The connection between business and ethics is not new, but it is in the last two to three decades that the concept of Corporate Social Responsibility (CSR) has become a business imperative for companies worldwide. Ethical investment –or SRI (socially responsible investment) - is soaring, rating agencies assessing businesses on their social and environmental performance have multiplied and so have undergraduate courses and graduate MBAs to teach students how to navigate ethical issues as well as taking important decisions and analyzing spread sheets.
There are several definitions and interpretations as to the meaning of ethical investment and business ethics, but in general what they all have in common is the recognition that there should be a link between companies, the environment and the society in which they operate.
The main distinction is between a shareholder-oriented school of thought and a stakeholder focused one: in the first instance, ethical business decisions can be made by keeping the interest of the owners in mind, which some argue is after all what the management of companies is required to do. In this case, actions and decisions are mainly oriented at generating more profit. The other approach considers corporate social responsibility the driving force: in this case, ethical business looks to achieve a balance in servicing all the stakeholders it might have an impact on: not only the owners, but also the employees, the supply chain, the consumers, and in general the community where the company operates. And closer to this approach is that of shared value.
The Schroders Global Investor Study, published in November 2016, traces back to the 1970s the beginning of the acceleration of the ethical trend: “Between the 1970s and 1990s pressure on fund managers to avoid investing in companies operating in South Africa is held up as one of the factors that helped end apartheid.
In the 1980s and beyond, environmental concerns gained more attention in the wake of disasters such as the Bhopal (in India) and the Exxon Valdez spill (in Alaska), while there was an awakening about the threat from climate change.”
In the aftermath of the 2008 financial crisis, the push for more ethical business practices has become stronger and with an added sense of urgency
While the crisis “nearly brought the world to its knees, it has helped re-emphasize the role of investors, as long-term owners of companies, to ensure good stewardship.”
Today humanity is facing unprecedented global challenges and there is increasing awareness in the corporate sector of its role in meeting them: as the 2017 UBS’s “Doing Well by Doing Good” report highlights, investors believe businesses can and must play a role in addressing those challenges by matching their mandate to produce profits with ethical and sustainable standards. According to the study, more than half of the UK public for instance would pay more for goods and services produced according to ethical standards. Wealthy millennials in particular are putting a bigger portion of their income into impact investing and 30 per cent of them believe the number one priority of business should be to improve society. A similar picture emerges from the aforementioned Schroders Global Investor Study: nearly 80% of investors across 30 countries said that sustainability had become more important to them over the last five years.
International institutions too have responded to the trend – among these the UN, the OECD (Organization for Economic Cooperation and Development) and the EU - establishing a set of principles, standards and guidelines to which companies across the world should adhere if they want to match good profits to the best sustainable international practices. The UN Global Compact defines Corporate sustainability as a “principles-based approach to doing business, operating in ways that (…) meet fundamental responsibilities in the areas of human rights, labour, environment and anti-corruption”.
It is on these global benchmarks that Standard Ethics, the world’s first sustainability ratings agency, bases its analysis.
Twenty years in the making and the “CSR movement” has produced a new business culture, one in which people expect corporate participation in social and environmental improvement beyond the mandate of businesses to make profit.
The movement has contributed to a remarkable growth in the number of CSR rating agencies, committed to an evaluation of corporate social performance based in part on non-financial data. In the last few years, research in the field has become more specialized, with analysts looking at corporate environmental performance and corporate social performance.
Over the years the CSR movement has also faced harsh criticism from both the media and the academic world. One of the most notorious critical voices has been that of The Economist. The British magazine has argued (17th January 2008) that “much good corporate citizenship is a smug form of public relations” and another form of self-interest. Its growth is a good thing, provided it does not promote the idea that “unadorned capitalism fails to serve the public interest” whereas “the main contribution of companies to society comes precisely from those profits”. According to The Economist, the bigger risk connected with the trend is politicians who offload public problems and their responsibilities onto business. “The proper business of business is business” (The Economist, 20/01/2005).
That does not mean companies should not concern themselves with ethical issues. There is widespread agreement that common “decent” practices are good for business and financial markets appreciate companies that operate respecting international standards in the field of transparency, human rights, anti-corruption and increasingly environment. Critics of the CSR movement point to the dangers of confusing the relationship between companies and stakeholders, of whom firms should take account of, but cannot be considered equal to co-owners.
Ultimately, the goal is to cooperate for the common good of humanity while keeping in mind the distinctive roles of all the different component of a society.
As to businesses, “well managed companies that care about the sustainability of the world in which they operate should have a better long -term future” (Schroders Global Investor Study).