UNDERSTANDING INTERNATIONAL CSR STANDARDS: A COMPARATIVE ANALYSIS
AbstractAssoc. Prof. Dr. Petya Dankova Dr. Milena Valeva Economics and Management of Industry Dept. Research Fellow at EthNa Competence University of Economics – Varna, Bulgaria Center CSR, University of Applied Sciences [email protected] Niederrhein, Germany
Abstract: In this paper we admit that there is demand for orientation and better understanding of the variety of CSR Standards from the perspective of the market actors. For this reason we first discuss the historically build understanding of CSR and introduce some international initiatives and standards. Taking the perspective of the market actor as a participant who needs orientation for embedding the social responsibility in the enterprise and reporting on it to the public, we focus directly on existing CSR standards. We argue that the normative approach of business is underrepresented. Subsequently we compare the most prominent CSR standards. As a result of the comparative analysis, we demonstrate the overlaps and the distinctions as well as the extent and depth of CSR in the discussed standards. Based on these findings we identify types of CSR understanding. Keywords: International CSR standards, CSR concepts, Stakeholder approach, Sustainability. RAZUMEVANJE MEDNARODNIH STANDARDOV DOP: PRIMERJALNA ANALIZA Povzetek: Avtorici dojemata potrebo, da bi se bolje orientirali in bolje razumeli raznolikost standardov DOP z vidika tržnih udeležencev. Zato najprej razpravljata o zgodovinsko izoblikovanem razumevanju DOP in predstavita nekaj mednarodnih pobud in standardov. Uporabita vidik tržnih udeležencev, ki potrebujejo orientacijo, da bi vgradili DO v prakso podjetja in poročanja javnosti o DO, in se osredotočila neposredno na obstoječe standarde DOP. Trdita, da manjka normativni pristop podjetij. V nadaljevanju primerjata najbolj sprejete standarde DOP. Primerjalna analiza jima pokaže, kaj se prekriva in kaj se razlikuje, pa tudi obsežnost in globino DOP v standardih, o katerih razpravljata. Na tej osnovi identificirata tipe razumevanja DOP. Ključne besede: mednarodni standardi DOP, koncepti DOP, deležniški pristop, sonaravnost 1. Introduction The vast literature on CSR confirms the rapidly growing interest in this concept both from an academic perspective and from the perspective of the business practice. CSR has never been more prominent on the political agenda as well as on the corporate reporting agenda than it is today. The international CSR standards are growing in number and in scope. However, from the perspective of the market actors there is still much confusion as regards the specifics of the different CSR standards. The objective of this article is to contribute to an improved and structured understanding of the differing international CSR standards and thus to the further development of CSR concepts and instruments. Seen from the perspective of the practice, we introduce a systematic comparison of the most prominent CSR standards. Regarding our methodological contribution we could emphasize the importance of the perspective of the single market actor (micro level) when introducing CSR standards on the national and/or international (macro) level. In the first section of the article we briefly discuss the historically built understanding of CSR in reference to the sustainability concept, stakeholder view of the firm and business ethics. We also summarize the evolution of the CSR concept on the European political level. In section two we compare the UN Global Compact, OECD Guidelines for Multinational Enterprises, OECD Principles of Corporate Governance, GRI sustainability reporting framework, ISO 26000 Social Responsibility, SA 8000 standard, German Sustainability Code and EFFAS KPIs on ESG as existing and recognized CSR Standards. As a result of the comparative analysis, we demonstrate the overlaps and the distinctions as well as the extent and depth of CSR in the discussed standards. Based on these findings we identify types of CSR understanding. 2. The CSR concept – theoretical and political background Business ethics, stakeholder dialogue and sustainability are among the most prominent concepts that explain the relation between business and society. These approaches are incorporated in the newly released term CSR. As an umbrella term CSR causes difficulties in the interpretation and even more in its practical implementation. The complexity of CSR requires an overview of its origins. The term sustainability has its roots in the forestry of the 18 th century in Germany 1. In the 20th century the definition of sustainability in the Brundtland report is close related to its origins “ Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs .” 