Thursday, 30 August 2012

Part 3 - CSR who owns it and what should it achieve?

On to part 3 blogging about CSR, I have tried to examine who has ownership and why, if this is effective or indeed a tool yet to realise its full potential. I have made some comparisons in the context of different capitalist models (Liberal v State), to see what differences emerge.

On this last leg I want to cover more ground on what CSR means to people, the state and corporations and what it might achieve depending upon where ownership lies. It is also worth exploring an extended version (or future direction) for CSR and where this might take us.

Under the current liberal model it is predominantly the larger corporations that practice CSR, using it as means to promote green credentials outwardly and exercising control over their supply chain inwardly. The whole process can be quite complex and therefore, quite hard to monitor and evaluate. There can be little doubt that some large corporations are taking their obligations seriously and making improvements to their efforts on sustainability. This kicks on down the supply chain, which can multiply the positive  i,pacts, however this system is not without its problems.

Firstly, whilst reporting can be put in one place the systems for monitoring are many and varied, ranging from statutory controls (permits for example) through voluntary accreditation schemes (i.e. sustainable forestry) and also internal management systems (again with varying levels of accreditation).

Statutory compliance is generally good (which says something about effective regulation) and is usually the most active part of any internal management system. It is also true however, that large corporations will use the existence of their own internal systems to lobby against further tightening of regulation and to seek to get dispensation with regulators. This may seem reasonable on the face of it, however there is compelling evidence that many internal management systems are not as robust as they are thought to be and accidents and non-compliance can be similar to sites that don't have such systems. Is this compatible with the objectives of CSR then, or would it be more ethical to continue to be inspected at greater frequency, to help build even greater resilience into internal systems?

Voluntary schemes suffer even greater vulnerabilities and cover various aspects of a number of supply chains. Large corporations are willing to join voluntary schemes (such as sustainably sourced timer, CDM and Fair Trade), however these supply chains span the globe. It has proven very difficult to monitor the performance of these schemes and often the operators of the scheme do not have the capacity to monitor or fully implement. NGO's have investigated some supply chains and found them to be lacking in terms of regulation and auditing leading to, for instance. corruption and fraud within the system (hardwood logging), or unsustainable projects being certified (as has happened with CDM).

Whilst failures of this nature cannot be placed directly at the door of the large corporations, the ethical question around ownership of CSR remains. There is a basic paradox between corporations signed up to CSR making promises (or setting targets) and costs to shareholders of delivering these as obligations within a liberalised market. Many reported 'successes' are genuine triple bottom line gains, however these gains may often be offset by displacement or growth to other product ranges, which may not be measured and reported.

By way of a case study to demonstrate the paradox, take the energy industry. It is becoming more evident that investment in renewable energy technologies is both sustainable and sound, however the scale of the industry creates an impasse in moving towards more sustainable options. The UK estimates that investment of £200bn will be required over the next decade to upgrade energy infrastructure, however this is based on the presumption of a continued heavy reliance upon the National Grid and gas generation. This is not the most sustainable option and therefore, flies in the face of CSR objectives, as a more decentralised supply base with less reliance on the grid and gas would be a much more sustainable option and would encourage greater (and more diverse) renewable generation closer to point of demand, which in turn should significantly reduce transmission losses and create more jobs. This situation is echoed in the US and other countries.

Without the investment we face power cuts and outages, however it seems that investors are only willing to support investment in large energy companies and the grid model. Could this be because tax payers money is still being used to support fossil fuel and nuclear energy companies, something that is surely unacceptable under CSR?

So what about CSR within a state capitalist model? The level of direct intervention is key here! If a government is operating a company on behalf of the state (and therefore the general population) the obligations of that company should reflect very closely the mandate of that government in respect to all issues of sustainability. Nevertheless, this could still be carried out merely as a box ticking exercise, or more positively, the company could be a flagship where policy can actually be formulated, researched and tested. This might be relatively easy on a state owned railway (as they are very efficient in terms of CO2) and are a relatively safe means of transport, however this might become more difficult if you are operating a nationalised oil company!

If policy is correct, then it should be easier within this model to raise investment for the most sustainable option (Chinese solar expansion is a good example), dependent upon the level of private money that might be sought (as most large infrastructure models work this way) and their willingness to participate (a problem UK and France have encountered with nuclear generation ambitions).

This all brings us back very nicely to the central question(s) about CSR and about who should operate it and how. Could CSR actually be a tool for transition to a more socialist model (as predicted by Marx) at one extreme, or will it just be a badge for large corporations to polish that will have little meaning or impact to the man and woman on the street?

For so long as we operate within a liberalised market, it is a given that the shareholder will be king! It is imperative therefore, that CSR becomes a priority with the board and of the shareholders. I believe that this is starting to happen, with a number of ethical investment options emerging and a number of blue chip companies trading on green credentials. It is important to recognise however, that the whole edifice only stands, so long as the foundations are solid, something which is not completely proven as yet. Failures will undermine confidence and devalue CSR, therefore it is important to ensure robust monitoring and regulation to uphold these values.

Central to making CSR a driver for change and investment within the liberal capital context, is the education of shareholders and investors alike, to recognise true sustainability and to have faith in the science and research that underpins it. I think there is a long way to go here yet as  shareholders and CEO's alike, have to be able to differentiate between short term variations  (in markets, economies etc.) and the longer term objectives required by CSR. This has been witnessed recently with the economic downturn and the growth at all costs mentality seen in governments let alone individual companies! If it were sustainable before and added to the triple bottom line, then the same holds true now!

Within the state capitalism model CSR has the potential to be more joined up with national policy and as a result may have more credibility with people. If large state owned companies are seen to be driving the CSR agenda forward, this will impact across the whole supply chain and can be a major component in delivering policy and meeting obligations. In a reverse of the liberal model state owned companies can be used themselves as examples of good practice and can educate at the same time.

It will also offer people a direct means by which people can measure the degree of success of  implementation of green policies through the performance reporting of state industries and allow them to align their thinking with sustainability issues.

As we move forward there is a greater degree than ever before of economic uncertainty, there is also the spectre of looming resource shortages and the impacts of climate change to factor in. Actively seeking to make CSR work can tell us more about how our largest companies perform in these respects, I see it at the very least as a means to communicate with large corporations about their efforts to reduce impacts.  The more people that understand and use CSR as a means to judge ethical performance and link it to buying habits and choices the more effective it will become.

In conclusion I would say that CSR ownership needs to be with all of us and that it can only be effective where there is a wide understanding of the objectives, such that we can ask the right questions. The underpinning mechanisms are very complex, especially for the liberal model, making proper audit and regulation difficult, however this is essential to credibility.

The liberal and state models operate in different ways, however the state model may offer a little more in terms of connectivity with the end user and feedback through to political agenda setting.

It may of course all become quickly irrelevant, if as predicted, the current model succumbs to the pressures of population growth, resource depletion and climate change!

Hope you enjoyed the diatribe, please feel free to add any comments and look out for new topics!

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