Mandatory Corporate Social Responsibility Legislation Around the

429

MANDATORY CORPORATE SOCIAL

RESPONSIBILITY LEGISLATION AROUND THE

WORLD: EMERGENT VARIETIES AND NATIONAL

EXPERIENCES

Li-Wen Lin*

INTRODUCTION ................................................................................. 430

I.MANDATORY CSR DUE DILIGENCE...............................................434

A. National Experience: France........................................... 435

II.MANDATORY CORPORATE PHILANTHROPY..................................439

A. National Experience (1): Mauritius ................................440

B. National Experience (2): India........................................ 442

III.MANDATORY CSR GOVERNANCE STRUCTURE........................... 445

A. National Experience: South Africa................................. 446

IV.MANDATORY GENERAL CSR DUTY (UNDER CORPORATE LAW) 449

A. National Experience (1): China ...................................... 449

B. National Experience (2): Indonesia ................................453

V.EVALUATION................................................................................. 457

A. The Impetus of the Law.................................................. 457

B. The Scope of Corporations Subject to the Law..............459

C. The Definition of CSR....................................................460

D. The Implementation of the Law ..................................... 461

E. The Function of the Law ................................................463

F. The Relationship Between the Laws and Beyond .......... 464

G. The Reform of the Law .................................................. 466

H. The Diffusion of the Law ............................................... 467

CONCLUSION.....................................................................................469

* Li-Wen Lin is an assistant professor at the University of British Columbia Peter A.

Allard School of Law. She holds a JSD and a PhD in sociology. I am grateful for comments

on earlier drafts by Galit Sarfaty, Camden Hutchison, and participants at the UBC junior law

faculty workshop (2019).

430 U. OF PENNSYLVANIA JOURNAL OF BUSINESS LAW [Vol. 23:2

ABSTRACT

Corporate social responsibility (CSR) is typically assumed as a

voluntary initiative rather than a legal mandate. Yet, in recent years, a

growing number of countries have adopted laws that explicitly require

corporations to undertake CSR. When it comes to CSR legislation, most

scholars focus on mandatory disclosure. This article presents emergent

varieties of CSR legislation other than mandatory disclosure and investigates

the experiences of representative adopting countries. It compares and

evaluates the motivation, nature, implementation, function and potential

diffusion patterns of the emerging types of CSR legislation. This article

shows that while the new legislative methods appear progressive, politics

and the open-ended notion of CSR significantly weaken the compulsory

nature of the laws. The major function of the CSR laws as they currently

stand appears mostly expressive. At best, the explicit recognition of CSR in

the laws may send signals about appropriate corporate behavior and

reconstruct business norms that exclusively focus on profits. At worst, the

laws may be political greenwashing through which politicians give symbolic

importance to CSR. This article offers policy lessons and possible directions

for future reform.

INTRODUCTION

Corporate social responsibility (CSR) is typically assumed as a

voluntary initiative rather than a legal mandate.

However, the trend of

legalizing CSR has given rise to the oxymoron of mandatory CSR. Despite

its increasing usage,

the notion of mandatory CSR remains vague. Different

users attach the label to somewhat different things. With the growing interest

in legal policies for CSR, there is an urgent need to analyze what is meant

by making CSR mandatory. Without clarification, the debate on whether or

not CSR should be made mandatory makes no real headway.

In a very simple sense, mandatory CSR means that the law imposes an

obligation on corporations to undertake CSR. Thus, the meaning of

mandatory CSR significantly hinges on what is meant by law and what is

meant by CSR. As to the scope of law, this article focuses on national law

1. See generally Alexander Dahlsrud, How Corporate Social Responsibility is Defined:

An Analysis of 37 Definitions, 15 CORP. SOC. RESP. & ENVT’L. MGMT. 1 (2008) (finding that

21 of the 37 CSR definitions explicitly refer to voluntariness).

2. Typing the keyword, “mandatory corporate social responsibility” with quotation

marks, Google Search returned more than 15,000 results, and Google Scholar returned 832

results, as of November 2, 2020.

2021] CORPORATE SOCIAL RESPONSIBILITY LEGISLATION 431

rather than international law.

Different national systems (e.g., common law

and civil law systems) have different sources of law.

It is fair to say that

legislation (including statutes and regulations) is the most common primary

source of law for most jurisdictions around the world. Hence, this article

focuses on mandatory CSR in the form of legislation.

Nowadays, the notion of CSR usually covers a broad spectrum of issues

in relation to business operations. For instance, the European Commission

defines CSR as “the responsibility of enterprises for their impact on society

. . . . To fully meet their corporate social responsibility, enterprises should

have in place a process to integrate social, environmental, ethical, human

rights and consumer concerns into their business operations and core strategy

. . . .”

Accordingly, CSR legislation may take place in the form of labor

law, environmental law, consumer protection law, human rights law, etc.

Often, the subjects of labor law, environmental law and the like comprise a

wide range of actors, including individuals, business organizations, non-

governmental organizations, governments, international organizations, etc.

Such laws are not intended to target corporations specifically and often do

not make any explicit reference to CSR. For instance, the minimum wage

law applies to all employment relationships, whether or not the employer is

a corporation. Most of the laws may be regarded as implicit CSR legislation

as the laws define proper legal roles and responsibilities for social actors

including corporations.

Implicit CSR legislation can be found in virtually every jurisdiction

around the world. In comparative perspective, some countries have more

and tougher implicit CSR legislation than others. For instance, regulations

on maternal and parental benefits for employees vary wildly from country to

country.

Within a country, implicit CSR lawmaking emerges whenever the

government raises social, labor, environmental, or human rights standards.

3. Mandatory CSR law is a more complicated issue under international law because the

subjectivity of corporate entities remains controversial in international law – a topic beyond

the scope of this article. See generally José E. Alvarez, Are Corporations “Subjects” of

International Law?, 9 SANTA CLARA J. INT’L L. 1 (2011).

4. See generally Joseph Dainow, The Civil Law and the Common Law: Some Points of

Comparison, 15 AM. J. COMPAR. L. 419 (1966) (comparing civil and common law as legal

systems).

5. Communication from the Commission to the European Parliament, the Council, the

European Economic and Social Committee and the Committee of the Regions: A Renewed

EU Strategy 2011-14 for Corporate Social Responsibility, at 6. COM (2011) 681 final (Oct.

25, 2011), https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52011DC0681 [htt

ps://perma.cc/JU3E-GK9N].

6. See OECD, Key Characteristics of Parental Leave Systems, at 2–11, https://www.oec

d.org/els/soc/PF2_1_Parental_leave_systems.pdf [https://perma.cc/NL8D-85M2] (providing

an overview of parental leave systems across OECD and EU countries).

432 U. OF PENNSYLVANIA JOURNAL OF BUSINESS LAW [Vol. 23:2

Mandating CSR through implicit CSR legislation is nothing new. The

development of labor law, for example, began with the industrial revolution

in the eighteenth century.

Mandating CSR by way of tightening labor or

environmental regulations is perhaps the least controversial way, as even

CSR critics acknowledge that the corporation shall maximize profits within

the confines of laws including labor law, environmental law, etc.

Compared to implicit CSR legislation, explicit CSR legislation is a

relatively recent development. Over the past few decades, the world has

witnessed an emerging body of laws that specifically target corporations and

explicitly incorporate CSR or its synonyms such as “business ethics,”

“corporate citizenship,” “sustainability,” “ESG” (environmental, social,

governance), “the triple bottom line” (i.e., social, environmental and

financial performance), “business and human rights,” “responsible business

conduct,” etc.

Explicit CSR legislation is the focus of this article.

The most common type of explicit CSR legislation is mandatory

reporting, in which companies are required to disclose extensive information

about their social and environmental plans, actions or performance. Such

disclosure is often referred to as “CSR reporting,” “sustainability reporting,”

“non-financial reporting,” “triple bottom line reporting” or “ESG

disclosure.”

The law requires disclosure but not substantive social or

environmental performance. Nevertheless, nowadays, sustainability

7. See generally Joanna Innes, Origins of the Factory Acts: The Health and Morals of

Apprentices Act, 1802 in LAW, CRIME AND ENGLISH SOCIETY 1660–1830 (Norma Landau ed.,

2009) (discussing how the Health and Morals Apprentices Act of 1802 served as a model for

labor regulations around the world).

8. Milton Friedman, The Social Responsibility of Business is to Increase its Profits, N.Y.

TIMES MAG (Sept. 13, 1970) https://www.nytimes.com/1970/09/13/archives/a-friedman-

doctrine-the-social-responsibility-of-business-is-to.html [https://perma.cc/MG32-A6K2].

9. See, e.g., Andrew Crane and Sarah Glozer, Researching Corporate Social

Responsibility Communication: Themes, Opportunities and Challenges 53 J. MGMT. STUD.

1223, 1223–25 (2016) (discussing CSR synonyms including “corporate sustainability,”

“corporate responsibility,” “stakeholder management” and “corporate citizenship”); Marcel

van Marrewijk, Concepts and Definitions of CSR and Corporate Sustainability: Between

Agency and Communion, 44 J. BUS. ETHICS 95, 95–96 (2003) (noting various CSR concepts

such as “sustainability development,” “corporate citizenship,” “triple bottom line” and

“business ethics”); European Union, Executive Summary of EU Multi Stakeholder Forum on

Corporate Social Responsibility (February 3-4, 2015), https://ec.europa.eu/docsroom/docume

nts/8774/attachments/1/translations/en/renditions/native [https://perma.cc/26ZA-JQ65]

(noting CSR synonyms such as “sustainability,” “responsible business conduct” and “business

and human rights”).

10. See Global Reporting Initiative, About Sustainability Reporting https://www.globalr

eporting.org/information/sustainability-reporting/Pages/default.aspx [https://perma.cc/TNV4

-RFE3] (“Sustainability reporting can be considered synonymous with other terms for non-

financial reporting; triple bottom line reporting, corporate social responsibility (CSR)

reporting, and more.”).

2021] CORPORATE SOCIAL RESPONSIBILITY LEGISLATION 433

reporting itself has become part of CSR per se. CSR performance indexes

usually give an unfavorable rating to companies not engaging in

sustainability reporting.

According to a recent report by KPMG International, Global Reporting

Initiative (GRI), United Nations Environmental Programme (UNEP), and

the Centre for Corporate Governance in Africa, at least sixty-four countries

in the world have introduced almost 400 sustainability reporting instruments

and more than two thirds of the instruments are mandatory regulations.

Despite the worldwide adoption of mandatory CSR disclosure, rich

empirical evidence shows that mandatory disclosure regimes rarely achieve

their stated objectives.

Existing empirical evidence suggests that CSR

disclosure legislation often increases information quantity but without much

improvement in quality.

To date, most scholarly and policy attention on explicit CSR legislation

is focused on mandatory CSR disclosure.

Yet, it is important to expand the

focus beyond disclosure and explore other possibilities, especially given the

limitations of the mandatory disclosure approach. In recent years, several

countries have been enthusiastically pushing the frontiers of CSR legislation

beyond mandatory disclosure. This article presents a variety of recent

innovations in making CSR mandatory through legislation, including the due

diligence approach in France, the philanthropy approach in Mauritius and

India, the governance structure approach in South Africa, and the general

duty approach under corporate law in China and Indonesia.

Mandating CSR through legislation raises a raft of important questions

beyond the theoretical inquiry about whether mandatory CSR is desirable.

As a matter of legal reality, how can mandatory CSR legislation be possible?

Given that CSR is conventionally understood as voluntarism, what is the

11. Donna Wood, Measuring Corporate Social Performance: A Review, 12 INT’L J.

MGMT. REV. 50, 60–65 (2010).

12. Global Reporting Initiative, Carrots and Sticks: Global Trends in Sustainability

Reporting Regulation and Policy, at 10, 12 (2016), https://www.globalreporting.org/resourc

elibrary/Carrots%20and%20Sticks-2016.pdf [https://perma.cc/JMA5-MKJP].

13. See generally Omri Ben-Shahar and Carl E. Schneider, The Failure of Mandated

Disclosure, 159 U. PA. L. REV. 647 (2011) (noting that a series of required conditions for

mandated disclosures to succeed are rarely met, leading to dubious indirect benefits and

various costs).

14. For a review of empirical evidence, see David Hess, The Transparency Trap: Non‐

Financial Disclosure and the Responsibility of Business to Respect Human Rights, 56 AM.

BUS. L.J. 5, 33–40 (2019).

15. The body of mandatory CSR disclosure literature is large. With combined keywords

of “mandatory disclosure,” “corporate social responsibility” and “transparency,” LexisNexis

returned 293 U.S. law review articles, and Google Scholar returned 3,260 articles, as of June

26, 2019.

434 U. OF PENNSYLVANIA JOURNAL OF BUSINESS LAW [Vol. 23:2

impetus to break the convention and make CSR mandatory? What is the

relationship between the CSR mandate and its pre-existing corporate law?

What is the meaning and scope of CSR defined in the law? How has the law

been implemented? What is the function of the law? Has the law made

companies more socially responsible? This article investigates the

institutional backgrounds of representative adopting countries in an attempt

to shed light on the motivation, definition, implementation, function and

possible diffusion of the recent emergent forms of mandatory CSR

legislation.

