The above statement is a reflection of the changing role of business. Whereas for Milton Friedman a few decades back the business of business was business for Anita Roddick today the business of business is responsibility.
The changing role of business has serious implications for Pakistani businesses. The main aim of businesses in Pakistan has always been profit maximisation. Now due to the increasing pressure of western consumers, media and local NGOs as well as globalisation Pakistani businesses have been forced to think about whether they need to look beyond profit maximisation. Our fish sector is at crossroads.
The carpets and sports sector despite the best efforts of business community and the government of Pakistan still have to do a lot of work to overcome the reputation damage caused by the child labour issue. The business community has been criticised for polluting natural resources like air and water. Our textile and leather industries have lost lucrative contracts to EU consumers due to non-availability of effluent treatment plants and waste disposal management systems. All these issues have resulted in a number of questions being asked.
A question commonly asked at different discussion forums is that can our industries create waste that damages the health of our citizens and not be responsible to the citizens? Can our industries deprive us of natural resources like water or pollute water and not even acknowledge the damage to water? Do the businesses have no role in promoting education among our masses?
The business community of Pakistan has answered these questions by undertaking certain corporate social responsibility initiatives like donating money to earthquake victims and various charities. These activities which can be classified as community investment or corporate philanthropy have subsequently resulted in criticism from certain quarters.
They have questioned whether by donating money to charitable causes is the business community fulfilling its responsibility towards society or whether the business community need to look beyond community investment to community services.
As business in Pakistan explore the option of adoption of corporate social responsibility, they need to realise that the challenge as well as the opportunity for the businesses of Pakistan is to move towards a challenging measure of corporate responsibility, where they need to judge results by the difference they make to the society in which they operate. They must look at corporate social responsibility not only as a corporate philanthropy but as a strategic framework that drives every thing done by businesses.
Corporate social responsibility strategic framework should thus encompasses issues like human rights, labour conditions in the supply chain as well as a company's own sites, environmental impacts of products (or services) from creation to disposal, as well as the impact of production and distribution processes, impact of operation on local communities and impact of products or services on customers (eg health).
The advantages of adopting such a corporate social responsibility strategic framework are manifold. Research has shown that consumers are increasingly punishing companies that are not socially responsible. Corporate social performance has now become a critical factor in shareholders' investment decisions. Total socially responsible funds under management in the US passed $2 trillion dollar in 2005, according to the Social Investment Forum. Similar growth has been witnessed in UK where according to research the total under some kind of social and environmental scrutiny was estimated to be 224 billion pounds at the end of 2001. Socially responsible investment has also spread in Asia and Europe.
The business community of Pakistan however still is reluctant to accept the importance of the need to adopt corporate social responsibility as a strategic framework that drives each and every function of the business. The main reason for this reservation is that the business community still feels that corporate social responsibility is a passing fad, a modern myth or a neo-colonial agenda. They are still of the opinion that business of business is businesses. The business community however does need to realise that even to do business they have to adopt corporate social responsibility. As the national and international demands to adopt environmental and social responsibility standards become pressing the profits of businesses will be under pressure.
The small and medium enterprises (SMEs) that form the backbone of Pakistani economy already face this pressure. A number of medium textile industrial units have lost lucrative contracts due to non-availability of effluent treatments plants and waste disposal management systems. The fisheries sector due to non-adoption of certain environmental practices face problems. In an age of fair trade and eco-labeling, businesses in Pakistan have to adopt corporate social responsibility in its true form to remain in business.
The adoption of highest environmental and social responsibility standards can also be an incentive for investors to invest in Pakistan. In the days and times that we live customary incentives such as cheap labour, hefty tax breaks and abundant resources may not be enough to woo multinational enterprises. An environment that encourages and nurtures social responsibility in areas such as the environment, land rights, human rights and transparency is needed. In a recent World Bank study titled "Race to the top: Attracting and Enabling Global Sustainable Business", over 80% of multinational enterprises surveyed reported that they evaluate the CSR performance of potential partners and location before sealing the deal on a new venture. There is a growing trend among European banks towards applying stringent corporate social responsibility standards to their dealings. The banks in Pakistan may not be yet aware of the importance of applying stringent standards to dealing with loan applications but as awareness of corporate social responsibility increases these issues might start affecting our businesses.
It is also important that the business community accepts the importance of reporting of corporate social responsibility initiatives. A number of Pakistani companies, large and small, are undertaking commendable corporate social responsibility initiatives. The reason that not many are aware of these initiatives is that they have not been documented or reported. A number of Pakistani listed and unlisted companies have reported environmental or social performance in their annual reports or stand alone environmental/ social reports but this practice still has to develop in Pakistan.
Initiatives like WWF-ACCA Pakistan Environmental Reporting Awards are commendable. One of the options to explore in terms of encouraging social and environmental reporting is to encourage voluntary environmental or social disclosure in the Code of Corporate Governance. Initiatives like corporate social responsibility are market driven. If your competitor starts reporting, you are forced to think to report. Mandatory reporting of environmental and social performance will not serve the purpose. Good and generous voluntary reporting can aid business reputations for accountability and transparency - the very reasons that corporate social responsibility has become a critical issue.