An Overview of the Clean Air Act

By 1970, with rampant smog alerts and particulate emissions obscuring skylines, it was
clear that previous efforts to control air contaminants were not adequate. The Clean Air
Act (CAA) of 1970 was the first of the major federal environmental laws.

Apr 29, 2004

The 1970 Clean Air Act launched an ambitious set of federal programs to establish air
quality goals and to impose pollution control technology requirements on new and
existing stationary sources and on motor vehicles. Major amendments to the CAA
enacted in 1977 and 1990 made significant changes to the federal air pollution program,
but the core of the program as it existed in 1970 remains the same.

Overview

The primary goal of the CAA is to achieve national ambient air quality levels protective
of public health and welfare by establishing air quality standards and imposing
limitations on air pollutant emissions from both stationary and mobile sources. The
Environmental Protection Agency (EPA) strives to meet the goals of the CAA through a
combination of its own standards and plans developed by the states with EPA oversight.

The Clean Air Act directs EPA to develop primary and secondary national ambient air
quality standards (NAAQS) for "criteria pollutants." The primary standards are
necessary to protect public health with what EPA calls "an ample margin of safety,"
while secondary standards are intended to protect against environmental and property
damage.

Costs are not allowed to be considered in setting primary standards and are designed to
be protective of sensitive sub-populations with continuous exposure. A geographic area
that meets the primary standard for a criteria pollutant is called an attainment area,"
while an area that exceeds the primary standard is called a non-attainment area. EPA
has promulgated NAAQS for six criteria pollutants: sulfur dioxide, particulate matter,
nitrogen dioxide, carbon monoxide, ozone and lead.

While the CAA establishes NAAQS for the criteria pollutants, OSHA, pursuant to the
Occupational Safety & Health Act, promulgates permissible exposure limits (PELs) to
protect workers against health effects of exposure to hazardous substances. PELs are
regulatory limits on the amount or concentration of a substance in the work place air,
and OSHA has set PELs for all of the criteria pollutants.

State Implementation Plans

EPA sets the NAAQS, but the task of how to achieve these standards is delegated to the
individual states. The CAA requires states to prepare and update a state implementation
plan (SIP) that ensures that each region within the state will come into compliance with
the NAAQS. A state is free, within bounds established by EPA, to develop its own SIP
and choose its own regulatory requirements in order to attain the national standards.
EPA reviews each SIP and either approves or disapproves the SIP. Should a state fail to
prepare a sufficient SIP, EPA must prepare one for it. There are also restrictions on
federal highway funds if a state fails to submit an adequate SIP.

Deadlines for achieving NAAQS vary depending on the pollutant and the severity of the
non-attainment. By far, the most difficult NAAQS to meet have been standards for
ground-level ozone. Moreover, EPA recently tightened ozone standards in a way that
will more than double the number of counties in non-attainment. SIPs for ozone have
forced changes to low-VOC coatings and solvents, substitution of non-photochemically
reactive volatile organic compounds, controls on nitrogen oxide emissions from fuel
burning, and various measures to reduce motor vehicle emissions.
New Source Performance Standards

New source performance standards (NSPS) ensure that the best pollution control
technology is used by new sources regardless of their locations. EPA issues NSPS, which
are federal technology-based requirements for emissions from categories of new or
modified stationary sources of air pollution. NSPS apply to any stationary source in an
applicable source category constructed after the proposal of NSPS regulations. These
standards also apply to any modification of such sources, which is defined as any
physical change in the source's method of operation that increases emissions or results
in the emission of pollutant not previously emitted. NSPS have been promulgated for
generic categories of sources, like boilers and volatile liquid storage tanks, as well as
industry-sector-specific processes.

National Emission Standards

The CAA amendments of 1990 require EPA to develop a program to establish national
emission standards for hazardous air pollutants (NESHAPS) to protect the public with
an ample margin of safety. The act contains a list of 189 hazardous air pollutants from
various industries, which EPA must regulate. HAPs include known or suspected
carcinogens, reproductive toxins and other harmful compounds. EPA may delete a
substance from the list if it has adequate information to conclude that emissions of the
substance may not reasonably be anticipated to cause adverse human health or
environmental effects.

