QUESTION
Possible trends in the regulation of CSR in the world (the future of CSR regulation worldwide)
Structuring the Paper:-
Arguments with examples for the possible future trend 1 (1-4 paragraphs)
Arguments with examples for the possible future trend 2 (1-4 paragraphs)
Arguments with examples for the possible future trend 3 (1-4 paragraphs)
Arguments with examples for the possible future trend 4 (1-4 paragraphs)
Conclusion for this section (some sentences)
SOLUTION
POSSIBLE TRENDS IN THE REGULATION OF CSR IN THE WORLD
INTRODUCTION
In recent years, the trend in regulating Corporate Social Responsibility (CSR) has been towards more formalization and legal enforceability. This has been seen through implementing laws and regulations in various countries that require companies to adhere to certain social and environmental standards and through the increasing use of non-financial reporting mechanisms such as sustainability reports.
In the future, CSR regulation will continue to expand globally, particularly in developing countries where the need for responsible corporate behaviour is growing. Additionally, the increasing public awareness and demand for sustainable business practices may drive further regulation in this area. The rise of ESG (environmental, social, and governance) investing may also play a role in shaping the future of CSR regulation as investors look for greater transparency and accountability from companies.
However, it’s also important to note that various political and economic factors, such as the role of governments, the influence of interest groups, and the presence of international organizations will likely shape the trajectory of CSR regulation.
POSSIBLE FUTURE TRENDS IN CSR
The following discussed are the probable future trends in CSR. Legislations and case laws have been provided to support the argument that the possible trend may be present currently and in the future as well.
Increased government involvement
Governments will likely play a more significant role in regulating and promoting CSR initiatives in the future. Increased government involvement in regulating and promoting CSR initiatives is a trend that has been growing in recent years and is expected to continue. Governments recognise businesses’ vital role in addressing social and environmental challenges and are becoming more involved in regulating CSR practices to promote sustainable and responsible business practices. This can take the form of mandatory requirements for certain CSR practices or setting standards for companies to follow. By doing so, governments aim to create a level playing field for companies, promote sustainable business practices, and protect stakeholders’ rights and interests. This trend towards increased government regulation is likely to continue as governments respond to the increasing demands from stakeholders for more responsible and sustainable business practices and as they work to address complex and interconnected social and environmental challenges.
Laws and regulations supporting this trend include:
The UK Modern Slavery Act (2015), which requires companies to disclose information on their efforts to eradicate modern slavery in their supply chains, shows the increase of the government’s involvement in CSR in the present and like to increase further in the future.[1]
The French Duty of Vigilance Law (2017) requires companies to take measures to prevent serious human rights abuses in their supply chains.[2] This will continue reducing human rights violations in the industries and upholding the stakeholders’ interests.
The California Transparency in Supply Chains Act (2010) requires companies to disclose their efforts to eradicate slavery and human trafficking from their supply chains.[3]
[1] Modern Slavery Act 2015 s 54(‘Modern Slavery Act’).
[2] French Duty of Vigilance Law 2017.
[3] California Transparency in Supply Chains Act 2010.
Case laws supporting increased government involvement in CSR include:
The Dutch Urgenda Climate Case (2015), where the Dutch Supreme Court ruled that the government has a legal obligation to reduce greenhouse gas emissions.[4]
The Colombian Blackberry Litigation (2017), where a Colombian court ruled that a multinational company must take measures to prevent human rights abuses in its supply chain.
Evidence of the trend towards increased government involvement in CSR includes the growing number of laws and regulations addressing sustainability and human rights risks in the business sector and the increasing number of companies incorporating sustainability risks into their decision-making processes.
These laws, case laws, and evidence demonstrate the growing trend toward increased government involvement in the future of CSR. This trend is expected to continue as governments seek to address sustainability and human rights risks in the business sector and as companies strive to meet stakeholder expectations for responsible business practices.
