Effectiveness of CSR in Achieving Sustainable Development
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Corporate social responsibility (CSR) is a concept that has acquired a new character in the global economy. “With the advent of globalization, managers in different contexts have been exposed to the notion of CSR and are being pressured to adopt CSR initiatives” (Jamali and Sidani, 2008; 330).
Therefore, even more corporations are increasing conscience about the importance of matching their own interests and the interests of society by taking responsibility for the impact of their activities on employees, suppliers, customers, communities and other stakeholders as well as the environment.
Although, this is an obligation that goes beyond economics or law, and in which companies have to act ahead in pursuing long term goals that can also be good for the society and the environment as a whole.
Intrinsically related to the topic of CSR is the protection of the environment for future generations through Sustainable actions. Not only because there has been an enormous technological progress that means we are not as much dependent as decades ago of a wide range of natural resources such as air, energy, land, and minerals.
On the contrary, driven by the growth of the population and the hectic globalization, competition for those natural resources has been intense. As a result, this competition also brought a powerful driver for both environmental conflicts and damage to our fragile, life-supporting environment.
A range of environmental disasters, such as climate change, ozone layer depletion, and soil contamination, have been occurring along the past decades and which turned organizations and society more aware of practice such as recycling, energy consumption, preservation, among others.
“Evolving from an attitude of simply reacting to such disasters and their effects on the physical environment, corporate concerns now include strategic planning and looking at the environment in its multiple social, cultural, political, and institutional dimensions” (Enriquez and Drummond, 2007; 75).
Therefore, the instruments of corporative citizenship turned also to the preservation of the environment as a strategic element for enterprises in the whole world. Along with the development for part of the organizations of clean technologies, there is also the concern in getting a green image, which put organizations’ sustainable activities into practice calling for an Ecobusiness.
Especially in the past two years, 2008 and 2009, the world was marked by a financial crisis that had an impact in economies of organizations in general. Nevertheless, the financial crisis is not causing firms or governments to abandon sustainable development. In fact, many business and government suggest that a ‘green solution’ can be found to both economic and ecological challenges, creating new jobs and markets by investing in new forms of energy, redesigning or retrofitting buildings and equipment, and managing forests and other ecosystems sustainably.
Mineral industries, for example, are using the actual crisis on their own benefit, attempting to identify domains where actions are required and trying to shape a different future to this industry, taking advantage of the actual scenario. To achieve that they make use of available data and information to appreciate the mining sector’s impact, giving support to decision makers in their strategic choices.
The actions of Alcoa Inc., for example, are impressive and unique, the company interplays among intangibles as leadership and innovation as well as a strong CSR strategy, wisingly aligning society, workplace and environment, productivity, and financial performance in the context of a traditional manufacturing company.
This project research examines the existing literature in an attempt to create a more comprehensive perspective of what has been written about the topic of Corporate Social Responsibility and Sustainable Development. The project’s approach was qualitative in nature and focused on discovering what researchers and authors have explored and understand about this complex subject.
Besides, it looks at some of the principal favourable and unfavourable arguments to the social responsibility of enterprises, especially when they are being considered by multinational enterprises interested in initiating activities into developing countries, with focus into Brazil. We also propose some alternatives of acting in the area of Social Responsibility made by Alcoa Inc., considering the current Brazilian reality, with the aim of achieving Sustainable Development.
This dissertation is divided in two parts. Part one will be based in secondary data and involves: Chapter II, which comprises the literature review that examines existent work in current trends involving the subject of CSR as well as paradigms as SD in order to help establish what values associated indicators could contain.
Chapter III, the explanation of the methodology used along the development of the project.
Part two, comprises Chapter IV, which examines factors involving Alcoa Inc., taking into account its current CSR and SD actions and strategies, making use of a questionnaire, answered by some of the organization’s managers, in relation to the issues encountered in the literature.
Chapter V, will draw conclusions, make future recommendations and points out gaps for future research.
1.2 Research Title
The Effectiveness of Corporate Social Responsibility as a means of achieving Sustainable Development: a case study of Alcoa Incorporation.
1.3 Research Background
In the modern complex and dynamic business environment, most organizations are adopting a global attitude making sure that they are geared for being global. Furthermore, it is common knowledge that the world is constantly developing and changing and no change is permanent because any change is about to be further adjusted in the short or long run to suit the environment and the challenges they face.
Organizations are now more powerful and have more influence in the society. Therefore, “The notion of corporate social responsibility today functions as an emblem, that the company themselves rise towards a consensual “social revolution” that will eventually benefit all the stakeholders of our society” (Habish et al, 2005; 271).
Corporate social responsibility intrinsically relates to environmental issues faced globally, especially in the early stages of the twenty-first century and sustaining in a particular industry has become very difficult task for many businesses.
“Employees, investors and consumers are becoming increasingly more aware of the social and environmental impact to people and planet that a company produces, which are both positive and negative. As consumers become even more aware of sustainable practices, there will be even greater demands for business communities to do the right thing, requiring enhanced ethical leadership and CSR to drive profits, and brand loyalty” (Mamic, 2004; Leffel, Sweeney, 2007 cited by Maass, 2007; 36)
Alcoa is “the world's leading producer and manager of primary aluminium, fabricated aluminium, and alumina facilities.
In the framework of sustainability, Alcoa is considered one of the top three companies in the world in terms of commitment to sustainable development and has made use of an environmental strategy associated with a truthful social responsibility in order to gain competitive advantage and success in the marketplace. For example, for three years the Company has been sponsoring the Internethos program, directed at the development of Corporate Social Responsibility for Sustainability (www.alcoa.com).
Moreover, “Recognition from the Covalence Ethical Ranking drives the company to intensify actions of engagement of strategic publics. In 2006, the company was indicated as world leader in ethics, in the mining and metallurgical Industry, according to Covalence Ethical Ranking” (Alcoa annual report, 2006/2007; 41)
1.4 Research Aims
- Analyse how corporate social responsibility can ensure competitive advantage and success in achieving sustainable development.