EPA must develop standards to control hazardous air pollutants from categories of
major stationary sources of HAPs, as well as certain area sources. An area source is any
source that is not major. For the purpose of regulating HAPs, a major source is defined
as a source with the potential to emit 10 tons of any one HAP or 25 tons of any
combination of HAPs per year.
Once EPA has identified and listed major and area source categories of HAPs, EPA must
promulgate emissions standards for each source category. Major sources are subject to
technology-based emission standards or work practices based on the maximum
achievable control technology (MACT). EPA is nearing the end of its development of
MACT standards, with standards already promulgated for almost 100 source categories.
Additionally, within 8 years after promulgating a MACT standard, EPA must assess
whether even-more-stringent standards are necessary to assure protection of public
health with an ample margin of safety. Such residual risk standards are required, at a
minimum, if the maximally exposed individual faces a lifetime cancer risk greater than
one in a million.

EPA is also required to publish regulations and guidance for chemical accident
prevention at facilities using extremely hazardous substances. Through the Risk
Management Program Rule, EPA requires companies to develop a risk management
plan (RMP) and submit a description of the plan to EPA. The RMP must include a
hazard assessment analysis, a program for the prevention of accidental releases, and an
emergency response program.

New Source Review

The CAA divides the country into areas that are not yet achieving the NAAQS, or non-
attainment areas, and those areas in which air quality is better than the NAAQs, or
attainment areas. Regions may be non-attainment for one of the criteria pollutants but
not others.

In attainment areas, the Prevention of Significant Deterioration (PSD) program requires

that, prior to commencing construction, covered sources demonstrate that their
emissions will not cause air quality to deteriorate beyond specified numerical
increments or contribute to a violation of any NAAQS and that they will install the best
available control technology (BACT). The PSD program applies only to major stationary
sources and major modifications of existing major sources. To be considered "major," a
source must have a potential to emit any regulated pollutant of at least 250 tons per year
(100 tons per year for some source categories). A major modification is defined as any
physical change in the method of operation that would result in a specified net
emissions increase of any pollutant subject to regulation.

More stringent requirements apply to new major sources or major modifications in non-
attainment areas. Depending on the area, a major source may be smaller than 100 tons
per year, and a major modification of such a source may be one that produces any
increase in emissions. A project that is major and triggers non-attainment New Source
Review must use more stringent and costly lowest achievable emission rate (LAER)
control technology and must offset new pollution from the source by ensuring
reductions of pollution from existing sources.

Motor vehicle emissions Emissions from motor vehicles and other mobile sources
were the first forms of air pollution subject to national regulation. In order to reduce
pollution from mobile sources, the CAA requires refiners to market cleaner fuels;
manufacturers to produce cars, trucks, and buses meeting increasingly stringent tailpipe
emission standards; establish vehicle inspection and maintenance programs; and EPA
to develop regulations for off-road vehicles and equipment.

Acid rain The Acid Rain Program establishes provisions to reduce the
occurrence of acidification of lakes in the United States and Canada. The
main source of acid rain is coal-burning power plants. Long-range
transport sulfur dioxide and nitrogen oxide emissions results in acid rain
and fallout of acidic particulate matter, which enters surface waters directly
or through runoff. The Acid Rain Program is a phased approach to cut
sulfur dioxide emissions in half and substantially reduce nitrogen oxide
emissions from electric utility plants. To achieve these reductions, the
program establishes an innovative market-based system. Affected utility
units are allocated allowances based on historical fuel consumption and
specified emission rates. Each allowance allows a utility to emit one ton of
sulfur dioxide, which may be traded, bought and sold. For example, if a
plant expects to release more sulfur dioxide than it has allowances, it could
either get more allowances by buying them from another power plant, or
the plant could reduce its sulfur dioxide emissions.

Operating Permits

Title V of the 1990 CAA amendments created a national permit system that consolidates
all of the requirements of the CAA for a particular source. These permits, often referred
to as Title V permits or operating permits, include information such as the pollutants
released, how much may be released, and the abatement measures and monitoring
methods by the operator to reduce the pollution. Title V permits are required only for
certain sources considered major a broader subset than major sources subject to New
Source Review.