2 Hence, sustainability is related to the long term prospective of political economics; the normative approach is widely recognized. The stakeholder approach emerges as a reaction to the shareholder value paradigm and it is therefore based in the first place on the management theories. The fundamental tenet of the stakeholder concept is that the organization should be thought of as a grouping of stakeholders (“those groups without whose support the organization would cease to exist” 3) and the purpose of the organization should be to manage their interests, needs. It is obvious that this analytical concept requires normative approach. Business ethics in turn is applied ethics in business and economics; it emerged as an academic discipline in the 1970s. In the USA business ethics is interpreted as individual ethics and ethics in organizations, whereby in Europe business ethics is rather related to ethics in organizations and political economics. Within business ethics the normative approach (next to the empirical approach) is widely recognized. 4 Hence, the sustainability concept finds its origins in political and economic thinking; business ethics and stakeholder theory the contrary are applied to business and management. The normative approach is widely recognized in business ethics, whereby in stakeholder theory the normative element is rather implicit. In our view, business ethics as a normative approach builds the fundament of the CSR concept, by answering the question “Why should business be responsible towards the society?” Stakeholder management (theory) as an instrumental approach is crucial for the practical implementation of CSR, by answering the question “How can business be responsible towards the society?” Hence, in our view “CSR = Business ethics + Stakeholder approach” and is implemented at the micro level (the organizational level); and sustainability is implemented at the macro level. Therefore in conducting comparative analysis of the popularly called CSR standards in section three we oppose CSR to sustainability. At the European political level the CSR concept was embraced for the first time in 2000 when the European Council made “a special appeal to companies' corporate sense of social responsibility regarding best practices on lifelong learning, work organisation, equal opportunities, social inclusion and sustainable development.” 5 In 2001 the EU Commission presented the Green Paper “Promoting a European framework for CSR” 6 aiming to launch a wide debate on how the European Union could promote CSR defined as “a concept whereby companies decide voluntarily to contribute to a better society and cleaner environment”. In 2002 a broader definition of CSR was introduced: “CSR is a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with stakeholders on a voluntary basis”. The EU Multi Stakeholder Forum on CSR was set up, with the aim of promoting transparency and convergence of CSR practices and instruments 7. In 2005 the EU Commission recognized that CSR “can play a key role in contributing to sustainable development while enhancing Europe’s innovative potential and competitiveness”; and in 2006 the European Alliance for CSR was launched, described as “a political umbrella for new or existing CSR initiatives by large companies, SMEs and their stakeholders.” 8 In 2007 the Commission presented a detailed study of the national CSR public policies across the 27 EU member states 9. In 2008 the European Competitiveness Report concluded that CSR can have a positive impact on firm level competitiveness. 10 In 2009 the president of the EC Barroso declared
1 The term is introduced in 1713 by Hanns Carl von Carlowitz, head of the Royal Mining Office in the Kingdom of Saxony, in order to meet the challenge of a predicted shortage of timber, the key resource of the time. Von Carlowitz indicated the need to care for the renewal of forests that had been cleared and that a balance should be reached between renewal and cutting so that timber could be used for ever, continuously and perpetually. “Schlage nur so viel Holz ein, wie der Wald verkraften kann! So viel Holz, wie nachwachsen kann!”, Von Carlowitz, H.C. (1713) Sylvicultura Oeconomica. 2 World Commission on Environment and Development (1987) Our common future.Oxford: Oxford University Press, p. 43. 3 Freeman, R. E., Reed, D. L. (1983) Stockholders and stakeholders: A new perspective on corporate governance. // California Management Review . Vol. 25, No. 3, pp. 88 106. 4 Donaldson, T., Dunfee, T. (1994) Toward a unified conception of business ethics: integrative social contracts theory. // Academy of Management Review , Vol. 19, No 2, p. 252 284. 5 Lisbon European Council (2000) 23 and 24 March 2000, Presidency Conclusions, http://www.europarl.europa.eu/summits/lis1_en.htm. 6 Green Paper, Promoting a European Framework for Corporate Social Responsibility, Commission of the European Communities, COM (2001) 366, Brussels, 2001. 7 European Multistakeholder Forum on CSR: Final results & recommendations, 29 June 2004. 8 Implementing the Partnership for Growth and Jobs: Making Europe a Pole of Excellence on CSR, Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee, COM (2006) 136, Brussels, 2006. 