Corporate Social Responsibility and Environmental Management

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The performance of the modern corporations is heavily dependent on business activities as well as its role for sustaining long term reputation and good will, which in general called corporate social responsibility (CSR) of firms. CSR is the subset of firms' overall corporate governance practices regarding business procedures, legal and ethical practices with the focus on investors rights protection and social stakeholders of the firm. During past few decades, this role of the firms in the society has been as issue of growing public awareness. Many firms contributing towards economic growth have been blamed for creating social problems in the society. Some of the issue researched most, include long corporation power, employer safety and health, environmental proactiveness, waste management, resource depletion and product quality (Mitra et al. 2008). The corporations are induced to be accountable to a wider set of audience than share holders only. Friedman's (1962) doctrine that the only social responsibility of the manager is to maximize the profit of shareholders is not universally acceptable; rather the role of the corporate governance is to maximize the share holders' wealth along with sustaining appropriate returns for all other societal stakeholders. Studies have proved that awareness is being growing on the part of firms putting an obligation to help society even if it earns loss or profit (Wise and Ali, 2008).

During the mid 1970's, various accounting institution began to consider social disclosures in company's reports due to the criticism of using profit as the final mean to evaluate corporate performance. Moreover the researcher also began to articulate the different theories in this regard i.e. agency theory, legitimacy theory, stakeholder theory and political economy of accounting theory (Belkaoui and Karpik, 1989; Gray et al.1988; Guthrie and Parker, 1990; Patten, 1991, 1992; Roberts, 1992; and Gray et al.,1995a). However, there is still no consensus exists on the generally accepted frame work of the accounting for corporate social responsibility (Mitra et al., 2008). Despite of this

lack of consensus about why firms report social responsibility information, an increasing number of local and multinational firms started disclosing their activities of social responsibility in their annual reports voluntarily. In this regard, Corporate Social Disclosures (CSD) are defined by Guthrie and Mathews (1985) as the provision of financial and non financial information stated in its annual report or separate social reports relating to interaction with its physical and social environment.

The remainder of the paper has been organized as follows; the second section of the paper develops the theoretical background and model for the paper, the third discusses and analyzes the case study selected for study and final section concludes the paper suggesting some implications for the companies and management.


Majority of the studies in CSR have focused on the developed economies of the world a little work has been done in emerging markets like sub continent. UNCTAD (2004) defined CSR as imparting the social responsibility actions into the business policies and procedures including economic, social and environmental concerns. The minimum standard observed by the organization to compliance with law regarding CSR. The scope of CSR includes the direct as well as spill over impact of organization's actions that may affect society. However the extent of organization social liability is still a debatable issue. Kendall and Kendall (1998) proposed that good corporate governance encompasses an ethical approach, culture, society, organizational paradigms and the balance between the objectives of all interacted parties of organization. There should be a decision making model giving weight to all above stakeholders and there must be accountability and transparency in the actions decisions. However, Talakdar and Bakhtear (2007) reported the top performing sector of Dhaka Stock Exchange in December 2007, i.e. banking sector, indicated a low incidence of corporate social responsibility reporting which is a negative implication of corporate governance in banking sector of Bangladesh. Chowdhury (2006) also considered the environmental perspectives and urged that there is strong need for firms to incorporate environmental responsibility in to their corporate

governance practices & policies and future strategies should avoid manipulation and misrepresentation of the information. Because, in the long run, the choices of being not 'green' may has serious consequences financially and environmentally. Same thing is also observed by Kabir (2007) for Lover Brothers Bangladesh Limited to allocate more resources and time to become a model of 'green' business in its sector and achieve long term benefits. environment. It provides an opportunity for companies to inform stakeholders of their corporate efforts in ensuring that operations and businesses have minimum impact on the environment. Companies should not view environmental reporting as an impediment to their businesses. Instead, they should embrace it as an opportunity to enhance their business. In developing countries, tendency for pervasive regulatory frameworks often tend to prove self defeating in that they only tend to focus on disciplinary actions, rather than providing the corporate sector with an enabling environment for greater compliance on social and environmental standards. Taking a view of Institute of Chartered Accountant of Pakistan (ICAP) has introduced IAS that deals with employees benefits for short term, long term, post employments and termination benefits. Benefits regarding wages, salaries, securities contributions, short term leaves, sick leaves, medical leaves for family and different retirement's benefits are given to employees according to their job status. Disclosures about employee's safety and job security policies ensure public about ethical and moral values of a corporation and attract foreign investments; hence a positive effect is shown on firm's performance. ICAP has launched reporting requirements regarding internal control and disclosure of different risk management systems, yet no particular standard has been developed regarding the external environmental control standard.

