Corporate social responsibility in emerging markets: Opportunities and challenges for sustainability integration

Abstract

In emerging markets, Corporate Social Responsibility and social entrepreneurship practices emerge as drivers of social inclusion and welfare. In countries with considerable demands for social and economic transformations, Corporate Social Responsibility provides a positive force for addressing society's major challenges such as the United Nations' Sustainable Development Goals (SDGs). In this paper, we examine how two projects selected by the United Nations Development Programme (UNPD) orient their operations toward responsible management practices in a transition economy context and answer two questions: 1) Does Corporate Social Responsibility supporting social entrepreneurship pave the way for greater inclusion?, and, 2) How do the Corporate Social Responsibility practices help achieve the SDGs? By focusing our analysis on stakeholder theory, we highlight how context can influence the strategic management process of social inclusion choices. Both cases provide practical implications of how the insertion of responsibility thematic in core business strategy acts as an effective driver for the development of fundamentally important SDGs.

Introduction

The global - and current - COVID-19 pandemic has highlighted the vast inequalities existing across countries and severely affected those in low-income brackets of society (Van Zanten and Van Tulder, 2020). Lack of training and education, family situations, mental health issues, and lack of access to financial resources are factors that often lead to limited economic and entrepreneurial participation of low-income individuals. However, through non-market strategies, such as Corporate Social Responsibility (CSR) programs, many firms have been engaging in the implementation of projects aimed at fostering a more inclusive economy and reducing poverty levels in their surrounding communities. Specifically, firms have contributed to the achievement of greater societal goods, such as those portrayed in the United Nations’ (UN) Sustainable Development Goals (SDGs), by initiating and operating programs designed to provide historically disadvantaged members of society with access to resources needed to initiate small ventures that benefit from local endowments and create new jobs. A wide array of frameworks have been developed in the past few years, identifying the intervoweness of SDGs in contextual, sectorial, an multilevel dimensions of society (Nilsson et al., 2016; Kolk et al., 2017; Scherer et al., 2018; Van Zanten and Van Tulder, 2018; Sachs et al., 2019; Goubran, 2019; Montiel et al., 2021; Castor et al., 2020).

For firms operating in emerging markets, the presence of pervasive corruption, social inequities, power struggles, deforestation, among other difficulties, provides the opportunity for corporate malfeasance. Often, instead of exploiting the aforementioned institutional voids (or market failures) (Khanna and Palepu, 2010), firms have found opportunities to address and overcome such challenges through CSR (Carroll and Shabana, 2010; Pündrich et al., 2021). However, when it comes to firms’ design of CSR programs targeting relevant social, economic, and environmental issues in their surrounding communities, context matters (Barkemeyer and Miklian, 2019).

Our goal with this paper is to assess CSR programs aimed at fostering inclusive social entrepreneurship designed by two Brazilian companies, Energisa and Damha, and how they generated solutions to overcome the grand challenges associated with the SDGs and, consequently, affect the firms' performance. By describing two successful cases in an transition economy country, we demonstrate that when a supporting ecosystem is created and a range of stakeholders are involved, the chances of generating economic and social value (Grassmann, 2021) and long-term survival are increased. Further, we show how CSR activities promote social inclusion and provide performance improvements to the sponsoring firm in a non-munificent institutional environment (Bhatt et al., 2019).

We present two different case studies (Lynn, 2021), with the aim of examining their business orientations on CSR practices in an emerging market context (García-Sánchez et al., 2020) and answer two questions: 1) Does CSR that supports social entrepreneurship pave the way for greater inclusion? and, moreover, 2) How do these types of CSR practices help achieve the SDGs? At a time when firms are becoming one of the main targets of activist movements and international organizations (Desjardine et al., 2020), pursuing ethical agendas can be a source of legitimacy that also converges with economic benefits and risk minimization (Desjardine and Durand, 2020; Hunter and Bansal, 2005).

