Introduction

In the Foreword to Corporate Social Responsibility: A Government Update , published by the British Department of Trade and Industry in May 2004, Minister of State for Energy, E-Commerce, and Postal Services Stephen Timms notes of being impressed by “the level of creativity and enthusiasm brought to the subject [of CSR] from all quarters. We’ve seen encouraging progress. I’d like to highlight some significant recent developments and look at where we need to focus for the future.” [1] This was a time when people not just in Britain—now regarded as a pioneer in CSR—but around the world were busily identifying social issues that companies needed to address. The attempts many Japanese companies began making to integrate their main business activities with social initiatives in 2003, regarded as Year One of the CSR era in Japan, was thus part of a broader global trend.

Naturally, the move toward integration also had an impact on corporate reporting. As more institutional investors prioritized socially responsible investment (SRI) as an evaluation criterion, there was rapid progress in the compilation and introduction of integrated company reports that demonstrated companies’ determination to strategically link the financial and nonfinancial components of their annual reports.

Surprisingly many people seem to be under the impression that the integration of main business activities and CSR evolved quite naturally. In reality, as David Vogel argues, CSR has been a “moving target” that continues to undergo change even today. [2] A “look at where we need to focus for the future” might help to highlight the true nature of CSR, leading to a fuller understanding of its historical dimensions and a clearer grasp of the most important issues.

“Discovery” of a CSR Model

The concept of CSR is generally regarded as having originated in North America, from where it spread first to Europe and then to the rest of the world. Charitable donations and other types of philanthropy form the gist of CSR in the United States, however, making it quite different from the integration model that seeks to resolve social issues through a company’s main business. From where, then, did this model of CSR come?

One clue lies in the recent history of British public policy. In the second half of the 1970s, the costs incurred by the Labour government’s generous cradle-to-grave welfare policies saddled the country with huge deficits. The economy groaned under a drawn-out recession that became known as the “British disease.” A major turning point came in 1979, when the Conservatives led by Margaret Thatcher won the general election. In addition to developing North Sea oil, the new prime minister set about privatizing national utilities and industries in an attempt to achieve a smaller government.

Thatcher was succeeded by John Major in 1991. Like Thatcher, Major continued to make small government a keynote of his policy. But there was a difference. One characteristic of the Major years was the attempt to use market forces to bring about qualitative improvements in government efficiency through tools like the private finance initiative (PFI) and value-for-money (VFM) auditing.

The move to small government under successive Conservative prime ministers has been credited with reinvigorating the economy, but it has also been associated with exacerbating a number of social problems, such as environmental pollution, poverty, unemployment, and urban decay. Efforts to mitigate the damage were subsequently launched by both industry as a whole and individual companies. Companies set up board-level CSR committees, hired more specialist staff, and began to compile codes of conduct and annual CSR reports. [3] While these initial efforts were mostly aimed at monitoring the effectiveness of measures intended to address social problems, there was as yet little integration of CSR into corporate management. They did, though, lead to the “discovery” of a basic model for CSR and spawned moves around the world to bring about closer integration.

Guidelines for Integration

The first steps toward full-scale integration of CSR and corporate management became evident in the early 1990s, when the model developed in Britain to address social problems through a company’s main operations spread to other parts of the world.

Various guidelines to promote such initiatives were published. The Rio Declaration on Environment and Development issued at the 1992 Earth Summit led to the launch of the United Nations Global Compact in 2000. While the Organization for Economic Cooperation and Development had adopted guidelines on the activities of multinational corporations as early as 1976, they were designed more to minimize problems relating to the environment, poverty, or human rights in a third country than to encourage closer integration. What emerged in the 1990s was the notion that social issues, previously regarded as being outside the domain of corporate management, should be seen as being in a close and mutually complementary relationship with it. This was the first step toward integration.

The task of drawing up integration and reporting guidelines required much closer cooperation between the United Nations and civil society than had previously existed, the guidelines for the Global Reporting Initiative being a case in point. The nongovernmental organization closely involved in developing GRI was Ceres (Coalition for Environmentally Responsible Economies), founded in 1989. Partnering with the UN Environment Program in 1997, Ceres published the first draft of the guidelines in 1999. [4] The GRI guidelines incorporate the concept of a “triple bottom line” to evaluate not only a company’s financial performance but also its social and environmental impact, enabling companies to more objectively compare the extent and degree of their own integration with the efforts being made by other companies.

GRI and other guidelines drawn up in the 1990s thus helped companies to align their business activities with efforts to address social issues. Corporate activities, though, are influenced not just by the policies of the government, international organizations, and NGOs; companies must also answer to the demands of the market and, in particular, investors, as I touched upon above. It was through the concrete measures necessitated by the concept of socially responsible investment, then, that companies embarked on a new era of integration.

