August 2000


In the UK the Government has asked investment and pension funds to report on how their investments contribute to social and ethical responsibility.  The impact of this ruling has already made leading insurers and pension funds to put pressure on companies to improve social and environmental standards.  This issue will directly affect corporate and brand reputations, commercial success and their share price, according to Roger Cowe of 'The Guardian'.

But does increased social responsibility lead to better financial performance and an increased share price?  Research in The Planetary Bargain (see Publications) showed that share price and level of corporate responsibility had a weak positive correlation.  This is backed up by recent work by Sandra Waddock of Boston College (see who has shown that visionary companies can have a premium of over 5% over non-visionary companies.  Visionary companies have had better social performance than non-visionary ones.  This is illustrated in the following graph:

Copyright MHC International Ltd

The graph illustrates the 'J-curve' effect whereby a companies' share price at t0 falls to t1when news gets out about the companies' new values as published in its social report.  However, as the company starts to implement its new social programme through a new set of processes the share price recovers to its previous value at t2 and then, when targeted outputs are attained, achieves its corporate responsibility premium at t* .  The graph illustrates the 'Body Shop' or 'Nike' effect whereby putting one's head above water leads to getting into hot water but, eventually, this turns around into increased market value.  Indeed a comparison of visionary and non-visionary companies shows that the average premium is around 5% on share price alone.  The model of values, processes and outputs is used in MHCi's indicator set for measuring corporate social performance and in the CRITICS questionnaire on this web site - see CRITICS

[Contributed by Michael Hopkins]

H-CSR-M: Hopkins CSR Model

See: which is our training and certification website wholly owned by MHC International Ltd.

MHCi Monthly Feature: February 2014


Will Doing Good Through Legalising CSR in India Actually Do Bad?


Dr. Michael Hopkins, recipe CEO, MHC International Ltd

Will doing good through CSR in India do a lot of bad?

Stepping off the plane to receive a CSR award in Delhi last week, I was unhappy with the new CSR law passed by the Indian Parliament in August, 2013 that will come into effect for the largest companies as of April 2014.  If it looks like a tax, smells like a tax, legislates like a tax…then isn’t it a tax?

It is not clear exactly how the new law will influence companies but it is important to note that it shows that CSR has moved out of the mainly academic and business area, as in the past, but now into Government responsibility. 

India is not alone and other countries, such as Mauritius and Denmark, have worked on legal frameworks.  India insists that its framework is essentially voluntary, while Mauritius has insisted on 1% of company profits to be allocated to ‘CSR projects’.  Companies have, unsurprisingly, reacted in Mauritius negatively against such a law and are reluctant to pursue CSR activities even though they are beneficial to them.

The India law requires companies with a net worth of over Rs 500 crore ($US80million), turnover of over Rs 1,000 crore ($US160million), or net profit of more than Rs 5 crore ($0.8mn), to spend at least 2 per cent of the average net profit in the immediate three preceding years on CSR activity.  However, it isn’t mandatory, and apparently boards of the companies will only have to report how much they spent on CSR and explain why they couldn’t meet the commitment. The government will not, it seems, even ask them to amplify on that explanation.

Another main provision, and seemingly to come closer to the systems multi-stakeholder model of CSR model that I favour, is that Companies will have to set up a Corporate Social Responsibility (CSR) committee at the board level that must be headed by an independent director on the board. The committee will frame a CSR policy for the company or group and recommend expenditure on various projects. It will also monitor the CSR policy of the company from time to time.

The company will have to provide information on their CSR policy and the attendant spending on the website and in the directors’ report, putting all the relevant information in the public domain that can be accessed by the company’s shareholder, the media and social activists.

The idea is not to regulate too much which is why the entire principle of CSR has been encapsulated in just one section – section 135 of the Companies Act 2013 – with five sub-sections. It is expected that there won’t be more than 12 to 14 rules that are currently under formulation.

The Act encourages companies to spend at least 2% of their average net profit in the previous three years on CSR activities. The ministry’s draft rules, that have been put  up for public comment, define net profit as the profit before tax as per the books of accounts, excluding profits arising from branches outside India. The Act lists out a set of activities eligible under CSR. Companies may implement these activities taking into account the local conditions after seeking board approval. The indicative activities which can be undertaken by a company under CSR have been specified under Schedule VII of the Act.

One provision that goes against the tenets of muti-stakeholder CSR is that activities meant exclusively for employees and their families will not qualify.

