Category Archives: Corporate Social Responsibility

Changing Expectations for Board Oversight of Sustainability

A discussion paper on board adoption and oversight of corporate sustainability prepared by The Global Compact LEAD included the following observation[1]:

“Sustainability is increasingly recognized as a strategic imperative for businesses globally. Far more than when the Global Compact was launched in 1999, companies recognize that their sustainability performance affects their strategy, financial performance, resilience, access to essential resources, reputation, and license to operate. Peter Senge, noted strategy theorist and faculty member at the Sloan School of Business at MIT wrote in 2009 that “people are starting to suspect that these are really strategic issues that will shape the future of our businesses.” And as sustainability is being recognized more and more as a strategic business question, Boards are increasingly considering sustainability as part of their core responsibility of guiding and overseeing corporate activities.”

The paper also noted that: “more and more investors are looking for corporate boards to steward corporate sustainability in order to both adequately manage risks and maximize business opportunities related to sustainability. Indeed, engagement activities are on the rise in many quarters, and like‐minded investors are increasingly pooling resources to create a stronger and more representative shareholder voice and to ensure that company engagement becomes more effective.[2]

Calvert Asset Management, in its 2010 survey of board oversight of environmental and social issues in North America, explained the rationale for the board’s role as follows:

“The question of whether boards of directors should have responsibility for corporate sustainability matters is sometimes debated.  Some critics of the idea argue that social and environmental issues are by their nature managerial and operational issues which makes them inefficient for the board to address. However, many investors have come to believe that these issues have implication for capital investments, corporate strategy, brand and reputation. From this perspective, boards of directors are the appropriate bodies to provide long-term perspective and guidance on these matters, and the absence of board responsibility can raise questions about whether a company is managing these factors appropriately. Conversely, board-level oversight of corporate responsibility can set a meaningful “tone at the top” and provide investors and other stakeholders with a deeper understanding of how the company assesses its challenges and prioritizes issues relevant to its success.”[3]

A March 2014 study of board oversight of sustainability issues among S&P 500 companies commissioned by the IRRC Institute and authored by the Sustainable Investments Institute found that just a little over half of the companies had implemented board oversight of sustainability issues.[4]  The sustainability executives surveyed in a report released by The Conference Board in June 2016 found that 55% of the respondents said that their boards of their companies met only once a year or never on sustainability issues and 69% of the respondents said that their boards spend four hours or less per year on sustainability issues.[5] Identifying, acknowledging and addressing corporate sustainability issues create new and significant challenges for directors and the management team that range from setting high-level goals and adopting strategies to achieve those goals to extensive changes in day-to-day operational activities.  Directors must not only ensure that their companies are conducting full assessments of the entire lifecycle of their products and services but must also provide the resources and incentives to collect, analyze and report information relating to the progress of the company’s corporate sustainability initiatives.  Institutional investors and other stakeholders will not be satisfied with vague promises and aspirational principles from their companies, nor will companies be able to simply continue to adopt a reactive approach to ESG-related concerns (i.e., waiting until a shareholder proposal on an ESG-topic is imminent before engaging with the shareholder to resolve the concern).  In fact, directors should expect that stakeholders demand that companies demonstrate a proactive approach to developing and implementing sustainability strategies, allocating capital to sustainability-related initiatives and managing the risks associated with failure to respond to ESG issues.

Harper Ho suggested that investor activism around ESG issues and investors’ growing demand growing demand for investment-grade ESG information has important implication for how directors should approach corporate governance, investor engagement, compliance and disclosure practices.[6]  First of all, the broadened scope of risks that directors must consider in light of ESG activism means that boards must have new capacities to support oversight of ESG risk.  Second, investors want their companies to integrate ESG performance metrics and long-term benchmarks into executive compensation.  Third, directors should ensure that investor engagement encourages dialogue and learning and confirm that senior management and investor relations personnel are aware of the increasing overlap between corporate governance and environmental and social concerns.  Finally, directors need to improve the quality and formatting of their sustainability-related reporting and ensure that ESG materiality is being considered as part of their company’s financial reporting process.  According to Harper Ho, companies that can improve their practices in these areas are likely to see improved financial and operational performance, improved focus on long-term risk and return, better access to “patient capital” (i.e., investors that are less fixated on quarterly earnings and more supportive of R&D and other investments in the company’s future) and be able to identify and exploit new sources of value for the company and keep ahead of emerging risks and opportunities.[7]

CSR and corporate sustainability are broad and challenging topics and the directors must carefully consider how the board’s duties and responsibilities will be discharged and allocated among board members.  One well-known corporate governance advisor has counseled that directors should begin the process of developing an oversight framework for CSR and corporate sustainability by asking and answering the following questions[8]:

  • How should concerns regarding CSR and corporate sustainability be integrated into the board’s discussions on strategy and risk oversight? Strategy and risk oversight are two topics that all board members should be working on and actively discussing during each board meeting and investors are looking to see whether CSR and corporate sustainability have been formalized as priorities in the board’s governance guidelines and overall goals.
  • To what extent should CSR and corporate sustainability topics be included as standalone agenda items for board meetings?
  • What information should be provided to directors (e.g., data on how the company’s efforts compare to those of its peer companies, leading industry standards, and the CSR-related priorities of key shareholders and proxy advisory firms)?
  • Which metrics should the board and members of the executive team focus on in considering progress against CSR and corporate sustainability goals (e.g., goals involving reduction of water usage and emissions, reducing on-the-job injuries and employee turnover, or improving workforce diversity and employee retention)?
  • What process should be used for drafting and reviewing public disclosures about the company’s CSR and corporate sustainability efforts?

In addition, the board should also consider how the company’s current efforts and activities with respect to CSR and corporate sustainability compare to its peers, how investors and other stakeholders perceive the company’s engagement with and disclosure of CSR and corporate sustainability and whether or not the company has been effectively communicating its CSR and corporate sustainability strategies, goals and actions to investors and other stakeholders.[9]

Recognition of the importance of stakeholders in corporate governance calls on directors and managers of corporations to develop new skills in order to integrate the values and expectations of external and internal stakeholders into the overall strategic management process.  Digman et al. pointed that strategic management is “inseparable from the strategic management of relationships” and Masuku advised: “A strategy should be in place for each stakeholder group their key issues and willingness to expend resources helping or hurting the organization on those issues must be understood.  For each major stakeholder, managers responsible for that stakeholder relationship must identify the strategic issues that affect the stakeholder and must understand how to formulate, implement and monitor strategies for dealing with that group.”[10]

In addition to the steps needed to integrate CSR and corporate sustainability at the board level, including allocating various responsibilities and activities among board committees, the directors need to ensure that the company has an effective internal organizational structure.  Many companies are creating an additional position among the members of the senior executive team that is specifically focused on corporate sustainability.  Appointing these “chief sustainability officers” demonstrates a high level of commitment to the area by the directors and also helps everyone inside and outside the company to identify the person who will likely be the company’s spokesperson on corporate sustainability issues and responsible for managing the resources provided by the board to implement sustainability strategies and satisfy the company’s disclosure obligations.  The chief sustainability officer must be prepared to support the board as it considers CSR and corporate sustainability issues, engage with the company’s stakeholders and, not unimportantly, effectively coordinate the efforts of all of the various departments within the company that should be involved in sustainability initiatives (e.g., investor relations, legal, operating heads and risk management).[11]

Advice for Directors on Meeting Stakeholder Expectations Regarding Sustainability

Kuprionis and Styles suggested that directors ask “How prepared is my company to respond to increased sustainability expectations from investors, customers and employees? and then be prepared to do each of the following seven things:

·         Add sustainability discussions to the board agenda.

·         Focus on what sustainability means for the company.

·         Ask for briefs on industry developments, both in substance and in governance.

·         Engage with the company’s chief sustainability officer and investor relations officer.

·         Establish an effective board oversight approach.

·         Look for balanced perspectives among differing constituencies and stakeholders.

·         Consider the appropriate sustainability disclosures for the company.

Source: D. Kuprionis and P. Styles, “Translating Sustainability into a Language Your Board Understands”, The Corporate Governance Advisor, 25(5) (September/October 2017), 13, 17. 

This article is part of the Sustainable Entrepreneurship Project’s extensive materials on Sustainability and Corporate Governance.

[1] The Global Compact LEAD, Discussion Paper: Board Adoption and Oversight of Corporate Sustainability.

[2] Id.  For further discussion of board oversight of sustainability, see “Board Oversight of Sustainability” in “Governance: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (

[3] Board Oversight of Environmental and Social Issues: An Analysis of Current North American Practice (Calvert Asset Capital Management Inc. and The Corporate Library, 2010), 8.

[4] P. DeSimone, Board Oversight of Sustainability Issues: A Study of the S&P 500 (IRRC Institute, March 2014).

[5] The Seven Pillars of Sustainability Leadership: CEO Business Implications (The Conference Board, June 2016), 4 (as cited and discussed in V. Harper Ho, Director Notes: Sustainability in the Mainstream–Why Investors Care and What It Means for Corporate Boards (The Conference Board, November 2017), 15, electronic copy available at:

[6] V. Harper Ho, Director Notes: Sustainability in the Mainstream–Why Investors Care and What It Means for Corporate Boards (The Conference Board, November 2017), 13-14, electronic copy available at: (based on information available at UNPRI, Signatories,

[7] Id. at 15.

[8] H. Gregory, “Corporate Social Responsibility, Corporate Sustainability and the Role of the Board”, Practical Law Company (July 1, 2017), 3.

[9] D. Kuprionis and P. Styles, “Translating Sustainability into a Language Your Board Understands”, The Corporate Governance Advisor, 25(5) (September/October 2017), 13, 15.

[10] C. Masuku, Corporate Social Responsibility Literature Review and Theoretical Framework, available at (citing L. Digman, Strategic management: concepts, decisions, cases (Homewood IL: BPI/Irwin, 1990).

[11] D. Kuprionis and P. Styles, “Translating Sustainability into a Language Your Board Understands”, The Corporate Governance Advisor, 25(5) (September/October 2017), 13, 16.

Descriptions of Corporate Social Responsibility

Masuku briefly described the evolution of thought on the role of business in society, beginning with the observation that the traditional profit centered approach to management originated during the Industrial Age with the presumption that capital formation was the only legitimate role of business and that managers were obligated above all other things to pursue profits to enhance the wealth of their shareholders.[1]  The 1960s and 1970s saw the slow ascendency of the social responsibility approach to management which was based on the assumption that businesses were actors in a broader environment and thus had responsibilities to respond to social pressures and demands and treat their stakeholders in a manner that complied with both law and ethics.[2]  Writing in the 1970s, Davis defined CSR as “the firm’s considerations of, and response to, issues beyond the . . . economic, technical, and legal requirements of the firm to accomplish social benefits along with the traditional economic gains which the firm seeks”.[3]  By the 1980s, the notion that corporations had a duty to behave ethically had achieved broad acceptance and attention then began to turn to what ethical behavior actually entailed, how companies should respond to business-related social issues and how “corporate social performance” should be measured.  Beginning in the 1990s, a new economic theory of the firm, the “corporate community model:, put stakeholders at the center of corporate strategy. Masuku explained: “… the organization is viewed as a socioeconomic system where stakeholders are recognized as partners who create value through collaborative problem solving. It is the role of the organization to integrate the economic resources, political support, and special knowledge each stakeholder offers ‘not to do well’, but because it provides a competitive advantage.” [4]

The ISO 26000 standard for corporate responsibility, which was developed in 2010 by the International Standards Organization, defined “social responsibility as:

“the responsibility of an organization for the impacts of its decisions and activities on society and the environment, through transparent and ethical behavior that contributes to sustainable development, including health and the welfare of society, takes into account the expectations of stakeholders, is in compliance with applicable laws and with international norms of behavior, and is integrated throughout the organization and practiced in its relationships.”

