October 05, 2020 Feature

Corporate Social Responsibility and Multinational Corporations: An Emerging Vehicle for Doing Public Good

Irma Russell and Roger Martella

There is no debate that the world’s 40,000 multinational corporations (MNCs)—corporations that maintain a presence in more than one country—cause significant impacts far beyond their rooftops and supply chains. For over half a century, corporate social responsibility (CSR) has focused on how to assess, quantify, and report to the public on concerns such as the environment, employee safety, human rights, and, increasingly, climate change. More recently, CSR has highlighted the unparalleled powers of MNCs to do public good while serving their shareholders. The next era of CSR should go a step further to focus on the largely untapped opportunity for MNCs to go beyond the efforts of individual corporations and evolve to help MNCs collectively leverage their resources to achieve outcomes that no company and no government could realize alone in pursuit of solving global challenges.

For decades, CSR has existed as a relatively arcane topic, drawing the attention of some public interest groups, academics, and socially conscious investors. For the last few years, the focus on using CSR considerations—particularly environmental, social, and governance (ESG) factors—has boomed. The two terms (CSR and ESG) both refer to the commitment of corporations to include consideration of social impacts in corporate decision making. CSR is the broader of the two terms, referencing all social impacts and benefit as legitimate factors in corporate decisions, including human rights. ESG, the newer concept, is more associated specifically with environment and climate change impacts, although sometimes ESG is used interchangeably to reference the full suite of CSR considerations. Some corporations include these specific categories as the major headings of CSR reports and planning.

Whether intentional or not, these efforts have put a spotlight on corporate impacts at a time when some governments are deferring regulations. This focus has highlighted the current momentum on three fronts: (1) advancing methodologies to modernize conventional CSR metrics to better account for and address climate change and emerging global challenges; (2) increasing investor and shareholder scrutiny of CSR actions, including decisions on whether to invest in companies based on ESG performance; and (3) the focus of this article, expanding the purpose of a company beyond shareholder return and encompassing stewardship for improving the environment and conditions of the communities where companies operate.

The growing discussion about how MNCs can bring solutions to global challenges could not be better timed. Although MNCs are less than 1% of the total number of American firms, their activities account for “a large fraction of GDP, exports, imports, research and development, and private-sector employee compensation.” Song Kim & Helen V. Milner, Multinational Corporations and Their Influence Through Lobbying on Foreign Policy 2 (Dec. 2, 2019) (unpublished manuscript) (on file with Brookings). MNCs influence the economy and market conditions not only where they operate, but also, more broadly, around the world. Though the degree of influence is difficult to quantify, these enterprises are clearly significant in terms of earnings, impacts, and political influence.

Given the impact of the growing global presence of MNCs, planning for a sustainable future must include consideration of these players in the world marketplace and the effect of their policies and actions on the environment and local communities. As the number and severity of global challenges grow, MNCs have directed resources toward mitigating both local and global impacts related to their operations. However, an untapped opportunity exists for this relatively small group of outsized market actors to work collectively to implement solutions that are beyond the reach of any one company and to help solve problems that nation states are slow to address. If MNCs work together across sectors and industries, progress toward solving global challenges is likely to happen sooner and with greater efficacy than if left solely to the checkerboard of varying regulatory regimes where these companies operate. The growing focus on CSR as a vehicle for doing public good provides the opportunity for MNCs collectively to help solve pressing global goals at this critical time.

The Relationship Between the Corporate Entity and the Public Good

The idea of looking to MNCs to help solve global problems is not revolutionary. Indeed, the legal history of the corporate entity suggests that serving the public good is integral to the role of the corporation. Legal recognition of corporations as legal entities and, later, the grant of perpetual life for corporate entities arose from the belief that corporate organizations would exist to benefit the public. In colonial times, the British government granted charters to corporations so that they could serve the public by forming municipalities, colonies, churches, charitable organizations, and plantations for food production. See generally Joseph Stancliff David, Essays in the Earlier History of American Corporations (1917). Much later, in 1819, the U.S. Supreme Court continued to recognize that the “object of the charter may be public good; so it is in all other corporations; and this would as well justify the resumption or violation of the grant.” Trs. of Dartmouth Coll. v. Woodward, 17 U.S. 518, 624 (1819). The Court viewed the grant of the corporate charter for a private entity as “very well said to be for public use, of which the property and privileges are yet private. Indeed, there may be supposed to be an ultimate reference to the public good, in granting all charters of incorporation.” Id.

