The hypocrisy of “CSR” in the time of COVID-19

The hypocrisy of Corporate Social Responsibility in the time of COVID-19

A bill to reward businesses for corporate social responsibility (CSR) activities is pending in Congress. At its face, the bill may be harmless: Who would not want to reward companies when they appear to be more socially responsible, especially in this time of need?

While it is not clear if CSR efforts increased with the COVID-19 pandemic, companies ramped up donations, fundraisers, and other forms of assistance, rendering these efforts more visible to the media. In May 2020, it was reported that Project Ugnayan, the biggest of these efforts led by top business groups, pooled around Php 1.4 billion in donations, not including individual assistance (some, in the millions) by each of these companies.

But CSR has two faces. On one hand, it may truly be motivated by a company’s goal to effect meaningful social change. On the other, it may simply be a tool to conceal a company’s unethical and irresponsible activities.

Consider the donations made by tobacco companies last year. Last May 2020, the Philippine Red Cross received a bio-molecular laboratory in Batangas to be used for COVID-19 efforts, which was donated by the Lucio Tan Group (LTG), the parent company of Fortune Tobacco Corporation (FTC). On November 2020, local officials in Cagayan de Oro graciously accepted PPE donations by the Jaime V. Ongpin Foundation, Inc. (JVOFI), an affiliate of the Philip Morris Fortune Tobacco Corporation (PMFTC). Most recently, on February 2021, JVOFI provided tablets to barangays through the undersecretary of the Department of Interior and Local Government (DILG), and also signed a Memorandum of Understanding with the National Housing Authority (NHA) for the government’s “Balik Probinsya, Bagong Pag-Asa” program.

There’s a troubling dissonance in accepting these donations from tobacco companies as COVID-19 aid. While tobacco companies appear to help alleviate the effects of the COVID-19 pandemic, they continue to manufacture and promote a deadly product that available research suggests contributes to “severe COVID-19 outcomes and death.”

The dissonance is more evident when one considers the World Health Organization (WHO) statement that “the tobacco industry is taking advantage of the pandemic.” Reports have lengthily discussed “how tobacco industry donations cloud debates over cigarette controls.”

It’s not just tobacco companies. The Department of Labor and Employment (DOLE) thanked big businesses, such as Jollibee, San Miguel Corporation, SM, and Ayala, for their “compassion” for workers and the public, saying other companies should follow their example during the crisis.

Yet, two years ago, DOLE itself tagged Jollibee as one of the top violators of the prohibition against labor-only contracting, and previously ordered it to regularize around 6,000 workers of its contractors. SM has also been embroiled in issues of unfair labor practices and contractualization. Ayala Land is the subject of a House resolution investigating allegations of harassment, violence, and threats of displacement against farmers at Hacienda Yulo in Laguna. San Miguel’s airport project in Taliptip, Bulacan will push through despite reports of environmental harm and fishermen who have lost their traditional livelihood.

It seems awkward to attribute “compassion” to a corporation. It is even more ill-fitting to praise the same companies for “compassion” when one examines their history in the context of human rights.

In this case, the WHO describes the tobacco industry to be an “inherent contradiction” to CSR. An Eco-Business report that has tracked recent COVID-19 CSR activities by tobacco companies in the Philippines alluded to CSR as no more than a tactic to influence government officials to take a kinder stance on tobacco control.

Aside from the tobacco industry, a contradiction is likewise exhibited by businesses who are lauded for CSR but may not always uphold human rights, and do not engage in sustainable business practices.

In the context of the use of CSR to sanitize companies’ possible human rights abuses and unsustainable practices, should lawmakers push for a bill to use taxpayer’s money to reward “CSR”?

CSR in the Philippines

CSR in the Philippines has always been voluntary. Donations, which may qualify as CSR, are tax-deductible if they fulfill certain requirements.

While there is no requirement to report CSR, the Securities and Exchange Commission (SEC) has already launched in 2019 the regular submission of sustainability reports for publicly listed companies, informed by consultations with stakeholders. Sustainability reporting, according to the SEC, assumes that businesses conduct their operations in an ethical manner; that they manage key impacts (whether economic, environmental, or social); and that their products and services create value to society. These are also embodied in the SEC’s Codes of Corporate Governance.

These local guidelines reflect globally accepted frameworks for reporting non-financial information, such as the Global Reporting Initiative (GRI) Sustainability Reporting Standards, which is aligned with the UN Global Compact — a voluntary agreement entered into by businesses to uphold sustainability principles.

