chapter 3.docx

ESG-Related Theoretical Frameworks 3 ------------------------------------ ##### Concept of Sustainability: The Three-Pillar Model - The environmental pillar represents the preservation of national resources (e.g. water and air) and reducing pollution (e.g. greenhouse gas emissions), espe...

ESG-Related Theoretical Frameworks 3 ------------------------------------ ##### Concept of Sustainability: The Three-Pillar Model - The environmental pillar represents the preservation of national resources (e.g. water and air) and reducing pollution (e.g. greenhouse gas emissions), especially by minimizing waste, as well as promoting renewable energy sources and biodiversity. - The social pillar represents the promotion of social well-being, social equity and social justice, for example by improving the working conditions of the employ- ees, providing them with access to healthcare and education or supporting local communities. - The economic pillar represents the financial stability and positive development of the financial position. 2. ##### Corporate Social Responsibility (CSR) 1. ###### Fundamental Concept -- -- -- -- -- -- ###### Carroll's CSR Pyramid +-----------------------+-----------------------+-----------------------+ | | Corporate social | Environmental, social | | | responsibility (CSR) | and | | | | | | | | governance (ESG) | +=======================+=======================+=======================+ | | Communication of | Sustainable | | | contribution to the | investment strategy | | | sustainable | | | | development of | | | | society | | +-----------------------+-----------------------+-----------------------+ | | Environmental, social | Environmental and | | | and economic | social sustainability | | | sustainability | and governance | | | | process | +-----------------------+-----------------------+-----------------------+ | | Consumers, employees | Investors, financial | | | and other | institutions and | | | stakeholders | rating agencies | +-----------------------+-----------------------+-----------------------+ | | Subjective, based on | Objective, based on | | | internal standards | external ESG | | | | assessment standards | +-----------------------+-----------------------+-----------------------+ | | Primarily qualitative | Primarily | | | | quantitative | +-----------------------+-----------------------+-----------------------+ 1. *Economic responsibility* 2. *Legal responsibility* 3. *Ethical responsibility* 4. *Philanthropical responsibility* Economic Responsibility Legal Responsibility Ethical Responsibility Philanthropical Responsibility ###### Two-Dimensional Model of Quazi and O'Brien - *Classic view*. The classic view of CSR activities involves a narrow understanding of social responsibility and an overemphasis on the costs rather than the benefits of CSR activities during the strategic assessment. This approach would lead to a defensive CSR strategy that prioritizes short-term economic considerations. This - *Socio-economic view*. The combination of a narrow understanding of corporate social responsibility and the recognition of the potential benefits of CSR activi- ties would typically lead to a CSR strategy based on cost-and-benefit consider- ations. Companies that adopt this strategy would choose CSR activities that are expected to provide higher tangible benefits than the relevant costs, such as energy conservation, waste reduction and employee training programs. - *Modern view*. The modern view on CSR activities emphasizes a comprehensive perception of corporate social responsibility, as well as the benefits of CSR activ- ities rather than the costs in the strategic assessment. From this contemporary perspective, CSR activities are primarily seen as an opportunity to create value for both the company and society. The CSR strategy based on a modern view on CSR activities is shaped by the impact of such activities on shareholder value. The companies that adopt this type of CSR strategy would typically consider the long-term contribution of CSR activities to the financial performance of the com- pany, for instance by investing in renewable energy sources that would enhance the company's reputation by benefiting the environment and reduce energy costs in the short or long term. - *Philanthropic view*. The term philanthropy means to give away financial means to promote the well-being of others (Cambridge Dictionary, 2023). The philan- ###### Three-Domain Model by Carroll and Schwartz - *Economic Domain* - *Legal Domain* a. *Compliance*: This is further divided into three sub-groups: passive or acci- dental compliance, restrictive compliance and opportunistic compliance. b. c. *Anticipation of the law*. - *Ethical Domain* Description Example -- --------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------------------------------------- Unintentional/unconscious compliance of laws and regulations Driving a car under the speed limit due to poor street conditions, not because of traffic rules Intentional compliance of restrictive laws and regulations Compliance of emission control standards in the production process Seeking out most profitable option in the legal system Choosing business locations with weaker control standards or lower tax rate obligations Mainly aiming to avoid possible civil litigation for negligence of law Voluntary recall of products with qualitative defects Acting according to anticipated changes to legislation, e.g. based on laws in other legislative regions Engaging production technology with higher environmental protection standards that are not yet applicable, but widely accepted in the international community Description Characteristics -- ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------ Ethical standards of conventions widely accepted by the stakeholders with a focus on the context/situation Standards or norms of an organization, an industry section, a profession or a society Ethical standards with a primary focus on consequences Actions intended to benefit the society or lead to the greatest net benefit to the society compared with other options Ethical standards with a primary focus on the concept of duty or obligation Widely accepted moral rights or justice in the society i. ii. iii. iv. v. vi. vii. viii. ###### Corporate Citizenship (CC) - In the interpretation of Corporate Citizenship (CC) in the narrow sense, this term means philanthropy in corporate social responsibility, for example engagement in charitable projects and donations to social causes. - In the interpretation of Corporate Citizenship (CC) in the equivalent sense, the term Corporate Citizenship (CC) is used synonymously with "Corporate Social Responsibility (CSR)". - The third interpretation of Corporate Citizenship (CC) in the broader sense con- tains both corporation social responsibility (CSR) and an additional political domain -- that means, especially large multinational corporations (MNCs) should not confine their activities to the core business practice but actively use their dominant economic power to take political influences and shape public policies. This political domain is mainly discussed in three aspects (see Fig. 3.6): 3. - *Civic rights* denote freedom from abuse and interference, particularly by the government, and encompass liberties such as freedom of speech and the right to property. - *Political rights* entail the right of individuals to vote, the right to hold public office or, in general, the right to participate in the civil political process. ##### Sustainable Development Goals (SDGs)  ##### References