After listening to dignitaries at the CSR conference organized by Dr. Tripathi at the University of Delhi in Feb 2014 presenting this author with a CSR lifetime achievement award, my view changed.  The Government law has actually raised the profile of CSR substantially in India and could well lead to the systematic multi-stakeholder model favoured around the world.  The tax is cloaked as a voluntary contribution for large companies.  But this wolf could actually turn not only into a sheep but into a new profit centre for corporations.  Watch out for my future contributions on these points as the law may actually turn out to be a Trojan Horse that will eventually benefit both society and companies themselves.

PS Our next Certified CSR Workshop in India on the implications of the new law will take place in Mumbai, 21-22 October 2014 - more details and register here. And, as one of our CSRFI participants noted last week:

'It was indeed a great pleasure to have attended the CSR Seminar in Mumbai last week and to have you as a key speaker - giving us an eye opening, exhilarating and an enthralling presentation. I would definitely like to seek an opportunity and would look forward to attend another one of your presentations in the near future.  I must say that your website is a plethora of knowledge.'


advice 'serif'; mso-fareast-font-family: 'Times New Roman';" lang="EN-GB">MHCi view of CSR & Sustainability in 2013

malady 'serif'; mso-fareast-font-family: 'Times New Roman'; mso-ansi-language: EN-US;"> find 'serif'; mso-fareast-font-family: 'Times New Roman';" lang="EN-GB">Michael Hopkins and Adrian Payne[1]

CSR Experts, National Liberal Club, London, Jan 7 2013


MHC International Ltd's (MHCi) sixth annual update took place in Central London with invited experts drawn from the business, academic and NGO world.  This beginning of the year, invitation only event is designed to keep MHCi's work on the cutting edge of CSR and Sustainability issues to ensure that our research, advisory services and executive programmes are as up-to-date as possible.


This year’s sixth MHCi annual CSR & Sustainability Update expert group meeting, with a range of CSR practitioners and commentators, once again looked at the prospects for CSR in the coming year in the context of changing trends and themes in the corporate, social, political and economic spheres.  MHCi uses these face-to-face intense discussions for its advisory services to companies and governments, and as an input into its executive programmes[2].

What did we say in 2012 and were we right?

The Table above shows the two author’s assessment of our ‘predictions’ on a scale of 1 to 10, with 10 meaning totally accurate and 1 totally inaccurate.  The main conclusion is that we were not far from what happened with a minor surprise being that trust did decline for companies e.g. Apple, but not their brands and products e.g. i-phones.  A bigger surprise appears to be the rise of CSR as an oft-quoted term and a focus more on a comprehensive multi-stakeholder approach focusing upon social, financial and economic issues than environment and climate change.  In fact its popularity led some (Pamela Ravaiso in particular) to see CSR being ‘watered down’.  For instance if everything and anything is termed as ‘CSR’ such as the implementation of new machinery needed to keep up productivity is then termed CSR because a side effect is using less energy, then this is stretching the concept somewhat.  Or a company declaring staff evaluations as CSR when in fact they are required by most EU law, or even a company claiming that non-paid (graduate level) interns are part of their ‘community development’.

Black Swan events[1]

Some (Mallen Baker in particular in a written comment) noted that all the points on the rating slide were progressive shifts. They don't happen over night and are hence easy to guess with relative accuracy over the upcoming 12, or even 24 months.  He challenged us to think about more sudden shifts, which could not possibly foreseen as easily – written about in Nicholas Taleb’s book on Black Swans.  In a political context, the Arab Spring could be such an example.

He noted that the most important and enduring changes often come about by more significant step changes, the causes of which are all familiar but the outcomes of which people never rank highly enough as a priority until after the event.  For instance, we knew that the financial system was under increasing stress for a number of years but we still managed to be surprised when the outcome came - and more importantly we only seem to react when catastrophe strikes.

Mallen continued that we have a number of growing stress factors around us at the moment, and logically we will see change that is not purely incremental as a result. We may not be able to predict with accuracy specific consequences, but we should be able to consider what are potential change points, and how might they be influenced.  So, for instance, more extreme climate events that shock people into greater urgency.  At what point might that lead business actors to get more actively engaged in the current polarisation of US politics on climate issues - and what would be the positive and negative outcomes of that?   Because surely the growing evidence of damage worldwide and the current US policy paralysis is one of those stress points where something has to give.  It doesn't, of course, have to give in the useful, constructive way that we would like.  As a species, it is perfectly possible we go over the edge into the abyss pointing fingers and blaming each other all the way to extinction.  But the purpose of looking ahead and making predictions must surely be to make us more prepared to seek the outcomes that are more desirable, and to avoid the worst effects of those that are not.