- To explore, analyze and identify the use of environmental strategy as a tool of achieving global success.
- Analyse the importance of achieving sustainable development in today’s global environment.
1.5 Research Objectives
- To evaluate, in an environmental perspective, the effectiveness of corporate social responsibility in today’s global business.
- To evaluate, in an environmental perspective, the effectiveness of corporate social responsibility on achieving sustainability.
- To establish the feasibility of using corporate social responsibility within the industry to align strategic planning with sustainable development.
- To analyse and find out the implications of corporate social responsibility in Alcoa’s Inc. environmental management.
- To identify the extent to which the environmental management is involved in strategic planning at Alcoa Inc.
- To identify how important is environmental sensitivity to a company that extracts natural resources.
- To analyse in depth the integration of sustainability to Alcoa’s overall business giving emphasis to Brazil.
- To investigate practices used by Alcoa Inc. in its implementation of corporate social responsibility as a means of achieving sustainable development.
1.6 Rationale of the project
The objective of this project was to gather information that could be useful and benefit different organizations in engaging in environmental strategies by the concept of corporate social responsibility. Moreover, data collected can also guide corporations by providing them with an understanding of sustainable development and the resources they can make use of to establish a sustainable future for society and the environment. The information gathered for this present work was collected through an extensive literature review as well as the use of different sources of information, such as videos. In addition, a questionnaire was used in order to collect insight information on the organization’s management perspectives and its corporate social responsibility strategies for a sustainable development and prosperous business.
Social Responsibility actions are examples of a phenomenon of great proportions, which have been taken into more consideration in the business world, and reflect a new world-wide configuration. Historical recent events, in special environmental catastrophes around the globe, developed the academic discussion on the social paper of organizations, public and private, in the construction of the called sustainable development.
Investors originated from richest countries have been realizing that economical survival and social balance is a long-term phenomenon more and more dependent of a constant preoccupation with levels of development of the least favoured areas of the globe (Parker, 1998).
In the context of globalization, Social Responsibility has started to be understood as an essential instrument to be considered by organizations’ strategists in the sense of paying attention to the social demands of several economical agents involved. Apart from the internationalization strategy adopted, multinational enterprises installed in developing countries are under pressure in adopting an ethical and responsible posture. Meantime, many actions carried out by multinational enterprises, through their own foundations or partnerships with local agencies, have been questioned for disregarding the participation of local actors in the decision processes, in the resource allocation and in the evaluation of results.
2.2 Business Ethics and Corporate Social Responsibility
“Some vigorous critics and Marxists tend to dismiss the link between business and ethics” (Shaw, 2009; 2). For example, “It was widely assumed that business and ethics were radically different and that ethical behaviour had little or no return on investment” (Brenkert, 2004; 188).
However, on current days, ethical issues are being one of the most important subjects concerning organizations across the world, which now view business ethics not only in terms of administrative compliance with legal standards, rules or regulations as they used to do in the past. Some corporations are even creating their own written and formal ethical codes in addition with the use of different systems, like corporate social responsibility, to help them to create and maintain an ethical organization culture.
Accordingly, Shaw affirms, “Business ethics thus involves studying the ways to refine and reinforce the implicit norms of the business system” (Shaw, 2009; 3).
Nevertheless, Corporate Social Responsibility is topic of great value in business ethics, as reinforced by Ghauri and Cateora (2006; 468): “Ethics and social responsibility go hand in hand”.
Organizations are increasing conscience about the importance of matching their own interests and the interests of society by taking responsibility for the impact of their activities on employees, suppliers, customers, communities and other stakeholders as well as the environment.
Kotler and Lee (2005; 161) argue, “The first ethical duty of business is to do not harm. Companies are responsible for minimizing stakeholder’s risks. This is the heart of business ethics.”
In fact, when ethical issues come to the organization field, a question is raised: “Of all these stakeholders, which should or will have the most or least influence over the ‘ethical’ rules that will be applied by the organization?” (Buhalis and Laws, 2001; 88)
Despite of all the suggestions given in relation to CSR and business ethics, Jones et al (2005; 19) points out the fact “… whether business ethics will actually make business more ethical.”
In a current globalized environment, companies play an important role in the social structure and more than ever before, are being encouraged to improve their business practices by emphasizing ethical behaviour, not only through the development of new technologies but also through social and environmental initiatives.
Companies are increasingly being held accountable for their actions, especially with the growth in demand for higher standards of corporate social responsibility.
Sims (2003; 8) links the concept of ethics and social responsibility saying that: “Being socially responsible, ethical, and a good corporate citizen is important to meeting and exceeding the expectations for any organization’s stakeholders”. And affirms: “Organizational management that truly cares about business and corporate social responsibility is proactive rather than reactive in linking strategic action and ethics”.
The structure of society has changed due to globalization changes, and the importance of businesses impact in society forced organizations to rethink their actions towards profitability, also promoting the development of concepts like sustainability.
Nisberg (1988; 43 cited by Kilcullen and Kooistra, 1999; 158) gives an important definition of business ethics, which according to the author “can be defined as a set of principles that guides business practices to reflect a concern for society as a whole while pursuing profits”. However, with the relentless pursuit of profit in this actual globalized situation, how to maximise profit and act as an ethical company at the same time?
A good understanding of what exactly is the term Corporate Social Responsibility is essential in order to answer and explain this question through different perspectives and theories.
2.3 History and Definitions of Corporate Social Responsibility
The history of Corporate Social Responsibility can be compared as being as old as the history of business; however, its concept has not been fully formulated until now (Asongu, 2007; 28; Crane et al, 2008).
May et al (2007; 4) also adds “Questions regarding the nature, scope and impact of organizations have been present into various forms for centuries ranging across the ‘classical’, ‘medieval’, ‘mercantile’, ‘industrial’ and ‘corporate eras’”.
Taking into consideration only the period after the Industrial Revolution, or better saying the 20th century, the first author who directly contributed to the responsibility issue was Clark (1916; 210 cited by Secchi, 2007; 351) when he affirmed that “The old idea of free will is giving way to determinism, individualism to public control, personal responsibility to social responsibility.”
