CSR Lecture Notes

No Harm Principle in Focus

  • The phase “corporate social responsibility” can mean many different things and the obligations of firms in this matter can be drawn rather widely (Muchalski, The Development of Human Rights Responsibilities of Multinational Enterprises, p. 33).
  • EU Commission definition (COM(2001) 366, p. 6): “A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with stakerholders on a voluntary basis.”
  • EU Commission definition (COM(2011) 681, p. 6): “The responsibility of enterprises for their impacts on society.”
  • To fully fulfill their corporate responsibility, companies should, in addition to complying with applicable law, introduce processes that integrate social, environmental, business ethics, human rights and consumer concerns into their strategy and activities in close cooperation with their stakeholders.
  • 2025 – LPE Corporate Social Responsibility – Prof. Dr. Michael Nietsch

CSR Pyramid (Carroll)

  • Be a good corporate citizen: contribute resources to the community; improve quality of life.
  • Be ethical: obligation to do what is right, just, and fair.
  • Avoid harm.
  • Obey the law: Law is society's codification of right and wrong. Play by the rules of the game.
  • Be profitable: The foundation upon which all others rest.
  • CSR-Pyramid by Archie B. Carroll.
  • 2025 – LPE Corporate Social Responsibility – Prof. Dr. Michael Nietsch

Phenomenological Approach to (Negative) Externalities

  • Raw Materials and Sourcing:
    • Effects of production of cacao beans:
    • Environmental deterioration
    • Loss of biodiversity
    • Effect on local communities
    • Child Labour
    • Corruption
    • (Un)Fair wages
  • Packaging, shipment and logistics:
    • Greenhouse gas emissions due to transport
    • Energy consumption
  • Production and Delivery Price:
    • Costs of Consumption and further afield
  • Waste Disposal:
    • Packaging
    • Utensils (Plastic plate and cutlery, both non reusable)
  • Healthy nutrition?
    • Obesity
    • Diabetes
    • Joint and bone diseases
  • 2025 – LPE Corporate Social Responsibility – Prof. Dr. Michael Nietsch

Calculating Negative Externalities

  • Source: Global Footprint Network
  • Countries noted in examples: Germany, South Africa, China
  • 2025 – LPE Corporate Social Responsibility – Prof. Dr. Michael Nietsch

Negative Externalities – Calculate your Own Adverse Impact

  • Source: Global Footprint Network
  • Activity: Try to calculate your own global sustainability score!
  • 2025 – LPE Corporate Social Responsibility – Prof. Dr. Michael Nietsch

Challenges of Negative Externalities (1)

  • Calculations and quantification of costs are highly imprecise – factors include:
    • Likelihood of adverse outcome
    • Magnitude of adverse outcome
    • Limitlessness of consequences
    • Distance effects
    • Adequate compensation
    • Fair view base of assumptions
  • Broadly little to no base for evaluating nature and social capital
  • Sustainability rule making is prone to be based on willful assumptions, moral shifts and disregard of established legal principles
  • 2025 – LPE Corporate Social Responsibility – Prof. Dr. Michael Nietsch

Challenges of Negative Externalities (2)

  • An economical term but also a legal one?
  • Social adequacy of adverse behaviour and utility of effects
  • Consumption of food
  • Transport
  • Mass consumer practices
  • Lack of proximity would not have lead to legal liability (but only moral accountability)
  • Sustainability related Rule Making requires a sound allocation of the causation and the consequences of negative external effects
  • 2025 – LPE Corporate Social Responsibility – Prof. Dr. Michael Nietsch

Benefits, Challenges and Pitfalls of Dealing with External Effects

  • 02 (section reference)

Benefits of Sustainable Enterprise

  • Competitive Edge
  • Changing legal and market environment has new demands:
    • Consumers, creditors, shareholders
  • Corporate opportunities and timely adaptation of business models
  • Corporate resources:
    • Human capital
    • Operational capital
  • Risk management
  • Reputation management
  • Better access to finance?
  • 2025 – LPE Corporate Social Responsibility – Prof. Dr. Michael Nietsch

Challenges and Pitfalls of Sustainability Objectives (1)

  • Conflicting Objectives:
    • Between and within E-S and G (environmental, social, governance)
    • Intergenerational and intragenerational tensions
    • Unexpected follow-up developments
  • Time Horizons:
    • Short-, midterm-, and longterm considerations
    • Uncertainties about long run developments
  • Persistence of issue and relocation effects:
    • Highly invasive measures favor relocation effects in other regions with lower standards
    • In the overall ecological accounts, the problem is only shifted locally (and not objectively)
  • 2025 – LPE Corporate Social Responsibility – Prof. Dr. Michael Nietsch

Challenges and Pitfalls of Sustainability Objectives (2)

  • Lack of Level playing field and first mover disadvantage:
    • Establishing fair and equal market conditions for all market participants
  • Paradigm: Carbon Leakage:
    • Often, regulatory interventions can only be meaningfully designed with reference to a specific market (e.g. emissions trading)
    • Emission reduction efforts in one country or region can lead to increased emissions in another country or region
    • Counter measures may have character of trade barrier (e.g. CBAM)
  • Rebound effects:
    • Measures are partially offset by increased consumption or other unintended consequences
  • 2025 – LPE Corporate Social Responsibility – Prof. Dr. Michael Nietsch

Challenges and Pitfalls of Sustainability Objectives (3)

  • Capital Demand:
    • Large investments required for transformation of industry
    • High risks provoke rising costs of capital
    • Overall rising cost of capital and inflation
  • Technology and Innovation Risk:
    • Large scale trial and error
    • Managing new technologies
    • Stranded technological assets and legacy risk
  • 2025 – LPE Corporate Social Responsibility – Prof. Dr. Michael Nietsch

Why Engage Corporate Actors on the Frontline (1)

  • Information Gaps and Asymmetries:
    • Companies have more expertise in their own field of activity than the legislator
    • Changes and interrelationships are recognized earlier
    • Least cost information provider
  • Innovation Power:
    • Innovation and Responsibility: new technologies (e.g. AI) → Digital Social Responsibility
    • Balancing biases and market power
  • Access to Finance
  • Continuity across Short Term Political Cycles:
    • Compare US Inflation Reduction Act vs. “One Big Beautiful Bill”
    • Compare US subscription to the Paris Agreement (on and off)
  • 2025 – LPE Corporate Social Responsibility – Prof. Dr. Michael Nietsch

Why Engage Corporate Actors on the Frontline (2)

  • Standardsetting:
    • By individual companies or associations
    • Discretionary factors in corporate behaviour
    • Transformation decisions with a lasting effect
  • Influence on Consumer Behaviour
  • Transnational Governance Gaps
  • Curbing Relocation Effects:
    • Products and services can have a positive influence on consumer habits and lifestyles
    • The decision on sustainability is largely made by the industry (product quality and obsolescence)
  • 2025 – LPE Corporate Social Responsibility – Prof. Dr. Michael Nietsch

Legislation and Regulation Are Always Lagging Behind

  • Legislation and Regulation are Always Lagging Behind because:
    • Reaction to trends and recent knowledge
    • Innovation bias
  • Need to Provide Checks and Balances at the Source:
    • Risk awareness
    • Ethical standards on risk appetite and obsolescence
  • 2025 – LPE Corporate Social Responsibility – Prof. Dr. Michael Nietsch