Corporate Social Responsibility under scrutiny

Mining of nickel in Madagacar in one of rain forests that is home to the most species on earth. Four year old Fidelis holds a seedling of a reforestation project.
Article as analysis
The economic lobbies never tire of repeating it: no new laws are needed to get companies to observe human rights and environmental standards. Yet many studies show the limits of self-regulation.

The influence of multinational firms on society and environment is growing constantly. This makes it all the more urgent to answer the question thrown up by the United Nations Guiding Principles on Business and Human Rights – that of how these companies should be regulated. Thanks to the "Corporate Justice" campaign and the Responsible Business Initiative, the question is also on Switzerland's political agenda.

Reacting to this, Economiesuisse, the Swiss Business Federation, and SwissHoldings, the Federation of Industrial and Service Groups in Switzerland, laid out their understanding of Corporate Social Responsibility (CSR) in a 36-page paper in June 2015. They define it as "socially and ecologically responsible actions of businesses geared towards fulfilling the fundamental idea of creating lasting and sustainable economic activity". Of crucial importance is the affirmation that what is involved is a "voluntary commitment" which, "is supported by the State through a range of instruments". As such, their position is as a whole in harmony with that of the Confederation, published in early April 2015.
Under the scrutiny of scientific studies

CSR is a private sector response to criticism from civil society, whose calls for regulation have been rejected for years, both nationally and internationally. In the year 2000, the United Nations launched the Global Compact in order to encourage companies to act responsibly. Since then, it has been almost impossible to count the CSR initiatives launched by governments and companies – sometimes even in cooperation with civil society. Switzerland has been very active in this field.

The problem is that the self-regulation being called for is not enough to ensure compliance with human rights and environmental standards – even when these initiatives are well-intentioned and often useful as well. Non-governmental organizations have documented numerous infringements of these rights and standards. Several recently published scientific studies demonstrate the fundamental inadequacy of CSR. Under the IMPACT project, 17 different universities, research centres and business schools in the European Union (EU) have studied CSR in over 5,000 companies. The study shows that between 2000 and 2010 only marginal progress was made in terms of quality of work and environmental protection, with the result that EU targets were missed.

Richard Locke, Professor at the Massachusetts Institute of Technology (MIT), has spent 10 years researching the topic, in the process relying on in-house testing, in situ research and interviews with company representatives, especially in the IT field. He concludes that working conditions at factories – overtime, safety and health – have worsened and that even in-house reviews have failed to trigger any learning process.

His conclusions coincide with those of the Royal Society for the Protection of Birds (GB), which were recently published. Based on the outcomes of 161 voluntary environment-related CSR initiatives, the Society's experts estimate that four out of five of these initiatives missed their target. It therefore followed that “voluntary approaches are rarely if ever an effective substitute for regulatory or fiscal measures in seeking to achieve public policy objectives”.
Inadequate in many respects

The reasons for the inadequacy of CSR are many and varied. The first is its voluntary nature. CSR regulations do indeed lay down standards for good corporate governance, but they are not binding. Of course there are firms that commit seriously, while others use CSR mainly for PR purposes, while still others quite simply ignore it. According to the Business and Human Rights Resource Centre, only 340 companies worldwide have committed to a human rights policy. This is a tiny number compared to the 80,000 multinationals considered in 2011 by John Ruggie, author of the UN Guiding Principles on Business and Human Rights. The main problem lies with those profiteers who neglect their responsibility at the risk of committing human rights and environmental violations in order to secure a comparative advantage for themselves.

Another CSR shortcoming has to do with the – often incomplete – content of codes of conduct. There are some lacunae when it comes to human rights, the taking of local populations into account, and transparency. IMPACT concludes that the usual Impact Assessments, when these exist, look first and foremost at the risks for companies rather than for people and the environment. Besides, there is often no independent verification or any credible avenues for seeking redress. Likewise, there are generally no sanctions if a company's own CSR standards are infringed.

Lastly, Locke's MIT study worked out very clearly that as a result of the globalized production chain, CSR does run into structural limits. On the one hand, companies adopt a CSR framework for reasons of image, and on the other, they are citing the competition and pressure from consumers and shareholders to continue pressing their suppliers to get ever better quality products at ever lower prices and within tighter deadlines. The price of this inconsistency is ultimately paid by workers or by the environment: even in the most progressive companies, CSR ends up clashing with the profit imperative. Through their rose-tinted spectacles the Swiss economic lobbies refuse to see this, as they view CSR as a win-win situation, in other words, as good for everyone so long as it does not run counter to the interests of business.