Greater accountability and transparency
Companies may be required to disclose more information about their CSR activities, including their impact on the environment and communities is a growing trend in the future of CSR. Greater accountability and transparency are crucial trends in regulating CSR globally. This trend aims to ensure that companies are held accountable for their social and environmental impacts and communicate this information clearly and accurately to stakeholders. By requiring companies to provide detailed information about their CSR activities, including the laws, case laws, and evidence to support their claims, regulators aim to promote greater transparency and to help stakeholders make informed decisions about the companies they engage with. This trend towards greater accountability and transparency is likely to continue as stakeholders increasingly demand more information about the impact of business on society and the environment.
Laws and regulations supporting this trend include:
The Global Reporting Initiative (GRI) Standards provide a globally recognized framework for sustainability reporting and disclosure.
[4] J. Spier, ‘The “Strongest” Climate Ruling Yet’: The Dutch Supreme Court’s Urgenda Judgment’ (2020) 67 Neth Int Law Rev 319.
The EU Non-Financial Reporting Directive (2014) requires companies to disclose information on their environmental and social impacts.
The US Securities and Exchange Commission’s (SEC) guidance on ESG disclosure (2020) encourages companies to disclose their ESG risks and impacts, showing them to be more transparent and accountable.
Case laws supporting greater accountability and transparency include:
Lungowe v Vedanta Resources plc (2019), where the UK Supreme Court ruled that a multinational company must disclose information on its human rights impacts.[5]
Evidence of the trend towards greater accountability and transparency includes the growing number of companies publishing sustainability reports and the increasing demand for ESG information from investors. A report by the KPMG study found that 80% of the largest companies in the world publish sustainability reports.[6]
These laws, case laws, and evidence demonstrate the growing trend toward greater accountability and transparency in the future of CSR. This trend is expected to continue as stakeholders demand more information on a company’s social and environmental impacts and as companies strive for greater transparency in their reporting processes.
Integration with ESG investing and focus on sustainability.
Integrating ESG (environmental, social, and governance) criteria into investment decision-making is likely to become more widespread and impact CSR regulation. Incorporating ESG criteria into investment decision-making is a growing trend in the future of CSR.
Integration of sustainability and ESG considerations into business operations and decision-making: Companies are increasingly being held accountable for their operations’ social and environmental impacts. As a result, there is a growing trend toward integrating sustainability and ESG considerations into business operations and decision-making processes. This trend is evident in the increasing number of companies that have adopted sustainable business practices and the growing use of ESG metrics to assess corporate performance.
[5] Lungowe v. Vedanta Resources plc [2019] UKSC 20.
[6] KPMG, World Top Companies Improving Climate Reporting, More Progress Needed on ESG (Web Page, 2 February 2023).
Laws and regulations supporting this trend include:
The EU Regulation on Sustainable Finance (2019) requires companies and investment firms to consider sustainability risks in their decision-making and disclosure processes.
The US Securities and Exchange Commission’s (SEC) guidance on ESG disclosure (2020) encourages companies to disclose their ESG risks and impacts in their financial writings.
The Task Force on Climate-related Financial Disclosures (TCFD) provides a globally recognized framework for companies to disclose their climate risks and impacts.[7]
Case laws supporting the integration of ESG into investment decision-making include:
Royal Dutch Shell V Friends of The Earth Netherlands and Others case dealt with the responsibility of a multinational corporation for its contributions to global greenhouse gas emissions. The court found that Royal Dutch Shell was responsible for reducing its carbon footprint and contributing to global efforts to prevent dangerous climate change.[8]
The Société Générale Climate Change Litigation (2021), where a French court ruled that a bank must take into account the impact of its financing activities on the environment.
Evidence of the trend toward integrating ESG into investment decision-making includes the growing number of ESG funds and the increasing demand for ESG information from investors. A report by Morningstar (2021) found that ESG funds accounted for over $50 billion in assets under management globally. Evidence of the trend toward stakeholder capitalism includes the growing number of companies adopting sustainable business practices and the increasing demand for ESG information from investors. A report by BNP Paribas (2020) found that 92% of companies surveyed believe sustainable business practices are essential for long-term success.
These laws, case laws, and evidence demonstrate the growing trend toward integrating ESG into investment decision-making in the future of CSR. This trend is expected to continue as investors seek to align their investments with their values and as companies strive to meet stakeholder expectations for responsible business practices.
[7] IBM, TCFD Framework: What it is and Why it Matters (Web Page, 2 February 2023)
.
