Responsible business in Cambodia

Given that most business models are profit-driven, the need for accountable and responsible businesses plays a significant role in minimizing its adverse effects on the environment and society contributing to sustainable development. Based on this basis, the concept of conducting business responsibly goes beyond profit generation. It strongly emphasizes accountable and responsible operations where businesses consider the negative impact of their actions on society, the economy, and the environment. Over the last decade, two popular approaches have been used extensively in the global business landscape when referring to operating a business responsibly. They are “Corporate Social Responsibility” (CSR) and “Environmental, Social, and Governance” (ESG). These terms are distinct in their nature but share similar principles, objectives, and goals for responsible business.¹

Corporate Social Responsibility (CSR)

The term Corporate Social Responsibility (CSR) was first brought into discussion amongst businessmen by an American economist, Howard Bowen in his book “Social Responsibilities of Businessmen” published in 1953.² Since then, CSR has become a topic of discussion and debate. Companies and businesses have started to embrace and integrate the approach into their internal policies. There is no clear and universally agreed definition of the term CSR. ³ As the concept evolved, various literatures, scholars, researchers, and companies defined CSR differently.

In the most relevance to the duties of cooperates or businessmen, Bowen (1953) defined CSR as “the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of objectives and values of our society.” (pg.06). Later, Davis (1973) took a step further to re-define CSR as companies’ acceptance and consideration of social and environmental problems outside the financial, technological, and legal requirements restricted by the government.⁴ On one hand, Freemen (1984) strategically defines the scope of CSR just between businesses and stakeholders, both groups and individuals, who can influence and be influenced by those businesses’ operation.⁵On the other hand, standing on the notion of “planetary bargain”, Hopkins (2003) argues that CSR deals with treating “the stakeholders of the firm ethically or in a responsible manner … to create higher and higher standards of living, while preserving the profitability of the corporation, for peoples both within and outside of the corporation”.⁶

In 2012, the European Union Commission defined CSR as “a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders on a voluntary basis.” (EU Commission 2012).

In general, CSR is the concept that encourages businesses to consider the impact of their operations on society and the environment and to act in an accountable and responsible way that benefits both. Traditionally, CSR is categorized into four categories: environmental, philanthropic, ethical, and economic responsibility:

1. Environmental Responsibility is the belief that organizations should be as environmentally friendly as possible.
2. Ethical Responsibility emphasizes how an organization operates fairly and ethically.
3. Philanthropic Responsibility looks at how a company actively improves society.
4. Economic Responsibility is the way in which financial decisions of firms should be rooted in making a positive impact on the environment, people, and society. ⁷

There is no explicit framework guiding firms, corporations and businesses to implement CSR effectively. However, most businesses design their CSR policies based on the Three Bottom Line (TBL) framework. It is a sustainability framework focusing on three P’s including People, Planet, and Profit. TBL suggested that besides focusing solely on maximizing profits, companies should also take into account the well-being of people and the planet which is the surrounding environment. ⁸ Likewise, international development agencies, such as United Nations Industrial Development Organization (UNIDO), adopt a similar approach called the Tripple-Bottom-Line Approach “through which a company achieves a balance of economic, environmental and social imperatives, while at the same time addressing the expectations of shareholders and stakeholders.”⁹

CSR offers a variety of competitive advantages, including increased access to funding and market, lower operational costs, effective branding, stronger workforce, and increased revenue, to name a few.¹⁰ Also, research studies found that CSR can not only yield positive effects on corporate financial performance for businesses in general, but also it promotes competitiveness for SMEs in developing countries like Cambodia whose economy is influenced by the globalization of trade. ¹¹ However, due to its broad and voluntary nature, CSR does not provide a clear framework for effective implementation and progress monitoring. Different firms and corporations might have different ideas of what socially responsible means, thus it is believed that some companies make use of CSR activities to fit their own interest and social image.¹² Moreover, a large proportion of corporations embrace CSR due to consumer expectations and internal norms. ¹³

Environment, Social, and Governance (ESG)

Without a clear definition and framework, CSR can be easily manipulated and used by companies as strategic communication to gain their public reputation through greenwashing.¹⁴ As the global context is constantly changing, a new responsible and sustainable business framework has emerged. It is Environmental, Social, and Governance (ESG) focuses on three main pillars: Environmental, Social, and Corporate Governance.¹⁵ Overall, it stands for three key areas a company should be accountable for its impact on the environment, its social responsibility, and how it’s governed. This includes issues like how they treat workers, address climate change, protect data, make financial services accessible, etc.

