Study finds CSR, ESG and social enterprise overlook the publicly and commercially critical issue of economic inequality
Economic inequality is increasingly recognised as negatively impacting on the environment, poverty, crime, peace, health and even financial stability. As such, the rates of economic inequality represent both a public issue and concern for business and investment. A study published on September 24th in the the Journal of Corporate Citizenship, finds that neither leading companies nor corporate responsibility organisations are addressing this issue.
For the study, Lifeworth Consulting analysed the reports classified as A+ by the Global Reporting Initiative in 2009. They found only 3% of the world’s best corporate responsibility reports that were searchable online mentioned the problem of economic inequality.
None were found to explain the specific problems of economic inequality, in terms of its impacts on issues such as well-being, security, and the environment. The companies that were found to cite some work on economic inequality are Abeinsa, Banco Bradesco, Caja de Burgos, Caja Navarres, Larsen & Toubro, Otto Group, Telefonica S.A., and The Co-operative Group. “The study argues that economic inequality will become increasingly important in future, as both its extent and awareness of its wider impacts grows,” explains Lifeworth Associate Hanniah Tariq, a co-author of the study.
Although the study explains how this agenda poses difficult challenges for large for-profit corporations, it points to some ways for companies to voluntarily begin to address this issue, including:
- reducing wage differentials and encouraging that from suppliers and other business partners
- promoting working arrangements that enable the less economically advantaged to participate more gainfully in a firm
- developing new ownership forms that involve staff and consumers, and favouring certain forms of ownership structure in their business partners
- seeking more independent locally run businesses to purchase from and work with
- avoiding lobbying against policies that are aimed at reducing economic inequality
- incorporating measurement of project impacts on economic inequality into social performance metrics
The study summarises evidence from leading sociologist, economists, political scientists and authoritative bodies such as the UN, that link economic inequality with the levels of environmental degradation, crime, conflict, physical and mental illness, and poverty. Published in a leading academic journal on corporate responsibility, it was written before David A. Moss, an economic and policy historian at the Harvard Business School was reported in the New York Times this year as having found a correlation between economic inequality and financial instability.
The study argues that one of the reasons that economic inequality has not been addressed yet by voluntary corporate responsibility initiatives is that the issue has not often been raised by civil society and the media. “The mainstream development community of intergovernmental agencies, government aid agencies, large foundations and Western NGOs have been rather quiet on the issue of economic inequality in the past decades. For instance, it does not feature well in the Millennium Development Goals. This has meant people in business and finance may have missed economic inequality, not only as a key public problem, but one with real commercial and investment implications, not only in the global South but in advanced economies as well,” argues lead author of the study, Dr Jem Bendell, an Associate Professor with Griffith Business School.
In addition, the authors recognise that on first glance the issue appears too difficult for voluntary corporate engagement. But rather than dismiss it with arguments that economic inequality is inevitable or useful, study co-author and Lifeworth Associate Ian Doyle explains that “the first step to any decent engagement with this issue is to understand the problem better – the impact of economic inequality on society as a whole, and the potential impacts on business success.”
The study describes successful companies that have alternative forms of ownership that do not add significantly to economic inequality, such as The John Lewis Partnership (JLP), Organic Valley, Carris Companies and Coopaname. It also discusses the experience with attempts by governments to pluralise ownership of companies, such as the Broad Based Black Economic Empowerment Act of 2003 (BBBEE) in South Africa.
The study argues there are implications from an economic inequality agenda for the social enterprise and social innovation community. None of the metrics for social impact that the study authors were able to review currently examine how the ownership of the organisations involved in a particular activity then affects economic inequality. “The agenda on social enterprise, promoted by Schwab Foundation, Acumen Fund, among others, has tended to make little or no distinction between organisations on the grounds of their ownership. Given an awareness of the downsides of economic inequality, rather than poverty alone, this approach will not be tenable in future,” explains Dr Bendell.
For responsible investment, an awareness of the societal and long term financial harm of high economic inequality could necessitate a new reflection on what responsible investors seek from companies and what that means for their own ownership stakes and rights. However, some of the implications of the problem of economic inequality are beyond the arena of voluntary corporate responsibility, says Dr Jem Bendell: “Policy makers need to recognise a firm’s impact on economic inequality as an aspect of its social responsibility, and start to distinguish more clearly between different forms of ownership, as part of their effort to promote a sustainable and socially beneficial enterprise economy,” he explains.
The study appears in the ‘World Review’ of Issue 38 of The Journal of Corporate Citizenship. The study can be purchased from http://www.greenleaf-publishing.com/jcc38. The c0-authors are Jem Bendell, Hanniah Tariq, Ian Doyle and Janna Greve. Lifeworth Consulting prepared the study as part of the its Enterprise Trends programme, which involves producing quarterly and annual studies of global trends in corporate responsibility. Lifeworth Consulting is a network of associates in nine countries who provide research, strategy, training and liaison for organisations seeking innovative ways of promoting sustainable development through enterprise. http://www.lifeworth.com/consult