In 2011 the European Commission provided a simple, yet expansive and important, definition of CSR as being “the responsibility of enterprises for their impacts on society” and went on to explain that “[e]nterprises should have in place a process to integrate social, environmental, ethical, human rights and consumer concerns into their business operations and core strategy in close collaboration with their stakeholders.”[5]  The World Business Council for Sustainable Development (“WBCSD”), an organization established and led by chief executive officers of companies focused on sustainability, has defined CSR as “the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large”.[6]  This definition recognizes the traditional role of corporations in seeking economic benefits and then expands the responsibilities of corporations to include the voluntary pursuit, as a matter of ethical conduct as opposed to compliance with legal requirement, of wellbeing for a broad range of non-investor constituencies including employees and their families, the local communities in which the business is operated and society as a whole (e.g., environmental responsibility).

The World Economic Forum has identified the concerns for responsible business as follows:

“. . . To do business in a manner that obeys the law, produces safe and cost-effective products and services, creates jobs and wealth, supports training and technology cooperation and reflects international standards and values in areas such as the environment, ethics, labor and human rights. To make every effort to enhance the positive multipliers of our activities and to minimize any negative impacts on people and the environment, everywhere we invest and operate. A key element of this is recognizing that the frameworks we adopt for being a responsible business must move beyond philanthropy and be integrated into core business strategy and practice.”[7]

According to the Australian Parliamentary Joint Committee on Corporations and Financial Services, the concept of CSR should be examined from the following standpoints: (a) considering, managing and balancing the economic, social, and environmental impacts of companies’ activities; (b) assessing and managing risks, pursuing opportunities, and creating corporate value beyond the traditional core business; and (c) taking an “enlightened self-interest” approach to consider the legitimate interests of the stakeholders in corporate governance.[8]

Garriga and Mele´ suggested that it was possible and useful to create a classification of corporate social responsibility (“CSR”) theories based on the perspective of how the interaction phenomena between business and society are focused.  They argued that CSR theories could be classified into the following four groups[9]:

  • Instrumental Theories: Theories placed in this group are based on the assumption that corporations are instruments for wealth creation and that this is their sole social responsibility. If this view is accepted, then CSR or any other social activity undertaken by the corporation is only a means to the end of profits and such activities should not occur unless they are consistent with wealth creation.
  • Political Theories: Theories placed in this group emphasize the social power of corporations and the obligation of corporations to accept social duties and rights and/or participate in certain social cooperation.
  • Integrative Theories: Theories in this group are based on fundamental argument that businesses, including corporations, depend on society for continuity, growth and survival and as such are obligated to integrate the demands of society into their operations.
  • Ethical Theories: Theories in this group see the relationship between business and society as embedded with ethical values and that corporations need to accept social responsibilities, such as CSR, as ethical obligations above any other consideration.
Instrumental CSR Theories: Reconciling Wealth Creation and Doing Good

Instrumental theories of corporate social responsibility (“CSR”) are based on the fundamental assumption that the sole social responsibility of corporations is wealth creation and that only the economic aspects of interactions between business and society should be considered when setting strategy and making operational decisions.  These theories do not necessarily prohibit CSR activities; however, CSR programs and initiatives are seen as a means to the end of profits and thus should not be undertaken unless they are consistent with wealth creation.  The questions below demonstrate how certain of the instrumental theories can be integrated into decision making relating to a particular CSR program or initiative:

·         Does the project involve investment in an activity would produce an increase in shareholder value acting without deception and fraud?  For example, it may be worthwhile for a company that is a major employer in a small community to devote resources to providing amenities to that community or to improving its government if the investment will make it easier to attract desirable employees, reduce the wage bill, lessen losses from pilferage and sabotage or have other worthwhile effects.

·         Does the project involve investment in an environmentally- or socially-responsible activity that will result in long-term maximization of the value of the company and satisfaction of certain interests of people with a stake in the firm (i.e., the “stakeholders”)?  This criterion assumes that “enlightened value maximization” has supplanted the traditional goal of “shareholder value maximization”.

·         Does the project involve a philanthropic activity consistent with the skills and resources that is aligned with the company’s mission and may enhance the company’s competitive advantage?  For example, when a telecommunications company teaches computer network administration to students in the communities where the company operates it not only improves life in those communities and the company’s image in those communities but also provides the company with more skilled workers to choose from in the future.

·         Does the project involve the creation and/or maintenance of social and ethical resources and capabilities which can be a source of competitive advantage?  Competitive advantage can be derived from implementing processes of moral decision-making and capacity for adaptation and the development of proper relationships with primary stakeholders such as employees, customers, suppliers and communities.

·         Does the project involve the development of new capabilities and resources to overcome anticipated constraints and challenges posed by the natural biophysical environment?  Important strategic capabilities include pollution prevention, product stewardship and sustainable development, and critical resources include the capacity for continuous improvement, stakeholder integration and shared vision.

·         Does the project implement strategies that can serve the poor and improve the social and economic conditions at the “base of the pyramid” while simultaneously making profits and creating a competitive advantage for the company?  Companies may attempt “disruptive innovation” through the development of products or services that do not have the same capabilities and conditions as those being used by customers in the mainstream markets and introducing them only for new or less demanding applications among non-traditional customers, with a low-cost production and adapted to the necessities of the population (e.g., a telecommunications company inventing a small cellular telephone system with lower costs but also with less service adapted to the base of the economic pyramid).

·         Does the project involve cause-related marketing that can enhance the company’s brand and reputation for reliability and honesty while helping customers satisfy their own individual objectives?  For example, the company may offer to contribute a specified amount to a designated cause when customers engage in a revenue-providing exchange.  Making such an offer enhances the company’s reputation, causes customers to view the company’s products as being high quality and secures a competitive advantage for the company. 

‌Source: E. Garriga and D. Mele´, “Corporate Social Responsibility Theories: Mapping the Territory”, Journal of Business Ethics, 53 (2004), 51, 53-55 (see text of article for relevant citations for each of the questions above). 

One of the most important byproducts of their extensive survey of the approaches to CSR was the conclusion of Garriga and Mele´ that most of the current theories focus on four main aspects: “(1) meeting objectives that produce long-term profits, (2) using business power in a responsible way, (3) integrating social demands and (4) contributing to a good society by doing what is ethically correct”.[10]  Embedded in all of this are a number of duties and ideas that are finding their way into a new kind of corporate governance framework including long-termism, stakeholder engagement, transparency and disclosure, responsible consumption of natural resources, fair dealings with workers and consumers and attention to the needs of local communities and society as a whole.  In addition, many of the emerging approaches to CSR, particularly those falling within the ethical theories identified by Garriga and Mele´, argue, as referenced in the Caux Roundtable Principles for Business discussed below, that legal and market forces are necessary but insufficient guides for conduct, and that it is also incumbent upon businesses to take ethical and moral values into consideration in their decision making.

Another way to look at CSR was suggested by Jamali et al., who observed that many scholars had conceived of CSR as encompassing two dimensions: internal and external.[11]  On the internal level, companies “revise their in-house priorities and accord due diligence to their responsibility to internal stakeholders, namely employees, addressing issues relating to skills and education, workplace safety, working conditions, human rights, equity considerations, equal opportunity, health and safety, and labor rights”.[12]  On the external level, which has generally received the most attention, companies focus on assumption of their extended duties as “corporate citizens” and afford “due diligence to their external–economic and social–stakeholders and the natural environment”[13] Through initiatives to ensure that the corporate operations have a positive impact on the environment and initiatives to address community issues and foster social justice.[14]   Jamali et al. explained that “[t]he environmental component addresses primarily the impacts of processes, products, and service on the environment, biodiversity, and human health, while the social bottom line incorporates community issues, social justice, public problems, and public controversies”.[15]  Jamali et al. observed that “[a]ddressing these two CSR dimensions often implies difficult adjustments and willingness to consider multiple bottom lines … [and] … requires good communication of CSR objectives and actions, new standards, control and performance metrics, and the successful integration of CSR into the culture of the organization”.[16]

Hopkins argued that treating the stakeholders of the firm ethically or in a socially responsible manner is an economic responsibility of companies.[17]  Similarly, Marsden emphasized that “CSR is not an optional add-on nor is it an act of philanthropy. A socially responsible corporation is one that runs a profitable business that takes account of all the positive and negative environmental, social and economic effects it has on society.”[18]  Andersen’s definition of CSR was also based on a broader societal approach that called for firms to extend “the immediate interest from oneself to include one’s fellow citizens and the society one is living in and is a part of today, acting with respect for the future generation and nature”.[19]  Ward also had a broad understanding of CSR as a commitment by companies to “contribute to sustainable economic development—working with employees, their families, the local community and society at large to improve the quality of life, in way that [is] also good for business.”[20]  In 2013, Rahim summed up the results of a survey of definitions and conceptions with the following:

“. . . [T]here is no conclusive definition of CSR and that it can have different meanings to different people and different organizations as an ever-growing, multifaceted concept. Nevertheless, it may be said that the concept of CSR is consistent and converges on certain common characteristics and elements. More precisely, if CSR as defined above is examined from a practical and operational point of view, it converges on two points. CSR requires companies (a) to consider the social, environmental, and economic impacts of their operations and (b) to be responsive to the needs and expectations of their stakeholders.  These two points are also embedded in the meaning of the three words (i.e., ‘corporate’, ‘social’, and ‘responsibility’) of the phrase ‘corporate social responsibility’. The word ‘corporate’ generally denotes business operations, ‘social’ covers all the stakeholders of business operations, and the word ‘responsibility’  generally refers to the relationship between business corporations and the societies within which they act together. It also encompasses the innate responsibilities on both sides of this relationship. Accordingly, CSR is an integral element of business strategy: it is the way that a company should follow to deliver its products or services to the market; it is a way of maintaining the legitimacy of corporate actions in wider society by bringing stakeholder concerns to the foreground; and a way to emphasize business concern for social needs and actions that go beyond philanthropy.”[21]

CSR is clearly a global phenomenon.  Rahim surveyed steps that had been taken around the globe to integrate the core principles of CSR into the policy objectives of different economies and global companies.  Global companies in Europe have been guided by the EU Commission’s Green Paper on Promoting a Framework for CSR and the European Code of Conduct Regarding the Activities of Transnational Corporations Operating in Developing Economies.  A number of individual countries in Europe have also taken action driven, at least in part, by a series of resolutions adopted by the European Parliament to facilitate the development of the incorporation of CSR principles in its member economies: the UK established a post of CSR Minister to encourage greater social responsibility in UK companies and the UK’s Companies Act of 2006 included specific reporting requirements on environmental and social issues; Belgium passed legislation requiring pension fund managers to disclose the extent to which they consider ethical, social and environmental criteria in their investment policies; France required listed companies to disclose their impact on social and environmental issues in their annual reports and accounts; and each of the Scandinavian countries mandated environmental disclosures.  There have also been a number of important quasi-legal initiatives for the promotion of CSR at the national level throughout Europe including the International Business Leaders Forum, the Ethical Trading Initiative and Partnership for Global Responsibility.[22]