Single proprietorships or partnerships—as opposed to corporations—were the entities originally used for conducting business in the United States. This was at least in part because early American statutes generally limited corporate life to fixed terms of years and “commonly denied” incorporation to business entities long after incorporation “had been freely granted for religious, educational, and charitable purposes.” Liggett Co. v. Lee, 288 U.S. 517, 548 (1933) (Brandeis, J., dissenting). But this changed over time as governments recognized that granting perpetual existence to a corporation could, in fact, benefit the public good. The grant of perpetual existence came with the railroad corporations and promotion of western expansion. Over time, corporations were also granted the ability to contract and own property. Judges “called a corporation a person, [as] . . . a kind of legal shorthand, . . . treating a group of corporators, and the property each brought to a corporate entity, as a unit.” Gregory A. Mark, The Personification of the Business Corporation in American Law, 54 U. Chi. L. Rev. 1441, 1447 (1987). It took time for the idea of the corporation as a separate entity to gain credence. Ultimately, however, the fictional entity of the corporation achieved full legal capacity—and existence beyond that of humans.

The Growing Influence of MNCs

The growth of MNCs began in the mid-20th century, with spurts in growth in the 1970s and 1990s. Although it is difficult to measure economic activities of companies, it is clear that MNCs have an enormous market presence. Today, large MNCs rival many of the world’s governments in terms of economic impact. For example, the Organisation for Economic Co-operation and Development (OECD) “estimates that MNCs account for half of global exports, nearly a third of world GDP (28%), and about fourth of global employment.” Kim & Milner, supra, at 2.

As MNCs have grown in scale, they similarly have added political influence everywhere they operate. Indeed, the general premise that governments are more impactful and more accountable than corporations is subject to question. For example, in his 2018 book Oil, Power and War: A Dark History, Matthieu Auzanneau sets forth a detailed history of the oil sector’s influence over global politics, suggesting that industry has gained more from its association with government than the converse. Given the rising power and influence of MNCs globally, there is increasing scrutiny of the stewardship relating to the communities and environments in which they operate. More often than not, these reports historically have given unfavorable accounts of companies seeking to profit from local resources without sufficient stewardship of surrounding communities. In more recent years and decades, there has been a notable shift for MNCs at the outset to demonstrate heightened care for community stewardship, frequently prior to even entering a new market. For example, case studies provide evidence that MNCs will adopt stricter environmental performance standards than required by local governments. While this shift is encouraging progress for many MNCs and economic sectors, these efforts are largely uncoordinated. In other words, while individual MNCs are demonstrating an increased commitment to stewardship, there still is largely a lack of shared efforts and pursuits for MNCs to join forces to bring their influence and resources to tackle overarching regional and global challenges.

The Emergence of Corporate Social Responsibility

CSR is often described as one of the “new governance arrangements that are emerging to address this complex twenty-first-century reality.” Suzanne Spears, Corporate Social Responsibility and National and International Legal Frameworks, in Corporate Social Responsibility, Sustainable Business 551, 552 (Rae Lindsay & Roger Martella eds. 2020). The theory of CSR, sometimes referred to as the “new CSR,” has been discussed since the 1950s and 1960s, when focus began to arise regarding the need to assess the impacts of companies on their communities, rather than focusing on shareholder profit alone. While more recent than legal recognition of the corporate entity, CSR is an older concept than is often supposed. In 1931 and 1932, two leading experts on corporate and securities law, A. A. Berle Jr. and E. Merrick Dodd, debated social responsibilities of corporate officers in the pages of the Harvard Law Review, taking essentially the positions debated today about CSR. See C.A. Harwell Wells, The Cycles of Corporate Social Responsibility: An Historical Retrospective for the Twenty-first Century, 51 U. Kan. L. Rev. 77, 78–81 (2002). In his 1953 publication Social Responsibilities of the Businessman, the American economist Howard Bowen coined the term, gaining later recognition as “the father of CSR.” Convinced that economic benefits would flow from embracing broad social goals in corporate decision making, Bowen argued that CSR aligned with the idea of profit for shareholders.

During most of this time, CSR has historically served a relatively passive role, with a focus on voluntary reporting of corporate ESG metrics, such as water use, energy efficiency, greenhouse gas (GHG) emissions, supply chain impacts, and human rights and labor considerations. Moreover, accountability for MNCs in American courts faces numerous difficulties. See Phillip I. Blumberg, Accountability of Multinational Corporations: The Barriers Presented by Concepts of the Corporate Juridical Entity, 24 Hastings Int’l & Comp. L. Rev. 297, 299 (2001). Accordingly, so far CSR has provided primarily a passive opportunity for MNCs to share information as opposed to an affirmative vehicle for companies to use their influence to promote positive change.

