Until recently, the ultimate aim of the companies were considered to be profit making. By maximizing profit they were considered to be serving best interests of the interest groups. Traditionally environmental protection was considered to be external to corporate affairs but in modern times, the traditional view has lost its value. Now companies are considered to be having some responsibility other than profit maximization. The private organization in recent times are expected to adopt environmentally sound behavior which must add some value to the society at large or at least they are expected not to adversely affect the environment around them. In the emerging global economy, where the Internet, the mass media and the information revolution throw light on business practices around the world, companies are more frequently judged on the basis of their environmental practices. These new demands create immense pressure over the companies with regard to environment protection and sustainability.

The roles of companies have been changing in recent years. The classical belief that company’s only aim is earning profit has taken a back seat with the companies becoming an active partner in environmental protection. Globalization, which resulted into economic growth, gave rise to a number of interrelated concerns in the social and environmental realms. These include destruction of the environment by the companies also. This pressurized the companies to behave in a socially responsible manner through corporate self-regulation and voluntary initiative.  As a result neo-classical theory was accepted which viewed that environmental protection and economic growth are not always in conflict and this led to the rise of concept called corporate social and environmental responsibility (hereafter referred to as CSR).

CSR is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families, as well as of the local community and society at large.CSR stresses on achieving commercial success in ways that honor ethical values and respect the natural environment. It is usually taken to include environmental, social and human rights –based initiatives of companies which encourage environmental friendly trade practices.

There is growing awareness of CSR since the publication of World Commission on Environment and Development Report of 1987 (Brundtland Report). As a result of this international organizations such as WTO, GATT, and UNCTAD are formulating international policies to regulate trade and environment related practices of the companies and to impose greater responsibility on companies. Accordingly companies have been assuming a positive role in furthering the cause of environmental protection, as opposed to being seen as an environmental problem. Today many companies have accepted their responsibility to do no harm to the environment.

The main objective of the paper is to look into the changing nature of the role of a corporate in preserving the environment, as its responsibility towards the society as a whole. The paper attempts to trace the evolution of the theory of environmental social responsibility, where in the classical and neoclassical theory of company’s responsibility is discussed. Further, the paper seeks to throw light on International efforts on acceptance of the neoclassical model of company’s responsibility. Furthermore, the paper discusses the effects of globalization in India, which lead to change in business response of company from philanthropy to environmental concern.

Evolution of Theory of Environmental Social Responsibility

Milton Friedman as most known defender of the Classical theory of company’s responsibility was of the view that “the social responsibility of business is to increase its profits.” Milton in his work stated “that there is one and only one social responsibility of business to use its resources and engage in activities designed to increase its profits, so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

The proponents of this theory did not believe in any investment by the company other than those which accelerates the business of the company. Environment Preservation and Companies were considered as poles a part. Thus it was firmly accepted practice that anything which incurs liability on the company must be rejected. According to DesJardins, “the classical model of social responsibility denies that businesses have any direct environmental responsibility.” The classical model did advise companies to increase profits only so long as there was no deception or fraud. However, this did not hold corporations environmentally responsible for a great deal. The theory expounded that companies serves the environmental goals not by taking on any special environmental responsibility, but by fulfilling its function within a free market economic system.

The classical approach failed to give explanation for the environmental degradation. Thus it can be said that the classical theory did not pay heed to preservation of environment and it stood only for the profit maximization of the companies. Hence this view cannot be accepted in the present context when there is growing awareness for the preservation of the environment and fixing liability for its destruction.

But in recent times it is proving otherwise the company’s orientation has changed from mere profit making to social developments. The Neoclassical approach emerged as an improved and further developed model of the classical model to overcome the deficiencies of the later. ‘Rules of the game’ given by Friedman are evolving quickly, and the range of issues that companies are expected to address are expanding over time. Friedman was right that companies must stay within ‘the rules of the game’ – but he did not predict how pervasive those rules would become. For the companies of the 21st century, a properly balanced approach to CSR issues is an essential component of success. “Doing” CSR enhances reputation, motivates staff, attracts customers and therefore, as Friedman required, increases profits. Friedman did not contemplate the cause and effect, but his famous quote rings true today – except nowadays companies increase their profits through responsible business practices, not as an alternative of them.

The Neoclassical theory of corporate social responsibility encourages companies to take notice not only of the economic and financial dealings in a company, but also the social and environmental consequences a business places on its stakeholders and society. Accordingly, companies have the duty to generate profit while remaining environmentally and socially careful.  Companies follow certain leading practices to balance financial performance with social responsibility. The Neoclassical Model of corporate social responsibility advises companies to seek the maximum profits while obeying a moral minimum. This moral minimum is nothing but a basic freedom from exploitation and includes individual safety and protection of environment. Moral minimum has become part of customary business practice and it proves as a restraint on careless managerial practices. This practice increases the profit of company’s by acting socially responsible.

DesJardins, talks about the theory of sustainable development which adds up to the existing moral minimum, it says “business has a moral responsibility to insure that its activities be ecologically sustainable.” This theory states the moral minimum must also include an ecological sustainability. It seeks to unite natural ecological laws with moral limits placed on business activity. Companies have the duty “to use resources at appropriate rates and compensate ecosystems for the loss of productive capacity caused by its activity”. This knowledge of social environmental responsibility helps the companies in the long run.

To illustrate the Neo-classical model of sustainable growth, I am taking the example of Home Depot Company: The flourishing and lucrative company, Home Depot, strives to remain profitable while upholding a level of environmental and communal sustainability. Home Depot understands the importance of conserving the environment and abides by a set series of principles to guide the company’s actions. According to Homedepot.com, the corporation is “committed to improving the environment by selling products that are manufactured, packaged and labeled in a responsible manner.” Home Depot obeys all environmental laws, as well as works to protect natural resources by using energy and water efficiently. Home Depot is dedicated to recycle in all operations and uses “recycled materials for shopping bags, signage, and office supplies”.

