CORPORATE RESPONSIBILITY & SUSTAINABLE DEVELOPMENT IN SRI LANKA

1. Introduction

Sri Lanka History & evolvement to Industrialization

2. Economic, Social & Environmental background and challengers

- Corporate governance and good governance practices in SL

3. CSR and sustainability – Global theories and Interpretations

- From CSR to CSV
- Responsible management

4. CR in Sri Lanka and Sustainable development practices

Eg: Rathupaswala
Meethotamulla
Uma Oya
Mattala
Mahaweliya

5. Challengers for sustainable development in Sri Lanka

6. Conclusion
- No clear idea about CSR
- Sri Lanka development towards sustainability or unsustainability?
Introduction

Comparing to the world and other Asian Developing countries, Corporate responsibility or
commonly referred as Corporate Social Responsibility (CSR) and Sustainability are new concepts
to Sri Lanka. According to the vary few researches available regarding the CSR practices in Sri
Lanka, the CSR concept is considered as philanthropic in Sri Lankan context. The Majority of the
companies’ regard CSR simply as being about charitable activities and providing financial
assistance to various humane causes. Corporate responsibility highlights the corporate practice
which aims to achieve two divergent objectives of profit maximization and social wellbeing
simultaneously. It has been emphasized the organizations responsibility to transform the way they
do business by focusing upon the responsibilities that they owe to all their stakeholders. Corporate
responsibility mainly reinforced by the need for companies behave ethically. Ethical Businesses
should have as its highest goal to ensure humanity’s survival on earth. The ethical business
behavior ensures the sustainability performance in social, environmental and economic aspects,
that is triple bottom line is the focal point of sustainable development in any business entity or
society at large. Every business organization have societal obligation beyond their economic and
financial commitments of producing profitable goods and services. Business organizations also
like other entities in the society are integral part of the society and environment and growth and
existence of the corporate entity depend on the existence and growth of the society. Therefore,
business entities continuously realigning their activities to be in congruence with the overall social
system.

Sri Lanka History and evolvement to Industrialization

Sri Lanka having more than 2500 years of history, over the year’s country has been subjected to
dynamic changes in cultural, social, political, economic and technological transformations. The
country was in independent state with agriculture as main economic activity before colonization
by the Portuguese in 1505. Colonized period from 1505 to 1948, Sri Lanka was under the rule of
Portuguese, Dutch and British and they established a solid base for industry in Sri Lanka. The
subsistence agricultural economy transformed into trading economy based on Tea, Rubber,
Coconut and Spices. With the formation of Private companies in early 1800 first Sri Lankan Stock
Market started in 19th century and it leads the way to grow the industrialized economy opening the
investments for number of local and foreign investments. (Rathnasiri,2003) A duel economy
emerged in Sri Lanka based on well-developed corporate export-based sector and the mass
agricultural based subsistence sector. Sri Lanka established the Open economic policy in 1977
allowing new opportunities for potential investors. This new economic policy slowly departed
from tightly controlled, inward-looking, welfare oriented economic strategy to more liberalized,
outward looking, growth-oriented economy. Sri Lankan history record reveals that early lifestyle
of Sri Lankans are tightly bond with the society and environment and the people refrain from
harming the social, environmental values while they are engaged in their economic activities. The
escalated population growth and geared profit motive of investors placed the social and
environment aspects in the second phase giving the first priority to profit. Companies has been
formed in various ways due to competition and the people’s interest. On the contrary, People
believe that companies engaged in responsible business practices and if not, general public arise
against them.

Economic, Social & Environmental background and challengers

The voluntary behavior to a common set of norms towards sustainability is yet to be developed in
Sri Lanka. Therefore, the corporate and government responsibility towards sustainability is
highlighted in Sri Lanka annual budget speeches proposing many programs for social,
environmental and economic development of the country. To arrange this initiative Government
is annually allocating considerable amount of funds to increase the activities in social integration,
welfare of elderly, support for low income families, women and child protection, conservation of
wildlife, forest and coastal preservation. Conversely, with the opening of Sri Lankan economy to
foreign investments and due to increase of domestic private investments, Sri Lanka’s private sector
transformed to a largest employer and main income source, moving agriculture-based economy to
secondary. Hence, the need for corporate responsibility towards sustainability is emphasized and
importance for adherence to CSR practices and reporting of them were encourages through
reporting rules and various award schemes.
Sri Lanka development was hindered due to the civil war suffered over 30 years until 2009. But,
after the war era country was started massive development projects including Expressway network,
new Port, Air Port, Colombo development centering Port City project, Uma Oya, and other
massive private sector development projects including sky scraping hotels and condominium
property projects and etc. were boomed due to the flow of foreign investments and foreign funds.
The economic development of the country is visible through the GDP growth and increase in per
capital income but the accomplishment to wards the sustainability framework is still to be cleared.
The corporate responsibility towards the public is still a gray area in Sri Lankan context. The
reason behind this is the most common understanding in CSR is related to philanthropic motive in
the areas of sponsorship for community activities and donations to charitable evets and hence,
most companies are strayed from the broader perspectives of Corporate Responsibility and
Sustainability.

