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5% 15% 25% 35% 45% 55% 65% 75% 85% 95%0

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Midterm 1 Distribution

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Corporate Sustainability

Natural Capitalism: Can profit maximization be compatible with sustainable development?

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Public Companies

•please shareholders • lure investors•build a brand/reputation

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The Rise of CSR

•Why is profit maximizing not good enough?▫“What is good for General Motors is good

for America- Charles E. Wilson, President of GE”

Profit goal and social goals misaligned

Market efficient but not fair

Types of Social Goals:I. Utilitarianism II. Benthamite , III.Rawlian =IV. Egalitarian

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Examples

•Profit goal and social goals misaligned => Private cost ≠ Social cost▫Pollution▫Deforestation

Landowner: economic value of lumber and farmland

Society: recreation vale, existence value, value in biodiversity support value in carbon sequestration

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Examples:

•Unfairness:▫Sweatshops▫Insider trading▫Occupy Wall Street movements

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CSR• Concern with environmental, labor issues and human

rights. When corporate policies or activities go beyond what is mandated by law, then that is commonly thought of as socially responsible.

• Business ethics connotes lawfulness, that a company is obeying certain standards or regulations, whereas CSR is voluntary behavior that serves and outside purpose.

• Describes the responsibilities of corporations or companies to the wider social environment in which they operate. These responsibilities go beyond the interests or needs of shareholders, workers, employees and customers, and include care for the natural environment and for the human rights of people who are affected in some way by the activities of companies.

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Corporate Social Responsibilities• Actions that reduce the extent of externalized costs or

avoid distributional conflicts• EU Definition: a program that companies decide

voluntarily to contribute to a better society and a cleaner environment

• Int. labor organization: CSR is concerned with treating stakeholders of the firm ethically or in a responsible manner

• OECD: Encourage positive contribution that multinational enterprises can make to economics, environmental and social progress and to minimize the difficulties to which their various operations may give rise.

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The Rational behind CSR

•Promote awareness of the executives•Promote employee morale•Reduce stock market’s assessment of a

company’s risk•Promote negotiations with regulators

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Benefits of CSR

•Reduce risk•Reduce waste•Improve relations with regulators•Generating brand equity•Improve human relations and employee

productivity•Lower cost of capital

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Firm Strategies

•Increase productivity of natural resources▫Implement whole system design▫Adopt innovative design

•Closed-loop manufacturing model•Reinvest

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“Green” Strategies

•Interface’s Solenium carpet and leasing option

•Motorola switching from chlorofluorocarbon for cleaning printed circuit boards to orange-peel terpene

•Micromida turning poop into plastic

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Case Studies of failing CSR

•US asbestos industry (石棉 , asbest, amiante, 석면 , асбест, ,األسبستوسאזבסט , अदह)

•Nike sweatshop•Shell with the disposal of Brent Spar oil

buoy in the North Sea•McDonalds in a dispute about the use of

polysterene packaging for its products.•Monsanto over its public image

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Case Studies of successful CSR

•Dow chemical •Heinz over killing of dolphins while

fishing for tuna: change tuna sources from eastern to western pacific

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Case Studies of successful CSR

•1997 BP accept the scientific evidence behind IPCC

•Imposed firm-wide cap on greenhouse gas emissions and began a corporate emissions trading system

•Claim to cost nothing but increased net income by about $600 million

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Responsible Business Awards

•Given out by Business in the Community (BITC) ,a British business-community outreach charity promoting CSR.

•Wates- 2011 :” “Above all, it’s about people” (Paul Drechsler, CEO)

• http://www.bitc.org.uk/awards_for_excellence/awards_for_excellence_2011_winners/all_results.html#company_of_the_year_award

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Greenwash Awards

•Classic greenwash usually means environmental image advertising. Pristine natural scenery and pious declarations of respect for the earth are the greenwash clichés we have seen many times from mining, nuclear and chemical giants, among others. The aim is simple: to promote a clean corporate image.

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Against CSR

•Milton Friedman: The only responsibility of a business is to increase its profit.▫Under the assumption:

The government has taken care of distributional issues

The gov. has defined property rights so that there is no external costs

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Consumer behavior

•What is consumer’s response to CSR branded products?

•It is often not enough to solve a problem. It has to be solved in a way that makes this point obvious even to skeptics and invoking independent third parties is often critical.

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Group Project

•Case Study on CSR▫10-15 mins PowerPoint presentation (80%)▫Written executive summary

•Content▫Overview of the company and the industry▫Type of CSP activities▫CSP investment in dollars▫Identify why it is relevant for the firm to

adopt CSR▫Recommendations

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References

•A Road Map for Natural Capitalism•Corporate Social Responsibility: An Econo

mic and Financial Framework•Milton Friedman on CSR