The comparison of the national experiences reveals some important

similarities and differences. Among various findings, this article shows that

the governments are often motivated to pursue their own interests unrelated

to labor, environmental or human rights protection. The non-CSR related

motivations, such as appeasing political allies, shaming political enemies,

and unloading welfare burdens to corporations, play a critical role in enacting

the laws. The political interests of the governments carry far more weight

than the nature of the pre-existing corporate law (whether shareholder-

oriented or stakeholder-oriented) in explaining the adoption of the

mandatory CSR laws. Although the CSR laws appear mandatory, politics

and the open-ended notion of CSR significantly weaken the compulsory

nature of the laws. At least for now, the major function of the mandatory

CSR laws appears largely expressive rather than regulatory or adjudicative.

At best, the laws may send signals about appropriate corporate behavior and

potentially lead to reconstruction of business norms that prioritize economic

interests over social and environmental concerns. At worst, the mandatory

CSR laws, as they currently stand, may be exploited as a political signaling

device through which politicians send a symbolic message to their

constituents that they care about society and nature. In other words, it could

be nothing more than political greenwashing.

This article proceeds as follows. Sections I-IV present emerging types

of explicit CSR legislation and take an institutional perspective to discuss

the experiences of the representative adopters under each type. Given the

national experiences, Section V provides an assessment of the impetus,

coverage, definition, implementation, function, potential diffusion and

reform direction of the emerging CSR laws.

I. MANDATORY CSR DUE DILIGENCE

CSR is increasingly understood as a management process. For

example, the United Nations Industrial Development Organization (UNIDO)

defines CSR as “a management concept whereby companies integrate social

2021] CORPORATE SOCIAL RESPONSIBILITY LEGISLATION 435

and environmental concerns in their business operations and interactions

with their stakeholders.”

This kind of CSR definition inspires process-

oriented CSR laws. The essence of mandatory CSR due diligence is to

require companies to identify social and environmental risks associated with

its business operation and establish and execute reasonable plans to prevent

harms resulting from the identified risks. France’s duty of vigilance law,

adopted in 2017, is a pioneer of this approach. This type of law is gaining

traction in Europe.

A. National Experience: France

The French duty of vigilance law emerged in a wave of responsible

supply chain initiatives. Unlike California 2012 Transparency in Supply

Chains Act and UK 2015 Modern Slavery Act, which merely mandate

disclosure of voluntary due diligence efforts in global supply chains (or the

absence thereof),

the French duty of vigilance law takes a step further,

requiring due diligence and imposing legal liability in case of ineffective

implementation resulting in damages.

The French duty of vigilance law is the result of a lengthy and persistent

campaign by NGOs, trade unions, and left-wing parliament members. For

years, many French NGOs and trade unions had called for the government

to act over corporate irresponsibility related to globalization. During the

2012 presidential campaign, François Hollande of the Socialist Party, in

response to an electoral appeal made by NGOs, pledged to “establish a law

16. UNIDO, What is CSR?, https://www.unido.org/our-focus/advancing-economic-

competitiveness/competitive-trade-capacities-and-corporate-responsibility/corporate-social-

responsibility-market-integration/what-csr [https://perma.cc/J3KJ-5NUK].

17. See Saskia Wilks, High Hopes for Mandatory Human Rights Due Diligence in 2020,

BUSINESS & HUMAN RIGHTS RESOURCE CENTRE (Dec. 17, 2019), https://www.business-

humanrights.org/en/high-hopes-for-mandatory-human-rights-due-diligence-in-2020# [https:/

/perma.cc/8LYK-TQDS] (reviewing the development of mandatory due diligence law in

Europe); see also European Coalition for Corporate Justice, Comparative Table – mHRDD

with Corporate Liability Laws in Europe, https://www.business-humanrights.org/sites/defaul

t/files/documents/eccj_hrdd_pcl-comparative-table-2019-final.pdf [https://perma.cc/FH6H-J

GJ8] (comparing France’s duty of vigilance law, Swiss proposals, Germany’s draft law for

Human Rights and Environmental Due Diligence Act, and Dutch Child Labor Due Diligence

Law).

18. See generally Adam S. Chilton and Galit A. Sarfaty, The Limitations of Supply Chain

Disclosure Regimes, 53 STAN. J. INT’L L. 1 (2017) (providing an in-depth analysis of the

California Transparency Supply Chain Act and its possible effects); PwC, Responsible

Business: What Are Companies Doing To Respond To The Modern Slavery Act?, https://ww

w.pwc.co.uk/sustainability-climate-change/assets/pwc-modern-slavery-act-business-insights

.pdf [https://perma.cc/2Z6L-GHQV] (providing an introduction to reporting under the

Modern Slavery Act).

436 U. OF PENNSYLVANIA JOURNAL OF BUSINESS LAW [Vol. 23:2

that would give effect to the responsibility of parent companies for the

actions of their subsidiaries abroad when the latter has a detrimental impact

on the environment and human health.”

Encouraged by this commitment,

a coalition of NGOs and trade unions worked closely with a few socialist

parliament members to bring the bill onto the legislative agenda.

The

collapse of the Rana Plaza textile factory in Bangladesh in April 2013, which

killed over a thousand workers who were hired by sub-contractors of several

global companies including French ones, gave an important impetus to turn

the political promise into a legislative bill.

In November 2013, six months

after the disaster, the first version of the bill was put forward.

The initial bill proposed two legal innovations. First, the bill introduced

a general duty for corporations to prevent any negative impact on human

rights, health and safety, and the environment caused by their operations.

Second, the bill introduced a new liability regime where corporations would

be presumed liable unless they could prove that they had taken necessary

steps to prevent the harm. The initial bill faced tremendous opposition from

the business sector and even the Ministry for the Economy and Finance. As

a result, a second version of the bill was proposed.

The second version significantly reduced the legal obligations for

corporations. It removed the general CSR duty and replaced it with an

obligation to produce a vigilance plan to identify risks and prevent harms to

human rights, health and safety, and the environment. While the second

version provided that companies would be liable for any harm resulting from

failure to implement the vigilance plan, the burden of proof was on claimants

rather than corporations. Moreover, it significantly narrowed the scope of

companies subject to the bill, i.e., only applicable to large corporations. The

National Assembly (the lower chamber of the parliament) adopted the

second version, but the Senate (the higher chamber) with a right-wing

majority adopted a significantly modified version referred to as the third

version.

The third version was simply a mandatory disclosure law without

19. Friends of the Earth France and ActionAid France-Peuples Solidaires, End of the

Road for Transnational Corporations?, 6–7 (2017), https://www.amisdelaterre.org/IMG/pdf

/end_of_the_road_for_tncs_foef-aaf-oct17.pdf [https://perma.cc/LXZ5-CP56].

20. See Alice Evans, Overcoming the Global Despondency Trap: Strengthening

Corporate Accountability in Supply Chains, 27 REV. INT’L POL. ECON. 658, 671–76 (2019)

(explaining why the law emerged in France but not in other European countries).

21. Id. at 667–69.

22. For a detailed account of the legislative history, see Nadia Bernaz, Unpacking the

French Bill on Corporate Due Diligence: A Presentation at the International Business and

Human Rights Conference in Sevilla, RIGHTS AS USUAL (Oct. 21, 2016), http://rightsasusual.

com/?p=1087 [https://perma.cc/QXB9-BLD7].

23. Id.

2021] CORPORATE SOCIAL RESPONSIBILITY LEGISLATION 437

any liability for human rights or environmental violations.

Meanwhile, the Cabinet initially was uninterested in pursuing the bill.

Nevertheless, the Cabinet became supportive at the later stage in an attempt

to pacify the left-wing parliament members who felt aggrieved by the pro-

business labor code amendment in August 2016.

The National Assembly

and the Senate then found a compromise and adopted the final version in

February 2017.

However, the legal battle did not end there. More than 120

right-wing members from both chambers of the parliament appealed to the

French Constitutional Council (the highest court) to challenge the

constitutionality of the law.

In March 2017, the court upheld most parts of

the law.

The law, as it stands now, requires French companies that have more

than 5,000 employees in France, or more than 10,000 employees worldwide,

to develop, disclose and implement a vigilance plan in order to identify risks

and prevent severe human rights violations and environmental damage

resulting directly or indirectly from the operations of the company, its

subsidiaries or its subcontractors with whom it has an established

relationship.

The plan should include a mapping of risks, regular

assessment procedures, actions to mitigate risks or prevent serious breaches,

and warning and reporting mechanisms.

In case of non-compliance with

the disclosure obligation, any interested party may give notice to the parent

company or seek injunctive relief by the court. More importantly, those

harmed by the company’s failure to establish or implement a plan may

launch a civil action and seek damages for corporate negligence.

In 2018, large French companies were obliged to establish, publish and

implement their first vigilance plan. The government does not publish a list

of companies subject to the law. It is estimated by NGOs that there are

around 300 companies subject to the requirement.

Available empirical

24. Evans, supra note 20, at 675.

25. Bernaz, supra note 22.

26. Evans, supra note 20, at 675.

27. The French Constitutional Council upheld the majority of the legislation but struck

down the proposed civil penalties for companies that fail to develop a diligence plan. For the

analysis of the constitutional decision, see Sandra Cossart et al., The French Law on Duty of

Care: A Historic Step Towards Making Globalization Work for All, 2 BUS. & HUM RTS. J.

317, 321–23 (2017).

28. For more details about the law, see id.

29. Id. at 320.

30. Id. at 321.

31. Friends of the Earth et al., Loi sur le devoir de vigilance des sociétés mères et

entreprises donneuses d’ordre - Année 1 : les entreprises doivent mieux faire [Law on the

Duty of Care of Parent Compagnies and Contractors - Year 1: Businesses Must Do Better] 7

(2019).

438 U. OF PENNSYLVANIA JOURNAL OF BUSINESS LAW [Vol. 23:2

reports consistently show that most of the vigilance plans published by

companies only meet the minimal requirements of the law and lack

informative details and substantive performance.

As noted, France’s duty

of vigilance law provides little regulatory monitoring but relies on private

actions for enforcement. The first legal action under the law emerged very

recently. In June 2019, a group of six environmental NGOs (two based in

France and four in Uganda) formally requested the French energy giant Total

to revise its vigilance plan and implementation for an oil project in Uganda.

Total refused to change after the three-month legal deadline. Total reasoned

that the French duty of vigilance law only requires general rather than

specific risk assessment, thus claiming that it already conducted detailed

environmental and social impact assessments for the oil project under other

laws.

The NGOs took Total to court, seeking a court order to force Total

to revise its vigilance plan and/or take any urgent measures.

In January

2020, the court (Tribunal de Grande Instance) dismissed the application,

finding that the vigilance plan would fall in the category of disputes among

commercial companies and, as such, the appropriate venue was a commercial

court.

The NGOs appealed to the Versailles Court of Appeals. The higher

court confirmed the view in favor of corporations that the vigilance plan was

a business management issue rather than a matter of human rights or

environmental protection.

Under the law, those harmed by the company’s failure to establish or

32. See Juan Ignacio Ibañez et al., Devoir de Vigilance: Reforming Corporate Risk

Engagement, DEVELOPMENT INTERNATIONAL, at 121–23 (2020) (reviewing ten empirical

studies on the implementation of the duty of diligence and conducting a new empirical study).

33. Friends of the Earth, Oil Company Total Faces Historic Legal Action in France for

Human Rights and Environmental Violations in Uganda (Oct. 23, 2019), https://www.foei.o

rg/news/total-legal-action-france-human-rights-environment-uganda [https://perma.cc/F52C

-KUMJ].

34. Id.

35. AFP, NGOs File Suit Against Total Over Uganda Oil Project, THE EAST AFRICAN

(Oct. 24, 2019), https://www.theeastafrican.co.ke/business/NGOs-sue-Total-over-Uganda-

oil-project/2560-5323092-r3aeku/index.html [https://perma.cc/9K9Z-KBQC]; Total Sued

Under France’s New Duty of Vigilance Law, INTERNATIONAL DAILY NEWSWIRE (Oct. 23,

2019), https://ens-newswire.com/2019/10/23/total-sued-under-frances-new-duty-of-vigilanc

e-law/ [https://perma.cc/PMK5-VSDK].

36. Ed Reed, Win for Total in French Case over Duty of Vigilance, ENERGY VOICE (Jan.

30, 2020), https://www.energyvoice.com/oilandgas/africa/221363/win-for-total-in-french-ca

se-over-duty-of-vigilance/ [https://perma.cc/UTQ5-B4CF].

37. Business and Human Rights Resource Centre, French Court of Appeal Remands

Case Against Total Over Alleged Failure to Respect Duty Of Vigilance Law In Uganda To

Commercial Court (Dec. 10, 2020), https://www.business-humanrights.org/en/latest-news/fr

ench-court-of-appeal-remands-case-against-total-over-alleged-failure-to-respect-duty-of-vig

ilance-law-in-uganda-to-commercial-court/ [https://perma.cc/SH5B-3V7T].

2021] CORPORATE SOCIAL RESPONSIBILITY LEGISLATION 439

implement the plan may pursue a negligence claim against the company.