During the period of 1930s and 1940s, called as the ‘corporate period’ references about social responsibility can be found, for example: Chester Barnard’s, ‘The functions of the Executive’ (1938) and Theodore Kreps’s ‘Measurement of the social performance of business’ (1940). (Crane et al, 2008).
Murphy (cited by Crane et al, 2008), on the other hand classified Corporate Social Responsibility in four eras as follows: Philanthropic era (up to 1950s), awareness era (1953 to 1967), issue era (1968 to 1973) and awareness era (1974 until now).
According to Secchi (2007; 348), however, “One of the first attempts at classifying theories on CSR (business and society issues) was made by Preston (1975).”
This shows that the concept of CSR has been discussed for long but in fact, has not yet been fully understood and placed among organizations.
Recently, empirical research about Corporate Social Responsibility and its relation to Corporate Social Performance and Sustainability provokes many contradictions in the literature. Due especially to the occurrence of different scandals among enterprises as well as the movement towards an environmentalist society rather than materialist, competitive labour market and shrinking role of government, there were a rise of interest in Corporate Social Responsibility in the past decades (Carrasco and Yakovleva, 2007; 15-16).
Many authors affirm that business and society are interrelated entities rather than being distinctively separated (Kotler, 2005; Wood, 1991 cited by Moir, 2001).
According to Watts et al (1998; 3 cited by Yakovleva, 2005; 12) “Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well of the local community and society at large”.
Corporate Social Responsibility, thus, reflect the responsibility or accountability of organizations in pro not only of its stakeholders but also of its surrounding environment, taking into consideration the various practices that can affect those.
Carroll (1979), on the other hand, proposed a four-layered concept, which was the most accepted model, suggesting four corporations’ responsibilities related to their economical, legal ethical and philanthropic aspects.
All those four aspects are of great meaning to the CSR concept, however, our current work focuses more on the top of the pyramid, which encompasses the philanthropic responsibilities.
“Philanthropic responsibility: Interest in doing good for society, regardless of its impact on the bottom line is what is called altruistic, humanitarian or philanthropic CSR. “giving back” time and money in the forms of voluntary service, voluntary association and voluntary giving – is where most of the controversy over the legitimacy of CSR lies” (Shahin and Zairi, 2007; 755)
According to Carroll, the philanthropic responsibilities are discretionary being, therefore, less important than the other categories; on the other hand, as said before, is the one that brings the most controversial issues.
The definition proposed by Gauri and Cateora (2005) follows the same idea, where the role of a company in the society goes beyond its economic goals.
As we can see, definitions relating CSR are various and contradictory among the literature which makes its study more exciting.
2.4 Corporate Governance and Corporate Social Responsibility
Governance is defined by Dam et al (2007; 1333) as “the set of informal arrangements that are used in handling the consequences of these unforeseen states of the world”.
As a result of globalization, different global governance structures have emerged, transforming the CSR concept more difficult to be understood.
This new global governance brought about the participation by firms in tasks that used to be the government’s domain. (Cutler et al., 1999; Scholte, 2001 cited by Albareda, 2008). Corporate Social Responsibility, therefore, “can be seen as a new governance arena” (Haufler, 1999; Scholte, 2001 cited by Albareda, 2008; 434).
Castka et al (2004 cited by Shahin and Zairi, 2007; 761) proposed a useful framework, based on three major assumptions:
“(1) The CSR framework should be integrated into business systems, objectives, targets, and performance measures.
(2) The governance system, whose purpose is to control, provide resources, opportunities, strategic direction of the organisation and be held responsible for doing so, is an integral part of business hence CSR system.
(3) Central to the CSR framework is the transformation of stakeholders’ needs and expectation into business strategy, where the organisation has to balance the need for CSR from their key stakeholders with entrepreneurship.”
Corporate Social Responsibility is considered deliberate governance, however, influenced directly or indirectly by demands from global civil society, Non Government Organizations, or even the government itself. Thus, Corporate Social Responsibility plays a major role in the global economic and political activities of corporations.
“To exercise this political power in international society, companies as private authorities have adopted different mechanisms. The most important of these have been inter-firm cooperative instruments, fundamentally through the creation of CSR business associations” (Albareda, 2008; 434).
The implications of poor corporate governance for people’s lives are tremendous, either in a developed or in a developing country, like Brazil for instance.
Most of the Brazilian corporations are still dominated by a family-owned management, who are therefore, the main, if not the only shareholders of the company. This fact can interfere severely in the potential of corporate governance. “Brazil is a country with strong authoritarian traditions, and inadequate corporate governance laws make it possible to perpetuate authoritarian and concentrated influence over governance structures” (Oman, 2003; 35).
Nevertheless, especially in the past decades, there has been intensification of businesses in relation to governance and sustainability in countries like Brazil.
Paro and Boechat (2008; 533-534) illustrate it: “One of the most significant Brazilian non-governmental organizations with the specific mission to mobilize companies around this issue – the Ethos Institute of Business and Social Responsibility, founded in 1998 – had 1,266 member companies in November 2007. Around 74 Brazilian companies have published reports based on the Global Reporting Initiative guidelines (GRI, 2007), and the Sao Paulo Stock Exchange (Bovespa) launched in 2005 its own Corporate Sustainability Index (ISE), which now has 32 companies listed”.
Well-managed corporate governance can have positive effects on socio-economic development; it also hence sustained productivity growth and reforms on regulatory practices, although its benefits cannot be taken into consideration without strengthening the examination of business practices and the government environment as a whole.
2.5 Building Corporate Social Responsibility into Strategy
Corporate and business strategy according to Foss (1997) has different meanings in relation to the kind of decisions to be made. The first relates to decisions that determines the company’s goals and objectives, the latter though, determines how the company will position itself in relation to its competitors, defining its business and resources.
