The leaders are highly unethical companies

'Holy Grail Found!' was the headline of the January 2005 edition of Business Ethics magazine61, celebrating the fact that studies had 'proved' that socially responsible businesses perform better.

A closer look at the kind of companies that this study claims are being both socially responsible and profitable gives a different story. The corporations frequently held up as leaders in CSR, such as BP and British American Tobacco, are far from being socially responsible companies. What the study actually shows is that businesses which say they are socially responsible perform better financially.

Christian Aid's 'Behind the Mask' report looks at three so- called leaders in the field and cuts through the spin looking at the companies' real impacts, going directly to the communities that are on the sharp end of corporate irresponsibility62.

The report notes:

• How Shell, one of the architects of CSR, fails to effectively clean up oil spills in the Niger delta and runs community development programmes that are frequently ineffective and divide communities;
• How British American Tobacco, aside from being one of the few companies whose products kill their customers when used the way they are intended, fails to protect farmers in
  Brazil and Kenya from the chronic diseases associated with the cultivation of tobacco;
• How Coca Cola depletes water supplies, threatening the lives and livelihoods of communities in India.

Two other companies consistently top in the CSR tables are Alcoa and Toyota63. Alcoa is the company which, in the face of unprecedented local opposition, is building an aluminium smelting plant in Iceland powered by a hydro-electric dam which will flood vast swathes of Western Europe's last pristine wilderness, and is claiming that this is a socially and environmentally responsible venture 64. Toyota, the world's second largest automotive manufacturer, hangs its corporate environmentalist image on its Prius hybrid which emits less greenhouse gases than the standard car. Its fuel guzzling SUV models, however, are amongst the company's biggest sellers and massively outnumber sales of hybrids65 , and the company's future depends on pushing the constant expansion of the car market.

If these destructive companies are the leaders, then what does
that say about those lagging behind? These examples show that
projecting a socially responsible image whilst retaining destructive practices can be good for business. In which case, CSR benefits the shareholders in multinationals while achieving little for social or ecological justice.

Voluntary codes of conduct don't work

The Asian Monitor Resource Centre's (AMRC) Critical Guide to
Corporate Codes of Conduct echoes in its criticisms the wider
problems with CSR66. AMRC argues that, rather than being solutions to corporate abuses in the workplace, codes of conduct are generally insufficient to change the industry. Their study, based on a decade's experience of studying labour issues in Asia, leaves them undecided as to whether codes have led to any improvement in labour standards.

This applies to more than just labour codes. Six years after the establishment of the Forest Stewardship Council, deforestation rates in the tropics have increased68. Codes attempt to harness the power of the market rather than reduce its power. This issue is explored further in the section on market mechanisms.

Socially Responsible Investment (SRI) isn't enough
SRI, or ethical investment, is used to describe investment that seeks to have a positive impact on society, or at least to minimise the negative effects. SRI can mean a range of things, from investing exclusively in enterprises that have a positive impact (as is the policy of the Triodos69 and Grameen Banks70), to screening out companies from the worst sectors such as the arms, tobacco and oil industries or companies which test on animals (as do the Cooperative Bank71 and the Friends Provident 'Stewardship' pension fund72), to making no discrimination as to which companies are invested in but simply trying to influence companies in their portfolio through shareholder resolutions and engagement (as is the policy of the Universities Superannuation Scheme73). The majority of SRI falls into the latter two categories.

Only a small number of ethical investors pro-actively seek out genuinely positive social enterprises. When companies are screened on the basis of ethics, the criteria are often very crude. For example, funds often screen out armaments companies, but companies in sectors which are seen as relatively ethically neutral, such as supermarkets or clothing retailers, are also highly socially damaging. Funds that screen on the basis of ethics also frequently invest in banks, which in turn invest in the industries which were originally screened out.

Socially responsible investors, as with all investors, have to
ensure the financial success of their products. So they can only support a company's efforts to be socially responsible where it is profitable. As such SRI's role is limited to issues such as managing risk, executive pay, and disclosure, making arguments supporting shareholder interest. They reward companies for making minor changes when the company’s overall operations are a major problem. The New Economics Foundation has dubbed this the 'ethics lite' approach74.