To date, no such cases have been reported. Legal commentators appear to

share the view that civil actions are an unlikely remedy for victims.

As the

French Constitutional Court explained, civil liability is based on the ordinary

law of tort.

In France, there are three elements necessary to establishing

tort liability: damage, a breach of duty, and causation. There is great

uncertainty with regard to the breach element. The obligation under the duty

of vigilance law is to establish and implement a vigilance plan rather than to

guarantee any actual preventive results of the plan.

Thus, any occurrence

of harm does not imply a breach of duty. It is uncertain how to assess

whether a company has fulfilled the obligation of effective implementation

of the plan. Moreover, proving causation is a daunting task for victims.

Lastly, while the law gives foreign victims a legal right to seek remedy from

the parent company based in France, it remains very difficult for foreigners

to access French courts given French procedural laws.

II. MANDATORY CORPORATE PHILANTHROPY

CSR used to be seen as synonymous with corporate charity.

Accordingly, mandatory CSR could mean mandatory corporate

philanthropy. Mandatory corporate philanthropy is very controversial even

among CSR advocates. If CSR is voluntary by nature, corporate charity is

likely the very inner core of a firm’s voluntarism. Corporate donations raise

the specter of window dressing merely to improve corporate image.

In this

regard, mandatory corporate philanthropy may be viewed as a type of

mandated public relations management. As modern CSR has expanded far

beyond corporate charity and focuses on accountable management of any

negative externalities resulting from daily business operations, corporate

philanthropy is a narrow or even outdated aspect of CSR. Nevertheless,

corporate philanthropy remains a popular (mis)understanding of CSR. There

38. Cossart et al., supra note 27, at 321.

39. See Stephane Brabant & Elsa Savourey, French Corporate Duty of Vigilance Law: A

Closer Look at the Penalties Faced by Companies, 50 REVUE INTERNATIONALE DE LA

COMPLIANCE ET DE L’ÉTHIQUE DES AFFAIRES [INT’L REV. COMPLIANCE & BUS. ETHICS] 1, 3–

11 (2017).

40. Conseil constitutionnel [CC] [Constitutional Court] decision No. 2017-750DC, Mar.

23, 2017, para 27.

41. Brabant & Savourey, supra note 39.

42. Brabant & Savourey, supra note 39.

43. Brabant & Savourey, supra note 39.

44. Inger L. Stole, Philanthropy as Public Relations: A Critical Perspective on Cause

Marketing, 2 INT’L J. COMMC’N. 20, 20 (2008).

440 U. OF PENNSYLVANIA JOURNAL OF BUSINESS LAW [Vol. 23:2

seems to be a growing interest in this legislative mode. Mauritius is the first

country that adopted mandatory corporate philanthropy. India and Nepal

followed suit and Nigeria is currently deliberating over such legislation.

While mandatory philanthropy statutes vary across the countries, the gist of

this legislative mode is to require companies to commit a certain percentage

of their profits to designated CSR programs, such as programs to build

schools and to provide shelters for the poor.

A. National Experience (1): Mauritius

Mauritius is an island nation in the Indian Ocean that sequentially

experienced Dutch, French and British colonialism over the past centuries.

The country gained independence in 1968. In the decades following its

independence, Mauritius liberalized its economy and gained great economic

development. However, as the economic growth started to stall in the 1990s,

the government undertook further liberal reforms at the turn of the century.

Meanwhile, as Mauritius remained plagued with poverty and

inequality, the government was mindful of potential negative consequences

and critiques of liberalism. To support and legitimize its liberal approach to

development, the government appealed to CSR in several policy instruments.

For instance, part of the reform was the adoption of the national code of

corporate governance in 2003, declaring the pursuit of long-term shareholder

value as the ultimate goal of the corporation.

Notably, in the 2007 budget

speech, the Minister of Finance called for companies to contribute at least

one percent of their profits to CSR activities.

This initial voluntary call did

not receive much response from the private sector.

In 2009, the

45. For India, see Section II.B. In Nepal, the 2016 Industrial Enterprise Act provides that

companies with an annual revenue of more than NRs 150 million must contribute at least one

per cent of their annual profit to CSR. Moreover, Circular issued by Nepal Rastra Bank

(NRB) requires bank and financial institutions to allocate at least one per cent of net profit to

the following categories: social projects, direct grant expenses, sustainable development goals

and/or setting up a child daycare centre for employees. For more details, see Drishti

Maharjan, Corporate Social Responsibility (CSR): Scenario & Implications in Nepal, BIRUWA

ADVISORS (July 9, 2018), http://biruwa.net/2018/07/corporate-social-responsibility-csr-scena

rio-implications-nepal/ [https://perma.cc/RYH2-TTN2]. For Nigeria, see Jacob Segun

Olatunji, Reps Pass Bill for Companies to Adopt Corporate Social Responsibility, NIGERIA

TRIB (July 5, 2018), https://www.tribuneonlineng.com/153855/ [https://perma.cc/NM72-6FD

R].

46. See generally Renginee Pillay, THE CHANGING NATURE OF CORPORATE SOCIAL

RESPONSIBILITY: CSR AND DEVELOPMENT – THE CASE OF MAURITIUS 202–03 (2015).

47. Code of Corporate Governance for Mauritius § 2.3.2(g).

48. Pillay, supra note 46, at 223.

49. Pillay, supra note 46, at 226.

2021] CORPORATE SOCIAL RESPONSIBILITY LEGISLATION 441

government escalated its efforts to turn voluntary CSR into a legal mandate

by amending the Income Tax Act of 1995. The amendment requires all

profitable companies to contribute two percent of their preceding year’s

profits towards CSR activities.

This mandatory CSR legislation was

spearheaded by the Minister of Finance, who was tasked with reducing the

government’s expenditures on social services while significantly lowering

tax rates for corporations.

The government viewed national development

as a joint responsibility of the government and the private sector.

To implement the CSR mandate, the government created the National

CSR Committee to oversee the implementation. The committee was

composed of representatives of the government, the corporate sector, and the

NGO sector. The committee issued guidelines on how companies should

use their CSR funds. Initially, the CSR guidelines provided detailed

categories of qualified and non-qualified programs and a list of approved

NGOs eligible to receive corporate donations. In July 2015, all the CSR

guidelines were abandoned, and companies were allowed to use their CSR

funds according to their own CSR agendas. As a result, many companies set

up their own NGOs and hired employees through their NGOs, strategically

claiming compliance with the CSR expenditure requirements.

The

government viewed this practice deceitful, replaced it with a new CSR

framework in 2016, and has made some further adjustments since then.

Under the current CSR scheme (effective October 2019), every

profitable company in a year is required to set up a CSR fund equivalent to

two percent of its chargeable income of the preceding year, and at least

seventy-five percent of its CSR fund shall be remitted to the Ministry of

Finance.

The remitted CSR money is received and managed by the

National Social Inclusion Foundation (NSIF), whose council consists of

representatives from the government, the private sector, the NGO sector, and

academia.

The NSIF channels the CSR funding to programs in priority

50. Pillay, supra note 46, at 226.

51. Ram Seegobin, The Source and Growth of the NGO Phenomenon in Mauritius, LALIT

MAURITIUS (June 8, 2016), https://www.lalitmauritius.org/en/newsarticle/1869/the-source-

and-growth-of-the-ngo-phenomenon-in-mauritius-by-ram-seegobin/ [https://perma.cc/2BU6

-4CJR]; Pillay, supra note 46, at 226.

52. Id.

53. Id.

54. Ministry of Social Integration and Economic Empowerment of Mauritius, The New

Corporate Social Responsibility (CSR) Framework (2016).

55. Mauritius Revenue Authority, Guide on Corporate Social Responsibility (CSR)

(August 2019).

56. National Social Inclusion Foundation, Charter of National Social Inclusion

Foundation, at 4–10, https://www.nsif.mu/wp-content/uploads/2019/08/Charter-of-the-Nati

onal-Social-Inclusion-Foundation-.pdf [https://perma.cc/XJ4Z-F4QU].

442 U. OF PENNSYLVANIA JOURNAL OF BUSINESS LAW [Vol. 23:2

areas such as poverty alleviation, educational support, social housing,

assistance to persons with disabilities, environmental protection, etc.

After contributing the requisite amount to the NSIF, companies are

allowed to manage the remaining CSR money according to their own CSR

policies. In practice, large companies usually create their own CSR

programs or work with NGOs to spend the remaining CSR funds, while

small and medium-sized companies have limited resources and usually

prefer to remit all their CSR money to the NSIF.

The NSIF acts as the

central body to receive and allocate public funds to NGOs. The foundation

maintains a list of NGOs for the fund allocation purpose. As of June 2018,

there were 370 NGOs registered with the foundation. In the fiscal year of

2017-2018, the foundation approved and allocated a total of Rs 201.8 million

(USD 5.81 million) to 230 projects proposed by 172 organizations.

significant share of the approved programs (forty-four percent) were in the

priority area of educational support.

According to the foundation, it has

consistently monitored all the funded projects and provided necessary

training to NGOs.

The CSR scheme has aroused controversy in Mauritius. The mandatory

contribution of two percent of profits to CSR activities has been viewed as a

levy. Those who oppose the CSR levy argue that it may hurt the country’s

ability to attract foreign investment and disadvantage Mauritian companies

in international competition.

Moreover, without reliable monitoring and

credible assessment, there are concerns about the extent to which the CSR

programs, whether carried out by the NISF or companies themselves, have

fulfilled the purposes stated in the law.

B. National Experience (2): India

India’s CSR law is closely related to its corporate law development.

India’s corporate law in the colonial period was unequivocally shareholder

focused. The 1956 Companies Act, the first corporate statute adopted after

India’s independence, also centered on shareholder interests. The corporate

57. Mauritius Revenue Authority, supra note 55; National Social Inclusion Foundation,

supra note 56.

58. Pillay, supra note 56, at 254.

59. National CSR Foundation, Annual Report 2017-2018, 16.

60. Id.

61. Id. According to the National CSR Foundation, during the period ending as of June

2018, the foundation monitored 82 percent of the 230 CSR programs, spent 600 hours on field

visits to the funded organizations and provided mentoring supports to 71 organizations.

62. Seegobin, supra note 51, at 438.

63. Pillay, supra note 46, at 258.

2021] CORPORATE SOCIAL RESPONSIBILITY LEGISLATION 443

law reform during the economic liberalization in the 1990s continued this

focus on shareholder interests until the Satyam scandal (commonly known

as India’s Enron scandal) in 2009, which prompted the Indian government

to revisit its regulatory regime for corporate governance.

When reviewing

the Companies Bill in 2009, the Parliamentary Standing Committee on

Finance moved toward a stakeholder-oriented approach. The Committee

examined the extent of CSR being undertaken by Indian companies and

proposed the need for a comprehensive CSR policy.

In addition to the pro-CSR position taken by the Parliamentary Standing

Committee, the Indian government undertook other CSR initiatives. For

instance, in late 2009, the Ministry of Corporate Affairs (MCA) released the

Corporate Social Responsibility Guidelines that exhorted companies to share

the burden of the government through CSR. As the then-Minster of MCA

(Salman Khurshid) explained, “At a time when the Government is engaged

with delivery of a gigantic national development initiative and is taking a

leadership position on various global issues, I am sure that India Inc. will be

ready to walk step in step with the Government to discharge their

responsibilities towards national development.”

However, the voluntary

guidelines appeared to have little effect — CSR activities remained

uncommon among Indian companies after the guidelines were released.

In 2010, the government was deliberating on a new law requiring

companies to contribute at least two percent of their annual net profits to

CSR. The Indian business sector clearly opposed this proposal. Indian

business leaders were concerned not only about the appropriateness of

turning CSR into mandatory obligations but also the weakening of the

commitment to economic liberalization.

Ultimately, the government

adopted a compromised approach (i.e., comply or explain) in the Companies

Act, passed in August 2013.

The 2013 Companies Act shifts away from shareholder primacy and

requires directors to consider the interests of a wide range of stakeholders,

64. For the legislative history of the mandatory CSR law in India, see Afra Afsharipour,

Redefining Corporate Purpose: An International Perspective, 40 SEATTLE U. L. REV. 465,

476–88 (2017).

65. Id.

66. Ministry of Corporate Affairs Government of India, Corporate Social Responsibility

Voluntary Guidelines 2009, at 6 (emphasis added), http://www.mca.gov.in/Ministry/latestne

ws/CSR_Voluntary_Guidelines_24dec2009.pdf [https://perma.cc/PPX7-SL3L]

67. Dhammika Dharmapala & Vikramaditya Khanna, The Impact of Mandated

Corporate Social Responsibility: Evidence from India’s Companies Act of 2013, 56 INT’L

REV. L. & ECON. 92, 94–95 (2018).

68. Id. at 95.

444 U. OF PENNSYLVANIA JOURNAL OF BUSINESS LAW [Vol. 23:2

including employees, shareholders, communities, and the environment.

The most striking CSR provision is Section 135. It requires large companies

(defined by net worth, turnover, or net profit) to spend in every financial year

at least two percent of their average net profits made in the preceding three

years on qualified CSR programs. Each company subject to Section 135

shall establish a CSR board committee composed of three or more directors,

and at least one of the committee members must be an independent director.