9 Corporate Social Responsibility: National public policies in the European Union, European Commission, Directorate General for Employment, Social Affairs and Equal Opportunities, 2007. 10 Related the following indicators: cost structure, human resources, customer perspective, innovation, risk and reputation management, and financial performance. European Competitiveness Report 2008, Communication from the Commission, COM (2008) 774, Brussels,, p. 118. that in times of crisis CSR is central to European policy making: “The crisis resulted, in part at least, from a failure by some businesses to understand their broader ethical responsibilities.” 11 In 2011 the EU Commission presented “ A renewed EU strategy 2011 14 for CSR ”12 stating that “the economic crisis and its social consequences have to some extent damaged consumer confidence and levels of trust in business” which calls for new efforts to promote CSR. With this document, the EU Commission put forward a new definition of CSR as “the responsibility of enterprises for their impacts on society”. Further, it states that “to fully meet their CSR, enterprises should have in place a process to integrate social, environmental, ethical, human rights and consumer concerns into their business operations and core strategy in close collaboration with their stakeholders, with the aim of maximizing the creation of shared value for their shareholders and for their other stakeholders and society at large; and identifying, preventing and mitigating their possible adverse impacts.” Hence, though CSR in Europe is implicit by origin 13 and is allocated in the economic and management theories, the political will became a main driver for CSR after 2000. Within this tendency however, the normative thinking, although widely recognized in political theory, still lacks recognition in the academic disciplines of economics and management. 14 This very fact causes difficulties for the organizations in their efforts to implement CSR. In order to support the market actors in understanding the CSR concept and in implementing it into their day to day practice, in the next paragraph we compare the main CSR standards. 3. CSR standards – comparative analysis The most prominent standards used by organizations to adhere to the CSR concept and to report to the public the following: • The United Nations Global Compact / UN CG (launched 1999) is based on the Universal Declaration of Human Rights, The Fundamental Principles and Rights at Work of the ILO, and the Earth Summit Agenda. It postulates ten fundamental Principles concerning human rights, labor standards, protection of the environment and anti corruption which are to be embedded into the signatories’ strategy, operations and culture. • The OECD Guidelines for Multinational Enterprises / OECD ME (adopted 1976, followed by several revisions) are part of the OECD Declaration on International Investment and Multinational Enterprises. They provide voluntary principles and standards for responsible business conduct consistent with applicable laws in the following areas: disclosure, employment and industrial relations, environment, bribery, consumer interests, science and technology, competition and taxation. • The OECD Principles of Corporate Governance / OECD CG (launched 1999, revision 2004) are designated by the Financial Stability Forum as one of the 12 key standards for sound financial systems. They provide guidance for policymakers, regulators and market participants in improving the legal, institutional and regulatory framework that underpins good corporate governance. The Principles cover the following areas: corporate governance framework, shareholders’ rights and equitable treatment, role of stakeholders, disclosure and transparency and responsibilities of the board. • SA 8000 is based on conventions of the ILO, UN and national laws. It is an auditable social certification standard for decent workplaces, across all industrial sectors. It includes the following elements: child labor, forced and compulsory labor, health and safety, freedom of association and right to collective bargaining, discrimination, disciplinary practices, working hours, remuneration. • The Global Reporting Initiative / GRI is a non profit organization convened in 1997 by the Coalition for Environmentally Responsible Economies. In 1999 the UN Environment Program joined the initiative and in 2000 the first sustainability reporting guidelines were published. In October 2006 GRI and the UN Global Compact united in a strategic alliance aimed at providing the global private sector with an opportunity to embrace a responsible business strategy. • ISO 26000 was introduced by the International organization for standardization in 2010. A working group of various stakeholders from 61 countries from all over the world had worked on the development of the standard.