Companies and businesses in various parts of the world, especially in developed countries show an increasing interest in this responsible business metric as it can foster the company’s long-term growth¹⁶. According to a report, there are around 225 new or revised companies’ policies and regulations associated with the ESG framework in 2021 alone.¹⁷ As ESG is centered around the three pillars, it paves the way for companies and stakeholders to strategically integrate ESG practices into the company’s core values. With clear strategic goals, it allows corporations and businesses to assess and evaluate their ESG performance through quantifiable, and data-driven indicators. Through ESG reporting, Companies can disclose and inform investors and stakeholders of their environment, social and governance initiatives, achievements and results. Many developed countries and agencies across the world for example in the European Union plan to legalize ESG reports to be mandatory for businesses operating within their respective territory.¹⁸

There is no universally agreed ESG reporting framework yet.¹⁹ International and regional reporting frameworks such as the Reporting Initiative (GRI) and the Sustainable Accounting Standards Board’s standards (SASB), ISRF Sustainability Enclosure Standard, European Sustainability Report Standard (ESRS) and US SEC climate-related disclosure rule are used widely by companies as ESG reporting framework.²⁰ As mentioned earlier, CSR and ESG share many similarities in the idea of responsible and sustainable businesses. However, the two terms vary greatly. First of all, CSR is voluntary in its nature, ESG, in some parts of the world such as the EU, has progressively turned mandatory for regulatory requirements. CSR has a broader range of environmental and social activities whereas its counterpart focuses solely on Environment, Social, and Governance. Another notable difference is that ESG is about disclosing and disseminating social, environmental, and governance issues and risks to stakeholders such as investors. While CSR stresses the companies’ core value of making the world a better place through ethical and philanthropic activities.²¹ 

Source: Exploring the Nexus of CSR and ESG: Unveiling Key Similarities and Differences

United Nations’ Guiding Principles on Business and Human Rights and Responsible Business Conduct (RBC)

Acknowledging the important role of business responsibility and sustainability of the global economic landscape, international organizations including the Organization for Economic Co-operation and Development (OECD)and the United Nations (UN) have adopted responsible business guidelines for its member states to follow. Responsible Business Conduct (RBC) by OECD, places responsibility on companies to avoid negative impacts on their businesses and make positive contributions to the countries where they operate, economically, environmentally, and socially.²² As of 2024, there are 50 OECD member states adhering to the guideline. Since its adaptation in 1970, the Responsible Business Conduct guideline went through various revisions and the latest update was in 2011 to maintain its relevance in guiding business responsibly.²³

Similarly, the United Nations Principles Guidelines on Business and Human Rights (BHR) was adopted by the United Nations Rights Council by Resolution 17/4 on 16 June 2011. The UNBHR consists of 31 principles about the responsibilities of governments and businesses to protect human rights in the context of business operations.²⁴ UNBHR is known as the most authoritative and widely adopted set of principles that act not only as a guide but also as a roadmap for businesses to contribute to the 2030 Agenda and United Nations’ Sustainable Development Goals.²⁵

Like CSR, BHR is also not legally binding. Nonetheless, it is becoming the norm as they are incorporated into new national legislation and investor initiatives. In 2017, the French Parliament adopted a new law on a duty of care for multinational corporations to prevent human rights abuses in all their subsidiaries and supply chains.²⁶ Additionally, partly guided by the UNGPs, the European Union (EU) adopted a proposal for a corporate sustainability due diligence directive in 2022.²⁷