The committee shall advise the board on how to spend the CSR fund and

monitor the implementation. If the company fails to spend the requisite

amount, the board shall explain the reasons for the non-compliance in the

annual report.

The CSR expenditure law has attracted great criticism in India. Those

from the political right view the mandatory CSR expenditure as a tax against

economic liberalization, while those from the left claim the comply-or-

explain approach does not go far enough to solve inequality problems in

India.

Moreover, as a matter of practice, the law raises questions about its

enforceability given that there is great uncertainty about the meaning of

CSR.

While the corporate statute mentions CSR multiple times, it does not

define it. In an attempt to solve the implementation problem, the government

issued a schedule that specifies qualified CSR activities, including programs

to eradicate hunger and poverty, to promote education and gender equality,

to assist rural development projects, etc.

According to the MCA, during the 2015-2016 financial year (the most

recent available data year as of the time of writing), 5,097 companies subject

to the CSR mandate contributed a total of 9,822 rupees crore (about $1.48

billion USD) to qualified CSR activities.

Yet, a significant portion of the

69. The Companies Act, 2013, §166; see generally Afsharipour, supra note 64 (detailing

the reformation of India’s corporate governance within the past decade).

70. The Companies Act, 2013, §135 (5).

71. See Aneel Karnani, Mandatory CSR in India: A Bad Proposal, STAN. SOC.

INNOVATION REV. (May 20, 2013), https://ssir.org/articles/entry/mandatory_csr_in_india_a_

bad_proposal [https://perma.cc/DBY5-2J4Q] (analyzing how the concept of CSR is

controversial to both sides of the political spectrum).

72. See Corporate Social Responsibility in India: No Clear Definition, but Plenty of

Debate, KNOWLEDGE@WHARTON (August 2, 2011), http://knowledge.wharton.upenn.edu/art

icle/corporate-social-responsibility-in-india-no-clear-definition-but-plenty-of-debate/ [https:/

/perma.cc/X2SW-3FPL] (explaining that the rules of CSR are so vague that reporting will be

vague and unsuccessful as well); see also Karnani, supra note 71 (arguing that the CSR law

is ineffective since it does not include an enforcement mechanism, penalties for non-

compliance, or an adequate legal definition).

73. Companies (Corporate Social Responsibility Policy) Rules §4 (2014).

74. Ministry of Corporate Affairs of India, CSR Expenditure of 5097 Companies for the

F.Y 2015-16, http://www.mca.gov.in/MinistryV2/csrdatasummary.html [https://perma.cc/SK

2021] CORPORATE SOCIAL RESPONSIBILITY LEGISLATION 445

large firms subject to the CSR mandate failed to contribute the requisite

amount.

In July 2019, India amended the law, requiring companies to

transfer any unspent amount for ongoing CSR projects to a special account

and spend the amount within three years after transfer. Any unspent amount

not committed to any ongoing CSR project shall be transferred to Prime

Minister’s National Relief Fund or any other fund set up by the central

government for socio-economic development and welfare of minorities and

other disadvantaged groups.

III. MANDATORY CSR GOVERNANCE STRUCTURE

CSR is a concept often juxtaposed to shareholder wealth maximization.

CSR expects corporations to consider and balance the interests of various

stakeholders in the course of doing business. A progressive way of

implementing such stakeholder-concerned CSR through the law is to require

the corporation’s central decision-making institution (i.e., the board of

directors) to be composed of representatives of various stakeholders. In

other words, shareholders as well as other stakeholders have institutionalized

powers in the corporate governance structure. It is a structural way of

implementing mandatory CSR — addressing CSR concerns through legal

requirements in a corporate governance structure.

An embodiment of this structural approach of mandatory CSR is the so-

called co-determination in which employees have representation at the board

level. For instance, Germany’s Codetermination Act requires companies

with more than 2,000 employees to have half the supervisory board of

directors as representatives of workers.

The inclusion of employee-

representatives on the board helps the protection of workers’ rights, which is

an important part of CSR. This co-determination legislation has existed

since World War II, mainly in European countries.

5R-Z9U3].

75. See Dharmapala & Khanna, supra note 67, at 103 (finding that firms that had spent

more than two percent of their net profits on CSR prior to Section 135 actually decreased their

CSR spending after its enactment); see also G.K. Kappor & Sanjay Dhamija, Mandatory CSR

Spending – Indian Experience, 3 EMERGING ECON. STUD. 98, 102–03 (2017) (stating that from

2014-2015 56% of companies did not spend the required amount); see also CRISL

FOUNDATION, ALTRUISM RISING: THE CRISIL CSR YEARBOOK 6 (2017), https://www.crisil.c

om/content/dam/crisil/crisil-foundation/generic-pdf/CRISIL%20CSR%20year%20Book_Alt

ruism%20rising_30Jan2017.pdf [https://perma.cc/C3B7-24VS] (finding that in 2016, 133

companies did not spend any money on CSR).

76. The Companies (Amendment) Act, 2019, §135, https://www.mca.gov.in/Ministry/p

df/AMENDMENTACT_01082019.pdf [https://perma.cc/2X5Z-HUV6].

77. The main source of the co-determination law is Mitbestimmungsgesetz of 1976.

446 U. OF PENNSYLVANIA JOURNAL OF BUSINESS LAW [Vol. 23:2

A new structural approach, albeit less structurally dramatic, is to require

the establishment of a CSR committee within the corporate governance

structure. The CSR committee is responsible for enacting and supervising

the company’s CSR policies and implementation. South Africa is the

forerunner of this approach.

A. National Experience: South Africa

The development of CSR in South Africa is inextricably linked to the

country’s apartheid history. The institutionalized racial segregation since

1948 gave the white-minority political and economic privileges and deprived

the black majority of fair opportunities. Although apartheid was abolished

more than three decades ago, the country’s large business organizations

remain under the control of the white minority. According to the World

Bank, South Africa is one of the most unequal countries in the world, and its

inequality is the persistent legacy of apartheid.

Since the abolishment of apartheid in 1994, the government has adopted

a series of affirmative action laws to assist the historically disadvantaged

racial group. The most notable example is the Broad-Based Black Economic

Empowerment (BBBEE) Act of 2003, the purposes of which are to

encourage black ownership of business entities and to empower black

employees through human resources and skills development.

Under the

BBBEE Act, the government encourages companies to be socially

responsible by giving licensing and procurement preferences to BBBEE-

compliant companies.

The abolishment of apartheid introduced not only political and social

liberalization but also economic transformation. With the end of the

international anti-apartheid economic sanctions, South Africa sought to

reintegrate with the global economy through economic reforms. The

improvement of corporate governance was an important part of the reform

scheme. The 1994 King Report on Corporate Governance, which was

created to set good corporate governance standards in South Africa, took a

fresh view that directors should have a responsibility to society rather than

to shareholders only.

In 2004, the government published a policy paper

78. World Bank, Overcoming Poverty and Inequality in South Africa: An Assessment of

Drivers, Constraints and Opportunities, at 43 (2018), http://documents.worldbank.org/curate

d/en/530481521735906534/pdf/124521-REV-OUO-South-Africa-Poverty-and-Inequality-

Assessment-Report-2018-FINAL-WEB.pdf [https://perma.cc/Z6HS-EREG].

79. BBBEE Act § 2 (published on Jan. 9, 2004), https://www.gov.za/sites/default/files/

gcis_document/201409/a53-030.pdf [https://perma.cc/2JCU-9VWL].

80. See Philp Armstrong, The King Report on Corporate Governance, 3 JUTA’S Bus.

2021] CORPORATE SOCIAL RESPONSIBILITY LEGISLATION 447

that kicked off an extensive overhaul of South African corporate law. The

document emphasized the alignment between corporate purposes and

societal objectives.

Against this legal background, South Africa adopted a new company

law in 2008. South Africa’s 2008 Companies Act provides that its legislative

purpose is to “promote compliance with the Bill of Rights as provided for in

the Constitution” as well as to “reaffirm the concept of the company as a

means of achieving economic and social benefits.”

Consistent with the

legislative purpose, the new company law introduces an innovation: “The

Minister, [of Department of Trade and Industry] may by regulation, may

prescribe (a) a category of companies that must each have a social and ethics

committee, if it is desirable in the public interest, having regard to (i) annual

turnover; (ii) workforce size; or (iii) the nature and extent of the activities of

such company.”

The Companies Amendment Act (2011) and the

Companies Regulations (2011) further elaborate on the composition,

mandate and powers of the social and ethics committee.

According to the regulations, state-owned companies, listed public

companies, and companies that meet the public interest standard are required

to set up a social and ethics committee.

The committee must consist of

three directors or prescribed officers.

The committee must monitor the

company’s performance in five areas: social and economic development;

good corporate citizenship; the environment, health and public safety;

consumer relationships; labor and employment. When the committee

monitors each of these five areas, it has to consider relevant legal rules and

prevailing codes of best practice. The regulations provide example standards

for each of the five areas.

When considering “social and economic

development” issues, for instance, the regulations refer to the United Nations

Global Compact Principles, the Employment Equity Act, the BBBEE Act,

etc. In addition to monitoring, the committee has to report to shareholders

at the company’s annual general meeting on matters within its mandate. In

order to fulfil its mandate, the committee is vested with the powers to require

any director or prescribed officer to furnish any information or explanation

65, 68 (1995) (providing a review and the historical background).

81. The title of the policy paper is South African Company Law for the 21

Century—

Guidelines for Corporate Law Reform. For a discussion of the document, see Sulette

Lombard & Tronel Joubert, The Legislative Response to the Shareholders V Stakeholders

Debate: A Comparative Overview, 14 J. CORP. L. STUD. 211, 219–20 (2014).

82. Companies Act 71 of 2008 §7(a), §7(d) (S. Afr.).

83. Id. at §72(4).

84. Companies Regulations, GN R.351 of GG 34239 (26 Apr. 2011).

85. Id.

86. Id.

448 U. OF PENNSYLVANIA JOURNAL OF BUSINESS LAW [Vol. 23:2

necessary for the performance of the committee’s function and to attend any

annual shareholder meeting to address any issues related to its function.

The Companies and Intellectual Property Commission can issue an order to

a non-compliant company to form a social and ethics committee.

strengthen the legal status of the social and ethics committee, the South

African government is now considering explicit incorporation of many of the

detailed regulatory rules into its corporate statute.

Until now, much of the debate about the social and ethics committee

seems to focus on the status of the committee and its relationship with the

board of directors. Scholars are debating whether the social and ethics

committee is a board committee, or a corporate organ separate from the

board.

In practice, it seems that corporations usually treat it as a board

committee composed of a mix of executive and non-executive directors.

Some companies may include non-directors on the board, such as human

resources executives.

The initial reaction of the business sector in South Africa was cautious,

and businesses implemented the committee requirement reluctantly. A

survey conducted one year after the law came into effect found that 50% of

the companies subject to the law had not yet established a social and ethics

committee, and only 11% of the companies indicated a strong awareness of

the role and functions of the committee.

Despite the slow adoption at the

initial stage, almost all the state-owned enterprises and listed and public

interest companies in South Africa now have a social and ethics committee

87. Companies Act 71 of 2008 §72(8) (S. Afr.).

88. Id. at §84(6)-84(7).

89. Companies Amendment Bill 2018, GN 969 of GG 41913 (Sept. 21, 2018), http://ww

w.cipc.co.za/files/7715/4149/0472/Companies_Amendment_Bill_2018.pdf [https://perma.cc

/9AGE-NVU6].

90. For a summary of the debate, see Irene-Marié Esser & Piet Delport, The Protection

of Stakeholders: The South African Social and Ethics Committee and the United Kingdom’s

Enlightened Shareholder Value Approach: Part 2, 50 DE JURE 221, 223–24 (2017). The view

that the social and ethics committee is a board committee is based on the heading of Section

72 and the overall context of Section 72 of the Companies Act, while the view that the

committee is a separate corporate organ is based on the fact that the committee members are

appointed by shareholders, may be composed of non-directors, and directly report to

shareholders.

91. Social and Ethics Committee Report, ILLOVO (May 23, 2014), http://annualreport.il

lovo.co.za/Archive/2014/sustainability/social-and-ethics.asp [https://perma.cc/K35T-WCK

P]; Social and Ethics Committee Report, SPAR (Nov. 14, 2017), https://investor-relations.spar

.co.za/ir2017/governance-approach/social-and-ethics-committee-report/ [https://perma.cc/Z

VS4-WDWZ].

92. DEON ROSSOUW, ETHICS INSTITUTE OF SOUTH AFRICA, THE SOCIAL AND ETHICS

COMMITTEE HANDBOOK, 2 (2012), https://www.tei.org.za/phocadownloadpap/Handbook_too

lkits/SEC%20Handbook%20WEB.pdf [https://perma.cc/HZB7-Z3E5].

2021] CORPORATE SOCIAL RESPONSIBILITY LEGISLATION 449

in place.

Although there is no problem with establishing a social and ethics

committee, whether and how the existence of the committee helps CSR

performance remains unclear.