Ozone-Depleting Substances

The CAA also directs EPA to protect the stratospheric ozone layer. Scientists found holes
in the ozone layer and concluded that chlorofluorocarbons (CFCs) were causing that
destruction of the ozone layer. As a result, the CAA mandates the phase out of the
production and consumption of ozone-depleting substances and authorizes EPA to ban
nonessential products containing those substances.

In addition to the phase-out of the production of ozone-depleting chemicals, the CAA

requires the recycling of CFCs and labeling of products that contain or were
manufactured with ozone-depleting substances. Finally, the CAA encourages the
development of ozone-friendly substitutes for the ozone-depleting substances. As these
substitutes are developed, EPA must determine whether the replacement will be safe for
health and the environment.

Noise Pollution

Pursuant to the CAA, EPA established an Office of Noise Abatement and Control
(ONAC) to study the causes and sources of noise and to consult with EPA to determine
possible means to abate government noise activity that resulted in a public nuisance.
However, in 1982, the Office of Management and Budget and President Ronald Reagan
terminated federal funding for the ONAC on the basis that noise pollution was a local
problem best left to state regulation. EPA has set some noise standards for equipment;
however, its authority is limited.

Mercury Reduction Issues

In the past few years, EPA has placed increasing emphasis on the control of mercury
emissions, based on evidence that many people are exposed to levels of mercury that
could have adverse health effects, primarily through the consumption of contaminated
fish. Concentrations of mercury in the air are usually low and of little direct concern;
however, when mercury enters water, biological processes transform it to a highly toxic
form.

A major source of mercury emissions in the ambient air is the burning of fossil fuels.
Fallout from these sources deposits in waterways or on land where it can be washed into
surface waters. Bacteria in water can cause a chemical change and transforms mercury
into methlymercury, a highly toxic form of mercury.

Mercury is considered a HAP, for which MACT standards have been developed.
Emissions from certain sources, such as coal-fired electricity generating plants, will be
regulated through MACT. EPA is also considering other voluntary or mandatory
measures, such as the removal of mercury switches from automobiles and tennis shoe
lights.

Also, the administration's proposed "Clear Skies" legislation would create a mandatory
program to considerably reduce power-plant emissions of sulfur dioxides, nitrogen
oxides and mercury by setting a strict national cap on each pollutant. Opponents of
Clear Skies complain that the legislation would not achieve any mercury reductions
beyond those that will occur automatically as a result of sulfur dioxide and nitrogen
oxide controls, and they urge more ambitious mercury reduction measures.

Clean Air Act of 1970

public law 91-604

"An Act to amend the Clean Air Act to provide for a more effective program to
improve the quality of the Nation's air."

The amendments in 1970 were an entirely rewritten version of the original Clean Air Act.
In principle, it was a law that would show excellent results; however, in the midst of
environmental enthusiasm throughout the country, the Clean Air Act proved to be a
highly ambitious piece of air pollution abatement legislation. It set National Ambient Air
Quality Standards (NAAQS), to protect public health and welfare, and New Source
Performance Standards (NSPS), that strictly regulated emissions of a new source
entering an area. Standards were also set for hazardous emissions and emissions from
motor vehicles. Funds of $30 million went toward research on the growing problem of
noise pollution in larger cities. Also, as a new principle, this Clean Air Act allowed
citizens the right to take legal action against anyone or any organization, including the
government, who is in violation of the emissions standards.

amendments of 1977
The major debate during the creation of these amendments was that of motor vehicle
emissions standards. Ultimately, the deadline to meet them, as well as the deadline to
meet the ambient air standards, were extended. Also at this time, the government made
its first attempt to prevent the destruction of stratospheric ozone. This law also modified
the Prevention of Significant Deterioration (PSD) policy designating regions as one of
three different classes. By this time the government realized how ambitious the Clean
Air Act of 1970 was; therefore, they passed these amendments to set realistic goals.
Definition of corporate social responsibility (CSR)
Movement aimed at encouraging companies to be more aware of the impact of their business on the
rest of society, including their own stakeholders and the environment. [1]
Corporate social responsibility (CSR) is a business approach that contributes to sustainable
development by delivering economic, social and environmental benefits for all stakeholders.