Moving away from the fuzzy debate on the business case for CSR and the question of “does it pay to be good?”, we shed light on the idea of “when and how are we going to be part of this?” (Lynn, 2021), situating the practices of the firms assessed in a context that shapes and is shaped by their CSR programs. Previous literature on CSR emphasizes that firms implement different practices in the various contexts where they operate (Aguilera et al., 2007), which opens space for specialization but also for greenwashing. Therefore, we benefit from the advancing literature on a contingency perspective of CSR (Grewatsch and Kleindienst, 2017; Halkos and Skouloudis, 2016; Rowley and Berman, 2000) to study contextual aspects and mechanisms that can explain why these firms have achieved positive financial (Siueia et al., 2019) and social outcomes through their CSR programs. Our work differs from others that address CSR case descriptions in that we consider the paradox between SDG results and corporate performance. Following Lynn's (2021) questions of when CSR is paid for, context is an influential factor in how a firm develops its CSR programs and results. In this sense, this paper contributes to the advancement of previous research by identifying context as an influencing factor, reinforcing the use of case studies as an appropriate method.

We carefully stress that institutional characteristics of these communities, and the country in which they are located, facilitated the achievement of these outcomes. The generalizations of our findings are limited to similar (or even to the actual) contexts in which these assessments were performed. Nevertheless, the two case studies presented portray sectors that have particularities within an emerging markets context. The Energisa case refers to an industry responsible for one of the cleanest energy matrices in the world: the Brazilian one, composed mostly of renewable sources and with low environmental externalities (Pischke et al., 2019). The clean hydroelectric generation has its fault-lines, since the country is mainly dependent on this energy source, Brazil is exposed to cyclic crises linked to drought patterns (Hunt et al., 2018). Damha company, on the other hand, is part of the construction sector, historically associated with significant contributions towards the Brazilian gross domestic product (GDP). However, the shortcomings of this sector relate to negative social externalities, such as lack of decent work standards and modern slavery (Pinheiro et al., 2019), environmental impacts of large infrastructure projects (da Silva et al., 2020), and urbanization issues such spatial segregation and provision of inadequate housing (Garmany and Richmond, 2020)).

The SDGs framework, as a macro level agenda designed for societal advancement, has been used to measure CSR progress (Fallah Shayan et al., 2022), nevertheless the literature research on specific linkages between SDGs and CSR is still to be fully developed (López-Concepción et al., 2021). Furthermore, there is a growing research interest on how the 169 targets of the SDGs are interwoven with different industries such as energy (Rampasso et al., 2021; Nerini et al., 2017) and construction (Johnsson et al., 2020), and how these linkages can act as diagnostic tool, identifying negative and positive relations (Vinuesa et al., 2020) and prognostic instruments in decision making, by highlighting synergies, trade-offs and calls for action (Scherer et al., 2018; Diep et al., 2021; Parikh et al., 2021).

In addition, the SDGs “deadline” is close, but data shows large discrepancies on how likely each country will be able to comply with the goals. While some OECD (Organization for Economic Co-operation and Development countries) are achieving the targets with considerable success, such as Norway, Finland and Denmark, others fall behind and are nowhere near to them (SDG Index, 2022), and one of the major dimensions of this shortcoming are the challenges in applying the macro goals at a contextual and regional level. These can hinder the achievement of the SDGs (Han and Lee, 2021), especially in regions such as Latin America, where work towards business sustainability is still to be fully developed (Ullah and Sun, 2021). The economic hierarchy of priorities also is a main barrier to achieving the SDGs thus our research brings to the foreground details on how economic interests can meet societal needs without necessarily harming a firm's long-term survivability. In fact, by responding to their surrounding communities' needs, firms can leverage their own performance - independently of the motivations that led them to implement the CSR program in the first place, relying not upon only on the concept of green marketing but the engagement of a network of stakeholders. We show that firms do so when they engage in political issues and assume public functions to deliver social goods and protect human dignity (Matten and Crane, 2005; Scherer and Palazzo, 2007).