Corporate governance and good governance practices in Sri Lanka

The corporate sector plays a crucial role in Sri Lanka towards achieving sustainable development
goals. There’s a great need for alignment, measurement and communication through the
sustainability reporting process to enable strong corporate sector contribution to Triple Bottom
Line initiative. Code of best practices and Corporate Governance introduced by the CA Sri Lanka
and Colombo Stock Exchange emphasize the need for responsibility of the management to its all
stake holders while achieving the company strategic objectives. Every corporate body should
operate efficiently and effectively to accomplish its profit objectives with the aim of wealth
maximization for society as a whole and sustainability objective is the base for strategic goal
setting. Therefore, if Sri Lanka needs to tug the hearts of potential investors, practicing good
governance code will immensely help to attract more investors.
Good Governance is emphasized in the 2015 election manifesto and the necessity for good
governance from the government engagements also geared with giving more attention to triple
bottom line development approach. The massive government projects undertaken over last few
years were subjected to good governance practices and ethical, social and environmental aspects
were given more priority.
Corporate Responsibility and Sustainable Development – Global theories and
Interpretations
“Sustainability and sustainable development” have been extensively discussed over the last
decades. There is no universally agreed definition for sustainability and so many definitions, ideas,
views were discussed against what it is and how it can be achieved. The sustainable development
word became a common word from the first Earth Summit held in Rio 1992.
“Sustainable development is the organizing principle for meeting human development goals
while at the same time sustaining the ability of natural systems to provide the natural
resources and ecosystem services upon which the economy and society depend. The desired result
is a state of society where living conditions and resource use continue to meet human needs without
undermining the integrity and stability of the natural system. Sustainable development can be
classified as development that meet the needs of the present without compromising the ability of
future generations.” (Wikipedia)
In general, and most appropriate definition of sustainable development is “development that
improves living condition in the present without compromising the resources of future
generations.” Development is not sustainable when we consume all the resources available today
without leaving for future generations. To ensure sustainable development whole society including
individuals and corporate entities needs to work together to make sure more just and equitable
society. Sustainability is embodied with three aspects covering Ethical, Social and Environmental
aspects.
The strategy formulators of the corporate entities should be adhere to the ethical obligation and
practices, social wellbeing and equality and zero harm to the environment while their strategic
objectives are in operation.
Corporations, like other institutions in society, are an integral part of society and depend upon it
for their continued existence and growth. (Sethi, 1975)Therefore, corporate responsibility
underpinned by the need for companies to behave ethically. Corporations are expected to drive
towards its strategic goals aimed at economic prosperity while giving attention to the firms
obligation to evaluate in its decision making process and the effect of the decisions on the external
social system delivering social benefits to the society. Healthy business is based on the foundation
of healthy community. Corporations are increasingly perceived to be prosper at the expenses of
the community and hence, businesses are seen as major cause for triple bottom line problem.
Communities growing aware about major social and environmental challengers are due to the
causes of business practices, the corporations begun to rethink their strategy formulation process
and reshape their business objectives. The business responses to non-market forces commonly
known as social responsibility. The key definition for this corporate responsibility or commonly
state as CSR was established by Carroll in 1979.
‘’The social responsibility of business encompasses the economic, legal, ethical and discretionary
expectations that society has of organizations at a given point of time” (Carroll: 1979)
The role of company towards its stakeholders or the corporate responsibility evolved over three
terms and definitions. Sometimes ago “Philanthropic giving” in the form of donations or charitable
activities to worthy social cause is recognized as Corporate responsibility. Later on the concept
was expanded to “Corporate Social Responsibility” stating good corporate citizenship and
compliance with community standards. The new role of the business is “Shared Value “creation
integrating societal improvements in to economic value creation itself. Shared Value is described
as “corporate policies and practices that enhance competitiveness of the company while
simultaneously advancing social and economic conditions in the communities in which it sells and
operate”. In general, both the corporate social responsibility and shared value concepts recognized
the importance of sustainability development while focusing on profit motive.
With the emphasis of Ethical management process and corporate liabilities towards the entire
world, the term “Responsible Management” emerged.
“The triple bottom line concept underscores the fact that the companies and the organizations
create value in multiple dimensions. A linked phrase, people, planet and profit…is based on the
same concept” (Elkington,2010)
In September 2015, the United Nation launched Sustainable Development Goals (SDGs) a to do
list addressing the key economic, social and environmental issues the would face in the future.
This aim to reduce greenhouse gases, eliminate poverty and increase economic opportunities
around the world. The active participation of businesses is the principal driver in achieving those
17 number of Goals spread across the sustainable development objective.
Corporate Responsibility and Sustainable development practices in Sri Lanka
The main problem in Sri Lankan situation is with the lack of coherence in exactly what constitute
the corporate responsibility of a business. Since the themes are compatible with the Buddhism
practices, the practical situation is more towards philanthropic giving. Government and Non-
government organizations has been implemented some rules and regulations for community
development, health and education development as well as environmental development in recent
past addressing the forthcoming Triple Bottom Line issues. Due to the countries serious problems
begun in recent past in the areas of sustainability the people, employees, customers and other
stakeholders put pressure on the government and business sector to improve the people’s social
and economic livelihood. The government of Sri Lanka is fully committed to comply with
sustainable development goals.

