Eco-efficiency or Corporate Social Responsibility?
Sustainability has become a mantra for the 21st century. It embodies the promise of societal
evolution towards a more equitable and wealthy world in which the natural environment and our
cultural achievements are preserved for generations to come. This promise touches upon
elementary hopes and fears, which have both guided and challenged scores of scholars in the
past. The quest for economic growth and social equity has been a major concern foremost of the
past 150 years. By adding concern for the carrying capacity of natural systems sustainability thus
ties together the current main challenges facing humanity.
The most important departure of the sustainability concept from orthodox management theory
lies in its realization that economic sustainability alone is no sufficient condition for the overall
sustainability of a corporation. A single-minded focus on economic sustainability can succeed in
the short run; however, in the long run, sustainability concerns need to be satisfied
Eco-efficiency: Origin and criticism
The concept of eco-efficiency was developed by the WBCSD (World Bank Council for
Sustainable Development) in 1992 and has become widely recognized by the business world. It
brings together the essential ingredients – economic and environmental progress – which are
necessary for economic prosperity to increase with more efficient use of resources and lower
Eco-efficiency is a key concept which can help companies, individuals, governments or other
organizations become more sustainable. It brings together the essential ingredients – economic
and ecological progress – which are necessary for economic prosperity to increase with more
efficient use of resources and lower emissions of substances that can have adverse environmental
Eco-efficiency was intended to be the business community‟s response to sustainable
development. It contends that improving environmental performance does not have to be a cost
to industry, but can be a source of savings. It appeals to business as a practical “win-win”
approach to improving environmental performance. The three key goals of eco-efficiency are:
• Increase product or service value;
• Optimize the material and energy intensity of products; and,
• Decrease environmental impacts
The WBCSD has laid out seven elements that lead to improved eco-efficiency:
• reducing material requirements (e.g., light weighting of vehicle components)
• reducing energy intensity (e.g., lower standby power drain in electronic products)
• reducing toxic dispersion (e.g., eliminate bromated flame retardants in computer
• enhancing material recyclability (e.g., food packaging using single polymer plastic)
• sustainable use of renewable resources (e.g., sisal flooring)
• extending product durability (e.g., computers that are upgradeable)
• increasing the service intensity of goods and services (e.g., car leasing)
Each of these elements provides opportunities to decrease environmental impact, while at the
same time offers advantages for business.
WBCSD proposes the following five elements for a summary report.
Organization Profile – Provides a context for the eco-efficiency information. A typical profile
might include the number of employees, business segments and primary products, system
boundary conditions, and contacts for additional information.
Value Profile – Provides a profile of both generally applicable and business specific indicators
from the “value” portion of the WBCSD framework. This would include indicators such as
financial information, the amount of products sold, or functional indicators for specific products.
Environmental Profile – Includes generally applicable environmental influence indicators as
well as business specific indicators relating to product/service creation and uses that are relevant
and meaningful for the specific company.
Eco-efficiency Ratios – In addition to providing the basic “numerator” and “denominator” data
for estimating eco-efficiency, companies may also wish to provide calculations of eco efficiency
indicators that they regard as most relevant and meaningful for their business.
Methodological Information – covering the approach used to select indicators, data collection
methodologies and any limitations on use of the data.
Eco-efficiency is a commonly accepted approach for identifying cost savings in industry. It gives
smaller companies an opportunity to take action on environmental issues and realize an
immediate financial benefit, which is not always available through other approaches, such as
Environmental Management Systems (longer-term benefits). However, some companies are now
moving beyond eco-efficiency to corporate social responsibility (CSR), which considers all three
aspects of sustainable development: economic, environmental and social value as eco-efficiency
only includes two of the three components of sustainable development: it brings together
environment and economy, but does not deal with social issues.
Also, it is important to consider that gains in efficiency may be accompanied by increases in
production, deepening the environmental footprint of the activity. It is important to consider
Corporate Social Responsibility: Is this a new concept or an already familiar one?
An increasing number of companies are promoting their corporate social responsibility strategies
as a response to a variety of social, environmental and economic pressures. They aim to send a
signal to the various stakeholders with whom they interact: employees, shareholders, investors,
consumers, public authorities and NGOs. In doing so, companies are investing in their future and
they expect that the voluntary commitment they adopt will help to increase their profitability.
Though companies look to Corporate Social Responsibility as a measure of their (social)
responsiveness there are many practical problems in the usage of this concept.
1) The belief that corporate social responsibility "pays" is a seductive one: Who would not want
to live in a world in which corporate virtue is rewarded and social irresponsibility punished?
Unfortunately, the evidence for these rewards and punishment is rather weak. There is a "'market
for virtue," but it is a very limited one. Nor is it growing.
One can certainly find examples of firms with superior CSR performance that have done well, as
well as firms with poor CSR reputations that have performed poorly. But there are as many
examples of firms with good CSR records that have not done well and firms with poor CSR
reputations that rewarded their shareholders. The good news is that firms with superior CSR
performance have not performed any worse than their less virtuous competitors. But the
disappointing news is that neither have they done any better. For most firms, most of the time,
CSR is largely irrelevant to their financial performance.
Revealingly, the long-term performance of socially responsible investment funds has been no
better, or worse, than those of funds that use other criteria to predict future shareholder value.
Part of the reason why CSR does not necessarily pay is that only a handful or consumers know or
care about the social records of more than a handful of firms. "Ethical" products are a niche
market: Virtually all goods and services continue to be purchased on the basis of price,
convenience and quality.
Although ethical mutual funds have grown in size, they have had no measurable impact on share
prices. Mainstream investors still rarely consider a firm's CSR record in deciding which shares to
buy, sell or hold. While many business students now profess an interest in working for more
responsible firms, their less responsible competitors appear to have no difficulty in attracting top
Starbucks provides a good example of the limited importance of CSR to financial performance.