Rahim noted that, in contrast to Europe, the US has been slower in using formal regulation to incorporate CSR into the business strategies and operations of corporations, an approach that is consistent with the preference in the US for minimal legislative control of business.  According to Rahim, the US has emphasized developing specialized organizations that set rules and standards, and provide enforcement regimes, for certain aspects of CSR including the Occupational Safety and Health Administration, Equal Employment Opportunity Commission, Consumer Product Safety Commission and the Environmental Protection Agency.  A variety of industry and other non-governmental organizations have also contributed guidelines that can be referenced for the self-regulatory initiatives of individual companies including the US Model Business Principles and the work of the Center for Corporate Ethics and the Fair Labor Association.  Trade associations in specific sectors, such as automobile manufacturing and paper products, have promulgated guidelines for their members on environmental management practices for themselves and their suppliers.[23]

Principles of CSR have been important in Japan since the post-war reconstruction period, during which the resolution “Awareness and Practice of the Social Responsibility of Business” was adopted and stated the fundamental principal that businesses should not simply pursue corporate profit, but must seek harmony between the economy and society, combining factors of products and services, and that social responsibility is a better way to pursue this goal.[24]  Various cabinet ministries have undertaken initiatives to promote and achieve CSR including the Cabinet Office;, the Ministry of Agriculture, Forestry, and Fisheries; the Ministry of Health, Labor, and Welfare; and the Ministry of Environment.  For example, the Cabinet Office issued its “Corporate Code of Conduct” in 2002 to build consumer confidence in businesses and set guidelines to promote the establishment and implementation of corporate codes of conduct.[25]  The influential Ministry of Economy, Trade and Industry collaborated with the Japanese Standards Association on the creation of a working group to develop CSR standards in Japan and Japan has been an active participant in the development of intergovernmental initiatives relating to CSR.  The result of all this activity has been that Japanese companies have been global leaders in disclosures of CSR activities, investment in internal resources to oversee CSR commitments and adoption of codes of conduct based on international standards.[26]

A 2017 article in The Economist succinctly described the evolution of CSR up to that time as follows:

“Between the 1950s and 1970s, CSR took shape in the form of pre-corporate philanthropy, a largely disparate approach involving support for domestic nonprofits at the discretion of CEOs with little transparency or oversight. In the 1980s, intense foreign competition and a greater focus on shareholders led many publicly traded corporations to adopt more stringent quality and cost controls. This created greater demands to tie corporate philanthropy to financial performance through efforts like cause-related marketing and practices more aligned with a company’s business. Throughout the 1990s, CSR became more international in scope, but was typically reactive in nature and often a response to negative publicity. During this time, a holistic, triple-bottom-line accounting framework of sustainability also began to emerge. Since the 2000s, CSR has grown increasingly strategic, and a broader concept of sustainability has gained ground.  Public pressure to address negative corporate externalities, and pressing social, economic, and environmental issues drove the evolution of these practices. Over time, they have blurred the lines between the public, private, and civil sectors, and redefined traditional roles and structures in the process.”[27]

This article is part of the Sustainable Entrepreneurship Project’s extensive materials on Sustainability and Corporate Governance.

[1] C. Masuku, Corporate Social Responsibility Literature Review and Theoretical Framework, available at

[2] For further discussion of the evolution of corporate social responsibility and the various definitions and descriptions of the concept that have been suggested, see “Introduction to Corporate Social Responsibility” in “Corporate Social Responsibility: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (

[3] K. Davis, “The Case For and Against Business Assumption of Social Responsibilities”, American Management Journal, 16 (1973), 312.

[4] C. Masuku, Corporate Social Responsibility Literature Review and Theoretical Framework, available at (citing W. Halal, “Corporate community: a theory of the firm uniting profitability and responsibility”, Strategy & Leadership, 28(2) (2000), 10).

[5] European Commission, A Renewed European Union Strategy 2011-14 for Corporate Social Responsibility, COM (2011) 681, ¶ 3.1.

[6] World Business Council for Sustainable Development, Corporate Social Responsibility: Meeting Changing Expectations, 3, available at

[7] World Economic Forum, Global Corporate Citizen: The Leadership Challenge for CEOs and Boards (2002) at 21 February 2009.

[8] Australian Parliamentary Joint Committee on Corporations and Financial Services, Inquiry into Corporate Responsibility and Triple-Bottom-Line reporting for incorporated entities in Australia (2005). at 31 October 2013.

[9] E. Garriga and D. Mele´, “Corporate Social Responsibility Theories: Mapping the Territory”, Journal of Business Ethics, 53 (2004), 51, 52.

[10] E. Garriga and D. Mele´, “Corporate Social Responsibility Theories: Mapping the Territory”, Journal of Business Ethics, 53 (2004), 51, 65.  The various CSR approaches are described, including key references, in Table 1 (“Corporate social responsibilities theories and related approaches”) included in the article at 63-64.

[11] D. Jamali, A. Safieddine and M. Rabbath, “Corporate Governance and Corporate Social Responsibility Synergies and Interrelationship”, Corporate Governance, 16(5) (2008), 443, 446.

[12] Id. (citing P. Jones, D. Comfort and D. Hillier, “Corporate social responsibility and the UK’s top ten retailers”, International Journal of Retail and Distribution Management, 33 (2005), 882).

[13] Id. (citing L. Munilla and M. Miles, “The corporate social responsibility continuum as a component of stakeholder theory”, Business and Society Review, 110 (2005), 371).

[14] S. Deakin and R. Hobbs, “False dawn for CSR: Shifts in regulatory policy and the response of the corporate and financial sectors in Britain”, Corporate Governance: An International Review, 15 (2007), 68.

[15] D. Jamali, A. Safieddine and M. Rabbath, “Corporate Governance and Corporate Social Responsibility Synergies and Interrelationship”, Corporate Governance, 16(5) (2008), 443, 446.

[16] Id. (citing D. Jamali, “Insights into triple bottom line integration from a learning organization perspective”,   Business Process Management Journal, 12 (2006), 809; J. Hancock (Ed.), Investing in Corporate Social Responsibility: A Guide to Best Practice, Business Planning & the UK’s Leading Companies (London:,Kogan Page, 2005); G. Lantos, “The boundaries of strategic corporate social responsibility”, Journal of Consumer Marketing, 18 (2001), 595; and J. Elkington, “Governance for sustainability”, Corporate Governance: An International Review, 14 (2006), 522).

[17] M. Hopkins, Corporate Social Responsibility: An Issue Paper (Working Paper No. 27, Policy Integration Department, World Commission on Social Dimension of Globalization, 2004).

[18] C. Marsden, “The Role of Public Authorities in Corporate Social Responsibility” (2001) in A. Dahlsrud, “How Corporate Social Responsibility Is Defined: An Analysis of 37 Definitions”, Corporate Social Responsibility and Environmental Management, 15(1) (2008), 1, 9.

[19] K. Andersen, The Project (2003) in A. Dahlsrud, “How Corporate Social Responsibility Is Defined: An Analysis of 37 Definitions”, Corporate Social Responsibility and Environmental Management, 15(1) (2008), 1, 11.

[20] H. Ward, Public Sector Roles in Strengthening Corporate Social Responsibility: Taking Stock (2004), 3.

[21] M. Rahim, Legal Regulation of Corporate Social Responsibility: A Meta-Regulation Approach of Law for Raising CSR in a Weak Economy (Berlin: Springer, 2013), 13, 24 (citing A. Gill, “Corporate Governance as Social Responsibility: A Research Agenda” (2008), 464).

[22] Id. at 34-38.

[23] Id. at 38-39.

[24] Id. at 40 (citing M. Kawamura, The Evolution of Corporate Social Responsibility in Japan (Part 1)—Parallels with the History of Corporate Reform (NLI Research institute, 2004), 156).

[25] Id. (citing Asian Productivity Organisation, Policies to Promote Corporate Social Responsibility (Report of the Asian Productivity Organisation Top Management Forum, 2006)).

[26] Id. at 41-42.

[27] J. Cramer-Montes, “Sustainability: A New Path to Corporate and NGO Collaborations”, The Economist (March 24, 2017),

Relationship between Corporate Governance and CSR

According to Rahim, there is an evolving interplay between corporate governance and CSR, both of which hold economic and legal features that may be altered through socio-economic processes in which competition within the product market is the most powerful force.[1]  Rahim stressed that corporate governance and CSR are complimentary and closely linked with market forces and that while their objectives are not concurrent they may act as tools for attaining each other’s goals.  Winberg and Randolph also agreed that “CSR is related to and overlaps in some respects with the concepts of corporate governance and ethics”, however, they believed that: “it is nevertheless distinct….governance programs tend to be internally focused and generally retain heavy rules based favor. In contrast CSR tends to be more value-based and externally focused.”[2] The Australian Parliamentary Joint Committee on Corporations and Financial Services noted that the terms “corporate responsibility” and “corporate governance” were sometimes confused with each other and explained its position that corporate governance referred to broader issues of company management practices (i.e., the conduct of the board of directors;, the relationships between the board, management and shareholders; transparency of major corporate decisions; and accountability to shareholders) and that corporate responsibility is only one aspect of an organization’s governance and risk management processes.[3]

A somewhat contrary view of the relationship between CSR and corporate governance was taken by Walsh and Lowry, who wrote that “corporate governance is an increasingly important aspect of CSR…. to provide the more solid foundation on which broader CSR principles and business ethics can be further enhanced”.[4]  Their approach was based on the assumption that “corporate governance” was to be construed narrowly, thus limited to enhancement of shareholder value and the protection of the interests of shareholders, and that the obligations of corporations with respect to the environment, employees and consumers could be assigned to the separate domain of CSR even though some of those obligations were becoming based in law regulation.  All of this illustrates the importance of how corporate governance is conceptualized, narrowly or broadly, on the degree of overlap and convergence between CSR and corporate governance.

A number of commentators have suggested that there are actually two models of corporate governance.[5]  The first model, which is based in the economic tradition of Friedman, is the “shareholder governance” system in which the directors and managers of the corporation are the agents for the shareholders as the principals of the corporation and the responsibility of the agents is to maximize shareholder value.  The second model is the “stakeholder governance” system, which does not ignore shareholders but also extends the responsibility of directors and managers to different groups of stakeholders upon which the corporation is dependent for its operations and survival.  The second model has been used as the basis for the argument that CSR is, in fact, an extended corporate governance system whereby the responsibilities of corporations and their directors range from fiduciary duties towards the owners to the analogous fiduciary duties towards all of the firm’s stakeholders.[6]  Certain of these duties, primarily those that have been imposed by law, are enforced by litigation and activities of governmental regulators, while the “softer” duties associated with social and environmental issues are being enforced by self-regulatory codes of conduct and stakeholder activism (including pressure from institutional shareholders).