McManus (2008; 1069) affirms: “The term strategy is derived from the Greek Strategia or generalship, sometimes translated as the art of war. The metaphor of business as war, a competition to be won, is pervasive.”
The first author who actually exposed the link between strategy and Corporate Social Responsibility was Michael Porter. He argues that “corporate social responsibility can be a source of innovation and competitive advantage if incorporated into the framework of analysis that companies use to guide their business strategy” (Porter and Kramer, 2006 cited by McManus, 2008; 1077).
Corporations have now added value-creation to their core business always considering its stakeholders’ needs to develop a strategy that is going to keep the company in a competitive advantage position. This is what drives a company to strive in management initiatives, especially if those initiatives are driven towards the achievement of sustainable development.
Lee (2008, cited by McManus, 2008; 1075) argues, “There has been an evolution in CSR from the macro-societal level to the organizational level, with a greater emphasis on managerial, strategic, and ultimately financial issues to the point that the key issue in 2008 is how to integrate CSR into one’s core business.”
Organizations integrated to societal aspects are trying to be aware of the implications of the environment they are in and building, therefore, its strategy based in a social/environmental mission and vision.
On the other hand, “recent reports reveal that almost six out of ten organizations have no strategy for CSR while many companies are unclear as to how to adequately anticipate which social issues will affect their overall strategy” (The Work Foundation, 2002; McKinsey and Company, 2006 cited by Galbreath, 2009; 109)
The importance of keeping the integration of a company’s core business and its strategy according to the society’s (stakeholders) needs determine the effectiveness of a business and its position in the marketplace.
Galbreath (2009; 122) also draws a model of corporate strategy in relation to the society as follows:
Figure 2 - Source: Strategy in the context of society (Galbreath, 2009; 122).
Not only the strategy itself, but also a change on the decision-making framework plays an important role. The use of the classical American pragmatic decision-making is one example. “The use of pragmatic decision making would inherently lead to the consideration of ecological issues within the decision-making process while fostering competitive advantage” (York, 2009; 102)
In conclusion, as McManus (2008; 1068) says, “Perhaps, the greatest contribution of the mash-up CSR and business strategy will be, not in the details of particular approaches to its realization, but rather the change in consciousness of individual business people its emergence may signal.”
2.6 Leadership and Corporate Social Responsibility
The first important point in the leadership context is to understand that ethics is not something we born with. Many authors say that along the years we are taught by the community conventions, norms, and regulations that guide our ethical behaviours (Trevin€•o and Nelson, 2004). The same occurs with an organization, where norms, regulations, and values are drawn along the years, guiding their employees and creating its culture, but in this case, the founder has a crucial position, being the one who first underlie most of the organization’s ethics code.
Another important issue consists in how hierarchy of power is distributed in the organization; this is explained because the flow of integrity and moral actions always comes from the top to the bottom of the organization hierarchy and this explains why the founder plays a key role in creating the culture and guiding decisions. This relates to the called learning theory, where leaders are perceived as role models. (Hind et al, 2009)
Daboub et al (1995 cited by Hind et al, 2009; 8) “developed a model which suggested a relationship between the characteristics of an organization’s top management team and corporate irresponsibility, even criminality. The model holds that, other variables being equal, the greater the proliferation of formal management qualifications (e.g. MBA’s) in a top management team, the higher the chances of corporate criminality. The implication of this is that management educators do not seem to be addressing the current and future developmental needs of managers who are required to respond to changing social norms for higher ethical, accountable, and sustainable standards in business.”
2.7 Voluntarism and Accountability of Companies
There are two contradicting views in the role of voluntarism in CSR: The first view is supported by Carrol and Buchholtz, (1999 cited by Yakovleva, 2005; 14) and suggests that “CSR refers to both types of corporate operations: operations towards compliance with legislation requirements and voluntary operations towards social benefit not stipulated by law or economic requirements”. The second view, however, suggests that the firm itself should call for the stakeholder’s interest voluntarily and “considers that CSR starts when law ends” (Yakovleva, 2005; 14).
All those contradictions are part of the inconsistency in defining the term CSR. Corporate Social Responsibility according to Keinert (2008) is concerned to how corporations tackle external pressures responding to them accordingly. Moreover, she adds “It does not question the ‘rightness’ of social expectations from an ethical, theoretical point of view, but seeks way of implementing them” (Keinert 2008; 45)
Apart from this point of view, corporations are responsible, nowadays, alongside the government, to the interests of its employees and society as a whole being also accountable for its actions. Thus, accountability is another important feature of Corporate Social Responsibility.
Zadek (2007; 10) argues: embracing accountability for their actions, corporations “contribute to addressing societal needs and challenges in ways that could also deliver economic value and success.”
According to the IPEA (Instituto de Pesquisa Econômica Aplicada), “Social Accountability 8000 is the first norm turned to the improvement of the conditions of work, including the principal labour rights and certifying the fulfilment through independent auditors. The Social Accountability International LEAVES-, a non-government organization created in 1997 in USA, developed it and which has its action turned to the preoccupation of the consumers for the conditions of work in the world. The norm follows the standard of the ISO 9000 and of the ISO 14000, which makes its introduction easier for enterprises that already know this system”” (www.ipea.gov.br).
“One of the basic propositions from social accountability favourable to the contemporary point of view is based on Keith Davis’ ideas” (apud Certo & Peter, 1993; 281 cited by Souza, 2004; 31). According to them, “enterprises must operate as an opened system with two hands, with information reception from society and opened advertisement about their operations with the public.” (Souza, 2004; 31) In agreement with this proposition, the enterprise must be disposed to hearing the society and working in the construction of its well-being.
2.8 Corporate Social Responsibility and Profitability
Whilst some authors defend Social Responsibility as a solution for organizations and society’s sustainability issues in the long-term, others are emphatic, affirming that it is not reasonable to imagine that the enterprises are able to answer to social, environmental demands and, even so, maintain sufficient levels of success in a more and more hostile environment of business (Ansoff, 1981; Gray, 2002). The latter view, is called instrumental theory (Garriga and Mele, 2004 cited by Secchi, 2007; 349).