[8] Mondaq, Dutch Court Rules in Climate Case: Royal Dutch Shell v. Friends of the Earth Netherlands and Other (Web Page, 2 February 2023)
.
Incentives and penalties
Governments may use incentives and penalties to encourage companies to adopt CSR practices, such as tax incentives or fines for non-compliance.
Governments worldwide are increasingly using incentives and penalties to encourage companies to adopt CSR practices. For example, tax incentives such as deductions or credits for CSR-related expenditures have been implemented in several countries to encourage companies to engage in CSR activities. Similarly, fines and penalties for non-compliance with CSR regulations are becoming more common as governments seek to enforce accountability and ensure companies are held responsible for their actions. In some cases, non-compliance with CSR regulations can also lead to negative publicity and reputational harm for companies. Evidence for the trend of incentives and penalties in CSR regulation can be seen in the increasing number of countries adopting such measures and the growing body of laws and regulations in this area.
Laws supporting this trend include:
The EU’s Green Deal provides financial incentives for companies to invest in sustainable technologies and practices.
The US Clean Air Act (1963) imposes fines on companies that emit pollutants above certain levels.[9] This law is existing since 1963 in the USA. As the industrial economic growth is significant and likely to grow further in the future, such a law that imposes penalties on the industries for degrading the Air Quality is much needed and likely to have more significance in future.
The Paris Agreement (2015) sets out global goals to reduce greenhouse gas emissions and encourages governments to use a mix of incentives and penalties to achieve these goals.[10] It is a significant international regime in the subject which is likely to hold more significance in future CSR as the international law is expected to strengthen in the future.
Case laws supporting the use of incentives and penalties include:
[9] The Clean Air Act 1963.
[10] Daniel Bodansky, ‘The Paris Climate Change Agreement: A New Hope?’ (2016) 110(2) The American Journal of International Law 288.
New York State Attorney General v. Exxon Mobil Corp. (2019), where the New York Attorney General fined Exxon Mobil for misleading investors about the impact of climate change on its business.
United States v. Duke Energy Corp. (2017), where Duke Energy agreed to pay a fine for violating the Clean Air Act by emitting pollutants from its coal-fired power plants.[11]
Evidence of the use of incentives and penalties to encourage CSR practices includes the growing number of companies that have pledged to reduce their carbon emissions, improve their energy efficiency, and adopt sustainable practices. CDP (2021) report found that over 8,000 companies have set science-based targets to reduce their carbon emissions.
These laws, case laws, and evidence demonstrate that governments are using incentives and penalties to encourage companies to adopt CSR practices in the future. This trend will continue as governments seek to meet their sustainability goals and companies seek to meet stakeholder expectations for responsible business practices.
Cross-border collaboration
There may be greater collaboration between countries to harmonize CSR regulations and standards to facilitate global trade, and investment is a possible trend in the future of CSR.
This trend is driven by the recognition that global companies operate in a complex and interconnected world and that it is important to have consistent standards and regulations to ensure sustainable and responsible business practices. By collaborating across borders, countries can harmonize their CSR regulations and standards, making it easier for companies to operate in multiple jurisdictions and reducing the risk of conflicting requirements. This cross-border collaboration is likely to become more important in the future as global trade and investment continue to increase, and the world faces increasingly complex and interconnected social and environmental challenges. The harmonization of CSR regulations and standards through cross-border collaboration can help to create a level playing field for companies and to promote sustainable business practices worldwide.
[11] United States of America v. Duke Energy Corporation (2017) 218 F.R.D. 468.
Laws supporting this trend include:
The United Nations Guiding Principles on Business and Human Rights (2011), provide a framework for governments to collaborate with greater collaboration in both local and cross-border on subjects like the protection of human rights and ensure that companies respect them in their operations.[12]
The Organization for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises (1976) provide recommendations for multinational enterprises to follow to ensure responsible business practices and respect for human rights.