[1] A black swan is an event, positive or negative, that is deemed improbable yet causes massive consequences, see Nicholas Taleb ‘The Black Swan’ [Random House, 2010)


What do we think for 2013?

Trust in companies may stabilise while trust in brands will continue to remain relatively stable. In this regard, the mainstream media was very willing to slate companies for bad behaviour, but rarely did it praise companies for good behaviour. Part of the reason for this was maybe that good news on the sustainability front (i.e. lower carbon emissions) was much more nuanced than child labour in factories and seen as a lot less emotive. 

Trust in politicians will continue to evaporate - for example, in the UK, few of the electorate think MPs represent their interest as opposed to blindly supporting party politics. Some thought that this was due to MPs being paid too little (UK), others drew a contrast to the situation in other countries (e.g. Switzerland) where civic duty seemed to come first.  In the USA trust in congress has neared rock-bottom and is likely to stay that way for some time to come. 

The issue of trust will continue to spark a lot of discussion around banks, and our take on this was where do you draw the line between everyday competitive business practices and illegal behaviour.  Rather than directly criticise banks, would be better to lobby Governments to make the rules clear. Same as for tax since there is a fine balance between progressive taxation where the rich pay a little more and punitive taxes that destroy enterprise - we saw the cover of the latest Private Eye, on which Santa is lambasted for being a tax exile!  President Hollande in France has certainly gone too far with 75% marginal taxes on the rich with rigidities in the labour market un-examined.

CSR will continue to evolve although not necessarily in a structured way. Some opinion formers had moved the argument on from 'Sustainable Capitalism' to 'Breakthrough Capitalism' or even ‘Conscious Capitalism’.  However it wasn't immediately clear whateither would actually mean in practice. 

Social Media may well end up being a 'two-edged sword'.  Clearly this communication channel was becoming increasingly important (as was predicted last year), but companies CSR credentials could be enhanced or degraded at a whim. A key question here was how could companies best gear themselves up to make use of social media themselves.  Our group was divided on this and not on age grounds!

Companies will not cut back in CSR activities despite the current recession and times of austerity simply because companies now see CSR as a strategic business model essential for their business.  However it might mean that there would be cutbacks in funding for Green Issues as the seriousness of this issue had (in the public eye at least) diminished over recent years. Not helped by the relative lack of progress at Rio + 20.  On the other hand it was suggested that investing in Green issues could be a key focus for pulling countries out of recession.

The current wave of austerity, job loss and social unrest could stimulate Companies to consider changing their business models to adapt not only to changing social expectations of companies (e.g. executive pay and benefits) but also a leaner money supply.  Companies are likely to play a more pro-active role in pulling countries out of recession - transformative CSR as it were.  In the US, businesses may step in to solve the current intransigence (policy vacuum) on budget issues as without some agreement it was very difficult for companies to plan their investment programmes.

Although still at a slow burn, there was evidence that more women were assuming positions of power, not only in companies, but also in politics.

Taxation of big companies will continue to be an issue as even big national companies (e.g. Whitbread's Costa) are facing an unfair tax situation in so far as multinationals have the footprint that enables them to pay far less tax than Whitbread. And 'tax minimalists', for want of a better phrase, are getting it in the neck in part because governments desperately need the tax revenue, not so much to bail out banks but to prop up wholly unsustainable public sectors.

Certification/'fair trade' and 'organic' will continue but are starting to be confused/blended with other criteria such as food miles – a fairly hopeless approach given the CO2 footprint of greenhouses needed to produce 'local food'.  SA8000 certification of Pakistan and Bangladesh companies that then burned down with the loss of many lives will continue the re-think process.

Ecosystem services will continue to establish as a robust and popular concept in NGO and scientific circles, partly because it is a good way to think about the benefits of the environment.  However, making them mainstream will make the CSR community having to convince the public to get used to the idea that they should pay for such services.

Concluding remark

Finally, CSR in business will continue to mean much more than simply moral sustainability whereby moral sustainability is basically 'you leave the world in a better state than you found it'. Companies are more and more convinced that the path to profit can embrace social and environmental development linked to product innovation. One would hope that this corporate aspiration will be taken on board by Governments and NGOs in terms of a more objective assessment by these sectors of the potential value of partnerships to accelerate and bring about real change in the business environment to the benefit of all stakeholders. 

[1]Our meeting took place in London on Jan 7th and, as well as the two authors, consisted of Mallen Baker, John Cole, Adrian Henriques, Thomas Osburg, Pamela Ravasio, Julian Roche,  Bart Slob, Katherine Sykes, Alan Stainer, Lorice Stainer while Martin Summers kindly contributed his own thoughts in absentia.