IV. MANDATORY GENERAL CSR DUTY (UNDER CORPORATE LAW)

Over the past decades, CSR has evolved into a comprehensive system

of daily business management.

As a result, mandatory CSR may refer to a

general legal duty to act in a socially responsible way. Available legal

experiences suggest that such a duty is often established under corporate law.

Exiting corporate law literature tends to equate the CSR duty with part of

directors’ fiduciary duty. This tendency is attributable to the influence of

common law jurisdictions.

For instance, the UK 2006 Companies Act

requires directors to consider the interests of employees, consumers,

suppliers, the environment, and the community when pursuing the interests

of shareholders.

However, less noted is that the CSR duty can be a

corporate obligation rather than merely part of directors’ fiduciary duty. The

corporate statutes of China and Indonesia illustrate this legislative mode,

where the law imposes an apparently broad legal obligation on corporations

to undertake CSR.

A. National Experience (1): China

The key feature of the CSR development in China is state centricity—

93. DEON ROSSOUW, ETHICS INSTITUTE OF SOUTH AFRICA, THE SOCIAL AND ETHICS

COMMITTEE HANDBOOK, SECOND EDITION, 5 (2018), https://www.tei.org.za/phocadownload/

Handbooks_Toolkits/SEC%20Handbook_2nd_Final%20for%20upload_March%202018.pd

f [https://perma.cc/ZVJ2-R5KX].

94. See Esser & Delport, supra note 90, at 232 (reporting no empirical evidence available

regarding the effectiveness of the social and ethics committee).

95. Archie B. Carroll, A History of Corporate Social Responsibility: Concepts and

Practices, in THE OXFORD HANDBOOK OF CORPORATE SOCIAL RESPONSIBILITY 19, 20 (Andrew

Crane ed., 2008).

96. See Benedict Sheehy & Donald Feaver, Anglo-American Directors’ Legal Duties and

CSR: Prohibited, Permitted or Prescribed?, 37 DALHOUSIE L. J. 345, 386–92 (2012)

(comparing whether directors have a CSR duty in Australia, Canada, the U.K. and the U.S.).

97. Companies Act 2006 § 172, c.46 (Eng.); see also Virginia E. Harper Ho, Enlightened

Shareholder Value: Corporate Governance Beyond the Shareholder-Stakeholder Divide, 36

J. CORP. L. 59, 78–79, 92 (2010) (explaining how Section 172 mandates greater corporate

social responsibility); see also Andrew R. Keay & Hao Zhang, An Analysis of Enlightened

Shareholder Value in Light of Ex Post Opportunism and Incomplete Law, 8 EUROPEAN

COMPANY & FIN. L. REV. 445, 446–48 (2011) (evaluating whether Section 172 is too vague a

requirement to effectively ensure that directors consider the interests of all stakeholders).

450 U. OF PENNSYLVANIA JOURNAL OF BUSINESS LAW [Vol. 23:2

the state, rather than civil society, playing a central role in advancing CSR.

This state-centric approach to CSR is the outgrowth of the state’s dominance

in China’s politics, economy and society. China’s economic system is often

characterized as “authoritarian capitalism” or “state capitalism.”

Political

liberation remains minimal, which suppresses civil society that is supposed

to be a major force pushing for CSR. The state-owned sector remains a

dominant economic power.

100

The state (and ultimately the Chinese

Communist Party) has used its position as a regulator and a controlling

shareholder of state-owned enterprises to promote CSR. The motivation of

the party-state is not simply economic, but more importantly, political. The

party-state views CSR helpful to “social harmony” and ultimately, its ruling

stability.

101

The Chinese government has taken numerous measures to promote

CSR. Most of these state-led CSR initiatives are quite recent, dating back to

2006.

102

The most salient and representative is probably the CSR provision

in China’s 2006 Company Law. China’s corporate law since its first

adoption in 1993 has been a stakeholder-oriented model in which employees

have representation on the supervisory board.

103

The 2006 Company Law

reinforces employee participation in corporate governance by requiring that

at least a third of the supervisory board members be employee

representatives.

104

In this regard, China has already had a structural type of

98. See Virginia Harper Ho, Beyond Regulation: A Comparative Look at State-Centric

Corporate Social Responsibility and the Law in China, 46 VAND. J. TRANSNAT’L. L. 375, 378–

79 (2013) (comparing the state-centric model of Corporate Social Responsibility found in

China to the market and relationship driven model found in other parts of the world).

99. Barry Naughton and Kellee S. Tsai eds., STATE CAPITALISM, INSTITUTIONAL

ADAPTATION, AND THE CHINESE MIRACLE 1–24 (2015); Li-Wen Lin & Curtis J. Milhaupt, We

Are the (National) Champions: Understanding the Mechanisms of State Capitalism in China,

65 STAN. L. REV. 697, 697 (2013); James McGregor, NO ANCIENT WISDOM, NO FOLLOWERS:

THE CHALLENGES OF CHINESE AUTHORITARIAN CAPITALISM 13–15 (2012).

100. See University of Alberta China Institute, State-Owned Enterprises in the Chinese

Economy Today: Role, Reform and Evolution (2018), https://cloudfront.ualberta.ca/-

/media/china/media-gallery/research/policy-papers/soepaper1-2018.pdf

[https://perma.cc/2QSX-WJ8H] (noting how State-Owned Enterprises in China continue to

have an important, yet declining, role in China’s economy).

101. The idea of “harmonious society” was formally adopted in the Fourth Meeting of the

16th Central Committee of the Communist Party of China (October 11, 2006). See also Li-

Wen Lin, Corporate Social Responsibility in China: Window Dressing or Structural

Change?, 28 BERKELEY J. INT’L L. 64, 88 (2010) (discussing the relationship between CSR

and the government’s social harmony policy in China).

102. Ho, supra note 98, at 397.

103. Company Law of the People’s Republic of China (promulgated by the Standing

Comm. Nat’l People’s Cong., Dec. 298, 1993, effective July. 1, 1994), arts. 55, 121, Westlaw

China.

104. Company Law of the People’s Republic of China (promulgated by Standing Comm.

2021] CORPORATE SOCIAL RESPONSIBILITY LEGISLATION 451

mandatory CSR for decades. However, empirical evidence often suggests

that employee participation through the supervisory board is merely

superficial.

105

More importantly, the 2006 Company Law explicitly requires

corporations to undertake CSR. Article 5 provides that “[i]n the course of

doing business, a company shall comply with laws and administrative

regulations, conform to social morality and business ethics, act in good faith,

subject itself to the government and the public supervision, and undertake

social responsibility.”

106

The official legislative documents reveal little to

the public about the motivation of Chinese legislators who decided to adopt

the CSR provision. Nevertheless, some government officials and legal

scholars who were involved in the legislation compiled and published the

opinions considered in the law-making process, which may shed light on the

legislative motivation.

107

According to the sources, legislators from different

provinces seemed enthusiastic about incorporating CSR into corporate

law.

108

For instance, Shanghai delegates at the National People’s Congress

proposed that the company law should make it clear that “companies shall

protect and improve the interests of other stakeholders in addition to

shareholders.”

109

They also proposed that CSR might be included as one of

the legislative purposes of company law.

While there seemed to be little debate about CSR in the legislative

process, controversies arose in the legal community after the enactment of

the CSR provision (i.e., Article 5). The statutory language of Article 5

appears mandatory, yet Chinese law scholars have different interpretations

about the nature of the CSR provision. Some scholars take the CSR

provision as a purely ethical obligation without legal enforceability, because

the corporate statute does not provide any definition for CSR or any remedies

Nat’l People’s Cong., Oct. 27, 2005, effective Jan. 1, 2006), art.52, Westlaw China.

105. See e.g., Weian Li and Chen Hao, An Empirical Research of Supervisory Board

Governance in China’s Listed Companies, 2006 J. SHANGHAI U. FIN. & ECON. 78 (2006) (in

Chinese); Limin Wang and Shiquan Wang, An Empirical Analysis of Supervisory Board

Governance of China’s Private Listed Companies, 11 INQUIRY INTO ECON. ISSUES 120 (2007)

(in Chinese).

106. Company Law of the People’s Republic of China (promulgated by Standing Comm.

Nat’l People’s Cong., Oct. 27, 2005, effective Jan. 1, 2006), art.5, Westlaw China.

107. Kongtai Cao et al., A RESEARCH REPORT ON THE AMENDMENTS TO COMPANY LAW

(2005) (in Chinese). The Chinese government did not disclose official documents concerning

the legislative history. The editors of this report compiled the opinions considered in the

legislative process. The leading editor was the head of the State Council’s Legislative Affairs

Office, responsible for drafting laws and regulations. Other editors were also affiliated with

the Office; and some are prominent law professors in China.

108. Id., at 21, 141.

109. Id.

452 U. OF PENNSYLVANIA JOURNAL OF BUSINESS LAW [Vol. 23:2

in case of non-compliance.

110

In contrast, some scholars see Article 5 as

mandatory in nature.

111

They argue that the CSR provision is a fundamental

principle of corporate law; as a fundamental principle, it shall be mandatory

in nature and be applied to interpretations of all provisions throughout the

statute.

112

Moreover, they maintain that the corporate statute includes some

specific obligations consistent with the broad CSR principle, such as

employee participation in corporate governance. Other scholars argue that

the CSR provision is both a moral obligation and a legal obligation.

113

While the Chinese legal community holds divergent views on the nature

of the CSR provision, it agrees that the CSR law likely has little value in

legal practice. Indeed, Chinese courts rarely apply the law in a legally

consequential way. Nevertheless, it is not useless in judicial decisions. As

I have shown elsewhere, in some cases, Chinese courts used the CSR

provision as an additional legal basis to require companies to comply with

laws; in some cases, the courts used the CSR provision to exhort companies

to go beyond legal compliance, and more importantly, in a few cases, the

courts applied the CSR provision to determine the outcome of judicial

dissolution.

114

The courts viewed maintaining “social stability” as part of

CSR and thus denied granting judicial dissolutions that would potentially

cause riots by a large number of employees or customers.

115

China’s political

institutions play an important role in this “social stability” interpretation of

CSR. The Chinese government (ultimately the Chinese Communist Party)

suppresses any social unrest that would possibly threaten its ruling stability.

The Chinese courts subject to the Party’s control advance the Party’s

political interests in the name of CSR.

116

While judicial application of the CSR provision is generally limited,

there are many specific regulatory measures with a view to implement the

CSR provision in the corporate statute.

117

Mandatory sustainability reporting

110. See e.g., Xiaoxing Chen, Rational Consideration on the Legal Rule of Corporate

Social Responsibility: A Comment on Article 5 of Chinese Company Law, in China

Commercial Law Annual 2009, 50–53 (Baoshu Wang eds., 2009) (in Chinese).

111. Junhai Liu, INSTITUTIONAL INNOVATION OF NEW COMPANY LAW: LEGISLATIVE AND

JUDICIAL CONTROVERSIES, 555 (2006) (in Chinese).

112. Id.

113. See e.g., Jianbo Lou, The Literal Interpretation and Implementation Path of Article

Five Paragraph One of Chinese Company Law, 20 PEKING U. L. J. 36, 36–37 (2008) (in

Chinese).

114. Li-Wen Lin, Mandatory Corporate Social Responsibility? Legislative Innovation and

Judicial Application in China, AM. J. COMP. L. (forthcoming 2020), https://papers.ssrn.com/s

ol3/papers.cfm?abstract_id=3361448 [https://perma.cc/ZD9P-YE2Y].

115. Id. at 35–38.

116. Id. at 44.

117. Id. at 45; Ho, supra note 98, at 382–96.

2021] CORPORATE SOCIAL RESPONSIBILITY LEGISLATION 453

is a good example. For instance, in an explicit attempt to further the CSR

provision in company law, the Shanghai Stock Exchange requires certain

types of listed companies to issue annual CSR reports.

118

Moreover, many

of the regulatory measures target state-owned enterprises (SOEs). For

instance, the State-Owned Assets Supervision and Administration

Commission (SASAC), the government’s ownership agency, issues the CSR

guidelines for SOEs and requires SOEs to publish annual CSR reports.

119

Overall, except for a few judicial cases and specific CSR-related

regulations, the CSR law (i.e., Article 5) as a corporate behavioral standard,

is largely de facto voluntary, despite the mandatory tone of the statute.

B. National Experience (2): Indonesia

Indonesia’s early initiative of mandatory CSR began with the

regulations on state-owned enterprises (SOEs). After independence from

Dutch colonial control in 1945, the Indonesian government sought to gain

economic sovereignty by nationalizing Dutch businesses.

120

Since then,

SOEs have played an important role for economic development purposes.

Starting from 1999, every Indonesian SOE is required by law to allocate four

percent of their profit to partnerships with small and medium enterprises and

environmental management programs.

121

Unlike the state-owned sector where CSR is driven by the government,

the private sector’s CSR movement is mainly driven from outside Indonesia.

The global anti-sweatshop movement in the 1990s questioned the labor

conditions of multinational companies and their suppliers in Indonesia. As

a result, it raised local awareness of CSR and led to the emergence of CSR-

118. For detailed discussion about the Chinese stock exchanges’ CSR disclosure rules and

implementation effects, see Li-Wen Lin, Corporate Social and Environmental Disclosure in

Emerging Securities Markets, 35 N.C.J. INT’L L. & COM. REG. 1, 18–22 (2009).