Meanwhile, the CSR bill seeks to encourage more CSR activities by:

  1. allowing stock corporations to retain profits in excess of their authorized capital stock, if such excess profits will be used for CSR;
  2. requiring the Department of Trade and Industry (DTI) to recognize and reward “outstanding, innovative, and world-class” CSR activities; and
  3. requiring local government units to assist businesses conducting CSR.

The bill also requires companies to submit a list of their CSR activities regularly.

In the bill, CSR is defined as a voluntary commitment to contribute to sustainable economic development, in ways “that are good for business, sustainable development agenda, and society at large.” The bill does not require CSR for businesses, but lists what constitutes CSR, including charitable programs and projects.

Already there are two existing policy structures which render the CSR bill unnecessary. CSR, if performed, is already generously incentivized by way of tax deductions for donations. Also, there already exists a mechanism for sustainability reporting as launched recently by the SEC.

So what is the CSR bill for?

Economic and health impacts

While the rationale of the bill is unclear, its impact is more obvious.

The Department of Finance (DOF), in a position paper on the CSR bill, has stated it does not support the provision allowing the retention of surplus profits for CSR, as the broad definition of CSR may be used to circumvent the law by accumulating profits beyond the reasonable needs of a business, ultimately avoiding the payment of improperly accumulated earnings tax.

Meanwhile, the SEC has stated that the same provision needs to be balanced with the rights of stockholders. The agency also stresses the importance of clear guidelines and rules to prevent abuse of the provision.

The most glaring omission of the bill is its obliviousness to existing national policies that guard against the other side of CSR. One of these policies is the Civil Service Commission-Department of Health Joint Memorandum Circular (JMC-2010-01), which, among others, bans all government officials from accepting donations from the tobacco industry, as these donations are a form of interference in tobacco control policies.

By law, the Philippines is obliged to protect tobacco control policies from commercial and vested interests by the tobacco industry, via a landmark treaty it signed and ratified in 2005: the WHO Framework Convention on Tobacco Control (FCTC), one of the most widely-embraced treaties in history, with 182 countries being members of the treaty.

Article 5.3 of the WHO FCTC states: “In setting and implementing their public health policies with respect to tobacco control, Parties shall act to protect these policies from commercial and other vested interests of the tobacco industry in accordance with national law.”

The 2010 Joint Memorandum Circular, which reflects Article 5.3 of the WHO FCTC, cuts across all government agencies, many of which have adopted it in its entirety or integrated it in their own codes of conduct. It may be said that the Philippines’ Joint Memorandum Circular is a source of national pride (a “world-class” policy, to borrow from the CSR bill) as it is frequently cited as a best practice in tobacco control worldwide.

However, because of the CSR bill, this exemplary policy is in danger of being repealed. The CSR bill includes a blanket repealing clause, effectively overturning all laws, rules, or regulations inconsistent with it — the Joint Memorandum Circular included.

To illustrate the CSR bill’s potential effect, a repeal of the circular will remove the “firewall” between government officials and tobacco companies, and renders the Philippines in breach of its duty to prevent tobacco industry interference. The Joint Memorandum Circular is crucial because the Tobacco Regulation Act of 2003 (RA 9211) does not protect against such interference. Worse, RA 9211 even requires the inclusion of a tobacco company representative in deciding crucial health policies against tobacco use, through membership in the Inter-Agency Committee – Tobacco. Notably, this inclusion already constitutes a breach of Article 5.3 of the WHO FCTC.

Allowing passage of the bill will also derail existing efforts by advocates to increase regulation of industries that have historically caused harm — including mining, fossil fuel, oil and gas, alcoholic beverages, highly processed food, social media platforms, and advertising and public relations. among many others. This is because the bill, in its current form, defines CSR in terms of individual projects and programs or “contributions” instead of the company’s overall business practices.

Business and human rights

The recently launched Philippine Guidance Document on Business and Human Rights, which notes the evolution of CSR to the framework of the UN Guiding Principles on Business and Human Rights (UNGP-BHR) defines CSR as “the willingness to incorporate ethical, social, and environmental considerations in its decision-making and to be accountable for the impacts of its decisions on the different stakeholders.”

The Guidance Document, which is drafted by multi-stakeholder groups, including Philippine business and civil society, states that beyond CSR practices, there is a “need for coherent laws to create a conducive environment for business respect for human rights, comprehensive integration of the human rights framework in the value chain, processes, and policies of businesses, and remediation of human rights abuses in the business setting.”