CSR in Cambodia

Over the last 20 years, Cambodia’s economy has grown remarkably. Between the late 1990s and 2019, the kingdom maintained a 7.7 annual growth rate. ²⁸ Within the robust development that is mostly fueled by foreign and domestic investment, responsibility and sustainability in those businesses remain key to sustainable development in the country. Weak regulatory frameworks and irresponsible corporations and businesses can pose adverse effects on Cambodia’s environment, society, and its citizens.²⁹

For Cambodia, CSR is a fairly new concept that many companies are embracing. Big companies have started promoting their CSR initiatives and showcasing their activities. The type of CSR activities companies may correspond to the sectors they are involved in. However, most companies in Cambodia tend to be more active in education and charities. Chip Mong Group, one of the biggest corporations in Cambodia whose business operations are in many different sectors, is active in CSR projects in different sectors, including education, charities, environment, health, and tourism. Similarly, Smart Axiata, one of the largest mobile telecommunications operators in the country, is active in CSR initiatives related to education, sports, technology, and the environment. The Royal Group of Cambodia, one of the country’s largest strategic investment holding companies, focuses its CSR activities in different sectors, including education, charities, and health. Moreover, as a large part of the economy is dominated by garments, footwear and textiles (GFT), businesses in those sectors also show their commitment to conducting business responsibly.³⁰ Over the years, businesses in the GFT have shown notable progress in improving their social and environmental responsibility. For instance, in terms of minimum wages, Cambodians have agreed upon a 204 USD monthly wage in 2024, a long way from a 40 USD monthly wage in 1994. Other improvement includes the decline in child labor in the sector and the establishment of workers unions to represent workers during the conflict between employees and employers.³¹

CSR’s positive impact on Cambodia

Even though the implementation of CSR is still recent in the country, the impact of social and business responsibility has brought about changes in Cambodia, most notably in how corporations operate their businesses. Since CSR is a global topic, Cambodia’s factories continuously feel pressure from international buyers and markets to strictly adapt and integrate CSR practices into the companies’ policies and regulations. For example, the garment sector in Cambodia is considered a leading practitioner of CSR activities as the international buyers impose various environmental and social regulations for the companies to follow.³²

More importantly, Economic growth often comes with adverse effects including environmental and natural resource degradation, inequalities, pollution, and other social issues. CSR is in place to mitigate those impacts and it has shown notable results. According to the Business Confidence Survey 2023 conducted by EuroCham, Private sectors, and businesses are aware of the key role of CSR as a tool to enhance the environment and society.³³ They have started to take into account their actions toward the environment and have embraced the environmental aspect as their core value. For instance, nearly 70 percent of Survey respondents reduce waste and initiative recycling practices and 65 percent turn off lights to reduce their environmental impact. In addition, half of the respondents are implementing CSR programs in 2023 while the other 35 percent plan to implement the program. It appears that popular CSR measures that Cambodia’s companies are embracing revolve around environmental issues such as reducing the use of plastic bags, efforts to reduce the electric bill, encouraging recycling and reducing waste, and turning off lights.³⁴

The role of CSOs in CSR implementation

 Civil societies and non-governmental organizations play a crucial part in Cambodia’s socio-economic development. Generally, Local and international organizations have their specific scope of area for their works and activities. Some of their broader scope of work contributes significantly and aligns with the progression of responsible business practice in Cambodia. CSOs take many roles to advocate and raise awareness of the importance of CSR and responsible business in general and provide necessary capacity development and training and skills to businesses to conduct responsible business properly.³⁵ For instance, the United Nations International Labour Organization (ILO) has established a project “Better Factories Cambodia (BFC)” to improve working conditions in the garment and textile sector. It started in 2001 as the foundational program of the Better Work, ILO, and International Finance Corporation (IFC)’s joint program. BFC aims to promote gender equity and improve worker and their families’ livelihoods. ³⁶  BFC uses the Compliance Assessment Tool (CAT) to assess garment and textile companies’ compliance. They offer free advisory services to factories to set up multi-stakeholders committees to solve disputes and offer all stakeholders customized training courses to further improve workplace compliance and leadership skills.³⁷ They have also supported Cambodia’s factories during the pandemic by establishing a Guideline on Responsible Retrenchment during the Covid-19 Global Pandemic to assist factories in entrenching responsibly in according to Cambodia’s law.

