Corporate social responsibility (CSR) is typically assumed to be a voluntary rather than mandatory initiative. Yet, over the past few decades, a growing number of countries have adopted laws that explicitly require corporations to undertake CSR.

To date, most scholarly and policy attention has focused on laws that require companies to disclose extensive information about their social and environmental plans, actions, or performance.  In recent years, though, a growing number of countries have gone beyond disclosure to require CSR due diligence, corporate philanthropy, certain governance structures, and making CSR a duty under corporate law.

Mandatory CSR Due Diligence

CSR is increasingly understood as a management process, which inspires process-oriented laws. This regulatory approach requires companies to identify social and environmental risks associated with their business operations and establish and execute reasonable plans to prevent harm from the identified risks. France’s duty of vigilance law, adopted in 2017, is a pioneer of this approach. It requires companies that have more than 5,000 employees in France or more than 10,000 employees worldwide to develop, disclose, and implement a vigilance plan in order to identify risks and prevent severe human rights violations and environmental damage resulting directly or indirectly from the operations of the company or its subsidiaries, or subcontractors.  The plan should include mapping of risks, regular assessment procedures, actions to mitigate risks or prevent serious breaches, and warning and reporting mechanisms.  In case of non-compliance with the disclosure obligation, any interested party may give notice to the parent company or seek injunctive relief. More importantly, those harmed by the company’s failure to establish or implement a plan may launch a civil action and seek damages for corporate negligence.

Mandatory Corporate Philanthropy

CSR used to be seen as synonymous with corporate charity. As CSR has expanded beyond corporate charity to focus on managing any negative externalities resulting from daily business operations, though, corporate philanthropy is a narrow or even outdated aspect of CSR. Nevertheless, there seems to be growing interest in making it legally required. In 2009, Mauritius became the first country to enact mandatory corporate philanthropy, soon to be followed by India and Nepal.  While mandatory philanthropy statutes vary across countries, all essentially require companies to commit a certain percentage of their profits to designated CSR programs such as those to build schools or provide shelters for the poor.

Mandatory Governance Structures

A structural way to implement mandatory CSR is through a company’s board of directors, where the interests of shareholders, who want to maximize share price, and of other stakeholders, who have broader concerns, can be served. One version of this structural approach would include employee representatives on the board. A less dramatic version would be to require the creation of a CSR board committee. The CSR committee would be responsible for enacting and supervising the company’s CSR policies. South Africa’s 2008 corporate law offers an early example of this approach.

Mandatory CSR Duty Under Corporate Law

Mandatory CSR may refer to a general legal duty to act in a socially responsible way. That duty could be created under corporate law or as part of directors’ fiduciary duty. The UK 2006 Companies Act takes the latter approach by requiring directors to consider the interests of employees, consumers, suppliers, the environment, and the community when pursuing the interests of shareholders. By contrast, China’s Company Act, revised in 2006, expressly requires a company to “undertake social responsibility.”[1] And Indonesia’s Limited Liability Company Act, amended in 2007, explicitly requires that “companies in natural resources sectors or in connection with natural resources are obliged to implement corporate social and environmental responsibility.”[2]

Overall Assessment

My study’s comparison of approaches in various countries reveals that governments are often motivated to pursue their own interests unrelated to labor, environmental, or human rights protection. The non-CSR related motivations, such as appeasing political allies, shaming political enemies, or unloading welfare burdens to corporations, play a critical role in enacting the laws. The political interests of the governments carry far more weight than the nature of the pre-existing corporate law (whether shareholder-oriented or stakeholder-oriented) in explaining the adoption of mandatory CSR laws. Although the CSR laws appear mandatory, politics and the open-ended notion of CSR significantly weaken the compulsory nature of the laws. At least for now, the major function of the mandatory CSR laws appears largely expressive rather than regulatory or adjudicative. At best, the laws may send signals about appropriate corporate behavior and potentially lead to reconstruction of business norms that prioritize economic interests over social and environmental concerns. At worst, the mandatory CSR laws, as they currently stand, may be exploited as a way for politicians to send a symbolic message to their constituents that they care about society and nature. In other words, it could be nothing more than political greenwashing.

Nevertheless, considering that many laws began with tentative designs and compromises with politics but gradually improved, the recent CSR laws might be viewed optimistically as an experimental step toward development of better CSR legislation. With this positive view, the laws could be improved by strengthening them with government monitoring, legal punishment for non-compliance, and stakeholder recourse against companies that do not comply.

ENDNOTES

[1] Article 5 of China’s Company Act (2006).

[2] Article 74 of Indonesia’s Limited Liability Company Act (2007),

This post comes to us from Professor Li-Wen Lin at the University of British Columbia’s Peter A. Allard School of Law. It is based on her recent article, “Mandatory Corporate Social Responsibility Legislation around the World: Emergent Varieties and National Experiences,” available here.