119. In 2008, SASAC released the Guiding Opinions on Central Enterprises’

Implementation of Social Responsibility, which required the state-owned enterprises (SOEs)

under the central government’s control to publish CSR reports by 2018. In 2012, SASAC

released an informal notice requiring the central SOEs to begin publishing CSR reports in

2012. All the central SOEs have published annual CSR reports since then.

120. Sinaga, infra note 121.

121. The Ministry of SOEs of Indonesia issued a Minister Decree No. Kep-216/M-

PBUMN/1999, the Law No. 19 of Year 2003 concerning SOEs, and the SOE Ministry

Regulation No. Per-05/MBU/2007 concerning SOE’s partnership with small enterprises and

environmental management programme. See Rifeald Romauli Sinaga, The Indonesian

Government’s Role in the Development of Corporate Social Responsibility in Indonesia, 103

(November 2017) (Ph.D. Thesis, Griffith University) (discussing the Decree and rules

adopted), https://research-repository.griffith.edu.au/handle/10072/370832 [https://perma.cc/

B5H2-6KJR].

454 U. OF PENNSYLVANIA JOURNAL OF BUSINESS LAW [Vol. 23:2

focused NGOs in Indonesia.

122

In 2005, the government began a comprehensive revision to its 1995

corporate statute (i.e., Limited Liability Company Act). The 1995 company

law was clearly shareholder-focused, where the legislators adopted

shareholder wealth maximization as the purpose of the corporation and

abandoned any consideration of wider social purposes suggested in the

earlier drafts.

123

With shareholder primacy as the accepted principle, the

intended purpose of the 2005 revision was to promote trade, investment and

economic growth. Unsurprisingly, the original draft submitted to the

parliament did not refer to CSR at all. The parliamentary committee

responsible for preparing the final draft held a series of public hearings with

key stakeholders. Representatives of Business Watch Indonesia (BWI), a

prominent CSR-focused NGO in Indonesia, attended one of the hearings and

argued for the inclusion of CSR in the statute.

124

After this hearing, BWI

funded a trip to the Netherlands for three parliamentary members to

investigate CSR issues.

125

A subsequent parliamentary committee meeting

was held in June 2006, which occurred two weeks after the massive mud

flow pollution caused by a mining corporation owned by Aburizal Bakrie

(then Coordinating Minister for People’s Welfare and a key leader of the

Golkar Party, a conservative party).

126

In the meeting, various political

factions, including the Golkar’s opponents, supported mandatory CSR in the

law, partly intending to embarrass Bakrie and his party and partly intending

to direct CSR money to the indigenous Indonesian businesses in their own

electoral districts.

127

With the agreement on the inclusion of mandatory CSR into the new

corporate law, the parliamentary committee’s deliberation focused on how

much companies should spend on CSR activities. The proposed amount

ranged between three to five percent of a company’s net profit. Several

122. See Melody Kemp, Corporate Social Responsibility in Indonesia, Quixotic Dream or

Confident Expectation, UNITED NATIONS RESEARCH INSTITUTE FOR SOCIAL DEVELOPMENT,

TECHNOLOGY, BUSINESS AND SOCIETY PROGRAMME, Paper Number 6, 11–13, (Dec. 2001), htt

p://www.unrisd.org/80256B3C005BCCF9/httpNetITFramePDF?ReadForm&parentunid=EF

8F86E50D18E6D480256B61005AE53A&parentdoctype=paper&netitpath=80256B3C005B

CCF9/(httpAuxPages)/EF8F86E50D18E6D480256B61005AE53A/$file/kemp.pdf

[https://perma.cc/FUG3-XKSF] (discussing how the anti-sweatshop movement originating

outside Indonesia impacted CSR in Indonesia).

123. Petra Mahy, The Evolution of Company Law in Indonesia: An Exploration of Legal

Innovation and Stagnation, 61 AM. J. COMP. L. 377, 412 (2013).

124. Andrew Rosser & Donnie Edwin, The Politics of Corporate Social Responsibility in

Indonesia, 23 PAC. REV. 1, 11–12 (2010).

125. Id.

126. Id. at 12.

127. Id. at 12–13.

2021] CORPORATE SOCIAL RESPONSIBILITY LEGISLATION 455

business associations were strongly opposed to mandatory CSR. They

demanded that the parliament abandon the mandatory approach and opt for

a voluntary approach. Consistent with the business sector’s wishes, the

Golkar representatives on the parliamentary committee submitted a proposal

to replace mandatory CSR with a voluntary CSR statement in the law.

However, the committee rejected this proposal. The Golkar representatives

then proposed that mandatory CSR should be limited to natural resources

companies. The committee partially accepted the proposal; it agreed that the

law would be applied to natural resources companies and companies that

have activities connected with natural resources.

128

As a result, Article 74 of Limited Liability Company Act, passed in July

2007, provides that: (1) A limited liability company that carries out business

activities in natural resources sectors or in connection with natural resources

is obliged to implement corporate social and environmental responsibility;

(2) The social and environmental responsibility undertaken by the

corporation shall be budgeted and calculated as expenses of the company and

its implementation must be undertaken by considering appropriateness and

reasonableness; (3) Failure to implement the CSR obligation will incur

sanctions in accordance with further regulations.

129

Although the business sector failed to stop the law at the legislative

branch, it continued its battle against the mandatory CSR law by resorting to

the constitutional court. Indonesia’s Chamber of Commerce and Industry,

along with certain other associations and companies, jointly filed a judicial

review of Article 74 with the constitutional court. They argued that the law

violated the principle of legal certainty because the CSR mandate would

contradict the voluntary nature of CSR and essentially amount to double

taxation. The court reasoned that the meaning of CSR must be in line with

the culture of each country and therefore that the voluntary nature of CSR is

not universally true.

130

Moreover, the court took the position that CSR as a

legal obligation, as opposed to a voluntary initiative, provides more legal

certainty, not less.

131

The court also distinguished between taxation and CSR

spending. According to the court, tax levies are used for national

development, while CSR funds are used for communities and the restoration

of the environment where the company is located. The court also explained

128. See Id. (detailing the legislative history leading up to the law).

129. For an English-translated version of the Law of the Republic of Indonesia Number

40 of 2007 Concerning Limited Liability Company, see http://dlplawoffices.com/pdf/limited

liabilitycompanies.pdf [https://perma.cc/9NGP-YBCL].

130. Indonesian Constitutional Court Decision No. 53/PUU-VI/2008, available at http://h

ukum.unsrat.ac.id/mk/mk_53_2008.pdf [https://perma.cc/BSD2-ZAFJ].

131. Id.

456 U. OF PENNSYLVANIA JOURNAL OF BUSINESS LAW [Vol. 23:2

that there is no double taxation because the costs incurred for CSR are

calculated as the company’s costs and its implementation ability.

132

As a

result, the court upheld the CSR law.

Although the business sector was unsuccessful in defeating the CSR

law at the legislative and judicial review stages, it effectively delayed and

weakened the law at the regulatory implementation stage.

133

The

implementation regulation was belatedly released in 2012, five years after

the CSR legislation.

134

The regulation holds the board of directors

responsible for the practical details of CSR implementation, including the

preparation of annual CSR operations plans and budget plans. However, the

regulation adds little substance to implementation.

The regulation vaguely explains the meaning of “appropriateness and

reasonableness” as being “the financial capacity of the company having

regard to the risks that give rise to the social and environmental

responsibilities that must be borne by the company, subject to the obligations

of the company as set out in the legislation governing the company’s

business operations.”

135

Article 7 of the regulation provides that if a

company fails to fulfil its CSR obligations, it will be sanctioned as prescribed

by laws and regulations in effect. However, the regulation itself imposes no

sanctions. In fact, Article 3 of the regulation provides that “CSR shall be

mandatory for companies that carry on business in the natural resources

sector or related fields, where such CSR obligations are imposed by a

specific sectoral statute.” The regulation echoes the constitutional court’s

view that “CSR has been implicitly regulated by other laws and regulations

such as Forestry Law, Environmental Law, Water Resources Law and the

Law on Gas and Oil,” and administrative sanctions imposed under such laws

serve as an important way to punish companies failing to perform the CSR

obligation under the corporate statute.

136

As a result, the CSR obligation

under Article 74 of the Limited Liability Company Act turns out to be no

more than a legal obligation to comply with existing laws and regulations.

132. Id.

133. See Rosser and Edwin, supra note 124, at 8–11, 16–17 (describing the political

dynamics that shaped the introduction of mandatory legal requirements for corporate social

responsibility in Indonesia).

134. Government Regulation, 2012 (Regulation No. 47/2012) (Indon.).

135. Id.

136. Indonesian Constitutional Court, Decision No. 53/PUU-VI/2008 (Indon.). See also

Laurensia Andrini, Mandatory Corporate Social Responsibility in Indonesia, 28 MIMBAR

HUKUM 512, 519 (2016) (discussing the various forms of sanctions for when companies fail

to meet their CSR obligations).

2021] CORPORATE SOCIAL RESPONSIBILITY LEGISLATION 457

V. EVALUATION

At first glance, the CSR laws appear to be very different from each

other. They emerged in countries with different political, economic and legal

institutions. The laws, even for those similar in type, differ in content in one

way or another. Nevertheless, a deeper analysis reveals some important

commonalities of the apparently different CSR laws.

A. The Impetus of the Law

A comparison of national experiences suggests that governments on the

left wing of the political spectrum play a central role in bringing explicit,

mandatory CSR laws into fruition. China is ruled by a communist party.

The French law was passed under the socialist government. Mauritius, India,

and South Africa also passed their CSR laws under left-leaning

governments.

137

Left-wing politics generally supports egalitarianism and

public control of major political and economic institutions.

138

This political

ideology echoes many CSR issues (e.g., worker welfare and wealth

distribution) and endorses more government intervention in business

activities. A left-leaning political climate makes mandatory CSR laws more

possible.

Although left-wing politics helps, the governments’ immediate

instrumental needs likely play a more important role in mandatory CSR

legislation. The governments when pursuing the laws often had their own

instrumental interests unrelated to the protection of labor, human rights or

the environment. In France, the Cabinet supported the CSR bill mainly to

placate disgruntled fellow party members after the passage of a pro-business

labor law. In Mauritius and India, the governments use the mandatory

philanthropy law to ease their financial burdens for social welfare programs,

while seeking economic liberalization. The Chinese government pursues

social harmony in the name of CSR to maintain its ruling stability. The

Indonesian experience shows that politicians have predatory interests in

redistributing wealth from large foreign and Sino-domestic companies to

indigenous Indonesian businesses in their political network. The national

137. The Alliance Sociale led by the Labor Party won the 2005 general election in

Mauritius. The African National Congress, which is a center-left party, won the 2004 general

election in South Africa. The United Progressive Alliance (UPA) led by the Indian National

Congress, generally considered to be on the center-left of Indian politics, formed the

government after obtaining the majority in the 2009 general election.

138. See CHRISTOPHER COCHRANE, LEFT AND RIGHT: THE SMALL WORLD OF POLITICAL

IDEAS 10–33 (2015) (discussing the meaning of left and right).

458 U. OF PENNSYLVANIA JOURNAL OF BUSINESS LAW [Vol. 23:2

experiences reveal a dark side to the governments’ motivation. CSR

literature often portrays the bright side of why governments pursue CSR

policies. For instance, a well-cited World Bank report presents that

governments are driven by the desire to access international markets, attract

foreign investment, improve social and environmental standards, etc.

139

While the positive drivers may play a facilitating role in the policy

background, the national experiences suggest that it is often the dark motives

that give a powerful push in enacting the CSR laws.

The national experiences suggest a North-South divide in the impetus

of such CSR legislation. The French duty of vigilance law reflects a Western

focus on human rights violations and resonates with the United Nation’s call

for business responsibility and human rights.

140

In contrast, the CSR laws in

the developing countries including China, Mauritius, India and South Africa

focus on national development rather than human rights concerns in

globalization. By mandating CSR, the developing-country governments

seek resources from corporations to alleviate the development burden.

In addition to the political interests of governments, the advocacy of

NGOs plays an important role in some of the countries. In France, a coalition

of NGOs initiated the bill and sustained it throughout the legislative process,

which was critical to its passage in the face of strong lobbying power of large

corporations. In Indonesia, an NGO triggered the idea of writing CSR into

the corporate law bill in a public hearing, and the NGO also funded a number

of parliamentary members to become familiarized with CSR issues.

Moreover, the occurrence of corporate disasters as a result of irresponsible

conduct created a timely and favorable policy climate that accelerated the

lawmaking progress in both of these countries. As NGOs usually have

limited resources relative to big corporations, the external events gave the

civil sector more legitimacy currency to buy support from politicians.