CSR is a concept with many definitions and practices. The way it is understood and implemented
differs greatly for each company and country. Moreover, CSR is a very broad concept that
addresses many and various topics such as human rights, corporate governance, health and safety,
environmental effects, working conditions and contribution to economic development. Whatever the
definition is, the purpose of CSR is to drive change towards sustainability.

Although some companies may achieve remarkable efforts with unique CSR initiatives, it is difficult
to be on the forefront on all aspects of CSR. Considering this, the example below provides good
practices on one aspect of CSR – environmental sustainability.

Example
Unilever is a multinational corporation, in the food and beverage sector, with a comprehensive CSR
strategy. The company has been ranked ‘Food Industry leader’ in the Dow Jones Sustainability
World Indexes for the 11 consecutive years and ranked 7th in the ‘Global 100 Most Sustainable
Corporations in the World’.
One of the major and unique initiatives is the ‘sustainable tea’ programme. On a partnership-based
model with the Rainforest Alliance (an NGO), Unilever aims to source all of its Lipton and PG Tips
tea bags from Rainforest Alliance Certified™ farms by 2015. The Rainforest Alliance Certification
offers farms a way to differentiate their products as being socially, economically and environmentally
sustainable. [2]

Corporate social responsibility means that organizations have

moral, ethical, and philanthropic responsibilities in addition to their
responsibilities to earn a fair return for investors and comply with the
law. A traditional view of the corporation suggests that its primary, if
not sole, responsibility is to its owners, or stockholders. However,
CSR requires organizations to adopt a broader view of its
responsibilities that includes not only stockholders, but many other
constituencies as well, including employees, suppliers, customers,
the local community, local, state, and federal governments,
environmental groups, and other special interest groups.
Collectively, the various groups affected by the actions of an
organization are called “stakeholders.” The stakeholder concept is
discussed more fully in a later section.

Corporate social responsibility is related to, but not identical with,

business ethics. While CSR encompasses the economic, legal,
ethical, and discretionary responsibilities of organizations, business
ethics usually focuses on the moral judgments and behavior of
individuals and groups within organizations. Thus, the study of
business ethics may be regarded as a component of the larger
study of corporate social responsibility.

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Carroll and Buchholtz's four-part definition of CSR makes explicit

the multi-faceted nature of social responsibility. The economic
responsibilities cited in the definition refer to society's expectation
that organizations will produce goods and services that are needed
and desired by customers and sell those goods and services at a
reasonable price. Organizations are expected to be efficient,
profitable, and to keep shareholder interests in mind. The legal
responsibilities relate to the expectation that organizations will
comply with the laws set down by society to govern competition in
the marketplace. Organizations have thousands of legal
responsibilities governing almost every aspect of their operations,
including consumer and product laws, environmental laws, and
employment laws. The ethical responsibilities concern societal
expectations that go beyond the law, such as the expectation that
organizations will conduct their affairs in a fair and just way. This
means that organizations are expected to do more than just comply
with the law, but also make proactive efforts to anticipate and meet
the norms of society even if those norms are not formally enacted in
law. Finally, the discretionary responsibilities of corporations refer to
society's expectation that organizations be good citizens. This may
involve such things as philanthropic support of programs benefiting
a community or the nation. It may also involve donating employee
expertise and time to worthy causes.

Wilhelm Autischer, the CSR project manager for an Austrian

business, divides corporate social responsibility into three different
dimensions. The first dimension is economic. CSR practices help
not only the company, but the industry the company is in, by raising
the bar of expected behavior overall. Investors, seeing one
company adopt CSR policies will be naturally inclined to invest in
that company, having seen it demonstrate responsibility. Other
companies in the same field, seeing the benefits to CSR, will adopt
similar policies as an act of competition, and the attitude of the
industry will gradually change. This saves economies from suffering
declines through fraudulent business practices.

The second dimension is social. By this Autischer does not

necessarily mean creating a better society through specific
initiatives by the business, but rather refers to a more internal
change. As a company integrates CSR practices into its structure,
the way it treats employees will inevitably change. Individual
interests are treated with more respect in CSR-conscious
companies, and concerns such as employee health and family
relations are considered. Employees, benefiting from increased care
from the company (in whatever form it takes), carry the positive
influence home, influencing their families and society as well.