11 Barosso, M., Putting Corporate Social Responsibility at the Heart of our Vision, speech delivered at the General Assembly of CSR Europe, 11 June 2009 12 A renewed EU strategy 2011 14 for Corporate Social Responsibility. Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, COM (2011) 681 Brussels, 2011. 13 In their comparative research in CSR between Europe and the United State Matten and Moon argue that national differences can be explained by historically grown institutional frameworks that shape “national business systems”. They differentiate between ‘explicit’ CSR which is typical for the US and consists of voluntary programs and strategies by corporations that combine social and business value; and ‘implicit’ CSR which is typical for Europe and consists of values, norms, and rules that result in requirements for corporations to address stakeholder issues and that define proper obligations of corporate actors in collective rather than individual terms. Matten, D., Moon, J. (2004) ‘Implicit’ and ‘explicit’ CSR: A conceptual framework for understanding CSR in Europe. // ICCSR Research Paper Series. No. 29. University of Nottingham. Nottingham: UK. 14 See exemplarily about the lack of normative approach in economics and management theories in Germany the work of Valeva, M. (2012): Theoretical foundation of Ethical Banking. Lessons to be learned from Islamic Banking. Gabler Research, Wiesbaden . This standard defines CSR as “the willingness of an organization to incorporate social and environmental considerations in its decision making and be accountable for the impacts of its decisions and activities on society and the environment. This implies both transparent and ethical behaviour that contributes to sustainable development, is in compliance with applicable law and is consistent with international norms of behaviour. It also implies that social responsibility is integrated throughout the organization, is practiced in its relationships and takes into account the interests of stakeholders.” According to the standard, CSR should be incorporated across all levels of planning, execution, and stakeholder interaction. • The European Federation of Financial Analysts Societies (EFFAS ) Commission on Environmental, Social & Governance Issues was founded in 2007. In 2010 this professional federation of European financial analysts released KPIs (key performance indicators) for measurement of the non financial performance of publicly traded companies. The KPIs address investors and financial analysts and are structured along the economic, social and governance dimensions; they also include KPIs to measure the long term viability of the company referring to R&D, customer satisfaction, etc. • The German Sustainability Code (GSC) was released in 2011 as a part of the German Sustainability Strategy. Regarding the content GSC as a reporting instrument is based on ISO 26000. GSC recommends GRI and EFFAS KPIs as reporting tools. As we take the perspective of the market actor as a participant who needs orientation for embedding the social responsibility in the organization, we compare the CSR standards using the following criteria : • Allocation – allocates the initiative in the theoretical terms: CSR and Sustainability. • Context – indicates the source of the initiative: national or international, governmental or professional; • CSR issues – indicates to which of the following CSR issues the organization is expected to comply with and to report on: human rights; labor practices; social performance; economic performance; environmental performance; product responsibility; • Stakeholder process – indicates if the standard requires the organization’s stakeholders to be embedded in the CSR process. It is important to note that the sporadic involvement of the stakeholders in the decision making processes has to be differentiated from the systematical conduction of CSR based on embedment of the relevant stakeholders in the strategic management process. • Characteristic – indicates the direction of the standard in terms of reporting or management system; • Measurement – indicates what type of data is to be presented in the organization’s report on the standard: quantitative or qualitative. • Organization – indicates what type of organizations the standard is addresses. Below, we compare the CSR standards along these criteria (see table 1). Allocation: The discussed CSR standards can be differentiated in the direction towards CSR or sustainability. ISO 26000 and SA 8000 are related per definition to CSR, whereby the other standards are linked to the concept of sustainability. However in terms of content GRI and EFFAS KPIs refer to CSR by interpreting sustainable business in different sectors and by supporting the firms with multidimensional and detailed indicators for measurement. Context : Taking into consideration the origins of the CSR standards, we can differentiate them in terms of national and international agreements on the one hand and in terms of political and non political agreements on the other hand. With the exception of GSC