It is by now commonplace that firms have to report not just on bottomline but an additional triptych which focuses on social, economic and sustainability aspects. The rise of neoliberal thinking in the eighties produced a movement for voluntary regulation by business and thus was born corporate social responsibility (CSR). Frustration with the limited results from corporate self-regulation created the ‘corporate accountability’ movement in the nineties. The feeling gained that companies “need to incur some sort of cost when they fail to comply with agreed standards.” Corporate accountability will ensure ‘corporate sustainability’ (CS) that assimilates the environmental and social dimensions into business operations.
There is however a dilemma. What’s good for the world — sustainable development in which resources are used in a non-depleting manner and waste and emissions are kept under control — sits uncomfortably with the need for growth which our production system demands and which is required to reduce poverty. Firms need to produce profits for capital accumulation. Low or no growth, implied by sustainable development, threatens investment sentiment and job creation. “If growth fails, a negative spiral starts, threatening to ruin society.” Hence, “growth is both a blessing and a curse,” argues Arild Vatn in a key essay highlighting the need for new institutions or rules to resolve this dilemma. The corporation is geared to maximising the return on capital (ROC). Capitalism both fosters and depends on economic growth. The one-dimensional pursuit of the bottomline leads to cost-shifting, moving to countries with weaker regulation, or passing the burden to the future through excessive depletion of resources. To resolve these dilemmas we need new institutions or rules for both the firm (it has till now followed the organisational strategy of maximising ROC) and national and global systems as a whole.
In another important essay, Stefano Pogutz highlights a contradiction. CS- and CSR-oriented firms may be good citizens “when considered separately, (but) are not necessarily sustainable when considered all together.” So the need is for organisations to understand the “physical and social constraints to the creation of economic value.” A bridge has to be built between ecological economics and managerial science. Addressing the longer-term challenges posed by sustainable development “requires the acceptance of long-term compromise between economic development, social well being and nature preservation.” This requires enforcement of regulations at the international, national and local levels. Emerging economies, to come on board this global compact, have to be economically compensated and environmental and social obligations redistributed between the current poor and rich heavy polluters of the past.
The book displays two biases. It goes on about large firms which can influence regulatory frameworks and MNCs which can go round the world regulation-shopping. They can and do and are to be taken seriously because of the clout they wield in shaping regulation. But this is not the whole picture. Small and medium firms in a developing country like India are often the worst polluters and they are able to carry on because they threaten closure and job loss in response to regulatory pressure, arguing that better standards will be too costly for them. Both majority public opinion and politicians welcome polluting processes being exported by developed countries because they will create jobs and contrary activism is derided as the fads of the westernized elite.
The second bias is present in some, not all, essays — a tendency to conclude that ultimately it is regulation which will work. The essay by Panth and Shastri on patterns of pollution compliance in India holds that since less industrialised countries have a weak market structure, “it is usually necessary to depend on command and control methods to ensure compliance with environmental regulations.” But governance is also weak in such countries. A few lines below, the essay cites a World Bank study to note that industrial pollution regulation in India is dogged by shortage of trained staff in pollution control boards, corruption, evasion of regulation and other departments overriding such regulation.
So what is the preferable path ahead? Several essays draw a more balanced conclusion, of a combination of voluntary corporate action, stricter national and cross-border regulation, public activism and more banging of heads together (this will create the necessary public opinion). With the ignominious departure of George W Bush, neoliberalism is in the doghouse and unrepentant statists in third world countries are trying to stage a comeback. But do more rules help in countries where corruption is rampant and governance appalling? The Germans and Scandinavians who match lots of rules with high public integrity seem to have got it right. Life on the planet will be sustainable if most of the world follows them into an era of the right type of global governance. Otherwise, we are sunk, irrespective of whether we turn right or left.
CORPORATE ACCOUNTABILITY AND SUSTAINABLE DEVELOPMENT
Ed Peter Utting & Jennifer Clapp
OUP; Rs 650;
259 pages