The third and last dimension is ecological. Companies take

ecological responsibility primarily in two ways. First, they adopt
precautionary practices, or practices that attempt to secure a
healthy and productive ecological environment for future
generations and the future of the company. This forward-looking
action can include research into alternative technologies and waste
management in production processes. The second action of the
ecological dimension is eco-efficiency, or the increase in economic
efficiency through better ecological practices. These sort of actions
reduce unhealthy emissions, replace unsafe chemicals with
harmless versions, and market more natural products. Many eco-
efficent policies are also precautionary, but the main difference is
that companies are looking for better profits through eco-efficiency,
while precautionary actions are taken primarily on ethical grounds.

The three dimensions of CSR are practiced in a number of ways.

Some of the more common policies, seen often in companies' social
information sections, include:
 Reform of internal controls and accounting habits, seen especially after the series of
accounting scandals that produced the Sarbanes-Oxley legislation.
 Policies encouraging diversity in the workplace and discouraging any type of discrimination.
 Reversal in corporate thinking regarding employees, a change from looking at them as costs
to looking at them as assets.
 Resource productivity, or the use of more natural resources in production and manufacturing,
leading to an ecologically cleaner product and often creating recyclable products.
 Polices regarding treatment of contract employees, especially in outsourced positions
located in other countries.
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Companies have taken an increased interest in CSR for a

combination of reasons. The role government has played in
legislations requiring certain social behaviors has decreased, giving
businesses more freedom to decide their social responsibilities
themselves. Investors and customers alike have begun to demand
stricter policies on the part of companies regarding not only their
attitudes toward the environment and the people they interact with,
but also how much information they reveal. Faced with more open
inspection encouraged by such acts as Sarbanes-Oxley, companies
are beginning to pay more attention to what their financial records
prove they are doing. Many investors, realizing that ethical issues
play a large part in how much they know and how successful their
investments become, are forcing companies to show that ethical
practices are being established.

Many companies have applied their CSR guidelines to the hiring

process as well, seeking out employees who have ethical
credentials or who agree with the company's moral standards. To
keep such employees, businesses are paying more attention to the
way they treat their work force, including the incentives they provide
for performance and working conditions. Externally, many of the
same policies are being applied up and down the supply chain, as
companies look for suppliers and distributors who share their ethical
concerns. Partnerships are formed with social responsibility as a
factor in the contracts.

HISTORY

The nature and scope of corporate social responsibility has

changed over time. The concept of CSR is a relatively new one—
the phrase has only been in wide use since the 1960s. But, while
the economic, legal, ethical, and discretionary expectations placed
on organizations may differ, it is probably accurate to say that all
societies at all points in time have had some degree of expectation
that organizations would act responsibly, by some definition.
In the 1960s and 1970s the civil rights movement, consumerism,
and environmentalism affected society's expectations of business.
Based on the general idea that those with great power have great
responsibility, many called for the business world to be more
proactive in(1) ceasing to causesocietal problems and (2) starting to
participate in solving societal problems. Many legal mandates were
placed on business related to equal employment opportunity,
product safety, worker safety, and the environment. Furthermore,
society began to expect business to voluntarily participate in solving
societal problems whether they had caused the problems or not.
This was based on the view that corporations should go beyond
their economic and legal responsibilities and accept responsibilities
related to the betterment of society. This view of corporate social
responsibility is the prevailing view in much of the world today.

The sections that follow provide additional details related to the

corporate social responsibility construct. First, arguments for and
against the CSR concept are reviewed. Then, the stakeholder
concept, which is central to the CSR construct, is discussed. Finally,
several of the major social issues with which organizations must
deal are reviewed.

NEGATIVE ASPECTS OF CSR

The major arguments for and against corporate social responsibility

are shown in Exhibit 1. The “economic” argument against CSR is
perhaps most closely associated with the American economist
Milton Friedman, who has argued that the primary responsibility of
business is to make a profit for its owners, albeit while complying
with the law. According to this view, the self-interested actions of
millions of participants in free markets will, from a utilitarian
perspective, lead to positive outcomes for society. If the operation of
the free market cannot solve a social problem, it becomes the
responsibility of government, not business, to address the issue.