and EFFAS KPIs, all standards are international initiatives. UN CG, OECD ME and OECD CG are international standards based on political will towards sustainability. SA 8000 and ISO 26000 are international norms for CSR, whereby the former is audit based and the later serves as a tool for the implementation of the management process within the organization. GRI and EFFAS KPIs are measurement instruments of sustainability released by non profit organizations. GSC is a national initiative based on political will. CSR issues: In regard to the CSR issues envisaged by the discussed standards, we claim that GRI, EFFAS KPI, OECD ME, ISO 26000, and GSC can be regarded as comprehensive CSR standards because they envisage all important CSR issues. The fact that the last two do not include the organization’s economic performance does not affect the standard’s comprehensiveness because: (1) the standard can be used by non business organizations; and (2) economic efficiency is of vital importance for each business organization hence it is pursued with or without CSR standard requirement. It is important to underline that UN CG, OECD CG and SA 8000 do not take into account a very crucial CSR issue – the product responsibility which is related to customers’ health and safety, marketing communications etc. The standard SA 8000 is explicitly orientated at human rights and labor conditions. OECD CG deals mainly with shareholder rights; it admits that the rights of stakeholders are to be respected but only as far as required by law and states that mechanisms for employee participation should be permitted to develop. Stakeholder process : Stakeholder process: GRI, ISO 26000, SA 8000, EFFAS KPIs and GSC require the organization’s stakeholders to be embedded in the CSR approach and frame the strategic management process as a whole. Therefore these standards require detailed documentation and report on the strategic process. UN CG, OECD ME and OECD CG do not have this requirement, but “only” recommend the consideration of stakeholders. Characteristic: It is fundamental to differentiate between a management system and a reporting system. The management system is an internal orientated tool box for running the business; the external oriented reporting is a tool for communication and business analysis. OECD ME, OECD CG, ISO 26000 and SA 8000 relate to the internal decision process of an organization, whereby OECD ME and OECD CG are general guidelines for sustainability. Taking into consideration that SA8000 is an audit related solely to the labor conditions, ISO 26000 seems to have stand alone position under the compared standards. Measurement: The GRI and EFFAS KPI requirement for clear quantitative data to be disclosed in the organizations’ reports on CSR results in comparability, reliability and clarity for the stakeholders. The reports on majority of the standards contain only qualitative data and consist in descriptive analysis of the organizations’ compliance with the standard. However, the UN GC recommends its signatories to use the reporting guidelines of GRI; the GSC also recommends using the reporting guidelines of GRI or EFFAS KPI. Organization: The majority of the discussed standards (ISO 26000; UN CG; GRI; GSC) are addressed at all types of organizations – business and non business, as well as SMEs and large companies. OECD ME and Table 1. Comparison of CSR standards
CSR issues Standard Allocation Context Stakeholder Characteristic Measurement Organization HR La So En Ec Pro process
UN GC Human factor & International X X X X Reporting Qualitative / All types Sustainability political Quantitative (GRI) initiative OECD Sustainable economic International X X X X X X Management qualitative Multinational ME development political system business initiative organizations OECD Sustainable economic International X X Management qualitative Publicly traded CG development political system companies initiative SA 8000 Human factor & CSR International X X X Management Qualitative / Multinational norm, audit system audit quantitative business organizations GRI Holistic sustain International X X X X X X X Reporting Quantitative All types ability: transparency non profit & comparability initiative ISO Holistic CSR: International X X X X X X Management Quantitative All types 26000 individuality & norm, system efficiency recommendation EFFAS Sustainable business: European non X X X X X X X Reporting Quantitative Publicly traded KPIs transparency & profit initiative companies comparability GSC Sustainable social German political X X X X X X Reporting Qualitative / Business development initiative Quantitative (GRI, organizations EFFAS KPI)
