The Potential of Corporate Social Responsibility: A Case Study on Effective Implementation of CSR from Denmark

Nathanael Ham
Vol. 42 Associate Editor

Over the last eleven years Ørsted has executed perhaps the most dramatic transition towards social responsibility of any company during the same period. The Danish oil and gas company has increased its green energy production from fifteen percent of its total production volume in 2009 to seventy-two percent in 2018.[1] The notorious polluter’s transition has led to a reduction in its carbon dioxide (Co2) emissions of seventy-one percent.[2] This type of dramatic change in carbon emissions is what is needed to prevent global warming from exceeding 1.5°C, and save tropical coral reefs, plant and animal species, and forests and wetland habitats.[3] This typifies the role that corporations can play in solving many of the problems our world faces. Climate change is a leading example, but there is also a significant role for corporations in preventing human rights abuses, promoting labor rights, and alleviating poverty. Companies whose business activities reach these areas can help society make substantial progress through effective Corporate Social Responsibility (CSR) initiatives. However, the task of implementing an effective CSR policy is not simple. Shareholder primacy, agency concerns, and share value as proxy for social good have all been put forward as justifications for corporations’ focus on stock value with only the minimal investment in CSR that the market will allow. However, scholars have shown that effective CSR can be a driver of stock performance. Ørsted is an example of this. There is a lesson to learn from examining the ways that international law, Danish law, and Ørsted’s corporate governance interacted to implement such an effective CSR policy.

 

International organizations have laid the groundwork for CSR by creating standards for nations and companies to adopt. The Guidelines for Multinational Enterprises, promulgated by the OECD, represent a growing consensus of social obligations for multinational enterprises and corporations.[4] The Guidelines cover thematic areas including labor rights, human rights, information disclosure, the environment and others.[5] Adhering to the Guidelines is voluntary, but adhering countries are obligated to set up National Contact Points which promote the Guidelines and hear grievances as a nonjudicial mechanism.[6] All thirty-four OECD countries, including the United States, and twelve non-OECD countries are adherents.[7] Although the Guidelines are non-binding, some countries have codified parts of the them into law through domestic legislation.[8] One of the thematic areas of the Guidelines is support for the United Nations Sustainable Development Goals.[9] The Guidelines state that in support of the SDG’s, businesses should contribute to economic, environmental, and social progress in their countries of operation as well as avoid and address the negative impacts of their activities.[10] Because adherence to these Guidelines is not mandatory not all companies conform, but there is growing social pressure for companies to be accountable for the social, environmental, and economic consequences of their actions.[11] Moreover, there is a strong business case for corporations to embrace the SDG’s.[12]

 

The Danish government has played a prominent role in encouraging its companies to embrace CSR.[13] An early example of this is “the inclusive labor market strategy” which the government developed to confront the growing issue of unemployment and social exclusion.[14] The plan called for a partnership between private companies and social partners.[15] This is one example of the Danish government using administrative systems and frameworks to create “soft law” to guide corporations CSR activities. Rather than a regulatory framework, this system of “soft law” views CSR as an “embedded and collaborative accomplishment that involves the blurring of boundaries between private, public, and civil spheres.”[16] In “the inclusive labor market strategy” example, the Danish government used public-private partnerships, sick leave policies, social clauses in collective bargaining agreements, and subsidized jobs, among other tools, to effectuate the program.[17] Since those earlier days the Danish government has gone through different CSR strategies as political leadership has changed.[18] More recent Danish governments have promoted adherence to the UN Global Compact, signed on to the OECD Guidance for Multinational Enterprises, and created Responsible Growth guidance.[19] Throughout the years the Danish government has maintained a clear commitment to encouraging CSR without using regulatory means.[20]

 

Ørsted’s corporate governance structure allows it to focus its resources in an extremely efficient manner. In 2006 Ørsted’s progenitor, Dong Energy, signed onto the SDGs.[21] The next year the company put its environmental strategy on equal footing with its other goals of supply and growth.[22] It seems clear enough that as an energy company, Ørsted has much responsibility for carbon emissions and environmental health. But what is less clear is how the company implemented its commitment to environmental social responsibility so successfully, especially since other prominent oil and gas companies have had less success.[23] A couple of clues are found in Ørsted’s Corporate Governance structure. First, Ørsted has a controlling owner.[24] This translates to better company performance because an active, controlling owner is a low-cost method of reducing agency costs.[25] Second, Ørsted’s annual meetings are open to the public and the media. This is a non-legal way of creating accountability for the controlling shareholder, preventing them from diverting company resources for private benefits of control. These two mechanisms help ensure that Ørsted’s shareholders’ and directors’ incentives are aligned, and that the company uses its resources to accomplish the goals set forth by the directors and shareholders with minimal waste. This efficiency has paid off not just in a reduction in carbon emissions, but also in improved financial performance. From 2009 to 2019, Ørsted’s revenue increased by more than 37 percent.[26] During the same period, the company’s earnings per share jumped from 44 cents to two dollars and two cents.[27] Corporate social responsibility is not just for the altruistic.

