A European strategy to promote CSR across Europe
With the high-profile collapse of companies like Enron and WorldCom hitting media headlines worldwide, public attention has focused sharply on corporate governance and integrity and companies' attitudes not only to their shareholders, but also to their workers and the wider society.
It is an appropriate time, then, for the G-8 to address the issue of Corporate Social Responsibility (CSR). The European Commission has adopted a strategy on CSR, as a follow-up to the Green Paper on CSR published in 2001, which launched a wide debate, with almost 300 written responses showing a high level of support for EU action in this field.
The historical background to CSR
CSR is not a new phenomenon. Exploring the historical roots of CSR provides insight into the evolution of the role of enterprise in society.
The industrial revolution in the 19th century broke up existing social networks like family, church and neighbourhood. The loss of social support was partially compensated by associations of workers. In addition a few socially responsible entrepreneurs organised welfare funds (illness, old-age, etc.) and provided some form of welfare facilities for their workers, as well as education for their children. Workers, however, had no say in the management of welfare facilities and funds.
There were various motives for these early socially responsible enterprises: fear of labour unrest and social radicalism, the desire to keep the trade unions out of the factories and the entrepreneur's sense of duty dictated by liberal or religious convictions. There were also commercial motives, such as the desire to attract better workers. To bind workers to the company, the regulation of the various welfare schemes, particularly in large companies, ensured that the employees would lose their rights to the amounts already saved if they left to work at another company.
Socially responsible business was by no means universal during the 19th century. Employers who provided welfare did so voluntarily, as there were scarcely any legal obligations on them to do so. There were major social problems and working conditions in many companies were often dreadful. This led to recognising the need for further social legislation leading to the social security system. Socially responsible employers, like other employers, objected to social legislation not because they were opposed to a social security system but because they objected to an obligation imposed by public authorities.
Another important factor was the arrival of trade unions and the development of their ideas on social issues at the end of the 19th century. The first trade unions concentrated on representing the interests of their members, especially over wages and working hours. They also established funds to provide assistance during illness, in old age and in the event of death.
For a long time governments adopted a hands-off policy on social matters. The debate on social security raised questions about how much influence governments should have and what matters should be arranged collectively or privately. The crisis of the 1930s influenced the answer which came after the Second World War with the creation of public social security schemes. Governments gradually implemented the system of social security.
With the introduction of public social security the focus of socially responsible business shifted from providing welfare services for the company's own employees to issues of concern beyond the walls of the company itself. In the 1960s and 1970s the issue of human rights and fundamental labour standards arose. Then during the 1970s, came the concern for the environment. There was a growing realisation that production, distribution and consumption were having an increasingly negative impact on the environment.
So the manifestation and content of CSR has changed over time, depending on time and place. A common thread that runs through the changing manifestation is a certain complementarity between government, business and social organisations with respect to solving societal problems.
In the past few decades a number of trends have had a major impact on social and economic relationships in Europe. Better educated people having more purchasing power are far more vocal in expressing their individual preferences on many subjects. Growth in real income has translated into a greater emphasis on a good standard of living, social cohesion and other aspects of the quality in society. In contrast governments have not been able to keep pace with liberalisation and globalisation of economic relations, while enterprises and civil society organisations have become considerably stronger.
Today business is more and more expected to take on new social responsibilities. Thanks to the development of technology, information about cases of bad business behaviour is quickly known to a wide public and NGOs which increasingly hold business directly accountable.
The Commission defines CSR as "a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis."
It argues that, whereas in the past, company management tended to focus solely on maximising short-term profits, in the modern globalised economy the 'triple bottom line' is increasingly seen as important to business long-term success. In other words, good behaviour creates shareholder value.
Corporate social responsibility is also seen as an important contribution to making Europe more competitive and socially cohesive in a sustainable manner. It should not be just a public relations exercise, but should lead companies to reassess and reorganise their core business activities, and ensure they manage risk and change in a socially responsible way. It is one element of a new approach to corporate governance and, ultimately, companies that adopt a CSR approach should know that it is in their long-term interests. In the current climate, knowledge and innovation are a high priority for companies, and socially responsibly practices can help them to recruit and retain skilled staff.
Many issues need to be tackled, to raise general awareness of CSR. There is not enough knowledge of the business case, and building a solid body of evidence could be a major contribution to furthering acceptance of CSR in the business world. Small and medium-sized enterprises (SMEs) in particular need to know more about the potential benefits of socially responsible practices. General and business education also should address CSR principles.
CSR is defined as voluntary, and some commentators have drawn attention to the lack of independent assessment of companies' social and environmental performance. So there is a need to make CSR initiatives more transparent and more credible.
This is why the Commission has set up a European multi-stakeholder forum on CSR. The CSR forum will facilitate the exchange of experience and good practices with a view to establish common guidelines for CSR tools such as codes of conduct, reporting, labelling and socially responsible investment. The Forum will draw together business, trade unions and civil society. The Commission believes that the success of CSR in Europe will ultimately depend on its widespread 'ownership', with all stakeholders feeling they have a say in how it is developed and applied.
The Commission also plans to integrate CSR principles into all its policies, including employment and social affairs, enterprise, environment, consumer issues, public procurement, external relations, development and trade. In 2004, the Commission will publish a report on progress, including results from the CSR Forum.
For more information, please contact:
DG Employment and Social Affairs, European Commission