AEIR 2018


8
Sep
2014

Paradigm shift: business as development partners through corporate social responsibility

Unilever partners with UNICEF and other agencies in tackling the lack of sanitation facilities in Ghana. Microsoft commits to providing skills training and entrepreneurial assistance to the youth. Google allocates free ad space to charity organizations, offers education assistance, and supports relief operations.

These are just some reports showing corporate responsibility as a growing trend in the business scene. Before, social benefits brought by private investments were simply positive externalities induced by country regulations. Nowadays in this Digital Era where information empowers consumers, good reputation is becoming a factor to companies’ success. Firms are now consciously integrating responsibility and accountability in their business model, oftentimes turning it into a selling proposition to consumers.

This is even more relevant in the global value chains, where accountability is complex, given how tasks along the production chain have been scattered around the world. This complexity provoked disasters such as the Rana Plaza collapse that claimed more than a thousand lives in Bangladesh, perpetuated slave labor in developing economies, and fuelled clashes in African countries through sourcing of conflict minerals from armed groups. Companies embroiled in these fiascos have since then pledged accountability by compensating damages, policing subcontractors, and increasing transparency, among others.

However, such tragedies need not be the trigger to encourage sustainable and socially responsible operations. Corporate social responsibility (CSR) can be harnessed by countries as a powerful tool in pursuing socioeconomic development, in line with government objectives.

 

As public-private partnership in service-delivery

CSR can be an avenue for public and private partnership in delivering public services, especially those which are lacking due to limited government resources. Examples are health and education infrastructure, and even services like medical assistance and scholarships that are scant—if not absent—when relied upon government alone. Case in point is the Philippine mining industry, where such provisions form part of the Social Development Management Program of large-scale mining companies as mandated by law.

Other forms of CSR activities are on the sustainability side. Governments are charged with the delicate task of balancing economic development and environmental management. While country rules typically prescribe Environmental Impact Assessment procedures to minimize harm on the environment, there remains the moral hazard problem of companies failing to stick to their commitments.

The problem is compounded when regulatory agencies lack the capability to monitor and implement rules and penalize violators. Fortunately, voluntary transparency mechanisms like the Global Reporting Initiative allow firms to report their sustainability performance to the public. Meanwhile, some industry-specific mechanisms that are led by governments, such as the Extractive Industries Transparency Initiative, engage private sector cooperation.

Sustainability is not only about the environment, it also takes into account local resources and their capacity to sustain progress. Foremost is human capital, which can be developed when companies provide beyond livelihood and employment, such as knowledge transfer and skills training. At the very least, proper working conditions as part of human rights should be respected, a concept well-acknowledged in the international community.

Going the extra mile, if private firms are able to provide physical infrastructure such as power, roads, and transport facilities, then communities are further opened to other market opportunities. While these are government responsibilities, there have been many instances where the private sector has stepped in to fill the gap.

 

Providing incentives, maximizing the gains

Capturing social gains from private investment requires the right incentives. While CSR must come from the “heart” of the corporation—that is, embedded in company policy regardless of external pressure—governments must be able to create an environment conducive for CSR to materialize and flourish.

This starts with private sector engagement, one that looks at private firms, especially multinational corporations, as partners and not as antagonists or intruders. Coordination and collaboration among all stakeholders, particularly civil society, are needed to ensure that CSR efforts address real gaps and actual demand; and that they are not redundant, nor will go to waste. However, governments must remember that CSR initiatives are meant to supplement and not supplant public services. Overdependence could work against sustainability in the long run.            

Moreover, the transparency and accountability standard is not applicable only to the private sector. Governments must have the moral ascendancy to enforce laws, regulate and monitor firms, and penalize violators by also being transparent and accountable themselves. This way, private firms won’t be wary in dealing with the government and in following regulations. In short, good governance in both sectors matters.

Lastly, positive reinforcement should also be promoted other than the usual stick incentive. Fiscal incentives and other perks could be useful tools to encourage CSR practices among companies. After all, business is business, and companies are forced to follow optimization constraints of maximizing profits and minimizing costs. Removing some of CSR’s financial costs could push the delivery of development-oriented services, and in turn, help the government generate better outcomes in the society.

The views expressed in this blog post are the views of the author and do not necessarily reflect the views or policies of ARIC, the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ARIC does not guarantee the accuracy of the information and data included in this blog post and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with official ADB terms.