Compared to the political interests of the governments, the type of the

pre-existing corporate law has limited explanatory power for the rise of the

progressive CSR laws. Intuitively, mandatory CSR legislation appears more

compatible with a stakeholder-oriented corporate law. France and China

give support to this proposition. They have had institutionalized employee

participation at the board level long before their recent CSR laws. Mauritius

and South Africa had a shareholder-centered corporate statute, though they

adopted a stakeholder-oriented code of corporate governance years prior to

139. TOM FOX ET AL., PUBLIC SECTOR ROLES IN STRENGTHENING CORPORATE SOCIAL

RESPONSIBILITY: A BASELINE STUDY (World Bank Group, 2002), http://documents.worldban

k.org/curated/en/284431468340215496/Public-sector-roles-in-strengthening-corporate-socia

l-responsibility-a-baseline-study [https://perma.cc/69YV-N6R4].

140. RBC Group, infra note 163.

2021] CORPORATE SOCIAL RESPONSIBILITY LEGISLATION 459

the mandatory CSR law. India’s mandatory CSR provision in the corporate

statute was adopted contemporaneously with other amended provisions that

expressly recognize various stakeholders. Indonesia’s corporate law prior to

the mandatory CSR provision focused on shareholders only, with the

adoption of a stakeholder-oriented corporate governance code just a few

months before the enactment of the mandatory CSR law.

141

The national

experiences indicate that a stakeholder-oriented corporate law is not a

precondition for the rise of progressive CSR law, and neither is a pre-existing

shareholder-focused corporate law a hurdle to the emergence of progressive

CSR law.

B. The Scope of Corporations Subject to the Law

The scope of corporations under the recent explicit CSR laws varies

across countries. The legislative histories in the examined countries indicate

that there was little discussion about the scope of corporations subject to the

law. It is unclear how the legislators determined which companies should

assume the legal obligation of CSR. Often, the laws target large companies.

The focus on large corporations has some merits. As large corporations have

greater impact on society, there may be a greater need to regulate large

corporations. In addition, large corporations, compared to small ones, have

more resources to engage in CSR. However, the determination of the size

threshold appears arbitrary rather than based on any rational analysis. For

instance, it is unclear why the French vigilance duty uses the number of

employees rather than revenues or other indicators as the threshold to trigger

the obligation of human rights and environmental protection.

142

illustrated, the Indonesian experience provides a vivid example that the

scope of corporations covered by the law is determined by politics rather

than any rationality.

143

Besides large corporations, state-owned enterprises (SOEs) are another

141. The corporate governance code was adopted in October 2006; the corporate statute

was adopted in August 2007.

142. The French duty of vigilance uses the number of employees as the threshold, while

the UK Modern Slavery Act applies a turnover threshold. France’s legislation to implement

the EU directive on the disclosure of non-financial information including the transposing

order of 19 July 2017 and Law n° 2016-1691 of 9 December 2016 on transparency, anti-

corruption and the modernization of economic life use the threshold of both the turnover and

the number of employees. See Stéphane Brabant & Elsa Savourey, Scope of the Law on the

Corporate Duty of Vigilance, 50 REVUE INTERNATIONALE DE LA COMPLIANCE ET DE L’ÉTHIQUE

DES AFFAIRES [INT’L REV. COMPLIANCE & BUS. ETHICS] 1, 2 (2017) (discussing the use of

number of employees as a criterion for triggering CSR obligations).

143. For the relevant discussion, see Section IV.B.

460 U. OF PENNSYLVANIA JOURNAL OF BUSINESS LAW [Vol. 23:2

target group. The CSR laws in China, South Africa, and Indonesia

specifically refer to SOEs. The linkage between SOEs and CSR is

unsurprising. SOEs have been known for pursing non-economic goals in

addition to (or sometimes other than) profits. Governments often use SOEs

to achieve objectives such as providing public goods, improving labor

relations, encouraging national economic development and industrialization,

etc. The inclusion of SOEs in the CSR laws reflects this governmental

orientation. In addition, the CSR laws may provide SOEs (ultimately the

government) with a legitimate excuse for their financial performance that is

often inferior to their counterparts in the private sector.

144

C. The Definition of CSR

A common theme of the explicit CSR laws is that CSR (or its

synonyms) is often undefined or unclear in the statutes. The laws in China

and Indonesia simply require companies to undertake “CSR” without giving

any definition of CSR. The courts in China and Indonesia suggest a context-

dependent approach to CSR, where the meaning of CSR depends on the

organizational, cultural, and national contexts. On the one hand, a context-

dependent approach makes sense from a business management perspective

because it considers the different needs of business organizations. On the

other hand, it may be open to abuse by the government, especially when the

rule of law is not well established to keep the government’s power in check.

The government may easily justify its intervention in business management

for the sake of CSR. For instance, as noted, Chinese courts in the name of

CSR refused to grant judicial dissolutions for fear of mass protests. A

context-dependent approach to CSR provides business flexibility, but at the

same time, it may add legal and political unpredictability.

Given that scholars and international organizations such as the United

Nations and the European Union have provided many CSR definitions ready

to use, why did the legislators prefer to leave it blank? On the one hand, the

lack of definition may be a result of the lack of genuine intention to

implement the law. On the other hand, great vagueness seems inevitable

despite efforts to define CSR. Mauritius and India provide a list of CSR

activities. Yet the named activities such as “poverty alleviation” programs

144. See e.g., SEA-JIN CHANG & SANDY YUAN JIN, THE PERFORMANCE OF STATE OWNED

ENTERPRISES IN CHINA:AN EMPIRICAL ANALYSIS OF OWNERSHIP CONTROL THROUGH SASACS

22–25 (2016) (researching the historical performance of SOEs in China in reference to various

reforms); Emita W. Astami et al., The Effect of Privatization on Performance of State‐Owned‐

Enterprises in Indonesia, 18 ASIAN REV. ACCT. 5, 6–19 (2010) (discussing how Indonesian

SOEs have been effected by CSR legislation).

2021] CORPORATE SOCIAL RESPONSIBILITY LEGISLATION 461

remain vague. The lack of definition is a common critique of the explicit

CSR laws.

145

As explained below, it does pose great challenges to the

implementation and the function of these laws.

D. The Implementation of the Law

A review of the national experiences shows that effective

implementation of the CSR laws is a very challenging task. To be sure, it

may be too early to judge given that many of the CSR laws have only recently

come into existence. Nevertheless, there are serious concerns about future

implementation.

As illustrated, the mandatory CSR laws often experienced a difficult

legislative journey. The laws faced strong opposition from the business

sector, which is unsurprising, as the laws explicitly target corporations,

especially large corporations with lobbying prowess. Mandatory CSR

obligations were significantly watered downed after the legal battles. In

France, the general CSR duty and the reversal of burden of proof proposed

in the original bill were completely gone and replaced by a vigilance plan.

The final law provides no regulatory monitoring over whether the company

adequately implements the legal requirements. In India, the compulsory

nature of CSR spending is compromised by the comply-or-explain approach.

In Indonesia, the implementation regulations were long delayed and, when

finally promulgated, too vague to provide any meaningful guidance for

implementation. All the CSR laws provide little or no government

monitoring over implementation. Consequentially, the mandatory CSR laws

permit superficial implementation.

Moreover, as noted, when pursuing the CSR laws, the governments are

often motivated more by political self-interests than by the pursuit of

social/environmental justice. When the motivation is to shame political

opponents or to appease fellow party members, the implementation of the

CSR laws depends on the vagaries of politics. Politicians may tend to exploit

the immediate political value of CSR without giving serious thought to its

long-term enforcement.

145. See e.g., Patricia Rinwigati Wassgstein, The Mandatory Corporate Social

Responsibility in Indonesia: Problems and Implications, 98 J. BUS. ETHICS 455, 461 (2011)

(“Without the clear clarification that such a regulation would provide, Article 74 is more

inspirational in character than it is any kind of operational regulation”);

KNOWLEDGE@WHARTON, supra note 72; Peixin Luo, Woguo Gongsi Shehui Zeren De Sifa

Caipan Kunjing Ji Ruogan Jiejue Silu [The Judicial Adjudication Dilemma and Several

Solutions for Corporate Social Responsibility in China], 12 LEGAL SCI. 66 (2007) (China)

(arguing that Chinese courts are unlikely to apply the CSR law given its vagueness).

462 U. OF PENNSYLVANIA JOURNAL OF BUSINESS LAW [Vol. 23:2

Explicit CSR legislation is a politically attractive tool for politicians to

promote their self-interests. The explicit reference to CSR or its synonyms

makes politicians feel that they are making a “good” law. Moreover, explicit

mandatory CSR legislation generates favorable political publicity and easily

impresses the public. Politicians may use it as an expedient way to signal

their commitments to social and environmental issues. They may be more

concerned with political signaling than actual implementation of the law,

especially when lack of legal enforcement is a taken-for-granted systematic

problem, often in developing countries. It poses little to no extra harm to

politicians’ credibility when the vast body of law is already infamous for lack

of enforcement.

Besides politics, the inherently open-ended nature of CSR leaves great

room for manipulation. As illustrated, the laws often deal with broad and

diverse legal issues (e.g., social, environmental, human rights issues). The

goal appears ambitious – wishing to hold corporations responsible for a wide

spectrum of their behavior through one statutory instrument. This ambition

comes at a price: vague statutory language. Meanwhile, the business reality

that there is no one-size-fits-all CSR strategy requires some vagueness to

accommodate diverse needs of corporations. This suggests a great limitation

on the residual lawmaking and enforcement functions undertaken by

regulators and courts.

146

It would be unlikely for regulators to proactively

stipulate CSR standards suitable for each company, and it would be often

inappropriate for judges to substitute their own opinions for CSR policies

made by corporate managers. Even if possible, the interpretation and

specification of a highly vague CSR law would place high demands on legal

infrastructure, which is particularly challenging for developing countries. As

a result, in practice, corporations would have great discretion in interpreting

and implementing the law.

In China and Indonesia, companies are required by law to undertake a

broad CSR duty, while CSR is completely undefined in the statute. In

France, the duty of vigilance law requires companies to have a plan to

identify and prevent “violations of human rights and fundamental freedoms,”

“serious harm to health and safety,” and “environmental damage.” The law

leaves wide discretion to corporations to determine what these terms mean

when constructing the vigilance plan. In Mauritius and India, while the

regulators provide categories of permitted CSR programs, such categories

146. See generally Katherina Pistor & Chenggang Xu, Incomplete Law, 35 N.Y.U. J. INT’L

L. & POL’Y 931 (2003) (discussing law being inherently incomplete). According to the

incomplete law theory of Professors Pistor and Xu, when law is highly incomplete, the optimal

allocation of the residual lawmaking and enforcement powers depends on the extent of

expected harm and the costs of standardizing actions that might cause harm. Id. at 951–54.

2021] CORPORATE SOCIAL RESPONSIBILITY LEGISLATION 463

are broadly stated, such as programs for “eradicating hunger and poverty” or

“educational support.” In practice, companies have great freedom to

characterize their CSR activities as one of these categories. In South Africa,

each company’s CSR committee enjoys liberty to decide the concrete

meaning and relevant measures of “labor and employment” and “the

environment, health and public safety,” etc. In short, while the CSR laws

impose a legal duty to undertake CSR, they often leave companies to decide

what CSR means at the implementation stage. Consequentially, the

compulsory nature of such CSR laws would be significantly diluted.

E. The Function of the Law

The purpose of the CSR laws is presumably to make corporations more

socially responsible. Yet, it remains unclear whether the recent progressive

forms of CSR legislation have made corporations any more responsible

toward society or the environment. Part of the reason is that it is very

difficult to measure social and environmental outcomes.

147

Moreover, there

is little evidence that the laws have effectively performed any regulatory or

adjudicative function to force corporations to change behavior. Regulatory

enforcement remains sparse or even lacking entirely. Judicial cases are very

rare. When courts do apply the CSR laws, as demonstrated in China and

Indonesia, they hesitate to impose any additional legal burden on

corporations beyond compliance with existing laws and regulations. As

noted, the French court interpreted the duty of vigilance as a commercial

matter, indicating judicial deference to corporate management.

Up to now, the function of the CSR laws seems largely expressive. The

expressive function operates in two ways. In one way, as noted, the laws

serve political signaling purposes. The laws with explicit reference to CSR

or its synonyms provide politicians an expedient and high-profiled way to

demonstrate to the public (or their constituents) that they are doing

something good to society and nature. The laws are intended to deliver

political symbolic value. In another way, which is good, the legal signaling

may potentially reconstruct existing business norms and change the social

meaning of appropriate corporate behavior.

148

The effectiveness of the

norm-changing function through a legal expression significantly depends on

the legitimacy of the state and the consistency of messages sent by the

147. See Galit A. Sarfaty, Regulating through Numbers: A Case Study of Corporate

Sustainability Reporting, 53 VA. J. INT’L L. 575, 621 (2013) (showing the problems and

challenges of constructing quantitative CSR indicators).

148. Cass R. Sunstein, On the Expressive Function of Law, 144 U. PA. L. REV. 2021, 2031

(1996).

464 U. OF PENNSYLVANIA JOURNAL OF BUSINESS LAW [Vol. 23:2

government.

149

In this regard, the national experiences unfortunately suggest

that the norm-changing function may be quite limited. The adopters tend to

be developing countries, and their governments do not have a reputation of

effective enforcement of their pre-existing labor, environmental, and human

rights laws. Although France is not afflicted by the systematic enforcement

problem, its government passed the duty of vigilance law in the midst of

labor law reforms that were viewed by many to favor business at the expense

of labor.

