In a recently published book chapter, I explore the prospects for corporate social responsibility (CSR) as a partial solution to the environmental sustainability challenge. Many large corporations affect the environment through their operational activities and their choices about product design. Legal regulation is no doubt necessary for furthering environmentally responsible behavior. The question here is whether CSR can play a meaningful role in its absence.
I outline two models or theories of CSR in this paper. What I term the ‘ethical’ model focuses on corporate management’s duty to balance conflicting stakeholder interests even where doing so may come at the shareholders’ expense. For example, a corporation might choose voluntarily to adopt policies that reduce its impact on the environment although that will mean lower profits in the short term and there may be no offsetting long-term financial benefits to the firm. A company might do this simply because “it’s the right thing to do.”
The prospects for ethical CSR depend very much on institutional context. A survey of Continental Europe, the US, and the UK reveals differing perspectives on the legitimacy of ethical CSR as a justification for environmental sustainability initiatives. Shareholder primacy is widely assumed by business leaders to be the appropriate corporate objective in the US and to a lesser extent in the UK, although in the US at least it is far from clear that corporate law mandates it. Further, institutional shareholders can pressure corporate management to avoid discretionary expenditures or policies likely to result in lower revenues through the threat of large-scale sell-offs in response to disappointing quarterly accounting results. They may also exert informal behind-the-scenes influence on boards of directors and senior executives. The outlook for ethics-based CSR in these countries is therefore not promising. In contrast, a pluralistic, stakeholder-oriented conception of corporate purpose is far more prevalent in Continental European countries. Objections to environmentally friendly corporate policies based on their impact on shareholder wealth are therefore less likely.
A different theory of CSR – I call it the ‘strategic’ model – would justify corporate expenditures on stakeholder well-being, including environmental considerations, even in a shareholder primacy context. The core idea is that CSR policies – business decisions that aim to benefit nonshareholder constituencies – can under certain circumstances enhance shareholder wealth. Porter and Kramer, for example, provide examples of firms that have invested heavily in stakeholder relationships in order to strengthen the firms’ long-term financial prospects. Eccles, Ioannou, and Serafeim show that a group of firms that adopted sustainability policies in the early 1990s had by 2009 significantly outperformed a set of comparable companies in terms of stock market and accounting metrics. Voluntarily undertaken environmentally friendly policies thus can under certain circumstances enhance the firm’s long-term financial health despite the short-term costs. The strategic model of CSR therefore has the potential to overcome objections based on shareholder primacy values.
Despite the possibility of a ‘business case’ for CSR, there are some built-in limits on the benefits that can flow from strategically motivated CSR. Shareholders may be unwilling to accept the short-term costs of CSR investments in return for financial pay-offs that will materialize if at all only in the long-run. Further, because strategic CSR rests on cost-benefit analysis, companies motivated by financial considerations will only invest in environmental sustainability if and to the extent they stand to benefit financially. There is a significant likelihood, therefore, that corporations will not go far enough to satisfy social needs. If CRS is to be part of the environmental sustainability solution, the need for an ethics-based model persists.
 David Millon, Corporate Social Responsibility and Environmental Sustainability, in Company Law and Sustainability: Legal Barriers and Opportunities (B. Sjåfell & B. Richardson eds., Cambridge University Press 2015). View this book’s table of contents here.
 Michael Porter & Mark Kramer, Creating Shared Value: How to Reinvent Capitalism – and Unleash a Wave of Innovation and Growth, Harvard Business Review 1 (Jan. – Feb. 2011).
 Robert Eccles, Ioannis Iouannou, & George Serafeim, The Impact of Corporate Sustainability on Organizational Processes and Performance (NBER Working Paper No. 17950, March 2012).
The preceding post comes to us from David Millon, J.B. Stombock Professor of Law at Washington and Lee University. The post is based on his article, which is entitled “Corporate Social Responsibility and Environmental Sustainability” and available here.