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Corporate Social Responsibility

Over the years the ways of doing business have significantly changed. Increasing globalisation has led to more and more business activities being outsourced to foreign countries. Although this is an important development in the light of international trade and corporate prosperity, it can put pressure on labour rights, human rights and environmental protection. For example, while the lower costs of outsourcing garment production to foreign countries can be beneficial for western companies and consumers, the terrible disaster at Rana Plaza shows that the safety of foreign workers is not always guaranteed. Moreover, international trade and transport also contribute significantly to climate change.

Given the above, companies must take responsibility for their impact on the environment. Therefore, the generation of profit should not be the sole objective of the company. Serving the other Ps in John Elkington’s Triple-P framework (people and planet) within the company is also of dire importance. Corporate Social Responsibility (hereafter: ‘CSR’) focuses on the creation of long-term value within this framework. This page provides a general introduction to this. This introduction relates to the two pillars on which CSR is primarily expressed, namely standards and reporting. These will be discussed separately. The voluntary nature of these pillars is also explained.

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CSR standards

The first pillar of CSR concerns the applicable standards. It is important to identify what CSR exactly means for business, which can be done both at a broad social level (e.g. human rights) and an industrial level (e.g. safe working conditions in a particular sector). To achieve this, standards are developed at different levels: international or local, and by public or private institutions, or through cooperation between the two. Firstly, standards made by international organisations such as the United Nations (the Ruggie Policy Framework for Business and Human Rights) and the OECD. Secondly, you also have standards set by national governments, often in cooperation with industry and non-governmental organisations (hereafter: NGOs). An example are the Voluntary Principles on Security and Human Rights which were introduced by the United States and the United Kingdom to ensure the protection of human rights in oil and mining companies. Subsequently, standards are also given by individual industries and NGOs. Examples include the Equator Principles for international banking and the Global Organic Textile Standard. Finally, individual companies also make CSR standards in the form of their own private CSR Code of Conduct. Some companies even choose a sustainable enterprise form to emphasise their social responsibility, for example with the French société à mission or the B Corp certification.

CSR reporting

Once the CSR objectives have been identified and laid down it is important to realise them. This is where the second pillar of CSR comes in, namely public reporting. This makes it possible for companies to keep track of their progress in the field of CSR. Because this information is accessible to the public it incentivises companies to take their social responsibility seriously. Moreover, economic and social governance (ESG) reporting is becoming increasingly important to attract investment capital for public companies. This is because it is frequently recognised by investors that socially irresponsible policies create risks that affect not only the company itself, but also society as a whole, and therefore their entire portfolio.

Voluntary nature

Performing and reporting on CSR thus not only benefits the planet and people, but is also important for the overall reputation and financial attractiveness of the company. Nevertheless, standards in the area of CSR implementation and reporting are characterised as soft law. As a result, the effectiveness of CSR depends on how the policy is applied by the company, which means that there is still a risk of green- and bluewashing in companies with a CSR policy. This is also what the criticism of CSR is based on. Although it oversees the assumption of corporate social responsibility, which extends beyond the boundaries of the law, it is not about binding obligations. While a CSR framework can help companies identify and respect the ESG factors relevant to them, which is encouraged by reporting, it does not necessarily lead to change. It is a first step in the right direction, but actually implementing an effective policy in this area is what can ultimately make the most difference to a company’s value creation in financial, environmental and social terms.

This article gave a general introduction to the subject of (international) corporate social responsibility. In several blogs we will elaborate on this topic. Do you still have questions after reading this article and the other (I)MVO articles on the website? Then please contact the law firm Law & More. Our lawyers are experienced in the field of corporate law and corporate governance and will be pleased to help you!

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