Corporate Social Responsibility and Greenwashing

Posted: April 12, 2014 in Uncategorized

In the process of cleaning up the environment, corporate social responsibility has become a recognized topic, and one that generally is viewed as a “good guy, bad guy” type of issue. Of course the good guy is the organization that does some form of this social responsibility and the bad guy is the organization that does not, or that does something that is deemed as irresponsible even if they have other “responsible” acts.

CSR is a very nice platitude. It sounds great and what the surface level of it infers is that these companies are becoming more conscious and caring for the environment. Is it actually true? In some cases, sure. But in general, what is the purpose of a corporation? Profits and shareholder satisfaction. Why shouldn’t it be? We want profits because is improve social welfare as we grow and develop economically. When profits and environmental concern are aligned, then terrific, we get the best of both worlds. However, that is a difficult thing for many businesses and so we should think hard about such a hard stance on CSR.

As consumers, we can dictate what is profitable. But not by our mouths, but by our actions. If, as society, we talk the talk about CSR then that’s what we will get, talk. It is called green-washing, and is the idea that organizations will say the “right” things about CSR because they know that is what we are “demanding” but they don’t have to do anything about it. We don’t want green-washing. It is bad for a number of reasons, and has very little benefit if at all, and either way have much more costs than benefits. For one, green-washing inhibits any actual improvements. This is intuitive, because if they only have to talk, then why walk? It also makes us, the consumer, think that we are actually doing something when we give our support to the green-washing. We aren’t doing anything but making the process worse.

It can also then have a disproportionate impact across businesses. For instance, maybe a large firm can talk about doing something, and maybe do some light and easy things to make it look real. A small company that may be their competitor has two options, either “walk” and thus increase their costs (where the larger competitor would not need to) or they continue to try to maximize profits and consumers think they are doing more harm and so avoid them. Of course these are not exhaustive, but in general we can see some of the problems.

The real issue is what we do. Not what the organizations do, because we can steer them. If we are willing to walk the walk and pay more for the CSR products, then it can become profitable for organizations to do it. When it becomes profitable, we get real improvement. We want to align the incentives of profit maximizers with environmental concerns and doing so means we need to walk our way to organizations that will actually do it. But we have to be careful of not getting caught in the green-washing. Regulation can always step in, and has done so, but as consumers we have the ability to make the real change. I am not saying we should, but rather saying we can. As individuals we are also profit maximizers and want to have the highest utility we can. This is often, I think anyways, where government really steps in. My point is that we need to 1) not talk the talk if we won’t walk the walk because it makes everything more foggy and probably much worse and 2) should be aware that there is a tradeoff between our personal utility functions and government intervention in the case of externalities. Next time you are presented with any CSR just think for a minute about whether it is real or just green-washing.

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