Jamali et al. examined several models that have posited a relationship between corporate governance and CSR.[7]  The first model depicted corporate governance as a pillar of CSR and requires that an effective corporate governance system be in place to serve as a foundation for solid and integrated CSR activities.   This model could be illustrated by Hancock’s “Key Pillars of Corporate Responsibility”, which was based on the argument that investors and senior management should focus their attention on four core pillars that account for most of the company’s true value and future value creation[8]:

  • Strategic Governance: Strategic scanning capability; agility/adaptation; performance indicators/monitoring; traditional governance concerns; and international “best practice”
  • Stakeholder Capital: Regulators and policy makers; local communities/NGOs; customer relationships; and alliance partners
  • Human Capital: Labor relations; recruitment/retention strategies; employee motivation; innovation capacity; and knowledge development
  • Environment: Brand equity; cost/risk reduction; market share growth; process efficiencies; customer loyalty; and innovation effect

In this model, corporate governance is one of the basic building blocks of CSR and suggests that when boards are exercising their responsibility over CSR they need strategic good corporate governance practices in place in order to effectively leverage the company’s crucial sources of capital: human, stakeholder and environmental.[9]

The second model visualized CSR as being an attribute or dimension of corporate governance, thus widening the scope of corporate governance to incorporate non-financial risks into the risk mitigation dimension of corporate governance activities.  This approach could be illustrated by Ho’s depiction of the following attributes of good corporate governance and the activities and topics associated with each attribute[10]:

  • Strategic Leadership: Set corporate objectives, direct competitive focus, make major decisions, measure performance and determine executive pay
  • Stewardship: Legislative safeguards, governance policy and governance committee, director participation, regular reviews and “ask tough questions and demand answers”
  • Social Responsibilities: Adopt policies, enforce and audit and report on conformance
  • Board Structure: Separate supervisory and executive roles, nonexecutive directors, election procedure and committees (i.e., nomination, audit and compensation committees)
  • Capital Structure and Market Relations: Capital concentration, satisfy shareholders and research and development, continuous dialogue with investors and markets

Ho explained that her framework viewed corporate governance more holistically and Jamali et al. observed that this was consistent with the work of other scholars, such as Kendall[11], who considered good corporate governance as “ensuring that companies are run in a socially responsible way and that there should be a clearly ethical basis to the business complying with the accepted norms of the society in which it is operating”.[12]   It is interesting to note that Ho’s study provided evidence that higher commitments to CSR were strongly and positively related to the qualifications and terms of directors, boards that exercise strong stewardship and strategic leadership roles and the management of capital market pressures, all of which are also hallmarks of good corporate governance.[13]

The third model, suggested by Bhimani and Soonawalla, portrayed corporate governance and CSR as complementary constituents of the same corporate accountability continuum that could be illustrated as follows[14]:

Corporate                                                                                                      Corporate


Corporate              Corporate              Corporate              Stakeholder

Financial               Governance          Social                     Value

Reporting                                              Responsibility       Creation

Jamali et al. explained that “the continuum reflected varying degrees of compliance with laws and legally enforceable standards, with stress placed on corporate conformance on the left end of the continuum and attention shifting to corporate performance on the right end, where codes/standards are extremely difficult to apply, and oversight mechanisms are much less evident”.[15]  The continuum approach also illustrates that companies approach their expanding corporate governance responsibilities must understand and balance “binding” legal requirements that require formal compliance and reporting and the self-regulatory initiatives commonly associated with CSR that, while still technically “voluntary”, have increasingly become expectations of investors and other stakeholders.

This article is part of the Sustainable Entrepreneurship Project’s extensive materials on Sustainability and Corporate Governance.

[1] M. Rahim, Legal Regulation of Corporate Social Responsibility: A Meta-Regulation Approach of Law for Raising CSR in a Weak Economy (Berlin: Springer, 2013), 13, 21 (citing L. Mitchell, “The Board as a Path toward Corporate Social Responsibility” in D. McBarnet, A. Voiculescu and T. Campbell, The New Corporate Accountability: Corporate Social Responsibility and the Law (2007), 279).  See also M. Rahim, “Corporate Governance as Social Responsibility: A Meta-regulation Approach to Incorporate CSR in Corporate Governance” in S. Boubaker and D. Nguyen (Eds.), Board of Directors and Corporate Social Responsibility (London: Palgrave Macmillan, 2012).

[2] D. Winberge and P. Randolph, “Corporate Social Responsibility: What every In-House Council Should Know”, ACC Docket (May 2004), 72.

[3] Parliamentary Joint Committee on Corporations and Financial Services, Corporate responsibility: Managing risk and creating value (2006), 6-7.

[4] M. Walsh and J. Lowry, “CSR and Corporate Governance” in R. Mullerat (Ed.), Corporate Social Responsibility: The Corporate Governance of the 21st Century (Amsterdam: Kluwer, 2005), 38-39.

[5] See, e.g., C. Mayer, “Corporate Governance, Competition, and Performance”, Journal of Law and Society, 24 (March 1997), 152, 154.

[6] L. Sacconi, Corporate Social Responsibility (CSR) as a Model of “Extended” Corporate Governance. An Explanation based on the Economic Theories of Social Contract, Reputation and Reciprocal Conformism (UE Research Project, 2004).

[7] D. Jamali, A. Safieddine and M. Rabbath, “Corporate Governance and Corporate Social Responsibility Synergies and Interrelationship”, Corporate Governance, 16(5) (2008), 443, 447-448.

[8] J. Hancock (Ed.), Investing in Corporate Social Responsibility: A Guide to Best Practice, Business Planning & the UK’s Leading Companies (London: Kogan Page, 2005).

[9] J. Elkington, “Governance for sustainability”, Corporate Governance: An International Review, 14 (2006), 522.

[10] C. Ho, “Corporate governance and corporate competitiveness: An international analysis”, Corporate Governance: An International Review, 13 (2005), 211.

[11] N. Kendall, “Good corporate governance”, Accountants’ Digest: The ICA in England and Wales, 40 (1999).

[12] D. Jamali, A. Safieddine and M. Rabbath, “Corporate Governance and Corporate Social Responsibility Synergies and Interrelationship”, Corporate Governance, 16(5) (2008), 443, 447.

[13] Id.

[14] A. Bhimani and K. Soonawalla, “From conformance to performance: The corporate responsibilities continuum”, Journal of Accounting and Public Policy, 24 (2005), 165.

[15] D. Jamali, A. Safieddine and M. Rabbath, “Corporate Governance and Corporate Social Responsibility Synergies and Interrelationship”, Corporate Governance, 16(5) (2008), 443, 447.

Transparency and Disclosure

As interest in CSR and corporate sustainability has grown, companies have found that they are subject to heightened scrutiny and that the traditional disclosure practices that focused primarily, if not exclusively, on financial information and performance and related risks are no longer adequate.  Companies must now be prepared to provide disclosures that address the specific concerns and expectations of multiple stakeholders beyond investors including customers, employees, business partners, regulators and activists.  This means that the board of directors must understand existing and emerging disclosure requirements and ensure that the company has the necessary resources to collect and analyze the required information and present it in a manner that is clear and understandable.  At the same time, however, the directors need to be mindful of the risks of expanded disclosure include the possibility of providing too much strategic information, exposing the company to heightened risk of litigation from stakeholders that believe the company has not vigorously pursued its promised CSR and corporate sustainability goals and the need to invest additional time and resources in creating and maintaining the internal reporting process necessary to support CSR and corporate sustainability disclosures.[1]

While, as discussed below, certain CSR and corporate sustainability disclosures have now become minimum legal requirements in some jurisdictions, in general such disclosures are still a voluntary matter and directors have some leeway as to the scope of the disclosure made by their companies and how they are presented to investors and other stakeholders. Some companies continue to limit their disclosures to those are specifically required by regulators; however, most companies have realized that they need to pay attention to the issues raised by institutional investors and other key stakeholders and make sure that they are covered in the disclosure program.  At the other extreme, there are companies that have embraced sustainability as integral to their brands and have elected to demonstrate their commitment by preparing and disseminating additional disclosures that illustrate how they have woven sustainability into their long-term strategies and day-to-day operational activities.  These companies understand that not only are investors paying more attention but that more and more people everywhere are considering ESG performance when deciding whether to buy a company’s products and/or work for a particular company and that it is therefore essential to lay out their specific CSR and corporate sustainability goals and the metrics used to track performance and provide regular reports to all of the company’s stakeholders on how well they are doing against those goals.[2]

Williams noted that to the extent that governments have regulated corporate responsibility per se, such regulation has focused on disclosure and during the period 2000-2015 over 20 countries enacted legislation to require public companies to issue reports including environmental and/or social information.[3]  Many of these countries are in Europe and the EU has implemented a directive that requires approximately 6,000 large companies and “public interest organizations,” such as banks and insurance companies, to “prepare a nonfinancial statement containing information relating to at least environmental matters, social and employee-related matters, respect for human rights, anti-corruption and bribery matters.”[4]  In addition, several stock exchanges around the world require social and/or environmental disclosure as part of their listing requirements including exchanges in Australia, Brazil, India, South Africa and the London Stock Exchange.[5]  Also, pension funds in countries such as Australia, Belgium, Canada, France, Germany, Italy, Japan, Sweden and the UK are required to disclose the extent to which the fund incorporates social and environmental information into their investment decisions.[6]  All things considered, surveys show that more and more jurisdictions are implementing mandatory ESG disclosure requirements and that “there is a clear trend towards an increasing number of environmental and social disclosure requirements around the world”.[7]

As of 2013, over 90% of the Global 250 companies had decided to voluntarily disclose more environmental, social and governance information than required by law[8] and Williams noted in 2016 that “[v]oluntary, transnational standards of best social and environmental practices are proliferating in virtually every industry, many with associated certification schemes and requirements for third-party attestation or auditing … [and] … [t]hese voluntary initiatives are increasingly being supplemented by domestic and multilateral government actions to encourage, or in some cases require, companies to pay closer attention to the social and environmental consequences of their actions and to disclose more information about those consequences.[9]

The US, which has comprehensive reporting requirements relating to a broad range of corporate governance matters, has been a notable laggard with respect to establishing a comprehensive general ESG disclosure framework; however, there are certain specific federal and state disclosure requirements in certain contexts such as releases into the environment, management through recycling, median employee pay, mine safety disclosure and “conflict minerals” disclosure.[10]  Public companies in the US are required to make certain of their CSR and corporate sustainability disclosures in their SEC filings, which means that those disclosures are being made with a higher potential risk of liability.  Apart from mandatory disclosure, several studies have found that about 80% of larger US public companies have voluntarily provided some form of disclosures on their CSR and corporate sustainability initiatives in the form of published CSR/sustainability reports and/or disclosures on the company website; however, the quality of these disclosures has been criticized by the Sustainability Accounting Standards Board, which found that 52% of a sample of almost 600 companies that had made disclosures of CSR-related risks had done so using boilerplate language and has failed to disclose their plan to address such risks.[11] Directors need to be involved in decisions regarding placement of CSR and corporate sustainability disclosures including links in SEC filings to online sustainability reports and adding sustainability information to proxy statements as part of the company’s investor-focused communication efforts.  Companies can, and often do, rely on communications professionals to prepare sustainability reports; however, even when such reports are not included in the company’s SEC filings they should be subject to the same level of scrutiny applied in procedures established by the board’s disclosure committee.

