of the global media. (Cower and Hopkins in Burchell 2009, 102-103; Singh in Hunnicutt 2009, 166-166). These, like other advantages related to economic issues that companies may gain by implementing responsibility principles in their actions, are discussed in more detail in sub-chapter Economic Responsibility.
Despite of all this, codes of conducts have also several weaknesses and operational difficulties. First, they are all purely voluntary, non-binding instruments and thus there is no other actor but the company itself who is responsible for implementing the code. No corporation can be held legally accountable for violating any codes, on the contrary, corporations can be encouraged to implement codes only through moral persuasion and public pressure. Even if codes of conduct are a good starting point, they can not always provide the necessary assurance that they really reach and/or maintain the level of company responsibility to which they aspire or which they are expected to reach.
Second,the number of companies adopting such codes is still relatively small. In addition, corporate codes are often limited to a few sectors, particularly those in which brand names and reputation are important in corporate sales, such as garments, footwear, consumer goods, and retailing businesses. A large number of other sectors do not implement responsibility codes in their business.
Third, in many codes, members of company supply chain like contractors, subsidiaries, suppliers, agents, and franchisees are not included. Codes rarely concern the workers in the informal sector, who could well be an important part of a company´s supply chain. Further, a company may implement only one type of code, for instance, an environmental one, while neglecting other important codes related to labor protection as well as health and safety. On the other hand, from the supplier´s point of view, if a supplier deals with many different companies, it is supposed to comply with several codes and standards which differ from each other and have different dimensions and requirements. Therefore, there have been suggestions and requirements that some kind of common standards and codes should be created that all companies should be committed to.
Fourth, corporate codes are limited in scope and often - instead of going beyond local legislation as they are supposed to do - set standards that are lower than existing national regulations. For instance, labour codes recognize the right to freedom of association but do not provide the right to strike even though in many countries the right to strike is a legally accepted form of action.
Fifth, ... there is an increasing concern that corporate codes are being misused to deflect public criticism of corporate activities and to reduce the demand for state regulation of corporations. In some cases, codes have actually worsened working conditions and the bargaining power of labor unions. ... Voluntary codes of conduct can never substitute for state regulations. Nor can they substitute for labor and community rights. At its best, voluntary codes can complement state regulations and provide an opportunity to raise environmental, health, labor, and other public interest issues.
Many critics also argue that CSR measures like codes of conduct, have become corporate public relations tools used to create a positive corporate image. In today´s competitive world, a positive image as a responsible company adds significant value to a company´s business and reputation and helps it manage various risks. Thus, the growing popularity of voluntary measures in recent years has not ended debates on how to regulate multinational corporate behaviour. (Burchell 2009, 121; Singh in Hunnicutt 2009, 165-167).
The Triple Bottom Line
Corporate responsibility consists of three elements: economic, environmental and social responsibility (See picture below). One could also speak of economic capital, environmental capital and social capital. In any case, these three parts have been said to build the so called triple bottom line: profit, planet and people. Some authors regard culture as a fourth element of corporate responsibility. Other widely used terms for corporate responsibility CR are e.g. Corporate social responsibility CSR, Corporate accountability, Corporate sustainability, Responsible buisness or Corporate citizenship. All these terms mean basically the same: behaviour of businesses over and above the legal requirements, which, in turn, means voluntarily and strategically managing the interconnected economic, environmental and social impacts of business activities. In other words, it often means balancing between different requirements and interests of different stakeholders. In order to be effective, corporate sustainability or responsibility strategy has to be integrated to every day actions of companies, otherwise it remains powerless and unsuccessful.
Here, all three components of Corporate responsibility are described shortly. More information related to them can be found in chapter Ethics of Care as well as Corporate Sustainability Strategies.
In order to survive on the market, the company has to meet certain economic requirements: First of all it has to respond to the expectations of shareholders and meet their requirements. It also, naturally, has to be profitable, be able to take care of its economic responsibilities e.g. taxes, wages and salaries etc. as well as be able to compete on the market. In this context, corporate responsibility is one way to better integrate the shareholders to the corporate values and vision. The aim is to make business actions more transparent which, in turn, enhances the accountability and the image of the company. Nowadays both, consumers and other interest groups pay a lot of attention to environmental and other responsibility issues which enhances the importance of reputation and image issues as a competitive edge on the market. By means of corporate responsibility the company also strives to fulfill the legal requirements of different authorities, be prepared for future changes and minimize potential risks.