[2]On the former see and on Executive Education see and

MHCi Monthly Feature: May 2012

Socially Responsible Investment or Corporate Social Responsibility

Socially Responsible Investment and Corporate Social Responsibility –  two halves of the same coin, viagra or quite different currencies?

Julian Roche, buy viagra VP, viagra MHC International Ltd


Within the ‘CSR world’ it is almost taken as axiomatic that there is no contradiction between Socially Responsible Investment (SRI) and Corporate Social Responsibility (CSR)[1].  The vision is this.  Investors will act responsibly looking at responsible and impact investment to make their money count for a better world as well as just obtain a financial return.  Meanwhile enlightened companies will recognise that an increasing number of investors will look at not just their raw financial numbers but also their CSR engagement and scores, and act to improve their CSR performance to attract more investment and lower their cost of capital.  There is already suggested evidence[2] that companies are able to attract investment less expensively if they perform well in certain CSR indicators.  A virtuous circle is almost inevitable, as progressively more investment is directed on a socially responsible basis and the pressure on companies to perform better in CSR mounts accordingly.

SRI and CSR poorly aligned with each other?

But what if this cheerful vision was not in fact true?  What would happen if, in fact, SRI and CSR were actually poorly aligned with one another, and even potentially in conflict?  But how could this possibly be?  Surely they not only sit well together, but are almost two halves of the same coin?

Let us start with Environmental, Social and Governance screening.  To see how this might conflict with CSR we need to look to another discipline, that of organisational theory.  On the whole CSR practitioners and indeed theorists are not dreadfully inclined to look at mundane concepts like the alignment of incentives and conflicts of interest within organisations, but perhaps they ought to.  What will be the consequence for corporate managers of pressure from SRI investors?  It will be to conform to the implicit instructions that they have been issued – not to innovate, or drive forward CSR initiatives themselves.  A strong parallel could be drawn with accounting procedures, to which IRIS[3] and other SRI initiatives are already fast approaching.

Another parallel can be drawn with zakat, the charitable wealth tax of the Muslim world.  It’s compulsory in Saudi Arabia, so accountants are employed to ensure it is kept to a minimum.  What started as a religious duty to perform has now widely become, unfortunately, a business duty to avoid.  If these parallels hold, within a matter of a few years, we could well be looking at institutionalised SRI accounting procedures – such is the goal to which IRIS really must be directed if is to transcend its current muddled mass of multiple indicators without weightings or any mandatory application. One longstanding advocate of corporate governance looks forward to this with enthusiasm: ‘The only way to deal with ESG is through immediate, rigorous and disciplined amendment of the global accounting system’[4].  If this were to happen, an SRI world might largely reduce CSR to conformity with the requirements of institutional and retail investors.  CSR as an innovative, management-driven discipline at the cutting edge would be dead and buried. Its replacement would be a massive system of management accounts which ensures compliance[5]. Supporters argue that ‘Rather than just box-ticking, SRI focused investments must demonstrate that they are differentiating companies based on ESG criteria’[6] – but those criteria must inevitably sit in boxes that require ticking or crossing.  Some funds even admit it already: ‘Too often ESG and Sustainable Investment can become a compliance driven, box ticking exercise’[7].

Box-ticking better than nothing?

There are however certainly those like me who would in significant measure welcome such a world of box-ticking, provided it did not dilute as it gained acceptance.  It’s a question of volume: once we have at least a measure of agreement on SRI screening criteria, however partial, and we can boost SRI percentages to a mission critical level, it might just be possible e.g. to starve companies we don’t like such as Xe (formerly Blackwater) or Philip Morris of sufficient funds to enable them to operate at a profitable size.  SRI might – just – start to squeeze objectionable firms out of business however profitable they are in the short term.  That would be good.  But alternatively however firms that fail ESG screens might end up relying on internal funding, as most good firms try to do anyway, or end up driven into the arms of totally unscrupulous investors (think private equity at its unregulated, socially indifferent worst) which would make them impervious to the demands of SRI investors.  

If CSR gets reduced to conformity with the wishes of SRI, then such firms – which include most of the family firms that (speak it softly) employ most and run the planet will have a ‘get out of jail free’ card as far as CSR is concerned.  Such firms, and the private equity companies that invest in them, are already CSR laggards: pressing SRI to the fore will give them all the incentive they need to retreat from CSR altogether – and tragically, might actually rule out the one thing that would curb them: savage regulation.

