Corporate Social Responsibility
Resources for the Future Fall Council Meeting
Held in Conjunction with
New York University's Leonard N. Stern School of Business
October 16, 2003
Increasingly, when environmental and/or social activists sit down to talk with business leaders, the discussion centers on corporate social responsibility (or CSR), an ill-defined but important subject. Think of it as having to do with the responsibilities of corporations to go above and beyond what the law requires them to do in such areas as environmental protection, worker safety, and social investments in the communities in which they are located. CSR was the topic at RFF’s fall Council meeting, held in October, in conjunction with New York University’s Leonard N. Stern School of Business.
Speakers included Mindy Lubber, executive director of the Coalition of Environmentally Responsible Economies, an organization that works with corporations to be more transparent in their operations and adopt stricter codes of conduct; Paul Tebo, vice president for environmental health and safety at DuPont and one of those within the corporate world who believes that companies can improve their bottom-line performance by going beyond what the law requires them to do; Bruce Buchanan, director of the Stern School’s Markets, Ethics, and Law Program; and Paul Portney, RFF president. Vijay Vaitheeswaran, global environment and energy correspondent for The Economist, moderated the debate.
Buchanan posed the fundamental questions. The modern corporation has a duty to maximize the interests of its shareholders. What duties does it have to the stakeholders—the communities, employees, customers, and others affected by its decisions? In the United States, he continued, citizens’ right to a clean environment is enforced. What responsibilities not to pollute does a company have in a country without antipollution laws?
Lubber saw this as a false dichotomy. Responsible corporate behavior will build shareholder value. She rejected the notion that corporate social responsibility is, in effect, philanthropy, arguing that business leaders are in breach of their fiduciary duty if they ignore the repercussions of their actions, such as possible contribution to climate change. She called on CEOs to set goals for sustainability, energy, water, biodiversity, and equality and to seek third-party verification of measurable outcomes.
Portney in turn offered what he called “constructive skepticism” about the very concept of corporate social responsibility. Companies already engage in social responsibility, he observed, because they employ people, issue debt and encourage savings, and provide goods and services. But a company that spends shareholders’ money in ways that don’t enhance their rate of return becomes less competitive and less viable.
We hear so much about corporate responsibility, Portney speculated, because we are reluctant to tax ourselves to support activities that are the legitimate domain of a public sector. And thus Americans turn to corporations, thinking that if a company builds a school or a water treatment plant, it’s free. But that, he said, just shifts the cost to customers, employees, and shareholders—and puts an “incredible burden” on corporate executives to decide what public goods ought to be provided, and how.
One corporate manager who bears that burden is DuPont’s Tebo. “We don’t use the words social responsibility,” he said. “Our mission is sustainable growth,” which he defined as creating shareholder and society value while decreasing the company’s environmental footprint.
The cost of energy externalities was a focus of the discussion that followed. Energy should be priced, Portney said, to reflect the full cost of its production and its environmental and social costs. “Then if our oil comes from Saudi Arabia or Venezuela, or if we produce more in the United States, or if we use more in the future,” he stated, “it won’t matter— so long as the people who use it are confronting the full social cost associated with it.”
Lubber, a former regulator, was surprised to find herself on the promarket side of this issue. Incorporating full life-cycle costs into pricing, she said, will promote energy efficiency.
Tebo found American consumers’ interest in the environment ironic because for one thing, “they drive huge cars with ‘save the polar bear’ bumper stickers.” Corporations thus have responsibility to market and, through technology, create environmentally responsible products.
Portney would involve consumers in the transformation by requiring more information to be disseminated. Once consumers understand the environmental consequences of the products they use, the market will drive environmental improvement.
These controversial subjects were the impetus for a lively discussion that ensued among members of the RFF Board, the RFF Council (major individual and corporate donors to RFF) and members of the audience.