Proposals from shareholder activists often help create the list of CSR and corporate sustainability topics that garner the most attention from companies and trigger movement toward greater transparency and disclosure.  In recent years, companies have frequently been required to respond to call for changes in corporate policies and activities with respect to political and lobbying activity, sustainability reporting, gender pay gap reporting, and child labor issues.[12]  In many cases, companies have been able to calm the concerns of activists, sometimes getting them to withdraw their proposals, by promising to provide fuller disclosure; however, once a commitment is made to expanded disclosure the company needs to fulfill its promises and allocate sufficient resources to the effort since activists will be watching closely to ensure that their expectations are satisfied.  When formulating voluntary CSR-related disclosures it is important to engage with activists to ensure that they understand the approach that the company is willing to take and the company’s need to balance disclosure against the need to protect sensitive and strategically important information.

A large number of parties providing non-form comments to the Securities and Exchange Commission (“SEC”) on its April 2016 concept release on disclosure required by Regulation S-K, the prescribed regulation under the Securities Act of 1933 that provides the framework for mandated disclosures in filings with the SEC, recommended that CSR disclosure be expanded and strengthened.[13]  While it is not likely that more CSR-related disclosures will be formally mandated in the immediate future, companies must nonetheless give greater consideration to CSR and corporate sustainability when responding to several current items in Regulation S-K include those related to describing the business activities of the company (Item 101); legal proceedings (Item 103); disclosures of material known events and uncertainties in the Management’s Discussion and Analysis (Item 303) and risk factors (Item 503(c)).  Public companies must also be mindful of the SEC’s guidance regarding disclosures relating to climate change, which was issued in 2010[14], and Rule 13p-1 under the Securities Exchange Act of 1934 relating to conflicts materials disclosure.

In addition, companies may be subject to disclosure requirements under the laws of foreign countries in which they operate as well as various state and local laws.  For example, under the California Transparency Supply Chains Act of 2010[15], which went into effect on January 1, 2012, every retail seller and manufacturer doing business in California and having annual worldwide gross receipts that exceed $100 million is required to disclose its efforts to eradicate slavery and human trafficking from its direct supply chain for tangible goods offered for sale.  The disclosures must be posted on the retail seller’s or manufacturer’s website with a conspicuous and easily understood link to the required information placed on the business’ homepage. In the event the retail seller or manufacturer does not have a website, consumers must be provided the written disclosure within 30 days of receiving a written request for the disclosure from a consumer.  At a minimum, the disclosures should disclose to what extent, if any, that the retail seller or manufacturer does each of the following:

  • Engages in verification of product supply chains to evaluate and address risks of human trafficking and slavery. The disclosure must specify if the verification was not conducted by a third party.
  • Conducts audits of suppliers to evaluate supplier compliance with company standards for trafficking and slavery in supply chains. The disclosure must specify if the verification was not an independent, unannounced audit.
  • Requires direct suppliers to certify that materials incorporated into the product comply with the laws regarding slavery and human trafficking of the country or countries in which they are doing business.
  • Maintains internal accountability standards and procedures for employees or contractors failing to meet company standards regarding slavery and trafficking.
  • Provides company employees and management, who have direct responsibility for supply chain management, training on human trafficking and slavery, particularly with respect to mitigating risks within the supply chains of products.

The exclusive remedy for a violation of the disclosure obligations is an action brought by the California Attorney General for injunctive relief.

When companies were first attempting to provide voluntary disclosures relating to their CSR and corporate sustainability initiatives they often struggled with the format and depth of their reporting.  Fortunately, as time went by, a consensus began to emerge about the benchmarks that companies should use for guidance in preparing their CSR and corporate sustainability reports.  Of particular note is the Global Reporting Initiative (“GRI”), which is a multi-stakeholder developed international independent organization that helps businesses, governments and other organizations understand and communicate the impact of business on critical sustainability issues such as climate change, human rights, corruption and many others.  The Global Sustainability Standards Board (“GSSB”) issues and maintains the GRI Standards for organizations to use in their “sustainability reporting”, described by the GSSB as “an organization’s practice of reporting publicly on its economic, environmental, and/or social impacts, and hence its contributions–positive or negative–towards the goal of sustainable development”.[16] GRI has pioneered sustainability reporting since the late 1990s, transforming it from a niche practice to one now adopted by a growing majority of organizations.  The GRI Standards are the world’s most widely used standards on sustainability reporting and disclosure and available for use by public agencies, firms and other organizations wishing to understand and communicate aspects of their economic, environmental and social performance.[17]

The International Integrated Reporting Council, or IIRC, which was founded in August 2010, released its International Integrated Reporting Framework in December 2013 as a guide that companies could use to describe how their governance structure creates value in the short, medium and long term; supports decision making that takes into account risks and includes mechanisms for addressing ethical issues; exceeds legal requirements; and ensures that the culture, ethics and values of the company are reflected in its use of and effects on the company’s “capitals” (described to include financial, manufactured, intellectual, human, social and relationship, and natural (i.e., the environment and natural resources) forms of value) and stakeholder relationships.[18]  Guiding principles for preparation of integrated reports include strategic focus and future orientation, connectivity of information, stakeholder relationships, materiality, conciseness, reliability and completeness and consistency and comparability, and integrated reports prepared using the Framework are expected to include the following common elements[19]:

  • Organizational overview and external environment: What does the organization do and what are the circumstances under which it operates?
  • Governance: How does the organization’s governance structure support its ability to create value in the short, medium and long term?
  • Business model: What is the organization’s business model?
  • Risks and opportunities: What are the specific risks and opportunities that affect the organization’s ability to create value over the short, medium and long term, and how is the organization dealing with them?
  • Strategy and resource allocation: Where does the organization want to go and how does it intend to get there?
  • Performance: To what extent has the organization achieved its strategic objectives for the period and what are its outcomes in terms of effects on the capitals?
  • Outlook: What challenges and uncertainties is the organization likely to encounter in pursuing its strategy, and what are the potential implications for its business model and future performance?
  • Basis of presentation: How does the organization determine what matters to include in the integrated report and how are such matters quantified or evaluated?

Other helpful resources are available from the Sustainability Accounting Standards Board, or SASB, which publishes the SASB Implementation Guide for Companies that provides the structure and the key considerations for companies seeking to implement sustainability accounting standards within their existing business functions and processes.[20]  The Guide helps companies to select sustainability topics; assess the current state of disclosure and management; embed SASB standards into financial reporting and management processes; support disclosure and management with internal control; and present information for disclosure.  The SASB’s online resource library also includes annual reports on the state of disclosure, industry briefs and standards and guidance on stakeholder engagement.  Companies should monitor CSR disclosures by their peers and the SASB library has examples of disclosures made by companies in annual reports filed with the SEC on Form 10-K.  Companies can also follow the reporting practices of competitors by reviewing sustainability reports that have been registered with the GRI.

While the efforts of the GRI and the SASB indicate that some progress has been made regarding the development of measurement and disclosure frameworks relating to corporate sustainability and ESG practices, companies and their stakeholders are not yet able to rely on universally accepted guidelines.  Hurdles that still much be overcome, and which may never be totally resolved, include variations in ESG rating methodologies and a lack of uniformity in disclosure expectations and requirement across jurisdictions.  For the time being, the most effective approach for directors and their companies may be engaging with their own key investors and other stakeholders to understand how those parties view and prioritize ESG issues and their preferences regarding measurement and disclosure with respect to the initiatives taken by the company relating to those issues.  Such an approach not only reduces the likelihood of misunderstanding between the company and its primary stakeholders but will also contribute to the improvement of measurement and disclosure tools and the development of best practices that can be widely disseminated.  In the meantime, work continues among corporate governance groups and consulting to develop performance measurement tools and disclosure frameworks that integrate traditional measures of financial value with new metrics that afford proper weight to projects launched primarily to pursue and achieve long-term value creation.

This article is part of the Sustainable Entrepreneurship Project’s extensive materials on Sustainability and Corporate Governance.

[1] For further discussion of non-financial disclosures and reporting, see “Sustainability Reporting and Auditing” in “Corporate Social Responsibility: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (

[2] As mentioned above, expansive disclosure of this type increases the risk of litigation and/or adverse market reaction in the event that the company fails to meet its stated CSR and corporate sustainability goals, even if the disclosures are accompanied by appropriate disclaimers and are not included in regulatory filings that typically are covered by anti-fraud standards.  Disclosure of actual or potential links between CSR and corporate sustainability goals and compensation must also be handled carefully, similar to links between short-term financial goals and compensation.

[3] C. Williams, “Corporate Social Responsibility and Corporate Governance” in J. Gordon and G. Ringe (Eds.), Oxford Handbook of Corporate Law and Governance (Oxford: Oxford University Press, 2016), 15, available at (citing Initiative for Responsible Investment, Corporate Social Responsibility Disclosure Efforts by National Governments and Stock Exchanges (March 12, 2015), available at  These countries included Argentina, China, Denmark, the EU, Ecuador, Finland, France, Germany Greece, Hungary, India, Indonesia, Ireland (specific to state-supported financial institutions after the 2008 financial crisis), Italy, Japan, Malaysia, The Netherlands, Norway, South Africa, Spain, Sweden, Taiwan, and the U.K.

[4] See ¶ 6 of Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014, amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups, Official Journal of the European Union L330/1-330/9.

[5] C. Williams, “Corporate Social Responsibility and Corporate Governance” in J. Gordon and G. Ringe (Eds.), Oxford Handbook of Corporate Law and Governance (Oxford: Oxford University Press, 2016), 16, available at (citing Initiative for Responsible Investment, Corporate Social Responsibility Disclosure Efforts by National Governments and Stock Exchanges (March 12, 2015), available at

[6] Id.

[7] Id. at 19 (citing KPMG, UNEP, Global Reporting Initiative and Unit for Corporate Governance in Africa, Carrots and Sticks: sustainability reporting policies worldwide 8 (2013), available at

[8] KPMG, The KPMG Survey of CR Reporting 2013, available at  In addition, in 2013 76% of the top 100 companies in the Americas published a separate corporate responsibility report, as did 73% of top 100 companies in Europe and 71% in Asia.  Also, 59% of the Global 250 had their reports “assured” typically by the specialist bureaus of the major accountancy firms.  As reported in C. Williams, “Corporate Social Responsibility and Corporate Governance” in J. Gordon and G. Ringe (Eds.), Oxford Handbook of Corporate Law and Governance (Oxford: Oxford University Press, 2016), 5, available at

[9] C. Williams, “Corporate Social Responsibility and Corporate Governance” in J. Gordon and G. Ringe (Eds.), Oxford Handbook of Corporate Law and Governance (Oxford: Oxford University Press, 2016), 2-3, available at (citing M. Blair, C. Williams and Li-Wen Lin, “The New Role for Assurance Services in Global Commerce”, Journal of Corporate Law, 33 (2008), 325).

