Is Corporate Social Responsibility Real Carrot or Veiled Stick?

When companies publicise various social works and engagements, one wonders that they have had corporate social responsibilities. Such kinds of commitments are ‘soft’ so that they effectively lack enforcement.

These days, the notion of corporate social responsibility is also incorporated in major international investment agreements including bilateral investment treaties.

By and large, corporate social responsibility is essentially about the role of business, especially companies in society and the balancing of public and private responsibility.

To what extent does a company have a responsibility to go beyond the law to meet societal expectations? Is the corporate mandate exclusively to deliver a monetary profit to shareholders, or do businesses also have a responsibility to create value for society? Are these goals mutually exclusive? Is corporate social responsibility a genuine ‘carrot’ or a veil for deregulation?

There is a contentious debate over these normative questions, with shifting emphases and fluctuating levels of societal concern. Currently, the issue is unfolding amongst international investment agreements.

Since the United Nations Conference on Environment and Development (UNCED) in 1992, there has been a resurgence of interest in corporate social responsibility, with attention directed at increasing the accountability and responsibility of multinational corporations in addressing environmental and social equity issues.

Groups across all sectors have reacted. The United Nations (UN) spearheaded the UN Global Compact to encourage multinational companies (MNCs) to voluntarily commit to the adoption of global corporate social responsibility principles.

As a result, the International Organization for Standardization (ISO) established the ISO 14000 set of international environmental management standards to help companies mitigate their environmental risks.

At an international level, there is a bundle of soft laws governing companies’ conduct. For instance, the Draft UN Code of Conduct on Transnational Corporations listed the obligations of transnational corporations (TNCs) across a broad range of issues.

It included respect for the sovereignty of the host state and its political system, respect for human rights, abstention from corrupt practices, and refraining from using the economic power of the corporations in a manner damaging to the economic well-being of the countries in which a firm operates.

Likewise, the 2011 Organisation for Economic Co-operation and Development (OECD) Guidelines for multinationals contain a section on “General Policies” which appears to be an emerging consensus on the social obligations of the corporations.

First of all, companies are duty bound to contribute to economic, environmental and social progress with a view to achieving sustainable development.

Secondly, the multinational corporations are under obligation to respect the internationally recognised human rights of those affected by their activities.

Thirdly, multinational companies are under obligation to encourage local capacity building through close co-operation with the local community, including business interests, as well as developing the enterprise’s activities in domestic and foreign markets, consistent with the need for sound commercial practice.

In addition to that, the OECD soft laws oblige MNCs to encourage human capital formation, in particular by creating employment opportunities and facilitating training opportunities for employees and refraining from seeking or accepting exemptions not contemplated in the statutory or regulatory framework related to human rights, environmental, health, safety, labour, taxation, financial incentive, or other issues.

By the same token, companies are also under the mirror of soft obligations to develop and apply effective self-regulatory practices and management systems that foster a relationship of confidence and mutual trust between enterprises and the societies in which they operate.

Thus, they are expected to engage with relevant stakeholders to provide meaningful opportunities for their views to be taken into account about planning and decision-making for projects or other activities that may significantly impact local communities.

Though it is soft law, the OECD guideline says companies are duty bound to carry out risk-based due diligence, for example by incorporating it into their enterprise risk management systems, to identify, prevent and mitigate actual and potential adverse impacts.

To put the exact scope of international corporate social responsibility standards as indicated in the OECD guideline is difficult as, potentially, the phrase could cover all aspects of corporate regulation.

To the paradox, the UN Global Compact contains a more specific set of standards. The ten principles on which the Global Compact is founded concern the areas of human rights, labour, the environment and anti-corruption.

These are said to enjoy universal consensus and are derived from some significant international instruments.

Thus, it is clear that the nuts and bolts of corporate social responsibility hinges upon both an economic, social and ethical dimension in that corporations are expected to conduct their economic affairs in good faith and in accordance with proper standards of economic activity, while also observing fundamental principles of good social and ethical conduct.

In 2011, the UN High Commissioner for Human Rights had adopted another soft law governing the conducts of business.

Later the UN Human Rights Council endorsed the Guiding Principles in its resolution in June 2011. According to the document, corporations are duty bound to respect human rights.

In other words, the responsibility to respect human rights is a global standard of expected conduct for all business enterprises wherever they operate.

It exists independently of States’ abilities or willingness to fulfil their human rights obligations and does not diminish those obligations. And it exists over and above compliance with national laws and regulations protecting human rights.

Besides, business enterprises may undertake other commitments to support and promote human rights, which may contribute to the enjoyment of rights. But this does not offset a failure to respect human rights throughout their operations.

Business enterprises should not undermine States’ abilities to meet their human rights obligations, including by actions that might weaken the integrity of judicial processes.

The international corporate social responsibility of multinational corporations, as the main type of foreign investor, can be seen as a response to popular perceptions concerning the loss of corporate accountability as an effect of economic globalisation.

To this end, it may be said to rest on the obligations that corporations owe to the societies in which they operate since it may be justified philosophically by appeals to a ‘social contract’ and to the need of all actors, including non-state actors, to observe the preservation of human dignity through observance to fundamental human rights.

Internationally, corporate social responsibility obligations may be seen as the quid pro quo (reciprocal) for the protection of investors and investments under international investment protection agreements and international economic rules such as those of the World Trade Organization (WTO).

Logically, investors cannot enter a country as if there was no society or community there, upon which their activities will impact, whether for good or ill. Equally important, the security and profitability of the investment will be closely linked to the investor’s assessment of its feasibility within the context of the society that it enters.

Good investment decisions are made in this light. It is also a major motivation behind increasing corporate concern about the social impact of their investments. The long-term stability of an investment will be enhanced if it can bring tangible benefits to the society in which it is located.

Recently, investment treaties are coming up with exciting developments as they introduced binding obligations as far as corporate social responsibility is concerned though its implementation is going to be seen in practice.

For instance, the 2016 Canada and Mali bilateral treaty made it as a binding commitment. Similarly, the 2016 Ethiopian Model Bilateral Investment Treaties (BIT) also incorporates corporate social responsibility in its preamble part as a guiding norm.

In closing, unless corporate social responsibility is handled correctly, generally the business will ride freely, as a result, it will enhance deregulation of state laws which will, in turn, result in pollution, displacement or relocation of societies. Therefore, if the carrot will not be genuinely handled and monitored, it will turn into a veiled stick.


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