Friedman (1970 cited by Crane and Matten, 2007; 47) argues that: when actions “(…) are carried out for reasons of self-interest, are not CSR at all, but merely profit-maximization under the cloak of social responsibility.”
“Harvard professor Theodore Levitt echoed this point when he wrote, ‘In the end business has only two responsibilities – to obey the elementary canons of face-to-face- civility (honesty, good faith, and so on) and to seek material gain’ ” (Shaw and Barry, 2004; 212).
However, critics of a different view, like Davis and Melvin Anshen, affirm that there is nothing wrong with corporations making profit; they have though other responsibilities related to consumers, employees and the society as a whole. (Shaw and Barry, 2004).
Furthermore, defenders of the Social Responsibility, such as Pascal Lamy, I Trade Comissioner, affirm that there is a straight correlation between the social and environmental beginnings of the organization and its financial performance (Zadek, 2007). According to this current of thought, more and more Social Responsibility of the enterprises oversteps their legal obligations, which confront authors like Friedman who believes in the increasing of profits as the only objective of enterprises.
The Social Responsibility is still an open concept, subject to several interpretations, as the literature demonstrates.
In general, arguments on behalf of Business Social Responsibility are based on the idea that a better society has more conditions to supply organizations’ profit. Besides, actions connected with the well-being of the society improve the organizations’ public image, avoid the necessity of government regulations, prevent against aggravation of basic problems, and, above all, are ethically desirable. On the other hand, opposite aruments do serious restrictions to the viability of business actions that does not aim profit, at the risk of a business’ paralysation.
Galbreath (2009; 127) cites Halal (2000) who draws a model of profit-centered and social responsibility-centered organizations:
Figure 3 – Source: Halal (2000 cited by Galbreath, 2009; 127)
The literature still has gaps whether Corporate Social Responsibility and profitability have a relationship, and the concept is still questionable. Nevertheless, in overall, we can conclude that CSR can probably improve the organizations brand image, especially socially and environmentally saying.
“Social obligations should not be seen as just another cost. On the contrary, a clear CSR strategy could improve profitability because it will reduce costs by helping to enhance positive social effects and avoid the negative. Furthermore, such a strategy will help align corporate and social values, and because of this may well identify new commercial opportunities” (Shrivastava et al, 2007; 180).
2.9 Corporate Social Responsibility and Corporate Social Performance
As defined by Wood (1991; 693 cited by Crane, 2008; 115) Corporate Social Performance is “a business organization’s configuration of principles of social responsibility, processes of social responsiveness, and policies, programs and observable outcomes as they relate to the firm’s societal relationships”. According to him, this definition involves a broader aspect than the Corporate Social Responsibility’s definition and is different from the term Corporate Financial Performance (Crane et al, 2008).
In his book, ‘The Competitive Advantage of Corporate Philanthropy’, Michael Porter assures how a company can achieve its maximum potential by linking economical and social goals (Gugler and Shi, 2009). “Porter and Kramer (2003, cited by Gugler and Shi, 2008; 4) further postulates that a strategic approach to corporate philanthropy can align both economic and social objectives.”
“A survey by the Economist Intelligence Unit on ‘‘The Importance of Corporate social responsibility’’ indicated that whereas 54% of executives in a global survey in 2000 said that the notion of CSR was ‘‘central’’ or ‘‘important’’ to their corporate decision-making, that figure has grown by 2005 to 88% of executives surveyed” (EIU, 2005 cited by Gugler and Shi, 2008; 5).
2.10 Corporate Social Responsibility and Competitiveness
Studies about the relationship between Corporate Social Responsibility and Competitiveness have been intense along the past decade.
Traditionally, “pollution abatement and environmental performance improvements are expected to have decreasing marginal benefits.” This can be seen especially in the work of Wagner (2005).
However, there are proponents who argue that responsible and sustainable practices followed by a company leads to cost savings, like for example, reduction of pollution, consumption reduction of energy, practice incorporated by Alcoa Incorporation in Brazil, lower expenditures with litigation or insurance, etc.
Additionally, CSR and a good knowledge by the employees of the company’s practices can increase employee motivation and lower indices of turnover.
This means that a well-managed social responsibility strategy can help the company in taking advantage of new opportunities in the market to increase its performance, which also means that an ethical culture also helps providing stability to the organization improving its competitiveness in the marketplace.
2.11 Theories to Analyse and Explain Corporate Social Responsibility
Related to the topic above but as a matter of facilitation to the understanding of the subject, different theories are involved with the concept of Corporate Social Responsibility and Profitability. They have slightly variations according to one author to another but eventually define the same characteristics:
2.11.1 Stakeholder Theories
This theory analyses those groups to whom the company should be responsible for, the stakeholders (Moir, 2001).
Freeman's (1984; 46 cited by Moir, 2001; 19) definition of a stakeholder is “any group or individual who can affect or is affected by the achievement of the organization's objectives.”
211.2 Social Contracts Theory
Gray et al (1996 cited by Moir, 2001;) ‘Describes society as a series of social contracts between members of society and society itself’. This theory relates the activities of an organization as part of the expectations of the society as a whole and not only its commercial interests (Moir, 2001; Gyves and O’Higgins, 2008).
2.11.3 Legitimacy Theory
Belal (2008; 14) explains that, “Broadly, legitimacy theory indicates that organizations may try to legitimise their activities by engaging in CSR reporting in order to get approval from society in support of their consistent existence and ‘license to operate’”.
Apart from the theories cited above, many others were created to explain Corporate Social Responsibility, profitability and its impacts in the society; however, those are the most common ones.
2.12 Corporate Responsibility in Emerging Markets
With the advent of globalization, governments and companies had to find out ways of expanding their relations and businesses throughout the world, not only with the enhancement of communication practices but along with the expansion of different strategies giving emphasis to Corporate Social Responsibility and Sustainable Development.
“The Dow Jones Sustainability World Index (DJSI World) comprises the leading companies in terms of sustainability around the world. It captures the top 10% based on long-term economic, environmental and social criteria out of the biggest 2500 companies worldwide” (DJSI, 2009; 1).