[10] Id. at 16-19.  See also C. Williams, The Securities and Exchange Commission and Corporate Social Transparency, Harvard Law Review, 112 (1999), 1197.  The federal Securities and Exchange Commission has also occasionally issued guidance on selected ESG topics such as disclosures related to climate change.

[11] See Flash Report: Eighty One Percent (81%) of the S&P 500 Index Companies Published Corporate Sustainability Reports in 2015 (Governance & Accountability Institute, Inc., 2016), available at; and Sustainability Accounting Standards Board, The State of Disclosure Report 2016, available at  The percentage is particularly striking given that less than 20% of the companies in the same group in 2011 published sustainability reports in that year.

[12] H. Gregory, “Corporate Social Responsibility, Corporate Sustainability and the Role of the Board”, Practical Law Company (July 1, 2017), 4.

[13] Sustainability Accounting Standards Board, “Business and Financial Disclosure Required by Regulation S-K—the SEC’s Concept Release and Its Implications”, (2016), 3-4, available at

[14] SEC Release Nos. 33-9106, 34-61469, FR-82 (February 8, 2010).

[15] California Civil Code § 1714.43.

[16] GRI 101: Foundation 2016 (Amsterdam: Stichting Global Reporting Initiative, 2016), 3.

[17] For detailed discussion of the GRI Standards, see “Sustainability Reporting and Auditing” in “Corporate Social Responsibility: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (

[18] P. DeSimone, Board Oversight of Sustainability Issues: A Study of the S&P 500 (IRRC Institute, March 2014), 7.

[19] The International <IR> Framework (London: The International Integrated Reporting Council, December 2013), 5.  For detailed discussion of the International Integrated Reporting Framework, see “Sustainability Reporting and Auditing” in “Corporate Social Responsibility: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (

[20] For detailed discussion of the activities of the SASB, see “Sustainability Reporting and Auditing” in “Corporate Social Responsibility: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (

Investors Beginning to Prefer Companies that Pursue Long-Termism

Interest in CSR and corporate sustainability among institutional investors has logically been accompanied by a sharper focus on whether and how companies are adopting the long-term perspective necessary for committing resources to projects that will likely have the highest value to the business at some point beyond the traditional short-term performance window.  A study published in 2017 by the McKinsey Global Institute claimed to provide systematic evidence that companies that adopted a “long-term approach” outperformed companies that emphasized the short-term strategies typically associated with maximizing shareholder value on a range of key economic and financial metrics including revenue and earnings, investment, market capitalization, and job creation.[1]

Institutional investors have identified long-term corporate strategy and aligning compensation and management incentive to promote long-termism as key topics for engagement with their portfolio companies.  For example, over 100 companies from around the world have signed on to the “Compact for Responsive and Responsible Leadership A Roadmap for Sustainable Long-Term Growth and Opportunity”, which has been sponsored by the International Business Council of the World Economic Forum as a means for corporations, their chief executive officers and boards of directors, as well as leading investors and asset managers to create a corporate governance framework with a focus on the long-term sustainability of corporations and the long-term goals of society.  The Compact calls on companies to commit to[2]:

  • Ensuring the board oversees the definition and implementation of corporate strategies that pursue sustainable long-term value creation.
  • Encouraging periodic review of corporate governance, long-term objectives and strategies at the board level as well as clear communication between corporations, investors and other stakeholders about the outcomes.
  • Promoting meaningful engagement between the board, investors and other stakeholders that builds mutual trust and effective stewardship, and promotes the highest possible standards of corporate conduct.
  • Publicly supporting the adoption of the Compact and implement policies and practices within my organization that drive transformation towards the adherence to long-term strategies and sustainable growth for the benefit of all stakeholders.

Similarly, the corporate governance principles for US listed companies endorsed by the Investor Stewardship Group include guidance that boards should develop management incentive structures that are aligned with the long-term strategy of the company.[3]

One interesting approach to instilling long-termism into mainstream corporate governance is the call for the creation of a “Long-Term Stock Exchange” which would supplement existing requirements imposed by the Securities and Exchange Commission and other exchange regulators with additional conditions such as tenured shareholder voting power (i.e., permitting shareholder voting to be proportionately weighted by the length of time the shares have been held), mandated ties between executive pay and long-term business performance and disclosure requirements informing companies who their long-term shareholders are and informing investors of what companies’ long-term investments are.[4]

While sentiment for encouraging long-termism and promoting a broader range of stakeholder interests has been around in some form for decades, the attacks on the primacy of shareholder value creation have never been as strident and are likely to accelerate in the future and become a permanent fixture among governance issues.  Politicians in more than 30 states and the District of Columbia have formalized the constituency theory by adopting statutes that permit the formation of “benefit corporations”, a new form of for-profit corporation that explicitly expands the fiduciary duties of directors beyond maximizing shareholder value, which is still one of the primary goals of a corporation, to include consideration of whether or not the corporation’s activities have an overall positive impact on society, their workers, the communities in which they operate and the environment.  While the rate of adoption of benefit corporation status has been slow, particularly among public companies, the recognition of benefit corporations has contributed to sharpened focus on the separate interests of non-shareholder stakeholders and created a host of new issues and challenges for directors of all types of corporations such as ­­how to measure and compare non-financial performance aspects of corporate activities; how to hold corporations accountable to stakeholders who do not have the rights to vote that are held by shareholders; and how to structure incentive packages for executives and managers tied to complex multi-stakeholder goals and commitments.

This article is part of the Sustainable Entrepreneurship Project’s extensive materials on Sustainability and Corporate Governance.

[1] Discussion Paper: Measuring the Economic Impact of Short-Termism (McKinsey Global Institute, February 2017), available at file:///C:/Users/Alan/Downloads/MGI-Measuring-the-economic-impact-of-short-termism.pdf



[4] M. Lipton, S. Rosenblum, K. Cain, S. Niles, V. Chanani and K. Iannone, “Some Thoughts for Boards of Directors in 2018” (Wachtell, Lipton, Rosen & Katz, November 30, 2017), 7, accessible at

Investor Interest in CSR and Sustainability

Customers, employees and corporate activists, including socially conscious investors, have been focusing on issues now commonly associated with CSR and corporate sustainability for several decades, particularly in the areas of environmental protection and human rights; however, CSR has taken on a new urgency for corporate directors and managers as institutional investors, including large public pension funds, have become more interested in, and concerned about, environmental protection, human rights, health and safety and diversity and have shown greater appreciation for the benefits of pursuing corporate sustainability as opposed to only rewarding short-term profitability.  The submission by the BT Governance Advisory Service to the Australian Parliamentary Joint Committee on Corporations and Financial Services in 2006 provided an illustration of how and why institutional investors seek out companies that understand the need for a longer term approach to risk:

“Long term investors expect organizational decision makers to have a regard for the interests of stakeholders other than shareowners when those stakeholder interests have the capacity to influence shareowners’ interests. We believe that companies that manage their stakeholders’ interests are managing their shareowners’ interests, especially over the long-term. This arises from the fact that risks to companies arise not just from typical financial risks but also from regulatory, community and litigation risks.”[1]

Sustainability has become an important issue for the major institutional investors and asset managers and the marketplace is seeing an increase in smaller, more specialized investment funds that are primarily oriented toward providing capital to companies that excel in their environmental, social and governance (“ESG”) practices and which focus on ESG-oriented activities such as climate change and impact investing.  The goal of investors is to encourage their portfolio companies to contribute to the successful pursuit of environmental and social outcomes which continuing to provide investors with a suitable financial return.

A number of factors have contributed to the surge in the interest of investors in corporate sustainability and the ESG practices of their portfolio companies[2]:

  • Recognition in the financial community that ESG factors play a material role in determining risk and return;
  • Understanding and acceptance that incorporating ESG factors is part of investors’ fiduciary duty to their clients and beneficiaries;
  • Concern about the impact of short-termism on company performance, investment returns and market behavior;
  • Increased legal requirements protecting the long-term interests of beneficiaries and the wider financial system;
  • Pressure from competitors seeking to differentiate themselves by offering responsible investment services as a competitive advantage;
  • Increasing activism of beneficiaries who are demanding transparency about where and how their money is being invested; and
  • Concern regarding value-destroying reputational risk associated with environmental and social issues such as climate change, pollution, working conditions, employee diversity, corruption and aggressive tax strategies in a world of globalization and social media.

A reported prepared by The Conference Board in November 2017 highlighted several important market and regulatory drivers of increased ESG activism among institutional investors.[3]  First, there seems to be a clear shift in expectations among institutional investors’ own shareholders with respect to ESG voting and engagement and institutional investors must now contend with the demands of their shareholders to support environmental and social proposals in line with their fiduciary duties.  Second, in 2015 the US Department of Labor amended its guidelines interpreting the “prudent investor” standard for Employee Retirement Income Security Act (“ERISA”) fiduciaries to affirm that although ERISA does not allow fiduciaries to sacrifice the economic interests of their beneficiaries to promote public policy goals, fiduciary duties do permit consideration of ESG factors in investment analysis and voting practices when necessary to advance beneficiaries’ economic interests.[4]  The DOL’s change in position aligned the US with guidelines that had already been approved in a growing number of other countries that directly endorsed or encouraged public pension funds and other investment fiduciaries’ incorporation of ESG considerations in investment analysis.[5]  Third, consortiums of investors are being formed to exert influence on their peers to promote better oversight of ESG risk.  One example is the voluntary Framework of US Stewardship and Governance formed in 2017 by a group of institutional investors representing over $20 trillion in US equity investments to encourage investors “to continue to engage directly with companies and to make their proxy voting and engagement practices and policies more transparent as part of a balanced approach to corporate and shareholder accountability”.[6]

The consensus today among institutional investors is that “corporate sustainability” is no longer limited to the environmental practices of the company, but should be broadly construed to include all of the challenges that should be overcome–economic, environmental and social–and all of the actions that should be taken in order for the corporation’s business model to survive and thrive currently and into the future.  The President and CEO of State Street Global Advisors (“SSGA”) has informed the directors of SSGA’s portfolio companies that SSGA defines sustainability “as encompassing a broad range of environmental, social and governance issues that include, for example, effective independent board leadership and board composition, diversity and talent development, safety issues, and climate change.”[7]

The potential benefits to institutional investors have been highlighted by the Conference Board, which has argued that CSR enhances market and accounting performance, lowers the cost of capital, improves business reputation, and fosters new revenue growth when it is channeled toward product innovation.[8]  Similarly, the Chairman and CEO of BlackRock, Inc., the largest asset manager in the world, wrote in his 2016 Annual Letter to the CEOs of BlackRock’s portfolio companies that “[o]ver the long-term, environmental, social and governance (ESG) issues—ranging from climate change to diversity to board effectiveness—have real and quantifiable financial impacts”.[9]  While many investors argue that focusing on corporate sustainability is necessary in order for companies to identify and mitigate the risks to current operations due to climate change, shortages of natural resources and ignoring basic human rights issues, investors also believe that developing and implementing innovating solutions to environmental problems, improving workplace conditions and forging strong relationships with local communities will lead to better economic performance for the business.