Another example is the Responsible Business Hub (RBH). Initiated by the European Chamber of Commerce in Cambodia (EuroCham), with support from Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ FABRIC) and the Textile Apparel Footwear and Travel Goods Association in Cambodia(TAFTAC), the RBH aims to enhance the capabilities of Cambodia’s companies to understand and prepare for new sustainable and responsible standards. RBH serves as a supporting/information desk to provide knowledge and raise awareness, and provide training to the country’s export sectors, especially the garment, textile and footwear sectors.³⁸

 The role of the government in CSR implementation

Even though Cambodia does not have specific CSR laws and regulations, there are at least 52 laws and regulations whose provisions relate to responsible business conduct. The country has been adopting the Sustainable Development Goals (SDGs) since 2015 and has committed to achieving the 2030 United Nations Global Agenda. In 2016, Cambodia’s National Environment Strategy and Action Plan 2016-2023 (NESAP) was established by the Asia Development Bank (ADB) to achieve the SDGs.³⁹ It is the first national environment action plan since the early 2000. It was quickly endorsed by the Cambodian government in 2017. The former Minister of Environment has said “ The NESAP is a strategy for all government ministries, as well as the private sector, civil society, and development partners, to integrate environmental concerns into economic policies and investments”.⁴⁰

The Royal Government of Cambodia has also considered the significant role of the CSR initiative.  In Cambodia’s Law on Investment 2019 article 24, the government offers incentives to investors who endorse core principles of environment and social sustainability.⁴¹ The sectors that qualified for the investment incentives listed in the law are environmental management and protection, biodiversity conservation, green energy, and technology contributing to climate change adoption and mitigation. This showcases the government’s acknowledgment of environmental and social sustainability in investment projects. ⁴² The investment incentives also marked the government’s effort to encourage more investment to uphold the aspect of CSR implementation. In addition, Relevant government institutions have been actively involved with developing partners and private sectors to join various CSR-related events and activities to discuss, collect inputs, comments, and concerns, and share ideas. For instance, Eurocham, a body that works to promote and support an efficient and fertile business and investment environment, has regularly hosted CSR events with the involvement of relevant stakeholders including private sectors, Intergovernmental organizations, and the government.

Challenges and way forward

One of the major challenges of CSR implementation is the expensive cost. Startups and Small and Medium Enterprises (SMEs) with limited capital, often face financial difficulty when endorsing the principle of CSR. For example, changing from using plastic to recycling material can cost startups or SMEs ten times higher.⁴³ Another great challenge lies in the motivation to properly endorse the core principles of CSR.  According to EuroCham’s Digital Business Confidence Survey 2023, the major reasons behind companies’ involvement in CSR activities are mostly related to their company benefit including companies’ social images, attracting more customer attention and more potential investment, and retaining their employees.⁴⁴ Only one of the reasons is related to societal and environmental sustainability. This lack of motivation could result in the misinterpretation or mis-practice of the CSR implementation. This is also associated with limited legal frameworks and guidelines. In addition, during digital and technology development, personal data and information are collected and stored by corporations, especially tech-related companies. Without proper digital security considerations and practices, it could potentially cause sensitive and personal data breaches that can pose harmful consequences to citizens and users, specifically their personal data privacy.⁴⁵

Overcoming these challenges will require a multidimensional approach involving collaborative efforts from the government, businesses, civil society, and international actors. Supports are in place to assist businesses in implementing the CSR approach.  Initiatives by NGOs, international organizations, and responsible investors are contributing to capacity building and awareness raising. As mentioned earlier, the Government has set forth various strategic frameworks such as Cambodia’s National Environment Strategy and Action Plan 2016-2023 (NESAP) to guide businesses and companies in the right way toward sustainable business and practices. Moreover, EuroCham established the Responsible Business Hub in 2022 to assist Cambodia’s businesses with international standards of CSR implementation.