The “competitive” argument recognizes the fact that addressing

social issues comes at a cost to business. To the extent that
businesses internalize the costs of socially responsible actions, they
hurt their competitive position relative to other businesses. This
argument is particularly
Exhibit 1
Arguments For and Against CSR

For Against

The rise of the modern corporation
created and continues to create many
social problems. Therefore, the
corporate world should assume
responsibility for addressing these
problems.
Taking on social and moral issues
is not economically feasible.
Corporations should focus on
earning a profit for their
shareholders and leave social
issues to others.

In the long run, it is in corporations' best Assuming social responsibilities

interest to assume social
responsibilities. It will increase the
chances that they will have a future and
reduce the chances of increased
governmental regulation.
places those corporations doing so
at a competitive disadvantage
relative to those who do not.

Large corporations have huge reserves
of human and financial capital. They
should devote at least some of their
resources to addressing social issues.
Those who are most capable
should address social issues.
Those in the corporate world are
not equipped to deal with social
problems.

Relevant in a globally competitive environment if businesses in one

country expend assets to address social issues, but those in
another country do not. According to Carroll and Buchholtz, since
CSR is increasingly becoming a global concern, the differences in
societal expectations around the world can be expected to lessen in
the coming years.

Finally, some argue that those in business are ill-equipped to

address social problems. This “capability” argument suggests that
business executives and managers are typically well trained in the
ways of finance, marketing, and operations management, but not
well versed in dealing with complex societal problems. Thus, they
do not have the knowledge or skills needed to deal with social
issues. This view suggests that corporate involvement in social
issues may actually make the situation worse. Part of the capability
argument also suggests that corporations can best serve societal
interests by sticking to what they do best, which is providing quality
goods and services and selling them at an affordable price to
people who desire them.

POSITIVE ASPECTS OF CSR

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There are several arguments in favor of corporate social

responsibility. One view, held by critics of the corporate world, is
that since large corporations create many social problems, they
should attempt to address and solve them. Those holding this view
criticize the production, marketing, accounting, and environmental
practices of corporations. They suggest that corporations can do a
better job of producing quality, safe products, and in conducting
their operations in an open and honest manner.

Finally, some suggest that businesses should assume social

responsibilities because they are among the few private entities that
have the resources to do so. The corporate world has some of the
brightest minds in the world, and it possesses tremendous financial
resources. (Wal-Mart, for example, has annual revenues that
exceed the annual GNP of some countries.) Thus, businesses
should utilize some of their human and financial capital in order
to “make the world a better place.”

The BSD, or Business and Sustainable Development, organization

separates CSR benefits into three categories. The first category is
company benefits. These positive effects are the most pertinent to
the companies themselves and include lower operating costs,
increased sales and customer loyalty, greater productivity, more
ability to attract and keep skilled employees, access to more capital
through more willing investors, decreased liability through better
product safety, and reduced regulatory oversight. Many companies
enhance their brand image and better their reputation through CSR
actions, as previously discussed.

The second category includes all benefits to the community the

business is connected to through its products and policies.
Charitable contributions fall under this category, whether local or
national, along with any social initiatives on the part of the company,
such as education programs and homeless care activities.
Employee volunteering is also included in community benefits.

The third category gathers all the environmental benefits, some of

which have already been discussed. In addition to material
recyclability, companies can also develop better product durability
and functionality through ecologically thoughtful practices, use more
renewable resources at lesser costs, and create several new
analysis tools, such as life-cycle assessment and eco-efficiency.

THE STAKEHOLDER CONCEPT

According to Post, Lawrence, and Weber, stakeholders are

individuals and groups that are affected by an organization's
policies, procedures, and actions. A “stake” implies that one has an
interest or share in the organization and its operations, per Carroll
and Buchholtz. Some stake-holders, such as employees and
owners, may have specific legal rights and expectations in regard to
the organization's operations. Other stakeholders may not have
specific rights granted by law, but may perceive that they have
moral rights related to the organization's operations. For example,
an environmental group may not have a legal right in regard to a
company's use of natural resources, but may believe that they have
a moral right to question the firm's environmental policies and to
lobby the organization to develop environmentally friendly policies.