Investors are embracing “responsible investment”, which has been described in the Principles for Responsible Investment ( backed by the United Nations (“PRI”) as “an approach to investing that aims to incorporate environmental, social and governance (“ESG”) factors into investment decisions, to better manage risk and generate sustainable, long-term returns”.  Investors that have committed to adherence to the PRI have undertaken to incorporate ESG issues into their investment analysis and decision making processes, be “active owners” of the companies in which they invest, incorporate ESG issues into their own ownership policies and practices, seek appropriate disclosure on ESG issues from their portfolio companies and report on their own activities and progress toward implementing the Principles.  The PRI are based on the assumption that institutional investor have a fiduciary duty to act in the best long-term interests of their beneficiaries and that ESG issues can affect the performance of investment portfolios and must be attended to in order for the investors, and their portfolio companies, to improve their risk management and generate sustainable, long-term returns.  In other words, attention to ESG not only helps investors achieve better long-range investment returns, thereby meeting the goals of their beneficiaries, but also aligns investor priorities with broader societal goals.

The Principles for Responsible Investment

The Principles for Responsible Investment (“PRI”), which is supported by, but not part of, the United Nations, considers itself to be the world’s leading proponent of responsible investment.  The PRI has explained its work as understanding the investment implications of environmental, social and governance (“ESG”) factors and supporting its international network of investor signatories in incorporating these factors into their investment and ownership decisions.  Signatories to the PRI commit to the following six principles and the accompanying possible actions for incorporating ESG issues into their investment analysis and decision making processes and their relationships with portfolio companies:

Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.

Possible actions:

·         Address ESG issues in investment policy statements.

·         Support development of ESG-related tools, metrics, and analyses.

·         Assess the capabilities of internal investment managers to incorporate ESG issues.

·         Assess the capabilities of external investment managers to incorporate ESG issues.

·         Ask investment service providers (such as financial analysts, consultants, brokers, research firms, or rating companies) to integrate ESG factors into evolving research and analysis.

·         Encourage academic and other research on this theme.

·         Advocate ESG training for investment professionals.

Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.

Possible actions:

·         Develop and disclose an active ownership policy consistent with the Principles.

·         Exercise voting rights or monitor compliance with voting policy (if outsourced).

·         Develop an engagement capability (either directly or through outsourcing).

·         Participate in the development of policy, regulation, and standard setting (such as promoting and protecting shareholder rights).

·         File shareholder resolutions consistent with long-term ESG considerations.

·         Engage with companies on ESG issues.

·         Participate in collaborative engagement initiatives.

·         Ask investment managers to undertake and report on ESG-related engagement.

Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.

Possible actions:

·         Ask for standardized reporting on ESG issues (using tools such as the Global Reporting Initiative).

·         Ask for ESG issues to be integrated within annual financial reports.

·         Ask for information from companies regarding adoption of/adherence to relevant norms, standards, codes of conduct or international initiatives (such as the UN Global Compact).

·         Support shareholder initiatives and resolutions promoting ESG disclosure.

Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.

Possible actions:

·         Include Principles-related requirements in requests for proposals (RFPs).

·         Align investment mandates, monitoring procedures, performance indicators and incentive structures accordingly (for example, ensure investment management processes reflect long-term time horizons when appropriate).

·         Communicate ESG expectations to investment service providers.

·         Revisit relationships with service providers that fail to meet ESG expectations.

·         Support the development of tools for benchmarking ESG integration.

·         Support regulatory or policy developments that enable implementation of the Principles.

Principle 5: We will work together to enhance our effectiveness in implementing the Principles.

Possible actions:

·         Support/participate in networks and information platforms to share tools, pool resources, and make use of investor reporting as a source of learning.

·         Collectively address relevant emerging issues.

·         Develop or support appropriate collaborative initiatives.

Principle 6: We will each report on our activities and progress towards implementing the Principles.

Possible actions:

·         Disclose how ESG issues are integrated within investment practices.

·         Disclose active ownership activities (voting, engagement, and/or policy dialogue).

·         Disclose what is required from service providers in relation to the Principles.

·         Communicate with beneficiaries about ESG issues and the Principles.

·         Report on progress and/or achievements relating to the Principles using a comply-or-explain approach.

·         Seek to determine the impact of the Principles.

·         Make use of reporting to raise awareness among a broader group of stakeholders.


Pronouncements regarding the importance of CSR by institutional investors are tremendously impactful on the decisions made by management since those investors are among the largest shareholders of the companies they follow.  CEOs must be mindful of surveys showing that CSR issues play a pivotal role in investment decisions for 90% of investors.[10]  The BlackRock Chairman’s 2017 Annual Letter to CEOs put the executive leaders of BlackRock’s portfolio companies on notice that they would be expected to consider sustainability of operations, environmental factors that affect the business, and the company’s role as a member of the community.[11]  State Street Global Advisors (“SSGA”), in a letter from its President and CEO to the directors of its portfolio companies, has made it clear that SSGA believes that CSR issues can have a material impact on a company’s ability to generate revenues over the long term and that whether the companies “clearly [communicate] their approach to sustainability and its influence on strategy” impacts how they will be classified by SSGA.[12]  A few days earlier, SSGA announced that it would consider the following issues when evaluating companies’ CSR and corporate sustainability efforts and the actions of board members in overseeing and management and setting long-term strategy[13]:

  • The company has identified the sustainability issues material to the business.
  • The company has analyzed and incorporated sustainability issues, where relevant, into its long-term strategy.
  • The company considers long-term sustainability trends in capital allocation decisions.
  • The board is equipped to adequately evaluate and oversee the sustainability aspects of the company’s long-term strategy.
  • The company’s reporting clearly articulates the influence of sustainability issues on strategy.
  • The board incorporates key sustainability drivers into performance evaluation and compensation programs.

SSGA has also opined: “Today’s investors are looking for ways to put their capital to work in a more sustainable way, one focused on long-term value creation that enables them to address their financial goals and responsible investing needs.  So, for a growing number of institutional investors, the environmental, social and governance (ESG) characteristics of their portfolio are key to their investment strategy.”[14]  In the same vein, an article distributed by the consulting firm PwC in October 2016 noted that “[m]ore and more, stakeholders are considering environmental, social and governance (ESG) factors when they evaluate a company’s strategy, risk profile, and ultimately, its plan for creating long-term value”.[15] The Forum for Responsible and Sustainable Investment ( provided further insights on changing investor motivations leading to the surging interest in sustainable, responsible and impact (“SRI”) investment:

“There are several motivations for sustainable, responsible and impact investing, including personal values and goals, institutional mission, and the demands of clients, constituents or plan participants. Sustainable investors aim for strong financial performance, but also believe that these investments should be used to contribute to advancements in social, environmental and governance practices. They may actively seek out investments—such as community development loan funds or clean tech portfolios—that are likely to provide important societal or environmental benefits. Some investors embrace SRI strategies to manage risk and fulfill fiduciary duties; they review ESG criteria to assess the quality of management and the likely resilience of their portfolio companies in dealing with future challenges. Some are seeking financial outperformance over the long term; a growing body of academic research shows a strong link between ESG and financial performance.”[16]

As for the specific CSR and corporate sustainability issues that are most important to investors, and which should therefore be priorities for directors and members of the executive team, reference can be made to surveys of CSR-related shareholder proposals compiled by organizations such as the Institutional Shareholder Services Inc. (“ISS”) Governance Analytics Database.  In 2016 and early 2017, for example, the most popular topics among shareholder activists included lobbying disclosure, climate change reporting, political contributions disclosure, gender pay gap disclosure and sustainability reporting, a list that highlighted a decided shift in shareholder engagement toward sustainability and away from some of the issues that had dominated in previous years such as proxy access.[17]  A little more than half of the CSR-related shareholder proposals submitted to companies in 2016 were actually voted upon since some did not meet the criteria for voting established by the company and others were removed from the ballot before the meeting based on undertakings by the company following engagement with the proponents of the proposal to voluntarily provide expanded CSR-related disclosures.  Average support for those proposals that were voted upon was around 20%; however, nine proposals focusing on the following topics received majority support: board diversity, political contributions disclosure, methane emissions management, sustainability reporting, animal welfare, prohibition of sexual orientation and gender identity discrimination and gender pay gap disclosure.  Companies can gather further insights by closely reviewing the proxy materials of other firms in their industry and the published voting records and pronouncements of their major institutional investors.

In the 2017 proxy season, shareholders at ExxonMobil, Occidental Petroleum, and PPL Corp. voted by overwhelming majorities in favor of proposals urging these boards to assess and report on the financial risks their companies face as a result of climate-related regulation. These proposals passed with the support of BlackRock, State Street Global Advisors, and Vanguard, all of whom have voting and investment policies that include environmental, social, and governance (“ESG”) considerations and risk assessment. In 2017, Fidelity followed suit and revised its proxy voting guidelines to state that it “may support shareholder proposals calling for reports on sustainability, renewable energy and environmental impact issues” as well as proposals on board and workplace diversity.[18]

The published voting guidelines of ISS for the 2017 proxy season reflected the growing support among institutional investors for ESG-related proposals.  Among other things, the guidelines called for generally supporting resolutions requesting that a company disclose information on the risks related to climate change on its operations and investments, such as financial, physical, or regulatory risks; generally voting for proposals requesting that a company report on its policies, initiatives, and oversight mechanisms related to social, economic, and environmental sustainability; and supporting proposals seeking reports of company’s efforts to respond on a range of ESG issues, including climate impact mitigation, board and workplace diversity.  Proposals that called for the adoption of GHG reduction goals from products and operations were to be considered on a case-by-case basis and proposals seeking a company’s endorsement of social/environmental issue principles that support a particular public policy position were opposed.[19]

Institutional investors are themselves under increasing pressure from their own investors, as well as peers, activist groups and non-governmental organizations, to proactively embrace CSR and corporate sustainability.  For example, in 2006 investors with over $2 trillion in assets under management pledged to commit to the UN Principles for Responsible Investment (“PRI”), which require that environmental, social and governance issues be incorporated into investment analysis and decision making and that shareholders committed to the Principles proactively engage their portfolio companies regarding CSR and corporate sustainability issues and goals.  At the time the Principles were first announced, the then-UN Secretary General observed:

“In signing on to these principles, you are publicly committing yourselves to adopt and live up to them. And you are expressing your intent to channel finance in ways that encourage companies and other assets to demonstrate corporate responsibility and sustainability. In short, you have given a vote of confidence to corporate responsibility – not as a luxury, not as an afterthought, not as a goal to be achieved someday, but as an essential practice today.”[20]

By 2016, more than half of all publicly traded debt and equity worldwide was held by investors who were signatories to the PRI, and US signatories accounted for nearly 20% of the total participation and included both traditional backers of environmental and social proposals and mainstream investment companies like BlackRock, Fidelity, State Street and Vanguard.[21]  Not to be forgotten is that in addition to the assets managed by these well-known mainstream investors, more than 20% of all assets under management in the US were invested based on sustainable, responsible or impact investing strategies.[22]

A survey of whether institutional investors affected a firm’s commitment to CSR for a large sample of firms from 41 countries over the period 2004 through 2013 found that institutional ownership was positively associated with firm-level environmental and social commitments.[23] A July 2017 report issued by US SIF Foundation indicated that managers of $8.72 trillion of the overall total of $40 trillion assets under management in the US, about 22%, included sustainability in their investment decision making.[24]  A November 2017 reported by The Conference Board stated that surveys of institutional investors by major consulting firms since at least 2014 have found, on average, that 70% to 80% saw ESG information as important or essential to their investment analysis.

