Corporate social responsibility: hard choices on soft issues; Pro-environmental announcements from global giants like General Electric and JPMorgan Chase have spotlighted corporate social responsibility. Yet, there's no mandate to promote such issues in the U.S., where some companies are clearly more proactive than others. Meanwhile, Europeans have brought "green" issues to the forefront.

• Author: Marshall, Jeffrey

Between 1917 and 1925, Henry Ford oversaw creation of the gigantic Rouge River plant in Dearborn, Mich. A marvel of engineering at the time, it was the birthplace of millions of Model As and Model Ts; its "vertical integration" approach, novel for the era, allowed all the raw materials for the cars to be assembled at one place. At its peak in the mid-1930s, it employed a virtual city of 100,000 shift workers.

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But Ford's smoke-belching wonder carried a heavy environmental cost. By 1986, The Detroit Free Press called the Rouge River a "sewer for a metropolis, discharge drain for industry, dumping ground for junk and garbage" and went on to declare that "the Rouge River has become so polluted that a cleanup seems unthinkable."

Fast forward to late 2000, when William C. Ford Jr., Ford Motor Co.'s chairman and Henry's great-grandson, watched as reconstruction of the giant plant began under a new mandate: to create the most environmentally friendly facility possible. New features included the world's largest "living roof" of plants, solar and fuel-cell technology, grassy swales below and porous paving to help with wastewater management, trellises and the planting of thousands of trees.

Bill Ford, who has championed environmental causes, has also spoken repeatedly about improving Ford's fuel emissions and wider environmental stewardship. But Ford is struggling financially--its credit ratings were lowered to "junk" this spring by some credit rating agencies, along with General Motors Corp.'s--and its best-sellers are the light trucks and sports utility vehicles (SUVs) that are among the worst environmental offenders.

Simply put, the green face that Bill Ford wants to paint on the family legacy will not be easy to realize. The new Rouge plant is a statement, but the larger mission would require reengineering costs that simply may not be feasible. Yet, the company, through its chairman, clearly wants to tell the world's investors and markets that its commitment to the environment is so important that it is worth pursuing, despite its troubled finances.

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"Bill Ford has said, by his own admission, that the company has not met the targets he had set," notes Aron Cramer, CEO of the nonprofit group Business for Social Responsibility. "That's very instructive; it shows where the hardest tradeoffs are."

Other statements and actions by major multinationals have brought new focus on the issue of corporate social responsibility (CSR) and corporate "sustainability," where a skein of questions has emerged. How important is it to investors, and is it worth the cost? Is weak CSR a threat to the company's stock, and its future? Is a proactive position on the environment and issues like workers' rights, diversity and product safety the leading edge or the bleeding edge?

As C-level executives, CFOs will be among the top managers helping to answer those questions, and there are no easy answers. Pressure from institutional investors and shareholder activists has been building, yet it's no simple matter to link more attention and spending on CSR issues to improved financials or a better stock price. A cost-benefit analysis is critical, but much hinges on public perception of policies and actions that may be years in the making and fraught with uncertainty.

It's sometimes difficult to define what CSR is--is it more about the environment, or about doing good in the community? Opinions vary. But social responsibility is really not a subset of corporate governance, which is a function of the company's internal controls, systems and policies--the issues senior managers have been consumed with since the passage of the Sarbanes-Oxley Act in 2002. CSR really is the way the company presents itself to the greater society.

While this is chiefly an issue for public companies, especially multinationals, it can rise up for private companies as well. Stock concerns aren't at play there, of course, but manufacturers, especially, can risk community protests and falling sales if their plants and/or products are seen as environmentally damaging or their stance toward workers' rights is viewed as less than progressive.

Recent months have seen a wave of announcements from American corporate leviathans about environmentally friendly policies. General Electric Co. has made perhaps the boldest statement. Chairman and CEO Jeffrey Immelt announced in early May a series of new corporate goals, including improving energy efficiency by 30 percent by 2012 and doubling the sales of "eco-friendly" products such as solar energy, wind turbines and water purification technologies by 2010. Immelt publicly urged the U.S. energy industry to seize the initiative for reducing carbon dioxide emissions in "a carbon-constrained world."

GE has since launched a sophisticated print and television campaign playing up its "ecoimagination"--combining the new ecology message with its long-standing use of the word "imagination" about its products. "Increasingly for business," Immelt announced, "green is green."

Actually, GE's initiative wouldn't cut more than 1 percent of its emissions over the next few years--hardly a radical change. But the company has claimed that its emissions have been tracking to rise by 40 to 45 percent by 2012, making the cut far more about substance than mere symbol. Environmental groups quickly seized on the importance of the statement. "GE is a potent symbol and sends a powerful message to the private sector and the public-policy sector," said Jonathan Lash, president of the World Resources Institute.

Even financial institutions like JPMorgan Chase & Co. and Citigroup, which don't have manufacturing operations, have started singing from the environmental hymnal. Stung by a continuing assault on its lending policies by the Rainforest Action Network, an environmental group focused on saving equatorial rainforests, Morgan in late April released a 10-page environmental policy statement that includes linking carbon dioxide emissions to loan reviews for power plans. The bank also pledged to lobby the U.S. government to adopt a national policy on greenhouse emissions. Similar announcements had been made earlier by Citigroup and Bank of American Corp.

These public pronouncements come against a backdrop of a presidential administration that has largely ignored many of these issues, paying short shrift to global energy initiatives like the Kyoto Protocol and irking environmentalists. In contrast, social responsibility concerns have gained traction in Europe; in fact, social responsibility is a major consideration in the way many European companies look to portray themselves, to customers and investors.

While some U.S...