All companies, especially large corporations, have multiple

stakeholders. One way of classifying stakeholder groups is to
classify them as primary or secondary stake-holders. Primary
stakeholders have some direct interest or stake in the organization.
Secondary stakeholders, in contrast, are public or special interest
groups that do not have a direct stake in the organization but are
still affected by its operations. Exhibit 2 classifies some major
stakeholder groups into primary and secondary categories.

The owners of a firm are among the primary stake-holders of the

firm. An organization has legal and moral obligations to its owners.
These obligations include, but are not limited to, attempting to
ensure that owners receive an adequate return on their investment.
Employees are also primary stakeholders who have both legal and
moral claims on the organization. Organizations also have specific
responsibilities to their customers in terms of producing and
marketing goods and services that offer functionality, safety, and
value; to local communities, which can be greatly affected by the
actions of resident
Exhibit 2
Categories of Stakeholder Groups

Primary Stakeholders Shareholders (Owners)

Exhibit 2
Categories of Stakeholder Groups

Employees

Customers

Business Partners

Communities

Future Generations

The Natural Environment

Secondary Stakeholders Local, State, and Federal Government

Regulatory Bodies

Civic Institutions and Groups

Special Interest Groups

Trade and Industry Groups

Media

Competitors

Table based on Carroll and Buchholtz, 2003: p. 71

Organizations and thus have a direct stake in their operations; and

to the other companies with whom they do business. Many social
commentators also suggest that companies have a direct
responsibility to future generations and to the natural environment.
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An organization's responsibilities are not limited to primary
stakeholders. Although governmental bodies and regulatory
agencies do not usually have ownership stakes in companies in
free-market economies, they do play an active role in trying to
ensure that organizations accept and meet their responsibilities to
primary stakeholder groups. Organizations are accountable to these
secondary stakeholders. Organizations must also contend with civic
and special interest groups that purport to act on behalf of a wide
variety of constituencies. Trade associations and industry groups
are also affected by an organization's actions and its reputation.
The media reports on and investigates the actions of many
companies, particularly large organizations, and most companies
accept that they must contend with and effectively “manage” their
relationship with the media. Finally, even an organization's
competitors can be considered secondary stakeholders, as they are
obviously affected by organizational actions. For example, one
might argue that organizations have a social responsibility to
compete in the marketplace in a manner that is consistent with the
law and with the best practices of their industry, so that all
competitors will have a fair chance to succeed.

GLOBAL ISSUES

Corporations increasingly operate in a global environment. The

globalization of business appears to be an irreversible trend, but
there are many opponents to it. Critics suggest that globalization
leads to the exploitation of developing nations and workers,
destruction of the environment, and increased human rights abuses.
They also argue that globalization primarily benefits the wealthy and
widens the gap between the rich and the poor. Proponents of
globalization argue that open markets lead to increased standards
of living for everyone, higher wages for workers worldwide, and
economic development in impoverished nations. Many large
corporations are multinational in scope and will continue to face
legal, social, and ethical issues brought on by the increasing
globalization of business.

Whether one is an opponent or proponent of globalization, however,

does not change the fact that corporations operating globally face
daunting social issues. Perhaps the most pressing issue is that of
labor standards in different countries around the world. Many
corporations have been stung by revelations that their plants around
the world were “sweatshops” and/or employed very young children.
This problem is complex because societal standards and
expectations regarding working conditions and the employment of
children vary significantly around the world. Corporations must
decide which is the responsible option: adopting the standards of
the countries in which they are operating or imposing a common
standard worldwide. A related issue is that of safety conditions in
plants around the world.

Another issue in global business is the issue of marketing goods

and services in the international marketplace. Some U.S.
companies, for example, have marketed products in other countries
after the products were banned in the United States.

SPECIFIC CSR PRACTICES

In their 2006 book, Developing Corporate Social Responsibility: a

European Perspective, authors Perrini, Pogutz, and Tencati give
several specific CSR practices by business that are worth a close
look, as most can be applied to and adopted by any organization as
an extra form of analysis or a new marketing/mission concept.