The firm enjoys a strong CSR reputation due to its generous labor policies and its commitment to
improve the earnings and environmental practices of coffee growers in developing countries. Yet
since the beginning of 2008, its shares have recently declined nearly 50%. The stock's
disappointing performance has absolutely nothing to do with CSR: It is entirely due to the firm's
overexpansion and, most recently, the increasing unwillingness of consumers to pay as much for
a cup of coffee as for a gallon of gasoline.
Other CSR icons, such as Levi Strauss, Gap, Whole Foods and Timberland have also fared
poorly in the marketplace.
To assume that the business environment has fundamentally changed and that we are entering a
new world in which CSR has become critical to the success of all or even most firms is
misinformed. The market has many virtues, but reconciling corporate goals and public purposes
is unfortunately not among them. Managers should try to act more responsibly. But they should
not expect the market to necessarily reward them--or punish their less responsible competitors.
2) Social initiatives are usually associated with doing good and „doing the right thing‟, and today
many leaders feel they have to contribute to this development. Many companies want to engage
in philanthropic efforts because it will improve their reputation. It is easy to agree that we ought
to be doing something good, and that we should contribute to doing „the right thing‟ for society.
No one will disagree with this noble ambition. Although there is a lot of feeling that „we ought to
do it‟ amongst executives and a lot of corporate statements about companies' social ambitions
and efforts, there are also a lot of uncomfortable sentiments about why companies should be
doing it. Corporate leaders are now giving lip service to this area, but they do not ultimately
understand it. No matter what they say in public, when you get behind the scenes with executives
and directors, they will ask you "why should we invest in social initiatives?" We may all care
deeply about saving the world but if we cannot answer this question properly, we have a
3) The field of corporate social responsibility (CSR) has become a religion filled with priests, in
which there is no need for evidence or theory. Too many academics and business managers are
satisfied with the „good feeling‟ as argument. Much corporate philanthropy is driven by top
management's personal beliefs. It is their pet project. And almost all corporate philanthropy is
about brand enhancement and gaining a reputation as a positive citizen. It is about winning
friends. Corporate leaders feel pressured by activists to take action on various social issues, and
by donating money to a social issue they make friends and positive associations. The „feel-good‟
of corporate philanthropy seems to be evidence enough.
It seems that companies are reacting to pressure rather than having their own affirmative
strategies. The „giving‟ is not integrated into strategic thinking, and quite a few corporate leaders
are not sure that the money they spend is well spent. If companies are just being good and
donating a lot of money to social initiatives then they will be wasting shareholders' money. That
is not sustainable in the long-run, and shareholders will quickly lose interest. Giving money
away is easy, but if that is all, it is going to create cynicism – among shareholders, managers and
employees. In times of economic pressure and profit warnings, companies will back off. Right
now it is all a defensive effort, a PR game in which companies primarily react to deal with the
critics and the pressure from activists. It is easy to notice how „sensitive‟ industries like the
petrochemical and pharmaceutical industries tend to give more than „non-sensitive‟ industries?
They need permits. They are under pressure, so they react. When companies get caught in the
dilemma of simultaneous pressure from activists and shareholders, then they have a problem. It
is not possible to just put more money into social initiatives when firms are pressured to improve
Can cigarette firms ever profess to have social responsibility?
The ethics become much more blurred when a company's very product is controversial, such as
the tobacco giants. Can cigarette firms ever profess to have social responsibility? However, all
the cigarette firms have CSR policies and say they take them very seriously. For example, UK
business Gallaher, the world's fifth-largest cigarette-maker has CSR policy that it will not buy
tobacco from any developing world producers that use child labour and has firm policies on the
prevention of sales to minors.
But for all the good examples of CSR, there are some very high-profile cases where a firm's
actions have smacked of, at best, lip-service and narcissism or, at worst, dishonest public
relations. Such appears to be the case with a Texan energy giant back in the 1990s. It gave
millions to local charities and was forever winning national awards for its CSR work.
Unfortunately, the business was called Enron, and collapsed in 2001 with debts of $31.8bn
(£18bn), after it was revealed that its boss had orchestrated a giant fraud. Critics of CSR argue
that Enron is a case in point - that CSR is irrelevant if the essential business practice of a firm is
The possible way out is to be more offensive. Right now firms are defensive, and businesses are
engaging in corporate philanthropy to avoid scandals and to be liked. That is a dangerous route.
Basically businesses should be proud of what it is doing: businesses make the economy work.
The money comes from business – not governments. Business should not try to solve all societal
issues. It should concentrate on fairly tangible business operations, and this is what we refer to as
the corporate competitive context. This would imply that we are going back to the same
objectives and goals as laid down by Eco-efficiency. Therefore, Corporate Social Responsibility
will mean nothing but Eco-efficiency in a new package.
Eco-efficiency and Corporate Social Responsibility are most important terms that used by
companies while they talk about sustainable development. While Eco-efficiency is a parameter to
measure environmental impact and economic performance of a company, Corporate Sustainable
Responsibility is used to measure social, environmental and economic performance of a
company. CSR originated because eco-efficiency was found to be inadequate in terms of
covering the social impact of a businesses. It has, however, been increasingly felt that the social
aspect of CSR is a burden to businesses and the firms are doing only a lip-service to it. In light of
above discussion we, as future managers, should think about the usefulness and practical
implications of CSR.
Is the criticism against CSR valid? Is CSR nothing but Eco-efficiency in a different package? Is it
necessary to be socially responsible? How do we measure a company’s performance on the
social dimension? Is Eco-efficiency enough? Isn’t being environmentally responsible enough for
business functioning? Doesn’t environment dimension address social concerns of the society?