150

As a result, the governments’ signaling of CSR commitment is

at best ambiguous or at worst deceitful.

In addition, the expressive function of the CSR laws does not

necessarily work in a way that increases CSR activities at the firm level. Part

of the expressive function of the law is that the law provides a focal point

around which firms structure their behavior.

151

As the Indian experience

shows, while companies that initially spent less than two per cent of their net

profit increased their CSR spending after the law was passed, companies that

originally contributed more than the two per cent threshold reduced their

CSR expenditures after the law was passed.

152

Firms converge on the

minimum legal standard, and the two per cent threshold becomes an anchor,

putting a floor and a ceiling on CSR activities.

153

Law is helpful to set

minimum standards to provide behavioral guidance. Yet, in some cases, law

may not be useful to prescribe best practices because it incurs the risk of

crowding out intrinsic motivations for continuous improvement

154

and/or

raises the problem of using aspirational language that is difficult for courts

or regulators to enforce.

F. The Relationship Between the Laws and Beyond

Scholars often use soft/hard law categories to characterize the nature of

CSR initiatives.

155

In this regard, the recent CSR laws fall into the category

149. Ho, supra note 98, at 434.

150. The labor law reform caused mass protests of students, workers and unions in France.

Lucien Libert and Morade Azzouz, Hundreds of Thousands Protest at French Labor Reforms,

REUTERS (March 31, 2016).

151. Richard H. McAdams, Focal Point Theory of Expressive Law, 86 VA. L. REV. 1649,

1654–71 (2000).

152. Dharmapala and Khanna, supra note 67.

153. Dharmapala and Khanna, supra note 67.

154. For the literature on extrinsic incentives crowding out intrinsic motivations, see e.g.,

Uri Gneezy and Aldo Rustichini, A Fine is a Price, 29 J. LEGAL STUD. 1, 15–16 (2000)

(discussing how fines may not yield the intended results depending on social circumstances

and incentives).

155. For the distinction between hard law and soft law, see Kenneth W. Abbott and

Duncan Snidal, Hard and Soft Law in International Governance, 54 INT’L ORG. 421, 421–23

2021] CORPORATE SOCIAL RESPONSIBILITY LEGISLATION 465

of “soft hard law,”

156

in that they appear to be hard law that imposes legal

obligations on corporations but turn out to be soft in nature because of vague

behavioral requirements and weak compliance mechanisms. Governments

may use multiple “soft hard laws” to promote CSR. The different types of

explicit CSR legislation are not mutually exclusive; in fact, they often co-

exist with each other. As illustrated, France has mandatory CSR disclosure

and mandatory CSR due diligence;

157

Indonesia adopts mandatory

philanthropy for SOEs and imposes a general CSR duty on companies

related to the natural resources sector; China requires corporations to engage

in CSR reporting and undertake a general CSR obligation. Having multiple

“soft hard laws” might increase the chances of norm change. Nevertheless,

it is doubtful that multiple “soft hard laws” have comparable effects to a

“hard hard law” that has precise behavior requirements and rigorous

enforcement. It cautions against using the recent CSR laws as substitutes for

regulatory modes that require specific and substantive performance, though

the CSR laws may have a complementary role to play through promoting

CSR norms.

The Total case in France, discussed previously, is illuminating for the

relationship between the broad CSR law and other specific laws. Total’s

statement highlighted the general nature of the French duty of vigilance law,

distinct from the specific duty to conduct environmental impact assessments

for individual projects arising from other areas of law such as environmental

regulations.

158

As explained, the CSR laws tend to be broad and ambitious,

seeking to regulate social, labor, environmental, human rights and many

other issues through one legal instrument. This broad approach may be

useful for raising general awareness, but it runs the risks of symbolic

(2000).

156. Marcel Brus, Soft Law in Public International Law: A Pragmatic or a Principled

Choice? Comparing the Sustainable Development Goals and the Paris Agreement, in LEGAL

VALIDITY AND SOFT LAW 243, 263 (Pauline Westerman eds., 2018).

157. As early as 1977, France was the pioneer of mandatory corporate social reporting that

required large companies to disclose detailed information on employment, salaries, training,

hygiene, job security, industrial relationships and other working conditions. In 2001, France

was the first country in the world that required listed companies to disclose wide-ranging

social and environmental information about their activities. In 2012, France made the

disclosure obligations more comprehensive, requiring listed and unlisted companies with a

physical presence in France to disclose information under 32 social, environmental, and

governance indicators. Lucien J. Dhooge, Beyond Voluntarism: Social Disclosure and

France’s Nouvelles Regulations Economiques, 21 ARIZ. J. INT’L & COMP. L. 441, 443–45

(2004); Jonathan Morris, The Five W’s of France’s CSR Reporting Law, BSR (July 2012), ht

tps://www.bsr.org/reports/The_5_Ws_of_Frances_CSR_Reporting_Law_FINAL.pdf [https:/

/perma.cc/8KRG-TGS2].

158. Friends of the Earth, supra note 33.

466 U. OF PENNSYLVANIA JOURNAL OF BUSINESS LAW [Vol. 23:2

implementation and lax enforcement on the ground. It is questionable that

any one single government bureau would have requisite expertise and

resources to assess and monitor such a wide range of corporate behavior. To

the extent that specific corporate performance is required, it probably entails

specific legal requirements under specialized laws, such as topic-focused,

industry-specific, geography-targeted and behavior-specified regulations.

G. The Reform of the Law

The CSR laws, as they currently stand, have great limitations in forcing

responsible corporate behavior. Nevertheless, considering that many laws

began with tentative designs and compromises with politics but gradually

improved over time, the recent CSR laws might be viewed optimistically as

an experimental step toward development of better CSR legislation in the

future. With this positive view, how could the laws be improved? As

examined, the CSR laws generally lack government monitoring, legal

punishment for non-compliance, and/or any remedial mechanisms for

stakeholders. Accordingly, the laws may be strengthened along with these

issues. Beyond the general directions, different regulatory modes have

different specific issues to be addressed.

Mandatory CSR due diligence focuses on the importance of risk

identification and prevention plans. The corporation’s statements on risk

mapping and prevention policies, like other corporate reports such as

financial/CSR annual reports, should be verified by an independent third

party. However, the current mode of mandatory CSR due diligence as

adopted in France does not require any independent auditing but merely

relies on ex post litigation by victims to enforce the law. Given that the main

purpose of due diligence is to prevent harm, independent verification is an

important ex ante safeguard.

The legislative purpose of mandatory philanthropy is mainly concerned

with helping socio-economic disadvantaged groups in the local community.

It is important to ensure that corporations spend funding on such purposes

and not hide regular business expenses (e.g., employee compensation) under

the category of CSR. Transparency is an important monitoring device.

However, the mandatory philanthropy legislation as adopted in India and

Mauritius has few disclosure requirements. The law should require

corporations to provide a detailed annual report of the requisite philanthropy

spending subject to third party auditing.

Both the mandatory CSR committee legislation as adopted in South

Africa and the mandatory CSR duty as adopted in China and Indonesia

embed the CSR obligation in corporate law. Although the CSR legislation

2021] CORPORATE SOCIAL RESPONSIBILITY LEGISLATION 467

is presumably to protect non-shareholders such as employees, consumers,

communities, etc., none of the corporate statutes in these adopting countries

provide stakeholders with legal rights to challenge the board of directors or

the corporation in case of any breaches of the CSR obligation. The law can

be strengthened through empowering non-shareholders affected by corporate

actions to bring lawsuits against the board or the corporation for breaches of

their CSR duty. More importantly, similar to the fiduciary duty in corporate

law, CSR is “a residual concept that can include factual situations that no

one has foreseen and categorized.”

159

The judicial determination of whether

the corporation/the board meets the general CSR obligation under corporate

law requires many institutional supports including, but not limited to,

incentives for plaintiffs and attorneys to bring lawsuits; judges and attorneys

conversant with how to apply broadly stated principles; courts capable of

fashioning remedies without clear judicial guidance.

160

Given that CSR is

inherently a context-specific concept, policymakers when adopting such

legislation should not be preoccupied with drafting a perfect definition of

CSR. They should focus on institutional capacity building to deliver the

concrete meaning sensitive to the context of each case.

161

H. The Diffusion of the Law

There seems to be some regional diffusion of the aforementioned CSR

laws. After France, some European countries such as Switzerland and the

Netherlands are now considering a version of mandatory CSR due diligence.

Mandatory philanthropy was first adopted in Mauritius and then in India and

Nepal. Geographical proximity appears to play a role in the diffusion of the

CSR laws. As noted, mandatory CSR disclosure is now adopted globally.

Do any of the new types of CSR legislation potentially have similar

popularity? While politicians around the world may find the various forms

of explicit CSR legislation attractive for some reason (good or bad),

institutional factors suggest that the CSR laws may have divergent diffusion

patterns.

The institutional theory in sociology suggests that there may be

normative, coercive and mimetic forces that potentially lead to a wide

adoption of mandatory CSR due diligence.

162

The United Nations as an

159. ROBERT CHARLES CLARK, CORPORATE LAW, 141 (1986).

160. Lin, supra note 114.

161. Lin, supra note 114.

162. For the three diffusion mechanisms, see Paul J. DiMaggio and Walter W. Powell, The

Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational

Fields, 48 AM. SOC. REV. 147, 150–54 (1983).

468 U. OF PENNSYLVANIA JOURNAL OF BUSINESS LAW [Vol. 23:2

international norm setter recommends CSR due diligence as part of the best

practices on human rights protection in the United Nations Guiding

Principles on Business and Human Rights. To implement the UN’s

principles, in March 2019, the European Parliament’s Responsible Business

Conduct Working Group launched a plan for an EU law requiring companies

to carry out human rights due diligence regarding their operations,

investments, business relationships and supply chains.

163

Moreover,

policymakers in the face of increased political and economic uncertainty tend

to emulate measures taken by leading countries. Accordingly, policymakers

who are uncertain about CSR policies may copy laws from countries that are

perceived as CSR leaders, often developed countries such as France and

other European countries.

In comparison, the diffusion of mandatory philanthropy legislation, if it

occurs at all, is likely among developing countries only. Mandatory

philanthropy is particularly attractive to developing countries whose

governments have difficulties in meeting basic community needs.

Developed countries usually do not have such problems, and they often have

a sophisticated NGO sector to help. Moreover, as modern CSR now focuses

on comprehensive risk management and downplays or even discredits

corporate charity, mandatory philanthropy is unlikely to pass muster in

developed countries that have more advanced understanding of CSR.

Unlike mandatory philanthropy, mandatory general CSR duty and

mandatory CSR board committees have a better chance to travel across the

institutional contexts of developed and developing countries. As noted,

various forms of mandatory general CSR duty under corporate law have

emerged in both developing (obviously China and Indonesia) and developed

countries. The initial goal of France’s duty of vigilance law was to impose

a general CSR duty on corporations. Moreover, some developed countries

such as the U.K. have already had a version of mandatory CSR duty by

incorporating CSR concerns into directors’ fiduciary duty. Likewise,

although until now the mandatory requirement of CSR board committees

exists only in South Africa, the international community is quite familiar

with this regulatory mode in corporate governance. Mandatory CSR board

committees can be viewed as part of the international trend of using

mandatory special board committees (such as audit committee,

compensation committee, nomination committee, etc.) to solve particular

163. The Responsible Business Conduct Working Group (RBC Group) of the European

Parliament, Shadow EU Action Plan on the Implementation of the UN Guiding Principles on

Business and Human Rights within the EU (March 19, 2019), https://responsiblebusinesscon

duct.eu/wp/wp-content/uploads/2019/03/SHADOW-EU-Action-Plan-on-Business-and-Hum

an-Rights.pdf [https://perma.cc/Q9UL-NLE7].

2021] CORPORATE SOCIAL RESPONSIBILITY LEGISLATION 469

corporate governance concerns.

164

This institutional familiarity may

increase the likelihood of widespread acceptance.

CONCLUSION

Clearly, CSR is not merely a business word but a legal term. The legal

importance of CSR will likely continue to rise with the increasing threats of

climate change and social inequality around the world. The enthusiasm for

explicit CSR legislation seems real and growing. Explicit CSR legislation

looks appealing, politically and morally. However, it is challenging to make

it legally effective. It is fraught with conceptual contradictions and

vagueness, subject to political confrontation, and requires deep commitment.

Mandatory CSR disclosure is widely recognized as a weak form of

regulation, as it does not mandate any substantive social or environmental

performance. At first glance, the recent emergent forms of explicit CSR

legislation seem more progressive than mandatory CSR disclosure.

However, a close look at the national experiences shows that the laws are not

as “hard” as they appear. Optimistically, the recent legal innovations of CSR

may strengthen CSR awareness and reshape business norms.

Pessimistically, they may be merely window dressing legislation.

164. Jason Royce Fichtner, The Recent International Growth of Mandatory Audit

Committee Requirements, 7 INT’L J. DISCLOSURE & GOV. 227, 227–29 (2010).