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Corporate Social… Virtue Signaling

Fanni Leppanen breaks down the factors that led to the Volkswagen Emission Scandal and explores innovative ways to solve the question of how much Corporate Social Responsibility (CSR) is enough?  

 

Fake it till you… break it?

As Generations Y and Z take up an increasingly large proportion of the consumer base, there is unprecedented demand for sustainable products and environmentally cautious operations. Furthermore, we are fast to blame firms for any irresponsible behavior. With Twitter at our fingertips, consumers can easily scrutinize the activities of firms and within hours, their reputation can be on the line. Needless to say, we put a lot of pressure on firms to behave perfectly in terms of environmental awareness. Most firms know this and recognize the advantages of marketing their corporate social responsibility. However, some corporations stop at nothing when reporting their CSR. Sometimes, this leads to situations where their behavior seems, and is, too perfect to be true. 

The Volkswagen emissions scandal is an example of CSR efforts gone wrong. In 2015, the company had sold 11 million clean diesel cars that were supposed to have advanced engines and effective emissions control, allowing drivers to feel slightly less guilty about their carbon footprint. And, well, ignorance really is bliss. Everything seemed perfectly under control until a research group at West Virginia University tested the cars’ emissions on the road, instead of in laboratory conditions as they had previously been tested. They found that 600,000 Americans, and an additional 10.4 million people worldwide, were driving cars that emitted 40 times the nitrogen oxide limit set by the Environmental Protection Agency. A defeat device had been installed in every clean diesel car which turned on in laboratory conditions to pass emissions tests, but turned off immediately when drivers hit the road.

Profits vs. Virtue

What could have possibly driven the managers and executives of Volkswagen to a situation where they intentionally deceived their customers, dealers, the public and the government by installing defeat devices that enabled the release of toxins into the atmosphere? The underlying issue with Volkswagen, as with most corporations today, was that there was no willingness to sacrifice the objective of profit maximization and thus no overriding incentive to investigate and improve the emissions efficiency of products. Concrete environmental action by firms is often seen as a luxurious addition to their core offering that should not come in the way of making profit. However, firms still employ heads of CSR, sustainability coordinators, compliance officers and environmental managers. What firms may not realize is that these jobs are demanding. Heads of CSR are pressured to create and communicate an environmental reputation for the firm, often without altering the existing operation, however polluting and resource-depleting it may be. When Volkswagen decided to introduce a clean diesel range, there was nothing left for the time- and budget-constrained decision makers to do than to lie, so that Volkswagen could communicate its CSR to the world.

Faked CSR is awfully common, mostly because firms are left to regulate their behavior on their own. With amounting social pressures to act sustainably, firms have no choice but to compete with each other on who does the most good. So, the question then becomes: how much CSR is enough? This is when deceptive methods such as exaggerating environmental actions, downplaying carbon footprints, and lying about products come into play. As a result, there exists a worrying norm around this type of deception. The fact is that, unfortunately, we are all quite used to these types of scandals. However, the backlash often only lasts a few weeks after which attention is redirected to the next issue at hand.

Sustainable Methods for Sustainable Actions

The status quo around faked CSR needs to change. Rather than letting firms manage and report their CSR internally, increased external regulation is needed. This calls for environmental consultants, emissions calculation firms, sustainability verification systems, and government guidelines that set the standard. In the meantime, the least corporations can do is recognize that authenticity is always the key to creating value. The goal should no longer be for CSR to be a mere publicity stunt, but rather for sustainable activities to be integrated into the value chain of the business. CSR teams need enough resources and budgets to facilitate  necessary changes in production processes, supply chains, product development, and marketing activities. This way, profit maximization and social value creation can go hand in hand. 

The concept of CSR needs to  be reexamined on a grand scale. While there is still increasing pressure from society to act sustainably, scholarly rhetoric recognizes that businesses still need to prioritize profits and shareholder value. This is where CSR can be morphed into CSV: creating shared value for business and society. Currently, the impact from CSR activities is limited by the corporate footprint and CSR budget, whereas CSV realigns the entire company budget to fit new goals. In this model, sustainable activities are integral to profit maximization. One can only hope this is the path to finding a middle ground. \

Image designed by pch.vector / Freepi

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