Corporate social responsibility and sustainable development: the European Union initiative as a case study.

INTRODUCTION

Multinational enterprises (MNEs) are prime drivers of the trend of globalization. As such, they can be held responsible for the success or failure of sustainable development as it relates to continued economic growth without detriment to the environment and exploitation of the human workforce through inadequate labor standards. Corporate social responsibility is an initiative that has been touted as a possible remedy for the ills of globalization that hinder the realization of sustainable development--that is, inequities in wealth, environmental degradation, and unfair labor practices that are endemic of globalization. This Note outlines the concepts of corporate social responsibility, globalization, and sustainable development and describes the role of multinational enterprises with regard to these concepts. It also summarizes previous methods that have proved inadequate in ensuring that sustainable development becomes a reality, including national approaches, international agreements, and private initiatives.

The Note then considers corporate social responsibility as a potential solution that could lead to the achievement of sustainable development. In doing this, the note examines the implications of adopting a corporate social responsibility regime for a multinational enterprise. The European Union's (EU) initiative in creating corporate social responsibility guidelines is used as a detailed case study for scrutinizing the potential of corporate social responsibility as a viable solution. After analyzing the concept of corporate social responsibility and the need for sustainable development in light of globalization, the Note concludes that while corporate social responsibility may indeed lead to the desired goal--sustainable development--a regime such as that proposed by the European Union is likely to fail because of the lack of a strict enforcement mechanism whereby the actions of corporations operating globally can be monitored and socially irresponsible deeds can be penalized.

A. The Bases of Corporate Social Responsibility

Corporate social responsibility (CSR) has come to the forefront of corporate and economic concerns because of the increasingly globalized nature of business and the so-called New Economy, a knowledge-based, technology-driven environment that has, among other things, affected an increase in stakeholders' access to information. (1) "The premise of the corporate social responsibility movement is that 'corporations, because they are the dominant institution of the planet, must squarely face and address the social and environmental problems that afflict humankind.'" (2) As a mode of implementing human rights, labor, and environmental standards, CSR has long been discussed as a possible remedy to the inequalities created and exacerbated by globalization. It considers that a corporation is not just a self-centered profit-making entity, but that the company and its actions are also integral to the economy, society, and environment in which they occur. Directors and officers are becoming ever more aware that CSR may provide human rights, labor, and environmental protections to the communities in which they live and to the people they employ. The business case for such social responsibility among corporations is becoming clearer as globalization progresses. It includes:

* Managing risks

* Protecting and enhancing reputation and brand equity

* Building trust and 'license to operate'

* Improving resource efficiency and access to capital

* Responding to or pre-empting regulations

* Establishing good stakeholder relationships with current and future employees, customers, business partners, socially responsible investors, regulators, and host communities

* Encouraging innovation and new ways of thinking

* Building future market opportunities. (3)

As such, a social responsibility policy can provide value as a strategic part of a firm's daily activities. Under a strategy that integrates socially responsible practices, a company's analysis of profit, return on investment (ROI), or return on equity (ROE) as the bottom-line should be replaced by a "triple bottom-line" approach, encompassing economic, social, and environmental factors. (4) A company that ignores social and environmental concerns in its activities may have substantial profit or returns in its current state and, therefore, be content to continue its operations at the status quo, but its actions nonetheless have the potential to negatively affect society and the environment. Its potential future profit is thereby diminished when the company does not take a holistic approach to the global business environment.

B. Globalization and the Need for CSR

 
   Globalization is a widely used term that refers to a multiplicity of 
   external activities. [The term can be used] to refer to flows of 
   ideas, images, goods, services, and people that take place within an 
   integrated whole, without regard to territorial or geographical 
   boundaries and often without the direct agency of the state. (5) 

As a preeminent force in today's world, globalization is the trend of denationalization that results from the culmination of political, economic, and non-economic forces. (6) Because it encompasses such vital issues, the process of globalization should not progress unmanaged: (7) it is an indispensable step in the economic and social evolution of the world that, if allowed to go awry, will prevent global sustainable development.

Sustainable development can be viewed in light of the dichotomy between the positive contributions that MNEs make to the economic growth of developing countries and the conflicts of interest brought about by their presence in developing countries. (8) "Sustainable development 'calls for economic growth that can relieve the great poverty of less developed countries, based on policies that sustain and expand the environmental resource base.' ... [I]t 'ensures that [humanity] meets the needs of the present without compromising the ability of future generations to meet their own needs.'" (9) According to the World Commission on Environment and Development, the concept of sustainable development implies some vague

 
   limits--not absolute limits but limitations imposed by the present 
   state of technology and social organization on environmental 
   resources and by the ability of the biosphere to absorb the effects 
   of human activities. But technology and social organization can be 
   both managed and improved to make way for a new era of economic 
   growth. (10) 

As such, "there are 'hard' and 'soft' versions of sustainable development. The hard version would impose real restrictions on the nature and extent of development in the name of sustainability. The soft version treats sustainable development as a set of very general guidelines or goals." (11)

"One of the most significant externalities attributed to globalization is the increasing difference in wealth between the industrialized countries of the North and the economic needs of the developing countries of the South." (12) As market integration becomes a reality, economic interdependence increases, bringing about reliance on developing countries for resources used in or for production. Furthermore, procurement, production, and trade are becoming increasingly global, with companies using supply chains that reach into and across several nations, establishing subsidiaries in foreign countries, receiving investment from and investing in other nations, and in general, taking advantage of trade liberalization.

In light of these many factors, it is clear that the nature of today's global economy calls for something more than a profit-oriented approach by large and small enterprises alike. As globalization increases, so do inequalities among nations with regard to labor standards and environmental regulations, (13) decreasing the likelihood that global development is sustainable.

"The impoverishment of a large segment of the international community ... has become a global problem of the first order." (14) The international community is

 
   gradually recognizing the existential threats to the survival of 
   [the planet] posed by the increasing destruction of the human 
   environment. Ozone layer depletion, global warming, water pollution, 
   soil and groundwater pollution, and vast land areas radiated by 
   nuclear waste have reached dimensions that transcend the 
   capabilities of not only individual states but also regional 
   organizations to cope with these threats. (15) 

Therefore, directors and officers should examine their companies' roles in the global economy, looking at what negative contributions they make to these disparities among developed and underdeveloped nations and what actions they can take to alleviate the consequences. Globalization thus raises the question of what initiatives should be undertaken to create a global economy in which sustainable development is a reality rather than an unattainable ideal. Globalization renders state regulation of corporate action problematic; therefore, if sustainable development is to be achieved, the corporations themselves must adopt CSR initiatives. Admittedly, these initiatives may not promote a corporation's bottom line in the short term; however, in the long term, the public and the corporation will benefit from CSR because it plays a direct role in ensuring sustainable development.

C. The Role of MNEs in Globalization and Sustainable Development

Globalization can be seen as a principal result of the operations of MNEs in the world economy. (16) MNEs introduce into the global economy technologies, trade, and investments that bring the world closer together, both economically and culturally. Over time, MNEs have garnered significant political and economic influence, stemming mostly from the wealth they produce. Direct investment by MNEs in developing countries exceeds inflows from official aid and net lending by international banks. (17) Furthermore, the economies of most U.N. Member States are smaller than the annual revenues of the largest MNEs. (18) The wealth, power, and resources of MNEs …