In recent years, CSR and ESG have climbed the ladder of both corporate decision making and global environmental policy, routinely making front-page headlines. Whether intentional or not, this tightening relationship of MNCs, CSR, and the public good may be the result of a perceived gap in lawmaking during critical times. A key trend, with the potential to change the way MNCs operate, is the movement to modernize outdated reporting methodologies to track issues of growing importance such as greenhouse gas emissions across product life cycles, supply chain metrics, and human rights. Various groups, such as the Global Reporting Initiative, the Task Force on Climate-related Financial Disclosures, and the Sustainability Accounting Standards Board, have advanced sometimes complementary, sometimes competing, methodologies to track CSR issues of growing importance. While the outcome is unresolved, momentum is moving toward more relevant and uniform disclosures.

In parallel, investors have elevated the role of CSR for decision making in C-suites and corporate boardrooms through several high-profile announcements regarding the types of companies they would and would not invest in, largely centered around CSR considerations. Earlier this year, BlackRock, for example, announced it would exit “investments that present a high sustainability-related risk, such as thermal coal producers.” Annual Letter to CEOs from Larry Fink, CEO, BlackRock (2020). Building on these changes, and important to this discussion, companies themselves have advanced the longstanding CSR debate about focusing on opportunities to solve bigger challenges. In August 2019, the Business Roundtable proposed to redefine the “Purpose of a Corporation” to include classic CSR concepts such as “[s]upporting the communities in which we work . . . and protect[ing] the environment by embracing sustainable practices across our businesses.” Business Roundtable Redefines the Purpose of a Corporation to Promote “An Economy That Serves All Americans, businessroundtable.org (Aug. 19, 2019). This statement reflects the growing momentum by individual companies to improve the communities where they operate.

The fundamental transformation to include affirmative stewardship of the environment and local communities is likely to become the strongest growth area of the CSR movement. At its core, CSR presents the opportunity to meld the results-driven focus of powerful corporate entities with the public good pursuit of government entities. Given that promotion of the public welfare is the sine qua non of law and the core role of government in enforcing the law, one way to view the CSR lens on MNCs is as effectuation of the public good. Indeed, the public good is the purpose of CSR. This is where the greatest opportunities exist for MNCs: to build upon their individual resources and successes to bring technology, weight, and influence together and collectively serve the public good while simultaneously pursuing their core business to deliver shareholder return.

The Imperative Role of MNCs in Collectively Solving Global Challenges

The key question of today’s global challenges is whether the global sustainability imperative is likely to be realized without the buy-in of MNCs. Despite significant international efforts to foster CSR and sustainability, real progress toward sustainability has been elusive. The United Nations has encouraged nation-states to create incentives for CSR. For example, in 2000, the UN Secretary General launched the Global Compact to seek to advance principles in the areas of human rights, labor, environment, and anticorruption. In 2015, the UN Framework Convention on Climate Change (UNFCCC) in Paris sought to incentivize investments to switch to a sustainable low-carbon economy. However, despite attempts to create obligations for corporations under either domestic or international law, the current system of international law is fragmented and dependent on territorial sovereignty of individual nation-states. Accordingly, the response to global challenges lacks focus and imperatives for corporate entities that operate between legal regimes as well as within such regimes. The potential for “passing the buck” or claiming inability to harmonize or routinize its activities because of the different legal regimes is a real risk. For example, international bodies and nation-states have yet to enforce international human rights obligations. Focusing CSR on this opportunity for MNCs individually and collectively to achieve more efficiently what international laws cannot is likely to realize more results sooner.

The COVID-19 pandemic is perhaps the strongest example of the critical role MNCs need to play in addressing global challenges. The pandemic tragically represents how the planet’s most significant challenges such as global health issues, climate change, human rights, and environmental problems are closely intertwined and have the potential to harm communities and vulnerable populations around the globe that lack any responsibility for causing the harms. Like other global challenges, there is no overarching regulatory law or government system adequate to address the issue. Instead, early responses to COVID-19 demonstrate how MNCs are uniquely positioned to adapt their resources, technology, and influence to deliver solutions that go beyond what governments can do. MNCs have reprioritized their resources toward addressing the pandemic and formed new alliances across industries to combat the problem. For example, health care equipment companies partnered with auto manufacturers to retool manufacturing lines to produce more ventilators; apparel companies changed production toward masks and scrubs; and transportation companies played critical roles in moving supplies around the world to where demand was highest.