Home Depot has also taken a stand to preserve endangered timber areas. According to Homedepot.com, the company has “pledged to give preference to wood that has come from forests managed in a responsible way and to eliminate wood purchases from endangered regions of the world.” In addition, Home Depot introduced a line of building materials produced from wheat straw to be used as a substitute for tropical hardwoods that are diminishing in number. Home Depot also contributes to the community through philanthropic giving such as “building and refurbishing playgrounds, ensuring the safety and accessibility of community gathering spaces and building and refurbishing affordable and transitional housing”. Home Depot strives to build community and remain socially responsible while seeking superior profits year to year.

Therefore it can be said that companies have the task of performing a balancing act between social responsibility and financial performance. A company’s main goal is usually to produce substantial profit to push the company to the top of competition. To achieve this position, however, moral and ethical decisions must be made that follow certain practices, such as the ones described above. If a company obeys these social responsibilities, moral choices will yield significant financial profit in the long run.

Neoclassical Model & International Cooperative Efforts

Neoclassical model found its manifestation fourty years ago, in Stockholm Declaration of 1972; where it was established that there exist urgent need to respond to the problem of environmental deterioration. This conference for the first time stated that all persons including corporations have the duty to protect the environment. Later on, at the United Nations Conference on Environment and Development, held in Rio de Janeiro,it was decided that the protection of the environment and social and economic development are fundamental to sustainable development. Based on the Rio Principles the global comprehensive plan of action for a global partnership for achieving sustainable development entitled Agenda 21 was adopted. The Rio Conference was a significant milestone that set a new agenda for sustainable development.

Between Rio and Johannesburg, the world’s nations deliberated in several major conferences under the auspices of the United Nations, including the International Conference on Financing for Development, as well as the Doha Ministerial Conference. These conferences defined for the world a comprehensive vision for the future of humanity.

Further Johannesburg Declaration on Sustainable Development, reaffirmed the commitment to Neoclassical model through Johannesburg Plan of Implementation. It was collectively decided by the world nations to advance and strengthen the sustainable development — economic development, social development and environmental protection — at the local, national, regional and global levels.

Also, at the ILO International Labour Conference of June 2007, employers’ and workers’ organizations, as well as governments, adopted a declaration on the role of the private sector in economic development, which provides solid and balanced guidance for policymaking on the conditions necessary to encourage businesses to operate in a more profitable, competitive manner while simultaneously fulfilling their social and environmental responsibilities. These recommendations constitute important guidelines for the development of policies that promote sustainable economic development with decent work.

In addition, the ILO, the World Bank and the International Monetary Fund have joined forces, in an effort led by the Secretary General of the United Nations, Ban Ki-moon, to establish a coordinated framework of the UN system to address the challenges posed by climate change. To contribute to this effort, the ILO is promoting a Green Jobs Initiative, designed to support sustainable firms and create new quality employment. In addition, this initiative examines the potential impact of the restructuring of the economy to one of reduced carbon emissions on companies and jobs, as well as its social consequences.

Owing to the growing awareness of environmental concerns, companies these days are trying to reconcile their interest of profit making with sustainability. Also fear from consumer that they may punish companies through market mechanisms if they believe company’s practices are unfair; companies are giving way to neoclassical model in their corporate affairs.

Consumers play a key role in generating the conditions necessary for creating a demand for sustainable companies. This has led to the rapid expansion of socially responsible investment (SRI). Currently, it has become a leading investment area where “one invests by taking into account the impact of investment on wider society and the natural environment, both today and in the future,”¹⁵ For example, the results of a recent survey of 20,000 people in 20 countries published by the International Institute for Sustainable Development found that in the United States, where 61% of people own stocks, 28% reported having purchased or sold their stocks based on the social performance of the firm. The situation is similar in Canada, Great Britain, Italy and Japan.

Therefore, it can be said that the companies in recent years are incorporating neoclassical thought voluntarily in their competitive strategies. These strategies are nothing but ethical values and social and environmental considerations that comply with international standards and national laws and practices. They are using CSR as an effective instrument for strengthening community relations, mitigating risks, improving their reputation, marketing and sales and more effectively defining their trademark among consumers.

Conclusion

The classical model of business only emphasized on the profit making aspect of a corporate institution. It denied any direct responsibility of corporate in preserving the environment and hence corporate environmental responsibility did not find place in corporate affairs of the company for a considerable period.  All the more the classical model discouraged corporate to do any kind of investment which was not fruitful in fiscal terms and played unconstructive role of separating environmental concerns from company’s objective. Moreover, the theory hard-pressed that profit earning were part of the “rules of the game” and thus emphasized that company by making profit only contributed to the society.

The weakness of this model was that it did not incorporate moral limit on business activities of the company. The Neoclassical model originated in order to overcome the weakness of the existing model. This model placed moral requirements on the business of the company. The neoclassical theory argued that if environmental responsibility were not incorporated into the company affairs then presumably the company would continue to take free ride on the environment and would create a crisis like situation. Neoclassical view tried to bridge the gap between profit and social responsibility by putting forth the idea of sustainable development.

The United Nation organizations sensing the need of the hour adopted the principle of sustainable development and required the world nations to incorporate the same in their national laws.  Pressure groups like Green NGO’s also played active role in forcing the companies of 21^st century to engage in CSR and sustainable environmental practices.

BY LAWZ BUREAU