During the globalization process, the importance of physical location has decreased significantly. It has made it possible for large-scale multinational companies to increase their role, power and influence in the international trade. Therefore, within the global marketplace, companies now have greater opportunities to relocate or outsource their production to more advantageous locations. From the corporate responsibility point of view this often means locations with looser control regarding for example environmental and social issues like wage demands or labour and/or safety regulations. There is a number of countries that strive to encourage companies to establish their production sites on their territory and have, therefore, AAAARGH, katso vaikka Singh in CSR Reader Sosiaaliset ja ympäristöongelmat. At the same time the global financial system in which financial transactions can be undertaken on a global scale with enormous speed has expanded dramatically.
Opinions on corporate responsibility are still highly contradictory: some argue that states should pass their legislative and enforcement responsibilities on to NGOs, civil society organizations or companies themselves which should develop volutnary measures and guidelines for business. Others, by contrast, emphasize that it is the national governments that should bear the primary responsibility of protecting and improving social, economic and environmental conditions of all citizens, particularly the poorer and more vulnerable ones. (Burchell 2008, 11; Singh in Hunnicutt 2009, 169).
According to Burchell (2009), the global growth is now being dominated and driven by emerging economies. Their combined output accounted in 2005 for more than half of total world GDP. Sun et al. (2004) interpolate that China has become a major importer of almost all natural resources and is now also the world´s largest importer of recyclable waste material. The Worldwatch institution has estimated that there are now more than 1.7 billion members that can be included in the so called consumer class, and nearly half of them live in the developing world. A lifestyle and culture that became common in Europe, North America, Japan and a few other countries in the world in the 20th century is now growing global. China and India alone account for 20 per cent of the total global consumer class which means some 362 million people - more than in all of Western Europe. ("The Rise and Spread of the Consumer Class" at http://www.worldwatch.org/node/810. (in Burchell s. 31)
But still, according to several estimations, one American consumed on average as much energy as 2.1 Germans, 12.1 Colombians, 28.9 Indians, 127 Haitians or 395 Ehtiopians. These like many other examples draws the attention to the challenge of inequity. www.sierraclub.org/population/consumption (www.footprintnetwork.org (Adil Najam, David Runnals and Mark Halle in Burchell s. 32). As Najam et al. (2009) argue, the key to resolving this challenge may be to de-link consumption from growth, and growth from development to provide the poor with the opportunity to increase their use of resources even as the affluent reduce their share of consumption so that a sustainable level and global equity can be achieved. S.33
Because the social and environmental problems today are so complex and demanding and because individual states seem to be becoming too small for too big problems, it can be claimed that global problems need global solutions; solutions that no individual country can provide alone. As mentioned before, even though it has not yet been possible to make a strong causal link between CSR actions and financial indicators like share price, stock market value, return on assets and economic value added, it has often been indicated that responding to the CSR requirements of different stakeholders nowadays is critical for long-term competitive edge. From the global point of view, as the Stern Review and other climate change reports make clear, the overall economic costs and social disruption of global warming are going to be huge if wealth and social well-being will not be produced in more sustainable ways in the near future. From a corporate point of view, CSR can be seen to be linked with several benefits in business. First, by means of e.g. environmental management tools companies are better able to manage for example their potential environmental risks, which, in turn, has a positive effect on various stakeholders like insurance offices, financiers, investors, authorities, environmental NGOs etc. Banks, for example, are increasingly aware of potential social and environmental risks in their customer relationships. The same goes for investors. Eventhough markets of specific Social Responsibility Investments ??? SRI are still relatively small, it is increasing rapidly. Examples of growing importance of responsible investments could be creation of financial indexes such as FTSE4Good and the Dow Jones Sustainability index. (DJSI). The result is that investors are increasingly interested in ranking major international companies according to their environmental and social performance.