Capital valuation is the practice of defining and publishing the

various types of capital a company has. This refers not only to
financial assets, but social, environmental, human, moral, and
intellectual capital as well. Defining the types of capital a company
has not only shows investors and customers that the company is
aware of the connections it has to the people and communities
around it, but it also gives the company several starting places to
begin CSR initiatives.

Corporate community involvement reporting is the practice of

assembling periodic reports concerning community outreach and
activities, such as financial aid and

Employee volunteer movements. The reports usually contain the

activities, descriptions of the effects produced, and future plans.
Some form of measurement is often included, whether by how much
time or money was spent in community involvement, or how much
involvement the company has compared to competitors.

Ethical accounting statements are reports made directly to the

investors concerning the ethics of the company's financial controls
and practices. Since ethical activity can be debatable, EASs should
be the result of a continuing dialogue between the investors and the
company as to what ethical matters are important to both, and how
the company can meet its ethical standards. The EAS is used
primarily as a planning tool, documenting the company's intentions
for future practices.
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Ethical auditing is the practice of hiring an outside firm to conduct an

audit of the company's policies, focused on ethical standards that
the investors and the company have previously developed. The
auditing process examines primarily the company's performance in
social and environmental settings.

Social auditing is similar to ethical auditing but focuses only on the

social performance of the company, and is more common.
Social balance is an accounting practice designed to assemble all
CSR financial activity from across the company and combine it in
one report. This report usually classifies the financial data in forms
that are useful to CSR regulators in the company, showing where
funds where allocated regarding social activities, how much
separate departments have spent, and where the company stands
as a whole in terms of social aid.

Value-added statements are created in order to show the investors

the added benefits certain company activities have. Investors may
not be aware of CSR practices by the company, and this statement
allows the company to show its social activity in succinct form.
Other investors may not understand how certain company policies
are socially responsible or lead to added value. This report is
designed to summarize and show the effects of the company's CSR
activity.

Statements of principles and values are created by the company to

give focus and enthusiasm to CSR policies. Akin to a mission
statement, a statement of principles and values clearly states what
the company's social, environmental, and financial responsibilities
are, and how it intends to fulfill those responsibilities. Such
responsibility statements are becoming a more common tool, and
are useful for companies beginning CSR movements. Statements of
principles and value should be easily accessible by customers, so
that the public can see what the company's social goals are at any
time.

Sustainability reporting involves a company's goals of sustainability,

and the policies it has in place to meet them. Production companies
often have goals of creating more recyclable products with
renewable energy sources. Others may have a goal of becoming a
paperless business by a certain date, or of adopting a new
technology. Whatever the sustainability goal may be, sustainability
reporting is a periodic assessment of the company's current
endeavors to reach the goal, and its success in attaining
sustainability.

ORGANIZATIONS INVOLVED IN CSR

There are many organizations that support or mandate CSR activity

in businesses. An international example is the United Nations,
which produced the Global Compact initiative in 1999. The Global
Compact asks for signatures from major businesses across the
world agreeing to nine specific principles of social and
environmental activity. These nine principles include:
 To support and respect internationally proclaimed human rights
 To avoid complicity in human rights abuses
 To uphold freedom of association and the right to collective bargaining
 To eliminate all forms of forced labor
 To abolish child labor
 To eliminate discrimination in regard to business hiring and occupation
 To support a cautionary approach to environmental challenges

Another important international organization is the OECD, or the

Organization for Economic Cooperation and Development. This
organization puts together a set of social guidelines for international
companies to follow, created with the help of over thirty different
nations. It was updated in 2000 to include new CSR concerns.

In 2004, the International Standards Organization began a process

to create a set of guidelines of their own, the ISO 26000. In 2005,
more than 225 CSR specialists from forty-three countries and
twenty-four other organizations attended the initial meeting. Their
goal was to devise a practical guide to international CSR that would,
as they say, “aim to encourage voluntary commitment to social
responsibility and … lead to common guidance on concepts,
definitions and methods of evaluation.” The original date for the
publication of ISO 26000 was 2008, but has since been moved to
2010.