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CSR 鈥� ESG: No box-ticking Exercise

Corporate Social Responsibility (鈥淐SR鈥�) and Environmental, Social and Governance (鈥淓SG鈥�) are leading capital investor criteria today. At the same time, they are still critically discussed in association with claims that they are largely symbolic and 鈥済reenwashed鈥� measures鈥攇ood for company image, but little else. Yet there is growing global recognition that the private sector鈥檚 actions and leadership are critical to the fight against climate change, amongst other challenges. The issues are at the top of mind for corporate leaders, regulators and commentators, warranting an ongoing reflection as to where the search for sustainable capitalism is headed.

This post will provide some background on the evolution of CSR / ESG before delving into a case study to consider corporate disclosure regulations as a specific avenue for legal reform. The outlook is an ambivalent one, with all strategies currently leaving something to be desired and prompting further work to ensure that a pursuit of sustainable governance and investment is not a box-ticking exercise.

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Historical Evolution

Although the idea of CSR dates back almost a century, it still has no consistent definition. . Today, it is widely acknowledged that companies cannot simply pursue profits without considering their wider impact鈥攜et practically speaking, . Moreover, Canadian corporate law offers little instruction about what corporations should do. Although the Canada Business Corporations Act (鈥淐BCA鈥�) states that , that 鈥�may鈥� is key. The CBCA enables a broader, more altruistic vision of CSR. Yet do corporations act on this?

To some extent. As corporations increasingly embrace CSR, including everything from and or , it is worth remembering that many are

today include (1) stakeholder responsiveness, which broadens responsibility towards corporate stakeholders, and (2) corporate altruism, where the aim is . As the first model ignores many of the interests who could benefit the most from CSR鈥搒ociety鈥檚 most vulnerable and in need鈥揅SR ideally embraces the latter one. In practice, however, corporations are limited by what pays; although , pure corporate altruism is . Thus, most corporations have .

This is where concepts like (鈥淐厂痴鈥�) and the come in to emphasize that corporations should look beyond their immediate profits, not to detract from, but rather to maximize, their own success. CSV encourages corporations to create value for themselves and for society simultaneously. The Triple Bottom Line explicitly tells corporations to consider . By suggesting that corporations should, or perhaps even have no choice but to, consider the social and environmental dimensions of their impact, these theories represent a paradigm shift towards a world in which .

Another more recent advent is the emergence of ESG criteria . This metric emphasizes corporate activities鈥� impact on financial performance. Whereas the CBCA enables CSR and ESG but does not regulate them, ESG criteria could theoretically go further than CSR by allowing investors to pseudo-regulate corporations by However, it too is critiqued: not all ESG factors are quantifiable, and by ESG rating organizations make comparisons challenging, and necessary to enforce ESG targets in their investments. Ultimately, throughout all these methods, profits continue to define鈥攁nd necessarily limit鈥攈ow much companies will do in the name of sustainability.

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Case Study: Facebook and Corporate Social Responsibility

A quick look at Facebook illustrates this well. Facebook presents itself as and , and features strongly in ESG portfolios. It has also marketed itself as a leader in sustainability, . However, its image is rosier than reality. For all its talk of bringing people together, Facebook has also been criticized for , , and on its platform. for their ESG portfolios.

Furthermore, its sustainability claims might be more about greenwashing than making a real difference. When Facebook does not wish to reduce emissions directly, . Its ambitious targets should be further qualified through a detailed reading of what they actually entail. Currently, Facebook . It is interesting to situate Facebook鈥檚 example in a broader context. Notably, in . Although Facebook鈥檚 , what exactly this entails is difficult to determine. In sum, Facebook鈥檚 CSR- or ESG- bona fides are debatable.

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Corporate Disclosure to the Rescue?

At its best, ESG gives ordinary investors a voice in corporate accountability. However, it can be difficult for them to really exercise this voice without adequate knowledge about what commitments they are holding corporations accountable to. Recent securities litigation. This is disappointing to investors at RBC who thought the bank was ESG-friendly, and has prompted an .

Unfortunately, Canadian corporate disclosure practices, meant to provide investors with information on publicly-traded companies they might invest in, are very permissive. The only requirement is disclosure of . There is to meet this criterion and . . However, proposed requirements, set to be introduced in 2024, are not as ambitious as they could be. Ultimately, corporations maintain discretion to act as they see fit and argue what they consider to be 鈥渕aterial information鈥� necessary to disclose.

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The Way Forward

In light of the potentials as well as pitfalls of both CSR and ESG outlined here, what lies ahead? As members of the generation now moving into professional life, there appears to be (too) little cause for optimism regarding the state of regulation and what is being developed in the short run. The existing and dominating strategies are lacking in boldness. This is particularly disappointing given that CSR and ESG are no longer niche concerns, but have solidly entered the mainstream debate around the role of corporations and corporate law with a view to sustainable governance practices for the future.

Going beyond the less-than-helpful categorization of law being 鈥渉ard鈥� or 鈥渟oft鈥� and lamenting the enforcement challenges associated with the latter, a step forward would be to consider CSR, ESG, and other corporate strategies, coupled with mandatory law, as complementary tools. In light of the existential urgency of addressing climate change today, we believe it is the right moment to collectively move towards more impactful regulation, even if some of it might be qualified as corporate 鈥榮elf-regulation.鈥