Better risk management can be achieved by an analysis of relations with external stakeholders. Issues like new technologies and changing societal, regulatory and market expectations drive companies to take a wider perspective in their risk analyses. Expensive and time-consuming lawsuits and lost investments are good reasons for companies to provide necessary guidelines and procedures that minimize this kinds of risks. The importance of risk managements increases, naturally, when the business becomes global. In order to better comply with regulation and avoid legal sanctions, companies tend to expand their risk management to cover also their business partners and suppliers.
Second, from the environment point of view, various environmental management tools (see chapter Environmental Management) make it possible to better evaluate and improve actions during, among others, the production processes, or even during the whole life cycle of products. They may also help to improve the operational, energy and/or material efficiency of the company and thus lead to clear cost savings.
CSR issues can also be important in attracting, retaining and motivating employees. It has namely been revealed that CSR has a positive affect on employee satisfaction and productivity This is particularly true in sensitive industries such as oil and chemicals. Companies which cannot attest their responsibility may not be able to recruit the best talent or, at least, may have to pay higher costs of recruitment and empoloyee retention. Confidence of employees in responsibility of their company contributes positively also to innovation, creativity, organisational learning which, naturally, increases the human and intellectual capital of the company. And, as we know, intellectual capital is increasingly important to business success in most sectors. Well-motivated employees are likely to contribute more to a growth in these very areas.
It has also been stated that aspects of responsibility are drivers of reputation, and reputation in stakeholder relationships is a key driver of business success. This means better opportunities also in market positioning, improving brand value, customer attraction and thus, gaining competitive edge. On the other hand, the reputation and image of companies and their products can easily be harmed or even lost by irresponsible behaviour. This is particularly true for companies whose brand image depends more on company reputation rather than specific quality attributes of their products. Reputation is often built on intangibles such as trust, reliability, quality, credibility, transparency and good relationships. The same way, intangible quality attributes of products e.g. no child labour used, environmental friendliness etc., build a so called credence qualities - gategory with which customers evaluate the quality of products. Together with tangible qualities both before the purchase and the experienced quality after the purchase it may - or may not - function as a basis for purchase decision. These credence qualities are, as said before, based on trust, credibility and reputation; they hardly can be concretely proved by individual customers. (Belz 2005, 18). But as products have tangible qualities, company reputation is also built on tangible issues such as investment in people and in the environment. Serious crises can be particularly damaging to company reputation: Assumably everyone remembers e.g. Shell´s experience in the mid 19990s with the Brent Spar oil platform and troubles in Nigeria, exposes of labour conditions in supply chains of companies such as Nike and gap, and Monsanto´s calamitous conflicts according genetically modified food ingredients.
Convincing the stakeholders of the company responsibility is often the best, if not the only way to get the license to operate, especially within industries with a challenging reputation. (Osborn-Jones in Hunnicutt 2009, 87; Cower and Hopkins in Burchell 2008, 102-103).
Belz, F-M. 2005. Sustainability Marketing: Blueprint of a Reserch Agenda. Marketing and management in the Food Industry. Technische Universität München.
Sun et al. 2004 = Sun, X., Katsigris, E., Hite, A. 2004, "Meeting China´s Demand for Forest Products: An Overview" in International Forestry Review, 6(3-4): 227-236.)
Climate change has considerably risen in importance during the past years and decades. Peak oil and other energy sources as well as water problem and declining natural resources are an other big question that has to be solved in near future. The hot discussion on international, national and global level has set the focus among others on companies, not only on heavy industry but also on every kinds of corporates and companies. The legal requirements concerning environmental issues has got stricter and is quite rapidly changing all the time. But it is not only the authorities on different levels who set requirements for environmental issues of companies: it is practicly all the interest groups a company has: from tax payers to financers and from consumers to insurance companies and media. Nowadays one can barely call a company that complies with the minimum environmental legal requirements a forerunner any more, at least in northern and western Europe. ???
In short, the aim of corporate environmental responsibility is to reduce environmental impacts of the company. Tools for this can be e.g. energy efficiency, efficiency in use of different materials and water, minimizing waste of all kinds, minimizing the emissions to air, water and ground as well as using renewable energies and recycled materials. Issues concerning environmental management systems as well as a variety of different measuring and calculation methods are described in more detail in WP3 Environmental Management.
