Have we been greenwashed?
“An empty promise”, “A communication tool”, “All it serves is brand image” … this is a selection of criticisms often directed at Corporate Social Responsibility (CSR). Although these critics may well have a point and are basing their accusations on fact, it is important not to forget all the good that can be and has already been achieved through CSR. Before analysing its efficacy and legitimacy, we must first clarify what is understood by the acronym that has become a staple in today’s corporate world.
Defined as “the responsibility of enterprises for their impact on society” by the EU, CSR aims to create a positive impact from business activities on both society and the environment. But more than this technical definition, CSR should be associated with the very modern school of thought that is rational altruism. The oxymoronic appearance of what is almost a philosophical concept manages to explain the duality of CSR and what it should be: self-interested altruism. Indeed, CSR is not meant to be a selfless donation from businesses to society. CSR exists so that economic activities can benefit both businesses and the societies within which they operate.
From Friedman to the UN SDGs: Business responsibility towards society
Should businesses really be responsible for social changes? When, in 1970, Milton Friedman wrote in The New York Times Magazine that “the social responsibility of business is to increase its profits”, the answer seemed clear: no, it isn’t. Although already contested in its time, this statement perfectly illustrates what the world’s view on business was, at a time of economic prosperity. From the point of view of the 1976 Economic Sciences Nobel Prize winner, companies were only accountable to shareholders and had to look after the latter’s interest: maximizing their wealth. Following this logic, companies would thus have to focus on profitable activities, excluding any socially responsible activity, seen by Friedman as reducing value.
About 40 years later, our vision of business has evolved so much that the United Nations recently (2015) set up a program that has everything to do with CSR: Sustainable Development Goals (SDGs). There are 17 of them, covering fields such as poverty, gender equality, climate action … If the SDGs were originally addressed to the UN state members, businesses are explicitly encouraged to take action too, through a dual program: “do business responsibly and then pursue opportunities to solve societal challenges through business innovation and collaboration”.
This evolution of mentality has come through the widespread acknowledgement that business activities directly impact society, due to their social purposes. For instance, a pharmaceutical industry will affect the health and well-being of our society and a car company will affect people’s mobility and income. These are the positive social impacts. However, as the world knows, business activities also cause various negative externalities such as pollution, deforestation, child labour … to name a few. If companies are accountable for their positive input, why would they not be for their negative one too? Because they are profitless? That is not true anymore. Thanks to CSR engagement, companies have now found a way of turning their negative externalities into positive and profitable ones, through the concept of shared value creation.
Thus, what has changed is not the fundamental purpose of businesses but the ways in which they maximise their profit. Companies’ goals will still be geared towards profit, but they can now achieve these goals whilst unlocking shared value creation for society and the environment as a result of their activities.
Scandinavia as a role model
A prime example of a company harnessing the true potential of CSR is Novo Nordisk, a Danish pharmaceutical company.
In the early 90’s, the insulin production specialist was looking to expand its market. The research conducted helped them realise that not only was China already the victim of mass diabetes, but that the lack of competencies within the country was putting the Chinese at risk of a propagation of the chronic disease. Here was their market and their approach to it was brilliant: “Our targets in China were to strengthen the health care system, to build the understanding of diabetes, and to make a profit. We believed a holistic approach, combining public awareness, physician training and patient education was the right business approach to deal with diabetes in cooperation with the Chinese authorities”. Thus, between 1994 and 2010, Novo Nordisk invested many resources in the Chinese social sphere: they partnered with the Ministry of Health and the World Diabetes Foundation, organised conferences to raise awareness against diabetes, implemented a hotline to give the population access to specialists, created the NovoCare club (joined by 300,000 members) and organised 220,000 training sessions for local physicians.
All these actions resulted in astonishing outputs. Up to 2010, over 55,000 physicians were trained, over 280,000 Chinese were educated in regard to diabetes and 140,000 years’ worth of life were saved (with an annual rise of 30%). Novo Nordisk’s activities enabled the creation of over 14,600 jobs, directly and indirectly, and has saved china a total lifetime cost of DKK 13,000 (£ 1,561) per person under control. The success of this engagement is also reflected by the profits made by Novo Nordisk. With 63% of market shares realised, sales of DKK 1,500 million (£ 180,705,000) by volumes of 12,000 mega units of insulin, China has become Novo Nordisk’s 3rd biggest market.
Novo Nordisk’s success story is a perfect illustration of the Scandinavian way of doing business. Over the past decade, Denmark, Sweden and Norway have proven that they are the world’s leaders in Corporate Social Responsibility, as they completely embedded Freeman’s stakeholder theory. This theory is the idea that, to be successful, businesses have to create value for each one of the different groups of stakeholders it is related to (i.e. customers, suppliers, employees, communities and financiers) and that establishing and aligning these interests is what the managerial task is all about. The underlying relationship between Freeman’s theory and the process of shared-value creation was already there for all to see. In his own words: “Stakeholder Theory says, if you just focus on financiers, you miss out what makes capitalism tick: shareholders, customers, employees, suppliers (etc.) can create together something that none of them can create on their own”. The same way Novo Nordisk realised that to perform they needed to set an effective diabetes management programme and not just deliver a good product, most of the Scandinavian companies have understood that to do business they need society as much as society needs them.
Big Corporations Leading the Charge
Fortunately, Scandinavian companies such as Velux and its Inside Generation campaign are not the only ones willing to engage with global issues. Nestlé training Indian farmers, Novartis tackling health issues in Africa and Unilever’s engagement with female entrepreneurs in rural areas in India are all strong examples but Adidas is the one that really caught our attention. In 2015 Adidas decided to partner up with Parley for ocean, an environmental organisation addressing threats towards the oceans. The first collaboration was for their Ultra Boost Uncaged Parley limited edition 100% made of recycled plastics from the ocean, retrieved by Parley (11 bottles per pair). The operation was so successful that Adidas decided to produce 11 million pairs of shoes using the same process, by 2017. Two years later, Adidas has extended its collaboration with Parley to its sportswear: the New Zealand All Blacks training kit, professional football teams contracted by adidas, all tennis players in contract with adidas, and a key part of the running and swimming sportswear are all linked by their use of Parley recycled material.
Now, some might argue that Adidas has only acted this way for its image or to stand out from its competitors, while others truly believe that Adidas cares about the environment. Everybody is entitled to their own opinion, but the thing is, the source of the motivation does not matter. What matters is that, regardless of the effects on its brand image, Adidas is actively engaged in the fight against plastic pollution. This is what self-interested altruism is.
Conclusion
Nowadays, it is no longer necessary to go on a journey to understand that we don’t live in the “best of all possible worlds”, but unlike Candide we should keep looking at the world through optimistic lenses. Although a business is not obligated to solve global issues, the private sector is proving to be more effective than the public sector when it comes to making a significant impact. If we could ask Milton Friedman again if businesses are responsible for social changes, what would his answer be? Would he stand as firm as in 1970? Nobody will ever know, but what is for sure is that the different social, humanitarian and environmental crises our world has been through since the post-war boom, have considerably changed how society views businesses and how businesses view society.