According to those indexes, many emerging markets like Brazil are becoming interested in the concept of Corporate Social Responsibility and Sustainability.
The argument in pro of CSR is that, “A visible commitment to CSR can help emerging market firms attract multinational partners, access international sources of capital, and reach socially-conscious consumers with their products and services. It also better positions IFC (International Finance Corporation) investments to make lasting contributions to local development” (www.ifc.org)
Governments are taking advantage of Corporate Social Responsibility practices in order to enhance competitiveness, achieve sustainable development strategies, attract foreign investment, and gain a better position in the market place.
2.13 The Business Social Responsibility in Brazil
According to Griesse (2007; 31) “The first business organization to address the area of corporate social responsibility in Brazil was the Associacao de Dirigentes Cristaos de Empresas do Brasil (ADCE–Brasil), a branch of the International Christian Union of Business Executives (UNIAPAC), which since its foundation in Sao Paulo in 1961 has grown into a national network”.
After that, many other institutions were created in order to promote high ethical standards in business: Instituto de Desenvolvimento Empresarial e Social (FIDES) founded in 1986, Pensamento Nacional das Bases Empresariais (PNBE), ‘‘National Thinking on Business Foundations,’’ formed in 1987, Grupo de Institutos, Fundac¸o˜es e Empresas (GIFE), the Group of Institutes, Foundations and Companies, The Associacao Brasiliera dos Fabricantes de Brinquedos (ABRINQ), the Toy Manufacturers’ Association, Associacao Brasileira de Empresarios pela Cidadania (CIVES), the Brazilian Association of Business people for Citizenship, The Conselho Empresarial Brasileiro para o Desenvovlimento Sustentavel (CEBDS), the Brazilian Business Council for Sustainable Development, founded in 1997 (Griesse, 2007).
The World Business Council for Sustainable Development affirms: “In Brazil, public support for corporate responsibility is very high and some of its domestic corporate responsibility organizations – like Instituto Ethos – are genuine role models for how business' involvement in communities can be encouraged” (www.wbcsd.org).
As said in one of the topics above, The Ethos Institute was created in 1998, with the objective of disseminate the concept of corporate social responsibility and make sure that this practice would become part of the daily activities of organizations (www1.ethos.org.br).
As a result of a growing economy, the corporate sector in Brazil has been taking a significant role in social responsibility. Especially multinationals corporations like Alcoa Inc., Vale do Rio Doce, Nestle and many others, are becoming increasingly aware of their responsibilities towards their stakeholders, pursuing environmentally friendly practices regarding the use of resources and energy, others have developed projects with NGOs or public institutions (Griessi, 2007).
In 1992, the first United Nations Conference in Environment and Development (Earth Summit) was held in the city of Rio de Janeiro – Brazil and had as one of its main aims “protecting the planets environment and improving life for the most impoverished of its human inhabitants. In addition, the several-hundred-page text known as Agenda 21 set forth a series of guidelines that have served as tools for local environmental movements …” (Bruno and Karliner, 2002; 3)
Yet, “the full implementation of Agenda 21, the Programme for Further Implementation of Agenda 21 and the Commitments to the Rio principles, were strongly reaffirmed at the World Summit on Sustainable Development (WSSD) held in Johannesburg, South Africa from 26 August to 4 September 2002” (www.un.org)
2.14 Sustainable Development
As Forrant et al (2001; 17) points out, “Sustainable development is a process that links economics and politics. As such, it should be studied in terms of the industrial, organizational, and institutional conditions that can promote economic growth that is stable, equitable, and environmentally sound.” This notion is known as ‘ecomodernist discourse’ (Robbins, 2001)
“As such a normative concept sustainable development is based on a number of fundamental ethical ideas. One of these fundamentals is the Kantian Categorical Imperative ‘Act only according to that maxim whereby you can at the same time will that it should become a universal law’” (Kant, 1993; 30 cited by Hahn, 2009; 315).
In spite of being subject of ethical frameworks such as “Bentham’s utilitarism (including, of course, his allusions to the rights of animals), or Kant’s categorical imperative”, or other examples, “based on virtue ethics focused on sustainable decisions and the emergence of environmental pragmatism (Gurdorf and Hutchingson, 2003 cited by York, 2009; 101); ethics has been seen under an ample angle in the past decades.
Especially by developed economies, ethics now involves not only the economic or human side of a business relation but also the environmental one, being called ‘environmental ethics’ (York, 2009).
In spite of most of the literature focuses only on the environmental aspect, the term sustainable development does include various economical and social aspects (Nemetz, 2003 cited by Brenkert, 2004).
The work of Hopwood et al, (2005; 39) clearly exemplifies: “The concept of sustainable development is the result of the growing awareness of the global links between mounting environmental problems, socio-economic issues to do with poverty and inequality and concerns about a healthy future for humanity. It strongly links environmental and socio-economic issues.” He also adds: “The first important use of the term was in 1980 in the World Conservation Strategy (IUCN et al., 1980 cited by Hopwood et al, 2005; 39).
On the other hand, Haughton (1999 cited by Hopwood et al, 2005; 40) “has usefully summarized the ideas of sustainable development in five principles based on equity: futurity – inter-generational equity; social justice – intra-generational equity; transfrontier responsibility – geographical equity; procedural equity – people treated openly and fairly; interspecies equity – importance of biodiversity”.
“A more pragmatic view is that of Hilson and Murck (2000; 227–228 cited by Enriquez and Drummond, 2007; 73), According to them the Brundtland report (WCED, 1987) defines sustainable development in a manner that fails to “outline an effective sustainability framework for any industry to follow.”
Summing up, all those views of sustainable development in their different ways, try to link the importance of a ‘Pestel’ analysis (political, economical, social, technological, environmental and legal) in business, and the necessity of a balance between all those sectors with government and society.
