Ethical Performance
inside intelligence for responsible business
 

analysis

after a slow start, CSR has seen off all challengers

May 2008

When the first issue of Ethical Performance appeared in May 1999, the dotcom bubble had not yet burst, presidents Bill Clinton and Saddam Hussein were in power, UK prime minister Tony Blair was celebrating his second year in office, and Arthur Andersen was auditing the accounts of stock market darling Enron.

The world, in short, was a very different place. Corporate social responsibility barely registered on companies’ radars, and socially responsible investment was mainly confined to a small group of ethical funds in the UK and US.

However, various businesses were already active – among them Camelot, which had just begun its first ethical audit under director of social responsibility Sue Slipman, the Co-operative Insurance Society, and the FTSE 100 companies Lloyds TSB, Marks & Spencer and Rio Tinto. A decade later and all five businesses, operating in diverse sectors, enjoy a solid reputation for responsible business practice, illustrating how a leadership position taken early on can reap rewards for those prepared to adopt a long term view.

Not everyone has shown the same commitment to leadership. At the time of our first issue, governments were demonstrating only limited interest in corporate responsibility – and not much has changed since then. In the UK, the company law review was underway, but few could have foreseen the tortuous process that would ultimately lead to a very light-touch requirement, many years later, for directors to take account of the interests of employees, the community and the environment when promoting their company (EP7, issue 7 , p9).

At least that was something. In 1999, the US administration was generally quiet on the CSR front, and it remains so, despite the introduction of the Sarbanes Oxley Act, which helped to focus minds on responsible business (EP4, issue 4, p9).

More recently, Argentina, Australia, China, France and Sweden have introduced disclosure regulations for companies and pension funds, but these are the exceptions. For the most part over the past decade, governments have preferred to stick to a voluntary approach, with mixed results.

On the other hand, while the European Commission’s work on an overall EU framework for CSR policy may have fizzled out (EP8, issue 8, p8) and United Nations draft norms on the human rights responsibilities of business have been kicked into the long grass (see page one), other international guidelines have fared much better. Two in particular have been strengthened: the UN is now turning the screw on free-rider companies that have signed up to its Global Compact by delisting them, (EP9, issue 9, p5) and grievance mechanisms for the OECD guidelines on the behaviour on multinational enterprises have been beefed up (EP9, issue 3, p1).

Broadly speaking, companies have been left to get on with the job since the first number of EP. Yet in various areas – reporting, issues management, stakeholder dialogue, community involvement and management systems – most are streets ahead of expectations a decade ago. In that respect, government has been right to let business get on with it.

The biggest single failing, arguably, is the inability to spread CSR beyond the largest businesses. Ten years on, for all the efforts to engage smaller firms, CSR remains stubbornly a big company concern, with the growth spreading internationally rather than locally.

On the investor side, the big success story since our first issue has been the growth in the ethical fund retail market (EP10, issue 1, p1). But aside from perennial topics such as executive pay, which wax and wane with the business cycle, institutional investors have shown little interest beyond pressing for greater disclosure. Early on, as our debut edition reported, much hope was pinned on a UK pension disclosure regulation that invited trustees to at least do the bare minimum. Unfortunately, they appear to have done just that.

The last 18 months, however, have seen huge changes. Climate change is transforming institutional investors’ attitudes to all types of non-financial risk. Sustainability in the face of a changing climate is likely to become the single most important driver of responsible business practice.

So what can we conclude about the passage of corporate responsibility since EP first emerged into the light? While there has been a huge amount of progress, much remains to be done, not least in the field of training and professional development. But supporters of corporate responsibility have seen off intellectual challenges from both the left and the right, and the impact on civil society has been profound: former critics of corporate behaviour are now openly questioning their old confrontational stance and instead forging partnerships with business. It is this healthy wider picture that we should bear in mind when looking at what may emerge over the next 100 issues. CSR, once thought a temporary phenomenon, is not in any danger of withering away.




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