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European Affairs
Politics and Society
Europe Outdistances America in Corporate Social Responsibility
By Susan Ariel Aaronson
In 1968, Jean-Jacques Servan Schreiber sounded an alarm to European business. He warned European companies that the growing market share and technological prowess of
U.S. multinationals threatened the future competitiveness of European firms. Some 34 years later it is the Europeans who are challenging American multinationals.
Many European companies have embraced the concept of corporate social responsibility (CSR) as a rationale to guide their business practices.
In addition, European governments at the national and multinational levels have developed a wide range of policies to encourage socially responsible business practices. While socially responsible investment is a huge share of investment in the United States, American firms have been slow to adopt CSR practices. As a result, European executives are gaining real world experience at effectively managing their firms' environmental and social impacts on the communities in which they operate and on society as a whole. There is a growing body of evidence that markets will reward these companies for their good social and environmental performance.
CSR practices are based on ethical values and respect for employees, communities, and the environment. According to the Prince of Wales Business Leaders Forum, one of Europe's largest associations for CSR, the concept "is designed to deliver sustainable value to society at large, as well as to shareholders."
Corporate social responsibility has become so popular in Europe that over 1,000 people attended the "Conference of the Belgian Presidency: Corporate Social Responsibility on the European Social Policy Agenda," in Brussels last November.
The Belgian government designed the conference to showcase European efforts to promote corporate social responsibility and to ascertain how governments at the national and international level could encourage global adoption of CSR strategies.
The European willingness to adopt CSR has helped European companies differentiate themselves from their American and Japanese competitors in the crowded global marketplace. It has also helped these companies retain employees; garner consumer and brand loyalty; reduce costs, risks and exposure to lawsuits; and build credibility and goodwill among the public and investors.
Many European executives have become convinced that corporations with stronger social and environmental performances will outperform corporations with poor social/environmental performances. At the November conference, speaker after speaker, from companies as diverse as Adidas (a German sports shoe company), Nestlé (a Swiss food products company) and Volkswagen (a German auto company) described how their adherence to CSR policies had helped expand their business.
The enthusiasm of these European companies toward CSR stands in contrast to the attitudes of some American companies. America's largest association for CSR, Business for Social Responsibility, includes a wide range of companies, including some among the Fortune 50, such as Ford and other large corporations such as Stride Rite and Levi's.
Yet some of America's largest and most visible companies such as GE refuse to develop codes or report on their social or environmental practices. Executives from these companies argue that such actions could open their companies to litigation. Moreover, they stress that government policies to promote corporate social responsibility are the first step in a slippery slope towards global regulation of global business.
This reluctance of some American corporations to embrace corporate social responsibility is both unfortunate and ironic. Corporate social responsibility was "made in the USA."
American pharmaceutical companies, such as Merck and Bristol Myers, first wrote codes of conduct in the 19th century to assure their stakeholders that the companies' principal objective was to serve public health and, by so doing, to make profits.
An American minister, the Reverend Leon Sullivan, developed the first principles of business behavior for companies operating in South Africa during the last years of apartheid. By the 1980s, the United States had more than 100 mutual and investment funds that screened investments based on a company's human rights or environmental performance.
According to the Social Investment Forum's 2001 Report on Socially Responsible Investing, nearly one of eight dollars invested in professional investments such as pension funds, mutual funds, and foundations is involved in socially responsible investing. That compares with one dollar out of 10 in 1995.
American policymakers, however, have done little to further corporate social responsibility. In 2000, the U.S. State Department and the British Foreign Office, in tandem with multinationals, unions, and human rights organizations announced a statement of principles, the Voluntary Principles on Security and Human Rights.
These principles were designed to prevent human rights abuses by governments in developing nations where these companies operate. Since 2000, the statement has been barely mentioned by the governments or the signatories.
The United States also signed the OECD Guidelines, the most comprehensive set of non-binding voluntary recommendations to businesses on human rights, the environment, corruption, labor standards and other issues of corporate behavior.
Under the Guidelines, each government is required to set up a national contact point to publicize and implement the Guidelines and to resolve disputes over corporate behavior. But the United States has done little to publicize the Guidelines or to make the national contact point effective.
Finally, the Department of State issues an award on global corporate citizenship. The award is designed to acknowledge how business reinforces America's commitment to human rights, improved living standards, worker rights, and environmental protections.
These few efforts in the United States contrast dramatically with efforts in Europe, where not only has responsible investing and CSR spread rapidly through market developments, but policy makers have worked hard to promote CSR.
European governments are experimenting with a wide variety of strategies at the national and multinational level. For example, the Danish government has established an international institution, the Copenhagen Centre, to promote corporate social responsibility partnerships between business, society, and government.
The Belgian Government has made CSR a major policy objective. Working with CSR Europe and the Copenhagen Center, the EU plans ten national conferences on CSR, information packs for business, a European Academy on CSR, and a European year of CSR in 2004.
The Belgian government has been trying to find a strategy that promotes "social labeling" - labeling explaining the conditions under which a product was made without breaching the rules of the World Trade Organization. Belgium is also weighing prosecuting companies that breach core labor standards in third countries.
Some European governments have focused on the relationship between trade, investment and CSR. For example, the German government is weighing a statutory code of conduct for German companies operating in China. The Dutch government requires firms that want taxpayer subsidized export credits to adhere to the OECD Guidelines.
Britain has a Minister for Corporate Social Responsibility and the government has made CSR a development and trade priority. It designed the Ethical Trading Initiative "to develop and encourage the use of a widely endorsed set of standards embodied in codes of conduct and monitoring and auditing methods which will enable companies to work together with other organizations outside the corporate sector to improve labor conditions around the world."
The British government has also pioneered the use of market forces to promote CSR. Since July 2000, UK pension plans have been required to declare whether and how they integrate social and environmental factors into their investment decisions.
This regulation has pressed pension funds to engage corporations in a dialogue on social and environmental issues and encouraged greater use of triple bottom line reporting (reporting on social and environmental, as well as profit performance.) The success of this minor change to pension fund rules inspired the German government to approve similar legislation and France is now considering such rules.
European policy makers have also been active at the EU level. On July 18, 2001 the European Commission launched a Green Paper (a draft for public comment) promoting a European framework for Corporate Social Responsibility. Many stakeholders have commented on the paper and their comments will be incorporated into a White Paper, with specific CSR proposals, for adoption by the Commission.
What explains this greater interest and support of CSR in Europe by policy makers, corporate leaders and the public? It may reflect public and civil society interests. It may also reflect the more corporatist relationship between government, civil society and business in Europe, as opposed to the more adversarial relationship in the United States.
Finally, it may also reflect a greater respect for CSR as a policy tool that can be leveraged to improve the global commons and the lives of the world's workers. Whatever the reason, or reasons, for the growing commitment to CSR, Europeans understand that corporations can make money and make a difference in this world. Their efforts challenge American companies to do the same.