Economic growth, development, and globalization, however, have their negative impacts contributing to the growth of poverty, inequality, diseases, climate change, biodiversity imbalances etc. The necessity of healing problems of sheltering, starvation, and health sometimes live little space for issues like the environment.
Different approaches were created to explain and try to solve problems of the imbalance of all those sectors especially in developing countries (It is assumed here that the term developed and developing countries are already known). The first approach used to associate increasing production to economic growth, which over the time could overcome problems as poverty (Hopwood et al, 2005; 39).
Another approach sympathises with the called ‘status quo’, supporting that “business are drivers towards sustainability”… actually, they “are reluctant to use laws and regulations. Instead, consumer power, informed about sustainability issues and based on lifestyle choices, will combine with ‘green’ capitalists who practice ‘corporate citizenship’ and ethical business to achieve sustainable development (Elkington and Burke, 1987 cited by Hopwood et al, 2005; 42). Their belief is that technology can easily replace nature (Hopwood et al, 2005; 42).
Reformists, on the other hand, claim that “new technologies will provide wider economic and social benefits for humanity as well as protecting the environment”. They believe governments can help business with its regulations, taxations etc (Hopwood et al, 2005; 44) In contrast, “transformationists see mounting problems in the environment and/or society as rooted in fundamental features of society today and how humans interrelate and relate with the environment. They argue that a transformation of society and/or human relations with the environment is necessary to avoid a mounting crisis and even a possible future collapse, etc (Hopwood et al, 2005; 45).
One of the most important associations related to sustainable development is the World Business Council for Sustainable Development. It is drawn by 35 countries, 20 different industry sectors and where 200 companies deal exclusively with business and sustainable development. (www.wbcsd.org)
According to Andriof et al (2002; 217), based on the WBCSD mission statement, “The Council’s aim is to provide business leadership as a catalyst for change towards sustainable development and to promote the role of eco-efficiency, innovation, and corporate social responsibility towards sustainable development” (Andriof et al, 2002; 217).
Sustainable development is defined by the World Commission on Environment and Development (1987) as a “development that meets the needs of present without compromising the ability of future generations to meet their own needs” (Lawrence et al, 2005; 213).
The challenge here is how to promote development and business economic performance acting in a sustainable development way? Different views are drawn: some authors affirm that economic performance, and environmentally actions are negative or an inversely U-shaped form (Wagner, 2005; 88).
Environmentalists, for example, “will argue that environmental goods are beyond value and thus cannot be part of cost–benefit analysis, this argument, when applied in a business setting, ignore the fundamental reality of corporate operations” (York, 2009; 106).
However, the practice shows that many different companies have been successful using a well-managed sustainable strategy always aligned to the government’s sustainable strategy.
According to information from the UN Division for Sustainable Development (UNDESA, 2004) over a third of all countries had at least initiated the development of Sustainable Development strategies by the end of 2003 (Meadowcroft, 2007)
One of the most famous examples of competitive advantage using a strong sustainable development strategy, as found in its website, “Our commitment to seeking and sustaining natural materials and ingredients, and using all our planet’s resources wisely, guides our approach to business” ( www.thebodyshop.co.uk)
In fact, the drawback of sustainable development is probably not the concept itself, but how strategists use it within the strategic process of a company.
Meadowcroft (2007; 155) points out that “national strategies are one tool that governments can use to enhance strategic decision making for sustainable development,” therefore helping organizations with its own sustainable development process.
The main point when talking about sustainable development is the growth in awareness from businesses and society in relation to the environment aspect.
Hind (2009; 8) emphasises: “The rising importance of this new business awareness is indicated by the fact that over 2000 companies have now signed up to the ten principles of ‘‘global corporate citizenship of the global compact’’ launched by the UN in 2000, covering human rights, workplace safety, justice, anti-corruption ILO standards, and environmental impact. Henderson (2006) reports that some 77 per cent of CEO’s of major corporations surveyed by KPMG and the World Economic Forum in 2005 said that higher ethical behaviour was ‘vital to profitability’.”
What is important bear in mind is: What has been driving companies to act in a sustainable way? Concern about future generations? Increase in performance and competitive advantage? Strict government regulations? Globalization? In addition, how is society contributing to reinforce actions on sustainable development?
Hahn (2009; 317) points out some different interdependent phenomena that contribute to public awareness towards corporate behaviour: “A growing influence of multinational corporations; More complex (global) problems and global action spheres; The loss of governmental influence and control; A growing influence of certain civil society actors.”
Intrinsically related to the context of sustainable development is environmental sustainability and one important point that cannot be forgotten here is the fact that sustainable development has been used as a synonym for sustainability.
Besides some authors use both terms interrelated, others clearly separate their meanings. As Dunphy et al (2003; 22) points out “They cannot be defined in the same way that physical scientists might define the standard metre.” He also adds “Sustainability and sustainable futures are treated here as the goals or endpoints of a process called ‘sustainable development’.
“The central idea of sustainability is to prescribe and implement new usage of natural resources (Turner, 1993 cited by Crane and Matten, 2007; 499). With regard to renewable resources, such as wood, agricultural products, water, or air, the key principle would be not to use those resources beyond their capacity of regeneration. The more critical issue though are the so-called non-renewable, such as coal, oil, minerals, metals, and other key resources of modern industry” (Crane and Matten, 2007; 499)
In fact, sustainability is referred not only with environmental practices, but also embraces the long-term maintenance of systems according to economic and social aspects (Crane and Matten, 2007)
DeSimone and Popoff (2000; 79) affirm that “A final difficulty is that even if an individual organization can demonstrate that its activities and products are becoming more eco-efficient, this says nothing about its sustainability. When markets are expanding rapidly, for example, any improvements in the eco-efficiency of making products may be outweighed by the effects of increased numbers in use and/or their greater utilization. The effects of some products and processes will also be unsustainable even with radical improvements in their eco-efficiency.”
2.15 Environmental Management
Another interrelated term used to sustainable development and sustainability is environmental management.