But in fact, you don’t have to look just at organisational theory to see the conflict between SRI and CSR.  Look at the most basic type of SRI, negative screening. Whilst there is, unfortunately, a huge range of disagreement over what ought to be ‘in’ and what ‘out’ of a screened portfolio, there is widespread recognition that weapons companies ought to be ‘out’ and most ESG screens eliminate them.  

Weighting in indices is a problem

Weapon manufacture is only one example: in the absence of a comprehensive agreement about the weighting of different aspects of ESG screening, a company that – for example – did an excellent job hiring disabled women in India could find itself screened out if it – again for example – made plastic bags[8].  It is not possibly to conceive naively of a world in which such brutal choices will always be necessary.  Fail one, fail all, is the usual ESG system: some companies might well be tempted, if they have already failed on e.g. environmental criteria, to throw in their lot with the sinners generally and abandon all CSR.  Why not?  Once they have failed on one test, no amount of useful charitable giving, sound employment practices, long glossy CSR reports, or anything else on the CSR scoreboard will make a penny of difference to the share price or cost of capital.  Plastic bag manufacturers, therefore, may see themselves as pariahs and abandon CSR altogether – and so might well tobacco manufacturers, arms manufacturers, airlines, oil and gas companies, and just about every company that feels itself threatened or excluded by the rising tide of SRI.  The effect of widespread ESG screening therefore might well be to reduce the level of CSR in the world, not increase it.  Or the world might divide between saints and sinners, with CSR playing the role of a Catholic pardon not needed by the sainted companies that pass ESG screens.

Impact investing a better solution?

So far though I’ve just looked at the potential effect of ESG screening.  We’re already well beyond that though, into the world of impact investment, where investors seek (without prejudice to their own interests) to make the world a better place by investing to effect.  What happens to CSR here? Powerful institutional investors might well be able to impose their own (usually liberal) values on companies that, left to their own devices, might pursue very different goals.  For example companies might constrain their overt adherence to religious principles in order to attract investment which would aim at – for example – women’s emancipation in developing countries.  Impact investment (II) if it is to work must constrain the freedom of action of investee companies’ directors, even if usually II objectives and investee companies’ objectives coincide.

A large fund might consider itself a successful II investor if the effect of an investment was to improve the living standards of a group of people far removed from the customers, suppliers or any other stakeholders of an investee company – whose directors and other shareholders might be reduced to local puppets, following the instructions of an enlightened higher being with much wider (but so often largely environmental) interests quite unidentifiable with any rational CSR policy of the investee company.  Is this an unimaginable notion?  No, certainly not: the II view of GM crops stands out as one example, where reducing local living standards by eliminating GM crops can be presented as an II triumph – albeit one hard to reconcile with any CSR policy of the now-impoverished local company.

To take another agricultural example, a CSR company (and actually any outside observer) might well take the view that the domestic policy of a country that restricts agricultural imports from developing countries renders the II of its Sovereign Wealth Fund (SWF) inherently contradictory – would such a company then reject investment from that SWF on ethical grounds? The number of potential conflicts is legion.


So that’s my argument: there is far from a happy synergy between CSR and SRI.  It’s interesting to note in conclusion that whereas CSR practitioners do not seem to recognise the threat to their profession that SRI may pose, SRI proponents themselves are alert to the possibility that they themselves might be outflanked by democracy.  It is surely fascinating that EUROSIF specifically excludes investment action driven by legislative requirements.  For example investment in screened arms manufacturers that are not involved in land mine production following the 2006 legislation in Belgium[9] – this is specifically not SRI, by the EUROSIF definition[10].  So it would seem that as legislation mandating funds to invest ethically (or at least not destructively) spreads, SRI should die a natural death.  I for one would welcome the day when SRI becomes unnecessary – and SRI’s greatest achievement would have been contributing to its own demise – but what makes me think that the emerging discipline itself would not welcome such an eventuality?  In the meantime, CSR and SRI may drift apart quite significantly.  We shall see.

[By Julian Roche with additional editing by Michael Hopkins, CEO, MHC International Ltd]


[1] An exhaustive internet search in April 2012 failed to reveal the slightest notion of such a contradiction

[2] Tortuously and possibly circularly based on the dividend theory of the cost of equity capital, but some evidence nonetheless

[3] IRIS: Impact Reporting and Investment Standards   accessed May 1st 2012


[5] How long before we start to see the rise of a discipline of ‘SRI compliance’ and the employment of ‘SRI Compliance Officers’?



[8] This very point came up recently in a debate within a private equity company about ESG and II


[10] This seems to be nonsensical – as if the only satisfactory burglary statistics are those where there burglary is not an offence – not to mention disregarding Australian election results because voting is compulsory


More Articles...

  1. GMU May