Case laws supporting cross-border collaboration include:
Rana Plaza Factory Collapse in Bangladesh (2013), where companies from around the world worked together to improve safety standards in Bangladesh’s garment industry after a factory collapse killed over 1,100 workers.[13]
The Volkswagen Emissions Scandal (2015), where regulators worldwide worked together to investigate and penalize Volkswagen for cheating emissions tests.[14]
Evidence of cross-border collaboration to harmonize CSR regulations and standards includes the growing number of international agreements and initiatives that promote responsible business practices, such as the Global Compact, the UN Global Goals, and the Sustainable Development Goals.
These laws, case laws, and evidence demonstrate that cross-border collaboration to harmonize CSR regulations and standards is a trend in the future of CSR. This trend is likely to continue as companies increasingly operate in a globalized world and the need for a level playing field for responsible business practices becomes more pressing.
Emphasis on human rights
CSR regulations may increasingly focus on protecting and promoting human rights, particularly in supply chain management, and this is a possible trend in the future of CSR regulation. There is growing recognition of the need for companies to respect and promote human rights within their own operations and supply chains. This is likely to drive increased focus on this area in the future.
[12] The United Nations Guiding Principles on Business and Human Rights.
[13] Dana Thomas, ‘Why Won’t We Learn from the Survivors of the Rana Plaza Disaster?’, The New York Times (Dhaka, 24 April 2018).
[14] Russell Hotten, ‘Volkswagen: The scandal explained’, BBC (London, 10 December 2015).
Laws supporting this trend include:
The United Nations Guiding Principles on Business and Human Rights (2011) outline companies’ responsibility to respect human rights in their operations and supply chains.[15]
The Modern Slavery Act (2015) in the UK requires companies to report on the steps they are taking to ensure there is no modern slavery in their supply chains, showing the emphasis on human rights currently, which is likely to extend further in the future.[16]
Case laws supporting this trend include:
Kiobel v. Royal Dutch Petroleum (2013), a US Supreme Court case, held that corporations could be held liable under US law for human rights abuses committed overseas.[17]
The Apple Foxconn Factory Workers Case (2012), where Apple faced criticism over the treatment of workers in its supply chain, led to changes in the company’s supply chain management practices to improve working conditions.[18]
Nestle vs. Amnesty International case highlights the responsibility of companies to respect human rights in their operations and supply chains.[19]
Evidence supporting this trend includes the increasing number of human rights abuses and labour violations in supply chains and the growing public awareness and concern over these issues. Additionally, an expanding body of research shows the business case for respecting human rights, with companies that respect human rights often having a more positive reputation and more robust financial performance.
These laws, case laws, and evidence demonstrate that an emphasis on human rights is a possible trend in the future of CSR regulation, as governments and stakeholders demand greater accountability from companies for their human rights practices in their operations and supply chains.
CONCLUSION
[15] The United Nations Guiding Principles on Business and Human Rights.
[16] Modern Slavery Act (n 1).
[17] Kiobel v. Royal Dutch Petroleum Co. (2013) 569 U.S. 108.
[18] Brian Caulfield, ’Apple-Foxconn Investigation Finds 'Serious' Violations of Chinese Labor Laws’, Forbes (New York, 29 March 2012).
[19] ‘Palm Oil: Global brands profiting from child and forced labour’, Amnesty International (London, 30 November 2016).
In conclusion, regulating Corporate Social Responsibility (CSR) is rapidly evolving, and trends vary globally. However, some common trends include increasing government mandates, more significant stakeholder pressure for accountability, and the integration of sustainability into business strategy. Companies are expected to be more transparent and responsible in their practices, and the pressure to act ethically and sustainably will likely continue to increase. In the future, the regulation of CSR is likely to become more comprehensive, covering a wider range of issues, and to become more strictly enforced, with penalties for non-compliance. The goal will be to encourage companies to adopt sustainable practices that benefit their bottom line and society. Hence, the above discussed are the possible trends that, to some extent, exist currently and are likely to be more effective in the future of corporate social responsibility for the overall benefit of the stakeholders involved in the sector.
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Cases
Kiobel v. Royal Dutch Petroleum Co. (2013) 569 US 108
United States of America v. Duke Energy Corporation (2017) 218 FRD 468
Lungowe v. Vedanta Resources plc [2019] UKSC 20
Legislation
Modern Slavery Act 2015
California Transparency in Supply Chains Act 2010
The Clean Air Act 1963