Benefits of successful environmental management can be e.g. cost savings due to improved material and energy efficiency as well as savings in different costs caused by waste. By reconsidering the material flows and production and logistic procedures, it may be possible to improve the efficiency in different production operations and hence, lower the operational costs. Of course, by implementing a successful environmental management system, a company can also better meet the environmental legal requirements and be better prepared to potential future changes concerning them. It also helps to be better prepared to potential risk and/or emergency situations and hence avoid penalties that are caused by different kinds of environmental accidents.
By indicating high standards of corporate environmental responsibility a company can improve the image and reputation of itself and its products and hence find a competitive edge on the market. It may find new earning opportunities, widen its market share or even find new markets. Improved working conditions, e.g. safety and health issues as well as a good brand name of the company aso affects the employee satisfaction and motivation which, in turn, improves the productivity.
Corporation social responsibility relies on society and business ethics. It is mainly based on human rights, fair business and fair labour practices. Corporate social responsibility includes not only the well-being of own employees but it also influences the whole supply chain and the local society. The bigger the company, the wider the social effects, one could say. Social responsibility may be less concrete and harder to measure and evaluate than for instance environmental issues. Therefore it is also quite fragile to public accusations. To help companies and their stakeholders to build and evaluate social responsibility issues, several codes of conduct as well as programs and certifications have been established, e.g. SA 8000 and others. They are described in more detail in sub-chapter Social Responsibility. In short, it is very important for companies - not only for ethical but also for business reasons - to be able to control the responsibility issues concerning the whole supply chain, or network, even if it gets more difficult the further you go along the chain.
To be socially responsible, a company must have open dialogue with its stakeholders, not only the share owners, employees, customers and suppliers but also others like for example neighbours, local inhabitants, different NGOs and governments or any other groups of people who are interested in company´s actions. Successful dialogue requires, naturally, resiprocal trust which can only be built on openness and transparency¹. Commitment to social responsibility supports the compentence and vitality of a company. It also has positive affects, particularly from the view point of growing relevance of intangible assest such as reputation, image and knowledge networks². (For more details: stakeholder cooperation)
One of the changes that has no doubt effected the stakeholder expectations is the globalization. Critics of the recent global trade argue that while, for some, globalization has brought significant benefits, it has led into serious problems and widened the gap between the rich and the poor more than ever before. It has left numbers of people and countries in poverty and exclusion from the supposed global society...
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It is impossible to evaluate which one is more important or essential than an other one because it often depends on the situation. On the societal level there are situations where for instance economic survival of people becomes more important than environmental issues although human life depends on the existence of bearable state of the environment. If the environmental conditions worsen enough, for example due to a war, powerful impacts of economic or societal development or an environmental disaster, it decreases the possibilities of human life and makes reasonable business actions impossible. Because all these three dimensions are important, one could say that success on one dimension can to some extent replace success on the others and therefore the dimension should be regarded as separate sectors. In that case corporate responsibility could be described as reaching the level of safe and sustainable development on all the three dimensions separately.
In practise, however, these three dimensions interact with each other and have certain impacts to each other. For instance large investments in environmental protection or in social welfare may weaken the economic profitability in a short run. On the other hand, narrow minded economic goals can worsen the state of the environment and social welfare. To reveal this interaction, some environmental researchers have developed measuring systems that include larger amount of indicators than the traditional GNP. There are also other indicators that include also different kinds of social factors e.g. Human Development Index.
Environment, economy and social welfare can effect each other also in a positive way. Good condition of the environment supports the human life and economic possibilities and, on the other hand, stable economic conditions support stable and peaceful societal life and makes the economic support of environmental protection possible. In addition to this one should bear in mind that successful environmental and social responsibility has a positive impact on the company and its products and/or services which, in turn, effects positively the profitability of the company. Therefore all these dimensions could be seen as linked together and should be developed as a holistic approach to profitable and sustainable business.
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Ketola, T. 2006. XXX
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