 

Ørsted’s nearly magical transformation offers a ray of hope for our environment and a glimpse into the potential of CSR. It proves that it is possible for the world’s energy companies and energy industry to dramatically reduce their Co2 emissions and become environmentally sustainable. Ørsted’s accomplishment is the result of a confluence of factors. The OECD and United Nations have helped to establish and promote international standards for environmental responsibility by corporations. Denmark has fostered CSR through a series of “soft law” initiatives as well as tying these initiatives to the U.N. and OECD guidance. This network of CSR promotion on the international and national levels created fertile ground for Danish companies to imbed CSR into their corporate missions. And Ørsted’s active owner governance and public annual meetings enabled the company to use its resources efficiently in the pursuit of its mission. If this three-part model for corporate social responsibility can be widely replicated, there is enormous potential for CSR initiatives to address the challenges of the 21st Century while unlocking economic prosperity.


[1] Eric Reguly, A tale of transformation: the Danish company that went from black to green energy, Corporate Knights, (Apr. 16, 2019) https://www.corporateknights.com/channels/climate-and-carbon/black-green-energy-15554049/.

[2] Ørsted Annual Report at 32 (2019).

[3] https://www.un.org/en/climatechange/science/key-findings.

[4] Thomas Walde, New Directions in International Economic Law: In Memoriam, at 224 (Freya Baetens and Todd Walter 2011)

[5] OECD Multinational Guidelines, https://mneguidelines.oecd.org/mneguidelines/ (Nov. 8, 2020).

[6] About OECD Multinational Guidelines, http://mneguidelines.oecd.org/about.htm (Nov. 8 2020)

[7] OECD Multinational Guidelines, https://mneguidelines.oecd.org/about/ (Nov. 23, 2020).

[8] Annual Report on the OECD Guidelines for Multinational Enterprises 2018 at 16, (2019)

[9] Supra note 4.

[10] RBC and the Sustainable Development Goals, https://mneguidelines.oecd.org/RBC-and-the-sustainable-development-goals.pdf, (Nov. 8, 2020).

[11] Supra Note 3 at 229.

[12] Supra Note 8.

[13] André Habisch, Jan Jonker, Martin Wegner,and Rene Schmidpeter, Corporate Social Responsibility Across Europe, at 26 (Springer Berlin 2005).

[14] Id.

[15] Id.

[16] Steen Vallentin, Governmentalities of CSR: Danish Government Policy as a Reflection of Political Difference, 127 Journal of Business Ethics 33, at 36 (2015).

[17] Id. at 38.

[18] See Id. at 42.

[19] Id.

[20] Id. at 43.

[21] Ørsted, Annual Report (Form 10-k) (2009).

[22] Id.

[23] See Scott Waldman, Shell Grappled with Climate Change 20 Years Ago, Documents Show, Scientific American (Apr. 5, 2018) (provides background information on Shell Oil Company’s limited response to internal memos describing the impact of climate change); See also Adria Vasil, Global 100 eyebrow raisers, Corporate Knights (Jan. 31, 2019) (stating that Shell Oil Company’s earnings from clean sources are less than one percent of their total, while Ørsted’s earnings from clean sources represent fifty-eight percent of their total earnings).

[24] Ørsted, Annual Report at 60 (Form 10-k) (2009) (I review the annual report from 2009 because this is when the company is making decisions on and executing its CSR initiatives. At this time 74% of the company is owned by the Danish State).

[25] Ronald J. Gilson, The Nordic Model in an International Perspective: The Role of Ownership, Stanford Law & Economics Olin Working Paper No. 475; Columbia Law & Economics Working Paper No. 517 (2014).

[26] Ørsted, Annual Report (Form 10-k) (2009); Ørsted, Annual Report (Form 10-k) (2020).

[27] Ørsted, Annual Report (Form 10-k) (2009); Ørsted, Annual Report (Form 10-k) (2020).

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