Indiana Journal of Global Legal Studies 11.2 (2004) 205-232
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Corporate Social Responsibility and Sustainable Development:
The European Union Initiative as a Case Study
Kristina K. Herrmann*
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— [End Page 205] 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 [End Page 206]
- 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...