“Fundamentals of Corporate Social Responsibility” Presentation to CSR Asia 6 September 2006 Michael Kerr, Senior Consultant, Natural Advantage Lead Counsel, CISDL www.naturaladvantage.ca

‘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.

‘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?

‘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?

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.

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. Let’s firstly examine some of these definitions----- then I will address the common understanding.

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.”

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.”

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.”

World Business Council for Sustainable Development: 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.”

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.”

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?

Common Understanding One: What is CSR? Common Understanding One: CSR is an idea whereby companies integrate economic, social and environmental concerns in their business operations

Common Understanding One: Integration Corporate Social Responsibility: The Integrated Approach to Business in the 21st Century Consumer Confidence Exchange Rates Interest Rates Regulation/Policy Governance Corruption Climate Change Communities Waste Labour/ Workplace Biodiversity Human Rights Resource Use

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

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.

CSR and Sustainable Development 2002 World Summit on Sustainable Development (Johannesburg) confirmed link with CSR. Paragraph 49 of the Johannesburg 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.”

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.

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.

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.

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.

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

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.

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.”

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 company’s employees; (c)   the need to foster the company’s business relationships with suppliers, customers and others; (d)   the impact of the company’s 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.

Questions & Discussion