Corporate Social Responsibility And Market-Based Instruments For Sustainable Development

The Role of CSR in Encouraging Sustainable Development

Question 1: Should business behave more sustainably or should they concentrate on growing profits?
Is CSR a marketing tool that companies use to improve their reputation or distract attention from various unethical practices they engage in?
Discuss the strengths and weaknesses of CSR as a way of encouraging business to behave more sustainably, using appropriate example.

The prime objective of companies in business is to gain profit. However in recent times, companies have realized that they should focus on long term benefits and sustainable growth. CSR or Corporate Social Responsibility is one of the ways by which sustainable development can be achieved. One of the classical theories would suggest that businesses should concentrate on growing profits and the first objective of companies in any industry should be to gain profits. The new theory would suggest that companies should also look for ways to give back to society. It means that companies should look for the ways by which they can attain profit without disturbing the environment and social balance. The businesses can not have any single statement or direction that can resolve the dilemma between the ‘profit making’ and ‘sustainability’. It would not be an exaggeration to say that the time has come when companies should look for a more balanced approach that can focus on both the aspects of ‘growing profits’ and ‘sustainability’. The time has come when ‘profit making’ and ‘sustainability’ should not be considered as two different phases of a coin. Therefore companies should focus on ‘profit making’ and ‘sustainability’ together. Having said that, it is also true that corporations should never leave the core function of profit making, the steps towards the sustainability should only help corporations to generate more profit.

A strong debate exists between the real implications of CSR (Corporate Social Responsibility). Many experts have believed that CSR is just another marketing tool while some other believes that CSR does have real value. The harsh fact is that the CSR is one of the last things that is at the agenda of corporations. It all started as a marketing tool only. In fact corporations would not be able to survive in the industry by focusing first on CSR. It is correct that corporations carry certain social responsibility but this responsibility comes after the core business function of corporations. In the current environment of cut throat competition, it would not be incorrect to say that CSR is more of a marketing tool that is used by corporations to improve their reputation and distract attention from various unethical practices that they engage in. For example, large companies like KFC have been doing certain CSR initiatives only to ensure that people do not blame them for killing of animals. There are various reports about the unethical practices adopted by KFC but somehow, these practices are covered under the umbrella of Corporate Social Responsibility. Coca-Cola is another brand that is reported to spend a lot on CSR activities but in the end Coca-Cola is also accused of using child labor in the developing nations such as India and China. The harsh truth is that CSR has evolved as a marketing tool that helps organization to improve their competitive position by doing something different from their competitors.

The Debate on CSR: Strengths and Weaknesses

As a concept, CSR is a powerful concept. CSR helps organizations to realize that profit making should not be the ‘only’ goal of corporations. It is also correct that CSR encourages businesses to behave more sustainability. For example, automobile companies like Toyota and Ford have realized that pollution impact of gases emitting from their vehicles eventually pollute the surrounding that is not good for society. The sustainable development effort put by these organizations is eventually helping these organizations to grow their business. People have also appreciated the CSR activities from large corporations like Walmart and Microsoft. These large corporations have also realized that they would not be able to sustain in the long term if they do not focus on sustainable development. Eventually the objective of corporations is to improve their profit and this can happen only when end consumer is able to develop and grow in long term. The associated weaknesses of CSR as a way of encouraging business are that the activities of CSR may require some initial investment. The corporations should be able to spend some money initially in order to derive the long term benefits. The initial expenditure does act as deterrent for corporations to involve in CSR activities. Also, large organizations can afford the initial investment or short term loss but mid-size and small scale industries can afford the sustainable development when they have to spend some amount.

Question 2: How can market based instruments such as tradable carbon permits, encourage business to become more sustainable.
Are they the most effective way of encouraging sustainable development or should there be other approaches?
Compare and contrast market based instrument with regulatory and other approaches, using appropriate example.

The sustainable development demands that organizations in both developed and developing world should work hand in hand towards sustainable development. Different corporations in developing nations have believed that it is the developed nations that are primary responsible to pollute the environment and to develop, emerging nations cannot always focus on sustainable development. To overcome these conflicts several instruments were devised such as tradable carbon points. One carbon credit is equal to one metric tonne of carbon dioxide, or in some markets, carbon dioxide equivalent gases. Carbon trading is an application of an emissions trading approach. Greenhouse gas emissions are capped and then markets are used to allocate the emissions among the group of regulated sources. Eventually business can earn profit by selling their carbon points. Companies can earn the carbon points by involving in activities that encourage the use of green energy. This way market based instruments such as tradable carbon permits would encourage business to become more sustainable. This way the sustainability of the business would enable to corporations to gain profit.

There could be various approaches to encourage the sustainable development. One of these approaches is to encourage corporations to get involve in carbon dating. It would not be entirely correct to say that this approach is the most effective way of encouraging corporations. One of the approaches to encourage corporations is the recognition and rewards approach. In this approach, government would reward the corporations that would work towards the sustainable development. There has to be some ways through which the sustainable development is directly linked to the returns that organizations get, and then only corporations would feel encouraged and motivated to work towards sustainable development. It is recommended that government and other agencies should have other approaches also towards sustainable development. A framework should be developed through which end consumers can also realize the firms that have really worked towards sustainable development. One another approach of sustainable development would involve all the stakeholders of the society. Under this approach all the stakeholders would join hand to work for sustainable development. The focus of this approach is that people should also realize that CSR cannot be accomplished only by corporations. The consumers and citizens and society at large should also support corporations to attain the goal of sustainable development. It is also recommended that sustainable development and CSR should not be taken as a social change. It should also be taken as the political and economic change in the system. The real sustainable development would happen only when the goals and objectives of CSR policies would include the changes in all direction including social, political and economic dimension. There also exists a strong regulatory based approach. Under this approach the government or the environmental agencies can have laws and regulations that can limit corporations for pollution emissions and can regulate corporations to adopt green sources of energy.

Both the approaches, market based instruments and regulatory instruments can help corporations to take their steps towards sustainable development. These two approaches are different and these approaches can be suited in different cases. It may not be completely feasible to compare these two approaches. However, on a high level, it can be said that market based instrument could be a better approach in most of the cases as it allows corporations to take their own decisions around sustainable development. In the regulatory approach, corporations have to work under the guidelines of government. The private corporations may not like the idea to work and operate under the government guidelines. Therefore, market based instruments could be a batter option. Moreover in market based approach, corporations are not forced upon to choose the policies and strategies and therefore corporations can obtain a balance between sustainable development and core business. For example, Walmart is interested to do CSR activities but it does not want the government interference. Coca-Cola has also launched certain programs to gain public trust and respect. Large corporations and MNC’s have acknowledged that it is sometimes difficult to work towards CSR and sustainability when it is imposed by government.