CSR no license for private government

The trend for business to get involved in controversial political debates in the name of ‘corporate social responsibility’ (CSR) is gathering pace.

Last week, BHP Chief Executive Andrew Mackenzie announced that the ‘Big Australian’ would be ramping up its climate change policy. Not only will executive pay be linked to reducing the company’s greenhouse emissions, but BHP will also begin monitoring and seeking to reduce the carbon emissions of its customers.

My work on the CSR phenomenon has stressed that there may be legitimate commercial reasons for companies to proactively address environmental issues to protect the financial interests of shareholders.

Despite — or perhaps because of — BHP’s extensive coal business, commercial considerations could well be driving the company’s emission strategy, given the scope of the global transition to renewable energy.

But of concern is that the new approach appears to have been adopted in response to pressure from climate activists “who have been pushing mining majors to monitor and try to reduce so-called ‘scope 3’ emissions — those from downstream manufacturers, such as steel mills, that use the iron ore and other commodities that BHP mines.”

This seems to be a clear case of corporate power and influence being co-opted by activists to drive their political agenda, skirt the democratic process, and exert control over the otherwise legal activities of companies.

This type of CSR initiative might, therefore, be fairly characterised as inappropriate political meddling in pursuit of ‘systemic change’, given that climate change policy has been one of the most contested and partisan political issues of recent times.

In a democracy, it is the parliament that is sovereign and makes the laws which all are obliged to abide by.  As Milton Friedman argued in his classic essay on CSR, when the social role of companies extends – as in this case – outside of the rule of law, business is effectively usurping the functions and acting as “simultaneously legislator, executive and jurist.”

The standard rationale for CSR is that its demonstrating social responsibility that enhances the good standing of brands in the community.

But it is hard to see how company reputations are enhanced by opening them up to allegations of acting undemocratically and operating above the law.

CSR should not become a license for companies to initiate a form of private government that undermines our democratic traditions and rides roughshod over the rule of law.