The Emergence of Corporate Social Responsibility

Corporate Social Responsibility (CSR) has been slowly gathering momentum over the last few years and is a hot topic at the moment in light of the recent COP26 Summit and other world events.

At a business level, emphasis is being placed on companies to make a concerted effort to operate in ways that enhance rather than degrade society and the environment.

Many consumers and investors have shown in recent years that they want to support businesses that create a social impact and have a purpose. That’s one reason why businesses of all sizes and types are looking to adopt CSR policies.

The three main forms of CSR are as follows:

• Environmental: This tends to focus on a business cutting down its emissions and waste which involves re-evaluation of a business’s production processes in order to identify wasteful acts and cut these from the company’s business plan.
• Ethical: This tends to enforce fairer treatment for all employees, ensuring that decent standards are maintained in factories and refusing to partner in business with unscrupulous businesses or oppressive countries. Ethical CSR considers every level of the supply chain, including employees who may not be directly working for the business. For example, CSR programmes might be in place to ensure that people producing clothes for a company receive fair treatment, or to prevent small scale farmers from being exploited by offering fair payment for their crops.
• Philanthropic: This form of CSR focuses on investing in the community or participating in local projects. The main intention is to support a community in some way that goes beyond just hiring.

Whilst there is a lack of mandatory provisions to adopt a form of CSR, there are an increasing number of laws which specifically target corporations and explicitly incorporate CSR or its synonyms.

For example, existing corporate law literature tends to equate the CSR duty with a directors’ fiduciary duty. For instance, section 172 of the Companies Act 2006 makes it clear that a director is only under a duty to act in a way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members. However, in fulfilling that duty they should also “have regard to” the non-exhaustive list of factors which includes considering the interests of employees, consumers, suppliers, the environment, and the community when pursuing the interests of shareholders.

Most recently, the Environment Act 2021 became law during the UK’s hosting of the COP26 Summit in Glasgow. Though the text of the Act has yet to be published, the Act makes provision about targets, plans and policies for improving the natural environment, for statements and reports about environmental protection, and for the recall of products that fail to meet environmental standards.

Specifically, the Act includes provisions to prevent illegal deforestation via controls on the UK’s international supply chain. The new provisions will apply to large businesses and will:

• Prohibit large businesses from using forest risk commodities that were produced on land unless relevant local laws, such as those relating to land use and ownership, were complied with.
• Require large businesses who use a forest risk commodity, or a product derived from it in their UK commercial activities to establish and implement a due diligence system in relation to that commodity, and report annually on their due diligence.

Should you require any support or advice relating to compliance with any forms of CSR, please get in touch with the Commercial Team who would be happy to help.