Has Volkswagen's cheating brought CSR into disrepute?
25 September 2015
A few years ago, I made a prediction that some time in the following five years, a CSR champion – probably a sector leader in the Dow Jones Sustainability Index – would "suffer a scandal serious enough to add weight to the CSR sceptics". Arguably, that has now happened with the revelation that people at Volkswagen deliberately cheated emissions tests so their vehicles could pollute more heavily than legally permitted and thereby damage people's health.
It doesn't get worse than that. Those people should line up alongside the tobacco executives who historically swore that they didn't believe their product was harmful to health. They belong in the same cells that confined the top executives from Enron. They have damaged the reputation of an entire industry - and frankly the reputation of business more widely.
This was not a mistake. It was not negligence. It was deliberate and wilful criminality, pure and simple. If it was - as appears likely - a few key individuals then they should be jailed. If it was in fact the full controlling mind of the company then the consequences should be swift and devastating.
Needless to say, the CSR sceptics are now indeed seizing the opportunity to attack the movement. Specifically, of course, they have attacked the value of indices such as the Dow Jones Group Sustainability Index which identified Volkswagen as a sector leader in recent years.
Now, I think the indices have plenty of shortcomings and I have certainly criticised them myself from time to time. You could certainly challenge them for failing to pick up on BP before the deepwater oil accident, for instance, given the steady stream of evidence of systemic health and safety failings that preceded that catastrophe.
But there are limits to what a system like this can do in the face of deliberate fraud and deceit. And it's frankly unrealistic and unreasonable to expect that any tool for understanding what companies are doing is going to sniff out things that regulators, with the considerable resources at their disposal, have failed to identify.
Sustainable companies are those that create systems and processes to align the success of their business with sustainable wealth creation. There are lots of components of that and all of the indices with any credibility look to multiple levels of indicators. It is right that we aim to celebrate businesses that work to put sustainability at the heart of their strategy.
Such celebrations are always vulnerable to attack. For some, they point at the fact that no company is perfect. For example, one of the critical voices in the last few days said that when companies like Coca-Cola Enterprises and Unilever make sustainability listings we should "scratch our heads". Basically because, in that person's opinion, there are aspects to their business that intuitively put them beyond the pale – regardless of whatever initiatives or leadership those companies may be showing. That logic would, rigorously applied, leave you with nothing left but despair.
We don't achieve a sustainable world by adopting benchmarks that set the bar so unrealistically high that almost nobody can ever be praised for the progress they make. Sustainability has to be mainstream or it's a waste of time. And if it's mainstream, it will be big, inconsistent, messy and occasionally controversial. Too bad. Ethical purity for the tiny minority won't get the job done.
That doesn't mean that what's just happened isn't important, and isn't a real set-back.
The really worrying thing would be if this turned out to be an industry-wide phenomenon. That would have real ramifications because it would suggest that businesses, regardless of what they say, really are prone to following whatever perverse incentives the logic of their industry might throw at them.
We've seen that happen already in the tobacco industry, and then recently in the banking industry. We saw some members of the automotive sector fall into a similar mindset in past decades, when the US automakers put all their efforts into resisting legislation on higher fuel standards. But that defensive posture was challenged by the leadership of certain companies, such as Toyota and Honda, who invested in the technology to change the nature of the debate rather than simply defending the status quo. Regardless of Toyota's later mea culpa, we look towards sustainability leaders to challenge the lazy status quo, to change the nature of the discussion.
Volkswagen was not the pioneer, but it had gained status as a sustainability leader. It will have to work hard to regain any kind of trust and integrity having lost it in such a dramatic fashion. The key is going to be not to give up home in the power of business leadership to make the world better. We know it's hard to do - that's why we celebrate success. It shouldn't be such a huge surprise that some fail in the attempt.