Legend : UN CG – UN Global Compact; OECD ME – OECD Guidelines for Multinational Enterprises; GSC – German Sustainability Code; OECD CG – OECD Principles of Corporate Governance; HR – human rights; EFFAS – European Federation of Financial Analysts Societies; La – labor practices; GRI – GRI sustainability reporting framework So – social performance; En – environmental performance; Ec – economic performance; Pro – product responsibility. SA 8000 are addressed to multinational business organizations. OECD CG and EFFAS KPI explicitly refer to publicly traded companies where the separation of ownership and control requires specific governance mechanisms. Based on the comparison, we could derive three types of CSR standards : • Sustainability standards based on political will – this type includes UN GC; OECD ME; OECD CG, GSC. These standards, established by a top down approach, represent the political agreement about economic sustainability. This type of standards is characterized by qualitative general information, whereby the stakeholder process is mentioned but the embedment of it is not guaranteed. Therefore the market participants could only make use of them as a general framework for CSR implementation. The overall goal of this type of standards is to contribute to the economic well being at the macro level and not to support the particular market actors within a given economy (micro level). • CSR Management standards based on professional judgment – this type includes SA 8000 and ISO 26000. These standards, established by a bottom up approach, represent the professional agreement about the importance of CSR. This type of standards is characterized by qualitative and quantitative detailed information. In the case of ISO 26000 the individual characteristic of an organization is taken into consideration. The overall goal is to introduce CSR as a new paradigm in business thinking. Therefore from the perspective of the market actor which decides to implement CSR in its day to day practice, these standards are of great practical use. • Sustainability/CSR reporting standards based on professional judgment – this type includes GRI and EFFAS KPIs. These standards represent the professional and the broad public agreement about the importance of clear and reliable reporting on CSR. This type of standards is characterized by disclosure of detailed quantitative and qualitative information. Therefore from the perspective of the market actor, which decides to report on CSR, these standards are of great practical use. However it is important to underline that the quality of the CSR report is closely related to the quality of the implementation of CSR within the particular organization. 4. Conclusions and implications for research This paper contributes both to the theoretical discussion on the concept of CSR and to its implementation by the organizations. A practice oriented comparison of the CSR Standards has been conducted in order to support practitioners in implementing and reporting on CSR and sustainable business. After having introduced the CSR concept as based on the sustainability approach, stakeholder theory and business ethics, we have rejoined the sustainability CSR debate by deriving a typology of CSR standards: (1) sustainability standards based on political will; (2) CSR management standards based on professional judgment; and (3) Sustainability/CSR reporting standards based on professional judgment. We have demonstrated that the existing CSR standards are based both on political will and on non profit will. Although CSR as a theoretical concept and as a practical tool deals with the responsibility of business, it is noticeable that there is a lack of prominent business initiatives on CSR. We believe that the interaction between organizations and their customers is a crucial importance for the enforcement of CSR. On the long term business can “produce” and “supply” CSR only if there is “demand” for CSR products and services. However, non of the existing CSR standards envisages the position of the customer in this very important relation. Therefore, we believe this issue marks a direction for future research.
References A renewed EU strategy 2011 14 for Corporate Social Responsibility. Communication from the Commission, COM (2011) 681 Brussels, 2011. Barosso, M., Putting Corporate Social Responsibility at the Heart of our Vision, speech delivered at the General Assembly of CSR Europe, 11 June 2009. Donaldson, T., Dunfee, T. (1994) Toward a unified conception of business ethics: integrative social contracts theory. // Academy of Management Review , Vol. 19, No 2, p. 252 284. EU Documents, http://eur lex.europa.eu/de/index.htm Freeman, R. E., Reed, D. L. (1983) Stockholders and stakeholders: A new perspective on corporate governance. // California Management Review . Vol. 25, No. 3, pp. 88 106. Green Paper, Promoting a European Framework for Corporate Social Responsibility, Commission of the European Communities, COM (2001) 366, Brussels, 2001. Matten, D., Moon, J. (2004) ‘Implicit’ and ‘explicit’ CSR: A conceptual framework for understanding CSR in Europe. // ICCSR Research Paper Series. No. 29. University of Nottingham. Nottingham: UK. Valeva, M. (2012) „Theoretische Grundlegung ethischer Bankbetriebslehre. Die Lehren aus dem Islamic Banking“, Gabler Research, Wiesbaden. Von Carlowitz, H. (1713) Sylvicultura Oeconomica World Commission on Environment and Development (1987) “Our common future”, Oxford University Press, Oxford.