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Promoting Development through Corporate Social Responsibility - Does it Work?

1 Sep 2003

  • Author(s): Peter Utting
  • Source: Global Future, Third Quarter, 2003

Over many decades a heated debate has existed regarding the role and impact of transnational corporations (TNCs) and foreign direct investment (FDI) in developing countries. Put simply, some emphasise the actual or potential contribution of TNCs to economic and social development via investment, employment, taxation, and the transfer of technology, knowledge and skills. Others stress the fact that TNCs have been highly implicated in promoting a style of “development” and North-South relations that have put many developing countries, people and the environment at a serious disadvantage.

The 1980s saw a major shift in this balance of opinion, as international development agencies and many developing-country governments abandoned the rhetoric of a “New International Economic Order” and actively courted FDI. To do so, they largely accepted the policy proposals and conditionalities of international finance institutions such as the World Bank and the IMF, which encouraged developing countries to pursue export-led growth, liberalise their trade and investment regimes, and privatise state enterprises and public services.

These trends and policies continue today but have been complemented by another approach, often labelled “corporate social responsibility” (CSR) or “corporate citizenship”. Over the past decade many high-profile corporations and business or industry associations have responded to civil society and consumer pressures, market opportunities, and new thinking on “good governance” and management by projecting an environmentally - and socially - responsible image.

Recent CSR initiatives

There has been an upsurge in “voluntary initiatives” associated with codes of conduct, improvements in environmental management systems, improved health and safety standards, company reporting on social and environmental policy and performance, participation in certification and labelling schemes, an increase in corporate social investment in, for example, community development projects, and philanthropy. Large companies are also participating in so-called “multi-stakeholder initiatives” and “public-private partnerships” with NGOs and governmental or multilateral organizations. The United Nations has played an important role in promoting partnerships with TNCs through arrangements such as the Global Compact, various global health partnerships, and numerous initiatives brokered or announced at the World Summit on Sustainable Development, held in Johannesburg in 2002.

The development debate associated with FDI has now extended to CSR. The proponents of CSR generally hail voluntary initiatives as a pragmatic and innovative way of enhancing the contribution of TNCs to development. Many also regard such initiatives as an alternative to government regulation, which is often seen not only as unfriendly towards business but also as difficult to implement, particularly in developing countries. Much of the criticism of CSR has centred on two main concerns: first, many CSR initiatives amount to “greenwash”, or attempts to camouflage what is essentially business-as-usual; and second, that CSR is a genuine attempt on the part of big business to improve social, environmental and human rights conditions but the CSR agenda needs to be broadened and implementation strengthened. Both these critical positions recognise the crucial role of civil society and consumer activism in forcing or encouraging business along the CSR path.

What has really been the impact of CSR and partnerships on developing countries? Unfortunately much of the “evidence” for and against CSR is based on supposition, anecdotes and a limited number of “best” or “bad” practice examples. There has been little systematic research on the developmental implications of CSR.

A mixed scorecard

Preliminary findings from research currently being conducted by the United Nations Research Institute for Social Development (UNRISD) suggests that an increasing number of large national and transnational corporations are indeed engaging with the CSR “movement”, not simply in a reactive sense - although many do respond to pressures of various sorts - but more proactively, given a range of benefits that derive from CSR. Many instances of “greenwash” have been identified, but CSR amounts to more than window-dressing or slick public relations. While serious concerns have emerged about the limited scope and effective implementation of CSR initiatives, it is also apparent that many CSR companies, business associations and business-interest NGOs are involved in an active learning process and are evolving gradually towards more rigorous standards and practices, and in the process, the CSR agenda is being broadened.