Today, there is no shortage of ideas and solutions to solving global challenges such as climate change, global environmental pollution, and human rights. The most pressing gap is not in developing ideas. The delayed pace of progress to implement solutions to global challenges can be attributed to several factors, including political dynamics at the national and international levels, resistance from businesses to ideas generated without their input or consideration of costs, and the perceived disconnect between theoretical ideas and real-world pragmatism. What has been largely missing are pragmatic and implementable solutions that can simultaneously realize the necessary goals needed to act with urgency, focus outcomes on vulnerable populations, be pragmatic to push progress, experiment for quicker results, set and drive deadlines and measure results, and work within existing legal boundaries to accelerate implementation.

MNCs excel at each of these necessary factors to tackle large challenges. By their nature, they must act promptly and decisively; they can tailor solutions to individual markets, including vulnerable populations; they are committed to pragmatic outcomes that work; they have research and development cultures that lead to experimentation and break-through solutions; they are driven by metrics, goals, and accountability; and the size and scale of MNCs allow them to bring significant resources and power to implement solutions that go beyond and need not wait for government frameworks. Thus, perhaps more than any other public or private entity, MNCs are uniquely well positioned to address many of the impediments that have held up progress on tenacious global problems.

CSR 3.0: Coordinating Efforts to Solve Problems Beyond One Corporate Entity

If reporting metrics was the first era of CSR, and the increased focus of MNCs on affirmatively mitigating impacts is the emerging second era, the next stage in the CSR evolution—or CSR 3.0—should be for MNCs to step beyond the scope of individual corporate entities and collaborate across sectors and industries to aggregate resources toward solving a shared problem. This would have a snowball effect, where the results of a coordinated combined effort would greatly outperform the results of companies acting independently toward the same goal.

Mechanisms already exist for MNCs to collaborate to protect people, communities, and the environment. For example, the International Organization for Standardization (ISO) has brought MNCs together to develop voluntary consensus-based standards for safety and environmental protections since the 1990s. Recently, a coalition of aircraft manufacturers and their supply chains worked with the United Nation’s International Civil Aviation Organization to develop the first GHG standards for global aircraft. However, such platforms are largely focused on standard setting to achieve uniformity across international jurisdictions in ways that no one country can enforce; there is still a gap in tapping the resources of MNCs for a greater public good.

The opportunity for MNCs to work together by pooling resources, ideas, and technology to solve pressing issues likely will lead to quicker and more efficient outcomes than would be possible for governments or any company working alone. Building upon the Business Roundtable statement above, coordination of MNCs within their industries could develop an ISO-like structure for the CSR movement focused on opportunities for MNCs to realize solutions. While governments have primacy in setting important standards, regulations, and laws to force baseline action, an ISO-type structure of collaboration among companies could enable a CSR vehicle for MNCs to set expectations that go above and beyond the checkerboard of applicable local regulations and standards in pursuing ESG goals for industries; leverage resources of multiple companies within and across sectors to achieve greater local and global results; realize broader improvements than any one jurisdiction can realize alone; and accelerate results sooner in ways that companies can embrace all within the context of simultaneously delivering shareholder return.

The COVID-19 experience provides proof that companies in related and disparate industries can combine resources to solve public problems. The next steps will be to tackle challenges, like climate change, that may not seem to have the immediate urgency of a global pandemic but that carry global risks to communities and the economy over time. CSR presents the opportunity for companies to memorialize such frameworks, set shared goals, measure success, and involve the public, with both ideas and outcomes.

While CSR historically has focused on monitoring impacts over opportunities, this dynamic may be undergoing a transformation. Today, MNCs are focusing more on mitigating global and community harms linked to their operations and are documenting such efforts through their CSR reporting and commitments. The early action in the COVID-19 pandemic has reinforced recognition of the need for rapid and coordinated action. MNCs must continue this momentum in the future to direct their corporate resources toward solving emerging challenges. More than any other entities, MNCs have developed scientific expertise and management organization, which, in coordination with structures of international governments, present a genuine (and perhaps the only) possibility of succeeding in addressing the existential threats of our time such as climate change and the COVID-19 pandemic. MNCs have attained global influence through the accumulation of capital and expertise, and the willingness of nation-states to accept or embrace their presence and business model. Protecting the environment and communities in today’s world presents challenges still insufficiently realized by either corporate or governmental leaders. Given the realities of the position that MNCs now occupy, this small number of outsized market actors are crucial in the task of setting and attending to norms for protecting sustainable life on our planet. Coordinated efforts of MNCs and governments present the best hope for establishing the norms of accountability and cooperation necessary for a sustainable future.

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Irma Russell and Roger Martella

Ms. Russell is the Edward A. Smith/ Missouri Chair in Law, the Constitution, and Society and professor of law at the University of Missouri–Kansas City School of Law. Mr. Martella is a career environmental and climate change attorney and author who has worked in government, private practice, and in house. They may be reached at russelli@umkc.edu and roger.martella@verizon.net, respectively.