How to measure corporate social responsibility

12 June 2006

A joint parliamentary inquiry is about to release a report on Corporate Social Responsibility in Australia. It will address issues including obliging companies to attend to the interests of stakeholders who are not also shareholders. The report will also raise the question of the need for legislation to enforce such care, in the form of compulsory corporate social responsibility [link]. Corporate social responsibility is not the same as ethical behaviour, but it is an important component of such action. It is therefore important to measure companies’ social responsibility and work out how their performance can be improved. A social license to operate There are two key aspects of this inquiry from an ethical point of view. We can say that a business is good - or ethical - if it contributes positively to human welfare. The problem is, 'whose welfare?' A company may benefit the owners of the company's capital, but damage the workers, the community, or the suppliers. How do we decide what behaviour is ethically correct? While ethics may be of concern to the radical individual, ethics usually begins with the fact we are social beings requiring social relations and services in order to survive and thrive. As such, the ethical frame of reference is the relationships individuals have with others. One very basic ethical principle is 'Do good, avoid harm .. to self and others'. In our society, corporations are treated as if they were persons, with many of the rights and duties of the human person. Societies have extended these rights to corporations on the understanding that the duties are also fulfilled and that the activities of the corporation are of benefit to that society. In this sense, corporations have a social license to operate. Social responsibilities, social footprint and sustainability

Unfortunately we do not know the extent to which corporations currently have a regard for non-shareholder stakeholders because there is no systematic measurement of what companies are doing [link] Some companies report on their contributions to social and community projects, while others give accounts of their social and environmental impacts. But all tend to stress the positives. Many companies do not report at all. In fact, Australian companies report social and environmental impacts far less than their OECD counterparts. A KPMG survey states that 23% of the top 100 in Australia publish 'sustainability reports' which the survey defines as non-financial reports on environmental, social and economic performance. This figure

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How to measure corporate social responsibility

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