This mixed report card is very apparent in relation to certain public-private partnerships involving the United Nations and TNCs. The Global Compact, for example, has proved useful in raising the profile of labour, human rights and environmental issues in a global policy context where, for many years, attention focused narrowly on issues of economic liberalisation, stabilisation and structural adjustment. It has served to reinvigorate certain aspects of international “soft law”, such as the ILO Core Conventions and the Universal Declaration of Human Rights, as well as the Precautionary Principle agreed at the 1992 “Earth Summit” in Rio de Janeiro. It has also stimulated discussion and dialogue on specific problems such as the responsibilities of business in conflict zones and in relation to HIV/AIDS.

As currently constituted, however, many UN-business partnership initiatives are characterised by weak screening mechanisms to select appropriate partners, and weak compliance mechanisms to ensure that companies significantly improve their social and environmental performance. There are also concerns that partnerships provide the corporate sector with undue influence in the governance structures of multilateral institutions and the public policy process.

Development impacts of CSR

But apart from assessing the scale, scope and implementation of specific CSR policies and institutional arrangements, it is important to consider the wider developmental implications of CSR. There is a fairly generalised perception shared by many individuals and organizations promoting CSR, that both CSR and partnerships, in any shape or form, must be good for social development and environmental protection, and therefore, for development more generally. This assumption needs to be looked at carefully given the following characteristics and impacts of CSR:

· The CSR agenda tends to be somewhat “Northern-driven” and focuses on a fairly narrow set of issues, sectors and companies. Various social and environmental issues or business activities of concern to workers and communities in developing countries may not get much attention.
· Important gender issues often get sidelined. These relate not only to specific concerns and needs of women workers but also the participation of women in trade unions and other negotiating and political processes associated with CSR.
· Small and medium-sized firms in developing countries that form part of TNC supply chains are often expected to pay the costs of CSR. TNCs or Northern consumers may do little if anything to share these costs. Moreover, TNCs and large Northern retailers continue to impose onerous conditions on suppliers in terms of price and delivery schedules. CSR may reinforce trends involving the concentration of corporate power by squeezing small firms from supply chains and concentrating production in larger firms with greater capacity to implement CSR initiatives.
· CSR may have protectionist implications by restricting access of Southern firms to Northern markets.
· CSR and partnerships may enhance the competitive advantage of TNCs at the expense of firms in developing countries.
· The CSR agenda often ignores the bigger picture or the structural causes of underdevelopment, such as certain macro-economic policies, inequitable power structures, and injustices in North-South relations, as well as patterns of investment and economic growth that have negative social and environmental impacts.
· Many developing-country governments, constrained by international pressures associated with debt servicing and “down-sizing”, are unable to develop the type of regulatory and incentive structures that would encourage CSR.
· Voluntary CSR initiatives are often dissociated from national planning processes related to development strategy or poverty reduction and their design and implementation lack inputs from key development actors or “stakeholders”.

If CSR is to make a more significant contribution to development, its proponents face two major challenges. First, there needs to be a better integration between voluntary approaches and law or government regulation, rather than the present situation where voluntary initiatives are often seen as an alternative to legal instruments. Second, the CSR agenda needs to become more “South-centred”. For this to happen, the relevant actors will have to start by addressing some difficult questions.

What are the actual or potential developmental problems and contradictions associated with the CSR agenda, as currently constituted? Are the investment and competitive strategies of TNCs, as well as their lobbying and fiscal practices, compatible with basic development objectives? Does the CSR agenda really respond to the development needs, concerns and priorities of workers, communities and firms in developing countries? Are these and other Southern actors effectively shaping the CSR agenda? And is CSR working for or against democratic policy-making, regulatory and planning processes in developing countries?

Unless these questions of regulation and broader participation are addressed, then CSR, as currently constituted, may do more for the conscience of corporate managers, Northern consumers and some activists than for workers and communities in developing countries.

The present Viewpoint was first published in Global Future, Third Quarter 2003, "Profit and Loss? Corporations and Development", World Vision International, global_future@wvi.org



This article reflects the views of the author(s) and does not necessarily represent those of the United Nations Research Institute for Social Development.