Corporate Social Responsibility Statements and false advertising laws

1. Corporate Social Responsibility Statements and false advertising laws 26 September 2008 John Southalan Rio Tinto Research/Teaching Fellow

2. Overview • Reflections on the environmental -v- social tension within CSR, and international aspects • Regulation of CSR statements • CSR statements and false advertising laws.

3. Environment -v- social tensions • To date, CSR regulation and CSR reporting has been more on environmental rather than social aspects. • Environmental aspects are often easier to deal with because: economic convergence, more readily measurable and 'treatable', greater consensus. • Have been occasional disputes where social and environmental ends conflict, but largely glossed over. This leaves it to be addressed in future. • Starting to see in concepts of 'sustainable markets‘ (Borregaard & Dufey 2005) and 'responsible competitiveness‘ (Zadek 2006) - looking at wider factors than just one company or metric.

4. International aspects • One aspect of a 'wider' perspective: appreciating the different conditions in different countries. • A 2007 study of CSR across many different countries identified four key determinants of 'corporate social and environmental responsibility': public corruption, economic development, and political and economic freedoms (Baughn & o'rs 2007). • This is not surprising - where a country’s population has spending capacity and its regulation allows, it is more likely to be an environment that will encourage firms' CSR behaviour. CSR is more likely to be effective. • Useful to look at the disparities, which question the universal applicability of much CSR analysis and standards.

5. Public corruption: Latin American & OECD countries low corruption high corruption

6. Public corruption: Latin American & OECD countries low corruption high corruption

7. Per capita GDP (PPP adjusted): Latin American & OECD countries rich poor

8. Regulation of CSR statements • The development of regulation for CSR is a long and slow thing, but there is scope for false advertising laws to control some aspects while the broader picture develops. • CSR statements = material produced about CSR aspects of business (eg. annual report, press release, product advertising, industry promotion). • Most obvious current form of CSR statements is CSR reporting. Reporting has historically focussed on environmental issues, and is more about stakeholder management than stakeholder engagement (Hess & Dunfee 2007). What can/should regulation do to address? • Caution against fixation on reporting overshadowing actual operations. 'Sustainability reporting...is becoming one of the basic criteria for judging the social responsibility of organisations' (Aust Govt 2005) - I hope not!

9. False advertising laws - intro • Australia has a nation-wide 'false advertising' law. Prohibits activity in business that 'is misleading or deceptive or is likely to mislead or deceive' (TPA 1975, s52). • This applies to statements as well as actions, and has been applied to CSR statements (examples follow). • Wide scope of law: • no need for 'intention' (eg. even where the party acted honestly and reasonably and did not mean to deceive); • silence can be misleading, as can partial disclosure (the circumstances and parties' dealings may make it misleading to withhold certain information); • disclaimers/limitations have limited affect in avoiding liability; and • covers representations about the future, or predicted results. • Anyone can bring claim against misleading/deceptive statements (incl. government regulator, competitors, customers, the public, and community groups - even where the party making the complaint has not suffered any loss because of the statement). • Broad range of remedies (incl. compensation, injunctions, order corrective advertising, order refunds, fines in some circumstances - not for s52 alone).

10. False advertising laws – eg’s • Examples relevant to CSR field: • advertisements for a carbon-neutral car, biodegradable plastic bags, and claims of an 'environmentally friendly' air conditioner for 'a new ozone era - keeping the world green'; • production of a timber industry-promoting film by the government and a group of firms (law does cover, but this was not relevantly misleading), • tobacco industry advertisements promoting the industry in general (rather than any particular firm or product), • even statements of someone not involved in business who seeks to encourage others to do business with a particular firm. • can strengthen use of non-binding standards and codes, eg. misuse of labelling. • Similar in the UK. In August 2008, Shell’s breach of advertising code in advertisements promoting Shell’s sustainable approach in connection with north American oil sands and refinery projects. The advertisement's content and use of the word 'sustainable' implied an environmental priority which the projects were not shown to have.

11. Conclusions • These decisions do notprevent firms from promoting their CSR initiatives for commercial advantage, but simply require that CSR statements must be accurate. Companies have breached the law when they cannot substantiate their claims. • In various jurisdictions, the authorities have warned against the use of vague terms like 'green', 'sustainable', 'environmentally friendly' etc because these can risk misleading consumers and thereby breach the law (eg. Aust Govt 2008, UK Govt 2003, EC 2000). • Applicability to other jurisdictions depends on their structures and resources (eg. problems in US because of constitutional provisions in relation to ‘free speech’). • Has been more useful in environmental aspects (rather then social).

12. References • Aust Govt, 2008. Australian Competition and Consumer Commission, Greenmarketing and the Trade Practices Act. Available <www.accc.gov.au/content/item.phtml?itemId=815763&nodeId=69646a6d15e7958a41b40ab5848c6968&fn=Green%20marketing%20and%20the%20Trade%20Practices%20Act.pdf> 3 May 2008 • Baughn, C & ors, 2007. Corporate Social And Environmental Responsibility In Asian Countries And Other Geographical Regions. 14 Corp. Soc. Responsib. Environ. Mgmt 189–205. • Borregaard, N & Dufey, A, 2005. Challenging preconceptions about trade in sustainable products: Towards win-win-win for developing countries. November 2005, Sustainable Markets Discussion Paper Number 1. Available <www.iied.org/pubs/pdfs/15500IIED.pdf> 13 September 2008. • EC, 2000. European Commission, Guidelines for Making and Assessing Environmental Claims, Directorate-General Health & Consumer Protection, Report No. 67/94/22/1/0028, December 2000. Available <http://ec.europa.eu/consumers/cons_safe/news/green/guidelines_en.pdf> 16 September 2008. • Hess, D & Dunfee, T, 2007. The Kasky-Nike Threat to Corporate Social Reporting: Implementing a Standard of Optimal Truthful Disclosure as a Solution. 17(1) Business Ethics Quarterly 5-32. Available <http://webuser.bus.umich.edu/dwhess/Hess%20and%20Dunfee%202007%20Kasky%20Nike.pdf> 17 September 2008. • TPA 1975. Legislation of the Australian Parliament, Trade Practices Act 1974. Available <www.austlii.edu.au/au/legis/cth/consol_act/tpa1974149/> 22 September 2008. • UK Govt, 2003. Department for Environment, Food and Rural Affairs, Green Claims – Practical Guidance: How To Make A Good Environmental Claim, November 2003. Available <www.defra.gov.uk/environment/consumerprod/pdf/genericguide.pdf> 4 September 2008. • Zadek, S, 2006. Responsible competitiveness: reshaping global markets through responsible business practices. 6(4) Corporate Governance 334-348. Available <www.corporate-responsibility.org/module_images/corporateabuse_discussionpaper.pdf>12 September 2008.