De Graaf et al (1996; cited by Enriquez and Drummond, 2007; 72) emphasizes: “That means that only one aspect — physical deterioration of the natural environment — is being considered, while economic and social issues, which are of central importance, are being ignored.”
On the other hand, Hopwood et al (2005) using the Pinchot’s example, affirms that rather than being irresponsibly exploited, natural resources should be managed to ensure its long-term use.
In the context of environmental management the sustainable development definition given by Buultjens (2005) is more appropriate because utilizes the term ‘Ecological Sustainable Development’, which leads to an environmental aspect that according to him “has been suggested as a means for ensuring economic growth” (Buultjens, 2005; 57).
The term environmental management relates more to the strategic process of a company and its environmental mission statement, which is how the company will manage with its economic growth and the natural resources that it uses or exploit.
2.16 Social Responsibility and Sustainable Development: Legislations, Policies, and Regulations in Brazil
Legislations, regulations, and policies have been given incentives and play an important role regarding CSR and Sustainable Development in Brazil.
By a way of example, we can cite the law that establishes the National Politics of the Environment - Law 6.938, of 31 of August, 1981; The Water Law - Law 9.433, of 1997; Resolution 237, a form of accomplishment to the use of the licensing system as an instrument for environmental management; The Environmental Criminal Law – Law 9.605 of 1998; The Federal Law n. 9790, of 23/3/1999 (www.cebds.org.br).
With regard to sustainable development, Brazilian environmental policy implemented by the federal government in the early 1980s was based on regulatory instruments such as licensing, and it required environmental impact studies” (Griesse, 2007; 33).
In this context, imperative was the advent of Law 9,985, of 18/07/2000, that it instituted the National System of Units of Conservation of the Nature; The Decree 4.340, which determines in its Chapter VIII the main beddings of the ambient compensation; A ação do Conselho Empresarial Brasileiro para o Desenvolvimento Sustentável (The action of the Brazilian Enterprise Advice for Sustainable Development (CEBDS)) among others (www.cebds.org.br).
“In May 2003, ICMM’s CEO-led Council committed corporate members to implement and measure their performance against 10 principles. The principles are based upon the issues identified in the Mining, Minerals and Sustainable Development (MMSD) project - a two-year consultation process with stakeholders to identify the issues relating to sustainable development in the mining and minerals sector. These issues align almost completely with those identified in the Extractive Industries Review chaired by Dr Emil Salim” (www.icmm.com).
Not less important, but probably one of the keys for Sustainable Development is the ‘Conselho Empresarial Brasileiro para o Desenvolvimento Sustentavel’. “Fundado em 1997, o CEBDS é uma coalizão dos maiores e mais expressivos grupos empresariais do Brasil. Com faturamento anual correspondente a 40% do PIB nacional, nossas empresas geram juntas mais de 600 mil empregos diretos e um número mais expressivo ainda de empregos indiretos. Mas o CEBDS não atua sozinho. Como representante do World Business Council for Sustainable Development (WBCSD), que conta com a participação de 185 grupos multinacionais ” (www.cebds.org.br)
As another example of incentive given to companies, particularly those who operate internationally, is the ISO 14001, a Certificate for Environmental Responsibility given by the International Organization for Standardization.
“Between 1998 and 2003, 459 companies were awarded the ISO 14001 certificate in Brazil by Inmetro, the National Institute of Standardization and Industrial Quality” (Enriquez and Drummond, 2007; 76).
2.17 Social Responsibillity and Sustainability Auditing Report
According to Schaltegger et al (2006; 4) “In this view, the term ‘reporting’ is not limited only to external reporting as it is in financial reporting but rather encompasses the whole information communication process, internally as well as with external stakeholders”
“The expression “social auditing,” reminiscent of the 1940s, is often heard in debates about the social responsibility of corporations” (Enriquez and Drummond, 2007; 76), however, in Brazil the social auditing term is very recent.
“Brazilian companies, mainly started to report on social and environmental activities since the late 1990s with the development of social reporting model for companies (Social Balance) by the Brazilian Institute of Social and Economic Analyses (IBASE) which was further developed by the Ethos Institute in 2001 by publishing a CSR reporting guide (ACCA and CorporateRegister.com, 2004 cited by Belal, 2008; 125).
“The term sustainability report is usually used to refer to the publication of external reports, as either printed brochures or electronic versions on the internet. (Schaltegger et al, 2006; 4)
2.18 Corporate Social Responsibility as a means of achieving Sustainable Development
Corporate Social Responsibility and Sustainable Development are concepts of major importance especially within this century where environmental issues play a big role.
Some authors use the term Corporate Social Responsibility and Sustainable Development as two different approaches, however, as we could see on the literature explained above, apart from being two different concepts they relate to the same ethical aspects, like for example, social and environmental issues.
Researches have shown that Sustainable Development and Corporate Social Responsibility have become ubiquitous terms, used by multiple players in different contexts worldwide, but there is a lack of consensus on what they mean (Heincke, 2006).
May et al (2007; 381) based on the WBCSD’s mission statement defines CSR in relation to sustainable development: “the commitment of business to contribute to sustainable economic development, working with employees, their families, the local community and society at large to improve their quality of life.”
Watts et al (1998, cited by Yakovleva, 2005; 40) affirms this statement: “The WBCSD views corporate social responsibility as the third pillar of sustainable development along with economic growth and ecological balance, and therefore, a key component for a sustainable future.”
In fact, we can interpret the relationship between Sustainable Development (SD) and Corporate Social Responsibility (CSR) under different perspectives. However, the major themes of Corporate Social Responsibility are aspects also covered by Sustainable Development, which includes not only environmental issues but also concerns related to business ethics, human rights, labour etc.
The two terms are intrinsically interrelated; however, Sustainable Development has usually more involvement to the government’s policies, but as said before all this derives from the fact that the concept is still vague.
In this context, “There is a technocratic view that sustainable development can only be made ‘operational’ in policy terms if a single and precise meaning can be agreed upon” (Dobson, 2004; 25). In contrast, There is a political concern among the environmentalists that the lack of clarity of the defin
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