In short, any bill relating to CSR would do well to refer to the UNGP-BHR and the Guidance Document, which outlines a “protect, respect, and remedy” framework, wherein:

  1. the government has a duty to protect human rights;
  2. corporations have the responsibility to respect human rights, based on the “do-no-harm” principle; and
  3. individuals whose rights have been violated by abuses arising from corporate activities have the right to a remedy.

The CSR bill is not only silent as to the “protect, respect, and remedy” framework; it repeals this framework altogether when it comes to tobacco control. Its definition of CSR at the outset is not anchored on human rights. In fact, by rewarding corporations for “CSR” regardless of a corporation’s harmful business practices, it directly contradicts the UNGP-BHR. Without providing remedies for harmful corporate actions, or without requiring governments or corporations to build an environment fostering business respect for human rights, the bill as drafted may even cause more harm than good. Rewarding companies for CSR creates an avenue for businesses known for unethical, irresponsible, and underhanded business practices to boost their reputation, just because they have “outstanding, innovative, and world-class” CSR.

The CSR bill requires companies to regularly submit lists of CSR activities. But to what end? What is the value of such reports, aside from allowing companies to brand themselves as “socially responsible”—with the help of advertising and public relations firms—without doing the work of ensuring long-term sustainability?

Rewarding CSR and asking for a list of CSR activities may be meaningless if it the social, environmental, and societal impact of a company’s main activities are not considered in deciding entitlement to incentives and recognition. To illustrate, a fossil fuel company responsible for harmful emissions but regularly conducts “CSR” may be given more incentives than a renewable energy company that incorporates sustainability as its core product, if the CSR bill is to be followed.

Lawmakers should also note that a holistic and progressive human rights approach to CSR already exists in the Philippine framework. In setting down guidelines for sustainability reporting, the SEC already recognizes as a standard those set in the UN Global Compact’s corporate sustainability principles, the GRI Sustainability Reporting Standards, and the Sustainability Accounting Standards. The UNGP-BHR further recommends for companies to conduct “human rights due diligence,” where corporations assess the impact of their business and report their efforts to prevent or mitigate adverse impacts.

Companies already voluntarily commit to CSR even without incentives, as displayed by their contributions during the COVID-19 crisis—a feat that works to their advantage as donations may be tax deductible.

All told, the trend is not towards rewarding CSR, but towards building an enabling environment where governments and businesses protect and respect human rights, and remedies are available for individuals subjected to harmful actions by corporations. In cases of an “inherent contradiction” between a corporation’s actions and what it advertises (as in the case of tobacco), governments have the duty to protect policies from industry interference.

Corporate accountability

With CSR activities already on the rise without the CSR bill, what may be needed is stricter enforcement of prohibitions against corporate interference. One example is the Joint Memorandum Circular, which has been repeatedly flouted in light of the urgent need for COVID-19 aid.

Lawmakers should also recognize the urgency of amending absurd provisions of laws such as RA 9211, which, among others, gives the tobacco industry a seat at the health policy table. The absurdity of this law is more glaring considering that the UN Economic and Social Council has resolved to exclude the tobacco industry from its activities. Tobacco producing companies are also excluded from the UN Global Compact.

Congress should further notice that corporations themselves are now adopting the framework as required by the SEC’s guidelines on sustainability reporting, without need for legislation. Since the CSR bill is silent on this existing framework, it may contradict these guidelines and lead to confusion, which is a step backward for the Philippines’ emerging framework for corporate accountability.

Mainstreaming the Guidance Document on Business and Human Rights, launched in December 2020, is the better way forward. Applying the “protect, respect, and remedy” framework elevates CSR and sustainability practices and firmly grounds such efforts in human rights. Through the “remedy” pillar, businesses are held to account for abusive and harmful corporate actions such as land grabbing, displacement, oil pollution, unfair labor practices, discrimination, and false advertising and propaganda, among a long list of societal harms.

There may be good intent behind rewarding CSR by law or policy — but you know what they say about roads and good intentions. If the COVID-19 pandemic has taught us anything, it’s that we need to trust science, we need to back up policies with evidence and data, and we need to lessen the propensity for legislation with unintended consequences. In that respect, the CSR bill is deeply flawed. And while aid is always welcome, we need to require more than charity from our institutions. In including businesses in the demand for social justice, the urgent priority should be in ensuring corporations do no further harm to individuals, towards a policy framework that reflects the global trend on corporate accountability.

The author is a lawyer and a policy associate for ImagineLaw, a non-stock, non-profit public interest law organization established in 2016 that designs and advocates for evidence-based policy solutions to enable all people to live healthy and meaningful lives. The views in this column are those of the author and do not necessarily reflect the views of VERA Files.