Two Approaches to SRI

The publication of the UN Global Compact in July 2000 created an additional spur to forms of integration quite different from those encouraged by earlier guidelines. The GRI guidelines continued to evolve over the years, including through the publication of the International Integrated Reporting Council framework in December 2013. But SRI perhaps brought about even more fundamental changes, impacting closely on business operations.

SRI-related regulations that are more binding than the reporting guidelines are spreading throughout Asia, but it has been Europe that has spearheaded efforts in this area. For example, since 2000 corporate pension funds in Britain have been required to disclose information on their policies for environmentally and socially responsible investment. Similarly, a 2012 French environmental law requires fund managers to explain online and in annual reports how their investment policy takes environmental, social, and governance (ESG) issues into consideration and to provide details of all relevant investments. [5]

Other countries, including Germany and the Netherlands, have passed legislation with distinctive features. Germany’s Renewable Energy Act (2000) provides guaranteed payments to energy companies producing wind, hydro, solar, and biomass power as a way of incentivizing investment in these companies. And the Netherlands recently enacted a law banning investment in entities that produce cluster munitions. [6] Both laws encourage transparency and offer guarantees for socially responsible conduct, thereby supporting efforts to integrate business activities with social sustainability.

In addition to generating new legislation, SRI has prompted new approaches to adherence with preexisting guidelines and frameworks. Finland, Sweden, and Norway are among the countries that are using a mix of domestic frameworks and the UN Principles for Responsible Investment, published in April 2006, under which institutional investors voluntarily incorporate ESG standards in their investment decisions to enhance the long-term returns of beneficiaries. [7]

The evolution of these two approaches to SRI has encouraged companies to address social issues not just as a consequence of the political and legislative environment in which they operate but also in response to market pressure, which is a crucial consideration for any business. The efforts at integration have thus evolved through the interplay of environmental and market factors around the nexus of SRI.

Conclusion

The road to integration has been marked by the twin trends toward diversification and sophistication. A process of trial and error is still underway, as different companies in different parts of the world progress at different speeds through an intertwined web of institutional frameworks. As with any attempt to reach a lofty goal, there are bound to be setbacks and periods of stagnation. As the trial and error continues, new questions will no doubt be raised regarding the value and significance of integration.

Naturally, private companies themselves must be the drivers of efforts to address social issues through their business activities. And they must be on their guard against complacently putting together patchwork sustainability policies given the proliferation of integration guidelines and other frameworks. The frameworks may have been developed by entities with a wealth of corporate experience and expert knowledge of social issues, but the goal of integration will remain elusive unless companies themselves make a proactive effort to address specific social problems.

As other articles in this CSR White Paper have shown, companies making effective use of integration frameworks are still in the minority. The proliferation of global frameworks may, in fact, have distracted attention away from the need for localized efforts to facilitate the integration initiatives of individual companies.

The broad array of guidelines and legal frameworks, brought about by pressure from investors and the need to address major social issues, is not without internal contradictions, moreover. These integration frameworks were designed to serve as a means to an end, with their growing diversification and sophistication providing companies with more accurate signposts to measure their progress. But they have also resulted in higher costs, making it more likely for companies to fall into the trap of treating these means as an end in themselves. This is presumably one reason why a heightened awareness of the need for integration has not brought about more tangible results.

When CSR was “discovered” in Britain more than three decades ago, few people foresaw that it would evolve into the kind of broad, profound concept that it has become today. Over these years, CSR has emerged as an important tool companies use to fulfill their social responsibilities through their business activities. The task, in looking “at where we need to focus for the future,” will be to work out the internal contradictions, described above, that still remain unresolved.

[1] UK Department of Trade and Industry, Corporate Social Responsibility: A Government Update , 2004, p. 3.

[2] David Vogel, The Market for Virtue: The Potential and Limits of Corporate Social Responsibility (Washington, DC: Brookings Institution Press, 2005), p. xxi.

[3] Yoshinori Yaguchi, “Kinnen no Igirisu ni okeru CSR no tenkai: Seisaku-men ni chakumoku shite” (Recent Developments in CSR in the United Kingdom, Focusing on Policy), in ed. Meiji University Graduate School, Keieigaku kenkyu ronshu (Collected Articles in Business Management Studies), no. 27 (September 2007), p. 31.

[4] Global Reporting Initiative, Carrots and Sticks: Promoting Transparency and Sustainability , 2010, p. 6.

[5] Eurosif, European SRI Study 2012 , pp. 34, 59.

[6] Ibid. , pp. 39, 47.

[7] Ibid. , pp. 32, 49, 55.