In the light of above discussion, the present study provides a link between theoretical perspectives of corporate governance with practices to companies regarding CSR reporting. A company is selected as case study to analyze the corporate social


The selected company has leading business concerns in their respective sector. The major indicator of corporate governance in any country may include establishment of rights of stakeholders, enforcement of regulation and law and order, protection of creditors and customers. Oftenly researchers categorize the reporting of these social actions for the purpose of study. In this regard, current study utilizes the six categorize of CSD propsed by Hackson and Milne (1996).i.e.

(1)environmental; (2) energy; (3) employees; (4)

product; (5) community involvement; and (6) others.

The CSR reporting of that selected company has been analyzed using the above six categories. Rockwool UK Ltd.

Case study : Rockwool UK Ltd

Making 'values' count. How a focus on environmental performance delivers a practical

approach for Rockwool.

The company

Rockwool UK Ltd was established in 1978 and is the UK's leading manufacturer of mineral wool insulation for thermal, fire and acoustic protection. Rockwool UK is based in Pencoed near Bridgend in Wales, where its factory currently employs 440 people. Not surprisingly, the company's vision is to increase sales of its products and continue to build the business.

The parent company, Rockwool International A/S, whose headquarters are based in Denmark, was established in 1937. It has grown and now has 22 factories in 14 countries around the world and employs more than 7,000 people.

Rockwool is a family business that has a strong sense of being part of a local community. This translates into having a responsibility and an obligation to that community. Despite its growth, the business continues to be driven by these values and the family still controls the group's overall direction. Indeed, Rockwool UK's stated values emphasize the need for continuous improvement, improving profitability and the fostering of good relationships with employees and customers and the community.

These values originate from Claus Kähler who joined the business in 1948 and retired as the Group president in 1986. Up until Mr Kahler's death in 2002 the values were referred to within the business as the 'Claus Kähler values'.  They were developed to make sure that the company was engaged in business that was beneficial to the environment and society; and to ensure good communication in the whole organization.

The impact of the Kähler family runs throughout all its operations and is the driving force of the organization. This is substantiated with a rationale that these values are good for business. Kähler's son, Tom, is the current president and chief executive. 

The focus of this case study is on how the environmental performance of Rockwool has helped make the company's values count. 

The drivers

Kähler's values are described in company policies that cover ethics - they way in which the company interacts with society both locally and globally; social responsibility covering issue such as staff training, health and safety and equal opportunities, and the interaction with the communities in which Rockwool operates; environmental responsibility - covering the impacts of Rockwool's operations and the application of its products; and economic responsibility covering the way in which Rockwool does business. The controlling interest of the company is the Rockwool Foundation, an independent charity. This was set up by the family to act as a 'safety net' ensuring that throughout the organization there was the governance in place to ensure that these values were not lost.

To do this Claus Kähler and his brothers and sister donated a large proportion of their Rockwool shares to the Rockwool Foundation. Today the research unit is probably Denmark's most respected non-political think tank for social and economic studies. These studies, for example, on the efficiencies and inefficiencies of the health care system, are used actively by governments on both sides of the political spectrum to make a better society.

Taking action

This conviction to society and the environment came long before CSR. It started in the 1950s when Kahler became the No.2 in the company. For example, he helped set up social terms and conditions for employees such as pension schemes that were well ahead of their time.

More recently, in 1997, still before the term CSR was coined, Rockwool UK was involved with the community and was an active member in local partnerships such as The Prince's Trust. Its community work involved donating part of its premises to the Groundwater Trust. This land provided a site for people with learning difficulties from the Bridgend Day Centre to clear the ground, grow plants and trees, and create a woodland walk.    

So just how is this driving ethos and its resulting policies being translated into actions?

To deliver the environmental corporate policies Rockwool has specific action plans with annual goals that are monitored and reported yearly. As a result new goals are set for subsequent years.  For example, Rockwool in the UK realize it has an obligation to minimize its impacts on neighbors and the local environment. Since 1995 Rockwool actively measured and improved its environmental performance. To do this they committed to produce Life Cycle Inventories of its products. The inventories were surplus to legal requirements and are a total audit of how Rockwool's products are produced covering amongst others; energy use, sourcing of raw materials and transportation.

