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  • Print publication year: 2021
  • Online publication date: May 2021

45 - Corporate Social Responsibility, ESG, and Compliance

from Part VII - Management and Organizational Processes

Summary

Abstract: Notable business leaders and institutional investors have begun to support the idea that companies should be run for the benefit of all stakeholders – customers, employees, suppliers, communities, and shareholders. After decades of focus on maximizing shareholder value, corporate social responsibility (“CSR”) and initiatives relating to environmental, social, and governance matters (“ESG”) are gaining ground in the debate about corporate purpose. Despite their rising prominence, CSR and ESG are still highly contested and no consensus exists about their precise meaning. Diverging views about what constitutes socially responsible activity and the rationale for its pursuit have driven wide-ranging approaches to researching and implementing CSR and ESG practices. This chapter examines the shifting debate and landscape of CSR, ESG, and their connection to compliance. Although CSR and ESG are often connected conceptually to legal compliance, or taking actions that exceed such an aim, usage of the terms vary. Further, although many studies find a positive relationship between CSR or ESG and financial performance, the empirical evidence is mixed and does not conclusively establish whether CSR or ESG activity mitigates compliance, regulatory, litigation, or other business risks. Finally, the chapter observes that social responsibility initiatives are on the rise in the form of internal governance mechanisms, private principles, and third-party ratings and rankings, but the dizzying array of approaches and frameworks impedes a clear understanding of what it means for a company to “comply” with aims for CSR or ESG. The lack of a singular, universal system enables customization, but evolving norms and laws on corporate practices and disclosures could lead to new insights.