This article is part of the Sustainable Entrepreneurship Project’s extensive materials on Sustainability and Corporate Governance.

[1] Parliamentary Joint Committee on Corporations and Financial Services, Corporate responsibility: Managing risk and creating value (2006), 68.


[3] V. Harper Ho, Director Notes: Sustainability in the Mainstream–Why Investors Care and What It Means for Corporate Boards (The Conference Board, November 2017), 10-12, electronic copy available at: (based on information available at UNPRI, Signatories,

[4] Interpretive Bulletin Relating to the Fiduciary Standard under ERISA in Considering Economically Targeted Investments, 29 C.F.R. § 2509.15-01 (October 26, 2015).  The guidance in effect prior to October 26, 2015, which had been in place since 2008, generally prohibited ERISA from selecting investments on the basis of any non-economic factors. Interpretive Bulletin Relating to Investing in Economically Targeted Investments, 73 Fed. Reg. 61,734 (October 17, 2008).

[5] According to the Report, many jurisdictions in the midst of changing their conceptions of fiduciary duty to permit, or even impose a positive duty on, investors to incorporate financially material ESG factors into their investment decision making.  Sources cited included UNEP-FI, A legal framework for the integration of environmental, social, and governance issues into institutional investment (2005),; UNEP-FI, Fiduciary Duty in the 21st Century (2015),; and OECD, Investment governance and the integration of environmental, social, and governance factors, (2017), 48-50.

[6] Investor Stewardship Group, “Framework for U.S. Stewardship and Governance”, Stewardship codes have also been introduced in a number of foreign countries as a means for encouraging or requiring institutional investors as asset owners or managers to disclose how their investment strategy contributes to the medium and long-term performance of the investor’s assets.

[7] Letter from Ronald P. O’Hanley, President and CEO, SSGA, to Board Members, 1-2 (January 26, 2017), available at

[8] M. Tonello, Corporate Investment in ESG Practices (The Conference Board, Inc.: August 5, 2015).

[9] Annual Letter from Larry Fink, Chairman and CEO, BlackRock, to CEOs (February 1, 2016), available at

[10] Tomorrow’s Investment Rules: Global Survey of Institutional Investors on Non-Financial Performance, 5 (Ernst & Young, 2014).

[11] Annual Letter from Larry Fink, Chairman and CEO, BlackRock, to CEOs (January 24, 2017), available at

[12] Letter from Ronald P. O’Hanley, President and CEO, SSGA, to Board Members, 1-2 (January 26, 2017), available at

[13] SSGA, Incorporating Sustainability Into Long-Term Strategy (January 23, 2017), available at

[14] SSGA, Performing for the Future: ESGs Place in Investment Portfolios Today and Tomorrow (2017), available at


[16]  The Forum for Responsible and Sustainable Investment is a valuable online resource with information and educational materials on sustainable and responsible investing trends, performance and sustainable investment, proxy voting, shareholder proposals and community investing.

[17] H. Gregory, “Corporate Social Responsibility, Corporate Sustainability and the Role of the Board”, Practical Law Company (July 1, 2017), 5-6 (citing Institutional Shareholder Services Inc., United States 2016: Proxy Season Review—Environmental and Social Issues (October 26, 2016), available at (subscription required)).

[18] V. Harper Ho, Director Notes: Sustainability in the Mainstream–Why Investors Care and What It Means for Corporate Boards (The Conference Board, November 2017), 2, electronic copy available at: See also V. Harper Ho, “’Comply or Explain’ and the Future of Nonfinancial Reporting”, Lewis & Clark Law Review, 21 (2017), 318; and V. Harper Ho, “Risk-Related Activism: The Business Case for Monitoring Nonfinancial Risk”, Journal of Corporate Law, 41 (2016), 648.

[19], 57-63.

[20] Ban Ki Moon, UN Secretary General Speech at the NYSE announcing the UN Principles for Responsible Investment (April 26, 2006).

[21] V. Harper Ho, Director Notes: Sustainability in the Mainstream–Why Investors Care and What It Means for Corporate Boards (The Conference Board, November 2017), 3 and Table 1, electronic copy available at: (based on information available at UNPRI, Signatories,

[22] Id.

[23] A. Dyck, K. Lins, L. Roth and H. Bocconi, “Do Institutional Investors Drive Corporate Social Responsibility? International Evidence” (November 18, 2015).  Interestingly, the researchers found that while domestic institutional investors and non-U.S. foreign investors accounted for the identified positive associations, U.S. institutional investors’ holdings are not related to environmental and social scores. Similarly, higher scores are associated with long-term investors such as pension funds but not with hedge funds.


Descriptions of Corporate Sustainability

While corporate social responsibility, or CSR, is generally associated with ensuring the corporations contribute to sustainable economic development at the macro-level, the concept of corporate sustainability can be seen as primarily concerned with the survival, or sustainability, of the corporation itself, something that is necessary in order for the corporation to make the contributions to society that are expected from being a “responsible corporate citizen”.[1]  Corporate sustainability goals and programs are focused on issues that not only impact society as a whole but must also be addressed by the directors and managers of a corporation in order for it to survive and thrive: climate change; resource scarcity; demographic shifts; and regulatory and political changes.[2]

Coblentz argued that “sustainability” in the context of a corporation or any other similar type of organization, means “continuation” through the acquisition and maintenance of the elements necessary for it to carry on and constantly enhance its activities in pursuit of a defined mission.[3]  According to Colblenz, there are actually three key aspects of organizational sustainability—institutional, financial and moral:

  • Institutional sustainability comes from having a mission, a process in place to develop long-term strategic plans, an annual planning process, a process for managing the operational activities included in the strategic and annual plans and, finally, processes for monitoring and evaluating the flow of work to ensure that it is contributing to the organization’s goals and objectives.
  • Financial sustainability means having access to the financial resources that the organization needs in order to collect the resources—human, physical and technological—necessary for it to carry out its mission. This does not mean that the organization is self-sufficient with regard to capital (i.e., it can fund operations out of its own cash flow), but rather that it can obtain needed funds from outside sources without compromising its mission.  A financially sustainable organization also practices prudent financial management to ensure that its resources are used efficiently.
  • Moral sustainability requires that organizational leaders have a clear vision of, and commitment to the mission, and communicate it effectively to all stakeholders; that all staff rally around the organizational leaders and become committed to the mission as well; that staff who are committed to the mission are rewarded by career development opportunities, adequate compensation and dynamic work environment, all of which improves morale and builds a unity of purpose and commitment that will overcome challenges; and that leadership, management and staff act ethically and are perceived as doing so.

While Coblenz’s model of organizational sustainability does not explicitly mention environmental and social issues, it does paint a picture of a deliberative process throughout an organization that operates on a vision of a mission that is clearly communicated and shared by everyone and which understands that results will take time and require steady and prudent general and financial management and a commitment to acting in an ethical manner.  Financial sustainability in the model includes engaging with investors that understand the company’s mission and do not place conditions on funding that will conflict with the mission.  For example, when the mission of the organization is to achieve environmental efficiencies that may not be realized for several years, investors will refrain from applying pressure for short-term economic returns provided that management is transparent about progress and acts in an ethical manner in its engagement and relationships with investors.

A 2017 article in The Economist described “sustainability” in the corporate context as follows:

“The term “sustainability” is often used interchangeably with CSR or viewed exclusively through an environmental lens. Thought leaders, however, generally describe it as a business strategy that creates long-term stakeholder value by addressing social, economic, and environmental opportunities and risks material to a company. It is integral to a company’s business and culture, rather than on the periphery. Optimizing waste reduction, or water or energy consumption, for example, can help a company reduce operational costs. Sustainability can drive innovation by reconceiving products and services for low-income consumers, opening new lines of business and boosting revenue in the process. Finally, being socially responsible can help a company earn license to operate in new markets, and attract and retain talent.”[4]

While the terms “CSR” and “corporate sustainability” are often used interchangeably, there are real and important distinctions between the two concepts; however, corporations can and should pursue both CSR and sustainability in order to generate the most value for all of their stakeholders:

  • Avoiding environmental harm from operational activities is not only a socially responsible way to conduct business but also ensures that the corporation has sufficient natural resources available to it to survive and thrive in the future;
  • Monitoring the environmental and social impact of the activities of members of the corporation’s supply chain not only protects natural and human resources it also ensures that the corporation will have reliable partners and a stable stream of inputs for its products;
  • Treating employees and their families fairly and providing them with a living wage not only enhances their wellbeing but also makes it easier for the corporation to attract and retain the talent necessary to create and commercialize innovative products and services needed to maintain long-term competitiveness;
  • Honest engagement with local communities and environmental and social activists promotes mutual understanding and problem solving while reducing potential distractions for directors and members of the management team; and
  • Products that are developed in an environmentally and socially responsible manner not only reduce the burden on natural and human resources but also improve the corporation’s reputation and brand and reduce the risk of consumer disenchantment and product recalls.

Porter and Kramer argued that sustainability and responsible business practices are integral parts of a corporate strategy that can create “shared value” for the company, its shareholders and other key stakeholders of the company.[5]   Porter, along with others such as McWilliams and Segal, has also maintained that companies should use the CSR initiatives as part of their business strategies to promote competitive advantage and, in fact, a large percentage of Global 250 firms have explicitly identified issues such as climate change and material resource scarcity as opportunities for the development of new products and services.[6]

One threshold issue for directors with respect to embracing “corporate sustainability” is that it remains a broad topic when the time comes to putting together a framework for implementation.  For example, when the subject is environmental responsibility, issues can range from climate change to carbon footprints, water and energy.  Social responsibility can involve issues and projects relating to supply chain management, product stewardship and consumer protection and human rights.  CSR and corporate sustainability requires attention to risk management and stakeholder engagement and investment of resources in new management and information systems that can generate data needed to track performance and prepare the reports necessary to meet expectations of investors and other stakeholders with respect to transparent disclosure of the nature and effectiveness of the company’s CSR and corporate sustainability initiatives.

This article is part of the Sustainable Entrepreneurship Project’s extensive materials on Sustainability and Corporate Governance.

[1] For further discussion of the various definitions and descriptions of corporate sustainability, see “Corporate Sustainability” in “Entrepreneurship: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (

[2] RobecoSAM, Corporate Sustainability, available at

[3] J. Coblentz, “Organizational Sustainability: The Three Aspects that Matter” (Washington DC: Academy for Educational Development, 2002).

[4] J. Cramer-Montes, “Sustainability: A New Path to Corporate and NGO Collaborations”, The Economist (March 24, 2017),

[5] M. Porter and M. Kramer, “Creating Shared Value, Harvard Business Review (January-February 2011).

[6] See M. Porter and M. Kramer, “Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility”, Harvard Business Review, 78 (December 2006); and A. McWilliams and D. Siegel, “Creating and Capturing Value: Strategic Corporate Social Responsibility, Resource-Based Theory, and Sustainable Competitive Advantage”, Journal of Management 37 (2011), 1480.