The inventories record the amount of energy and materials required to make the products and the waste generated.  Other impacts, such as noise, have also been recorded. This regular monitoring has helped the company identifying ways to improve its performance by revealing where levels are high, and how the application of new technology could help. As a result the group announced in 2003 that it had, in 2002, improved annual water consumption efficiency by 2 %, reduced annual dust emissions by 20%, and improved annual energy efficiency by 7%.

Looking specifically at the operations of Rockwool UK, the company's custom made factory is built on a former open cast mine. The office and amenity services are warmed by waste heat from the manufacturing process. Around the site Rockwool has developed a nature study centre and woodland walk for local schools and colleagues to learn about the environment in an enjoyable setting. The development of these facilities has been in collaboration with other organizations such as the Forestry Commission and Bridgend County Borough.

Within the operations Rockwool has set targets for continuous improvements to reduce the company's impact on the environment. Rockwell has been able to improve the recycling of waste on site at Pencoed. This has resulted in a rapid six year decline in the volume and costs associated with waste disposal. In 1997 the cost of taking waste to landfill was £555,000. In 2001 it was down to £136,000, even though landfill costs had significantly increased. Improving recycling has also resulted in an additional 1,041 ton of product being generated from waste. This has led to improved efficiency of around 2%.The fitting of a new combustion and filter system, not required by law, in 1997 has led to emissions of carbon monoxide reducing from 500 tones per annum to less than 10 tones per annum. In 1996 Rockwool set up a closed loop system for its process water, as a result its water use is more efficient and has brought annual cost savings of £20,000.

Rockwool's investment in environmental abatement technologies ran into millions of pounds, and as such represented a risk. With hindsight it was a risk worth taking but at the time there were some detractors that wanted investment in production and productivity.   

The business benefits

Rockwool has been in a strong position to use its environmental performance to demonstrate the company's values originating from Kähler's values. This improved  performance has resulted in increased profits and sales. Savings have been made in costs through energy reductions. In addition, customer loyalty and generation have been important, helped by Rockwool's track record. "Environmental performance is increasingly being rated of paramount importance by our customers" said Brian Roberts, Rockwool UK's Managing Director.

Improvements in Rockwool UK's environmental performance was recognized by winning the Wales Environment award 2002. This resulted in positive publicity both externally and within the Rockwool group. 

Additional benefits include improvements in staff morale and access to a new and expanded set of stakeholders. The latter is a direct result of the shift in focus from inward to outward, away from the factory and onto community groups and schools. The former has been vital in implementing Rockwool UK's change programme as it hinges on staff support to action the changes.

Why is it CSR?

Aside from the business manufacturing a product that is environmentally friendly, the company has demonstrated the value of being committed to effective communication and of working with a wide range of stakeholders.  The overall result has been improved environmental performance.

What next?

Rockwool recognizes the need to sustain and improve its performance. To do this the company sets new annual goals. For 2004 these include an assessment of all gases that cause climate change from its operations; the full integration of its chemicals policy into the factory management systems; and the number of factory accident rates per million working hours reduced to 19.  


The present study shed some light on the corporate environmental practices of a leading company of UK. After the analysis of the case discussed, it can be concluded that the behavior of firm is heavily dependent on the social work and community involvement in the society in which these are operating. Although the traditional finance theory argues that profit maximization is main objective of the mangers; however, business norms have been changed now. The organizations are participating in the welfare of the society and its employees by incurring heavy expenditures for the sustainable and long term development. Organizations are trying to build trust and confidence of the society in the business operations and procedures.

Despite of the fact that, there is no strict law and regulation regarding these CS initiatives of the company, they are making it possible on the volunteer basis. The other facet of these initiatives may be seen as; stakeholders of the industry are getting more aware and conscious of business processes that are having impact on the environment and society.

Corporate governance procedures, including corporate social responsibility, provide a strong foundation to help firms attracting foreign and local investors. Better corporate governance promotes transparency for investors and creditors as well as accountability of managers, hence; progression of organizations and help to develop capital markets. If good corporate governance practices are implemented, then foreign as well as local investors will be attracted creating employment opportunities, equitable redistribution of wealth and endorsing sustainable development of the organizations. These are the main ingredients to develop market.

Finally, the study discussion regarding the corporate social responsibility and initiatives taken by the firm suggest some implications for the other firms in market.

Corporate social responsibility is not a social activity these days; rather, it has become as one of the core business procedures and policies. The firms following these practices are very successful; not only in terms of financial matters, but also sustaining their long term positive image in the minds of customers, investors and other societal members. The choice is in the hands of the management of business concerns; whether they are incurring some expenditures and getting 'green' today or ready to facade pressure and consequences from the stakeholders tomorrow.