Also, the sustainability reporting is encouraged by the code of best practices developed by the
Institute of Chartered Accountants of Sri Lanka. The multinational companies operating in Sri
Lanka took the initial step towards sustainable development, incorporating sustainability practices
in their business strategies and implementing them. Hence, the business community started to
rethink the benefits of corporate Responsibility outcomes and motivated to reshape their business
activities to comply with the Triple Bottom Line initiative.

Over the last few years Sri Lanka experienced few major dark incidents that resulted due to
noncompliance with ethical standards of construction and businesses. This eco social balance
prevailed in the country were disturbed by the greediness for business profit and political
interventions. For example, Mahaweli Project is a massive Development project initiated by the
government with the aim of agriculture development and hydro power generation. But, the project
was designed to 30 years initially and due to the political requirement J.R.Jayawardene
government escalated it to 6 years causing harmful effects to the forest and animal system around
the area.

The Uma Oya also another multipurpose project ended with multi destructive effects. The project
was aimed to provide water to Mattala Airport, Hambanthota Industrial zone, Hambantota port
and Hambantota Oil refinery and generation of hydro electricity to the national grid. The project
was initially proposed in 1991, but rejected on the basis that it would violate the water right of the
people due to technical faults of the proposal. However, project was launched in 2008 even without
passing the Environmental Impact Assessment Report due to political interventions. The ultimate
outcomes of the project were escalated up to mass people unrest due to severely departed ground
water levels, dried up spring and wells, damages to houses, becoming farm land to barren lands
and displacing the residents from their homes.

Dipped product PLC (DPL)is a member of Hayley’s group of company which owns the latex glove
manufacturing factory at Rathupaswala and one of the world’s leading manufacturing and
distributers of protective gloves. The company was reputed in its industry but catastrophic incident
happened due to noncompliance with the corporate responsibility and deviating from sustainability
development objective.

Pollution by industrial effluences is an ever-present hazard for those who are living in the
surrounding area of factories. The protest for clean water in Rathupaswala has ended with deaths,
injuries and damage to property. According to most environmentalist points their finger directly
at the DPL factory, for the improper release of industrial waste, as a cause for this tragedy. Various
kinds of chemicals were used by the DPL Company in manufacturing gloves. Harmful chemicals
were created at the end of the manufacturing process and released those chemicals through their
water to the surrounding environment. Due to that PH level of the water has been reduced to the
level that it is Acidic for human consumption. None of the actions were taken by the factory to this
harmful chemical which diluted the water. This waste water has been released into the environment
without being properly treated, which rendered the area’s ground water acidic. The factory’s
process was not properly monitored by the Central Environment Authority (CEA) and Board of
Investment (BOI).

Another incident was, improper waste management by the authorities over the years causing
number of deaths in Meethotamulla area in Colombo in 2017 due to collapse of garbage dump. The
Meetotamulla garbage dump has grown up to 17-20 acres, and it is said the height of the garbage mountain
was closer to a 20 meters. Around 800 tons of garbage is dumped to Meethotamulla on a daily
basis. The lack of government vision towards sustainability costs huge to the society.

Mattala Airport Project, Hambanthota Port Project are some other examples where the
sustainability objective has not been assessed in project proposal stage and ended up remaining
country with loan burden and lost biodiversity.
The above are few examples where Government and the corporate entities neglected the
responsible management and shared value creation to the society. The narrow political intentions
and continuous competition for economic profit share neglected the path to sustainability in Sri
Lanka. Though the Multi-National Companies in Sri Lanka and most of the other business entities
trying to run in ethical business, it is still doubtful whether country is leading towards sustainability
or unsustainability due to the current political and economic situation in Sri Lanka.

Challengers for sustainable development in Sri Lanka

County as a whole is working towards achieving Sustainable Development Goals. Particular
success has been experienced in reducing poverty, widening healthcare coverage and in
broadening primary education and other areas. However, the nation is facing few challengers in
achieving these development goals.

 The level knowledge about corporate responsibility and shared value in corporate sector
Local companies specially concentrate on establishing and managing projects
aimed at enriching lives of the community by philanthropic giving.
 Lack of Data and information availability
To formulate the business strategies towards the sustainability, the businesses are
lack of sufficient past information to make decisions
 Regional disparities
It is evitable that there is regional inequality across the 25 districts in Sri Lanka and
development has been asymmetrical. Considerable variance can be seen in the
districts of Colombo, Kalutara and Gampaha outperforming the other Districts in
every indicator.
 Production and consumption motive of the entities
Producers and other business entities only consider the life cycle of their products
and services and it is more frequently at the expense of the ethical, social and
environmental values.
 The challenge for climate change and energy
In Sri Lanka the use of renewable energy sources is less than 10 percent. High
dependency on non-renewable energy sources especially coal and petroleum
 derivatives cause to increase carbon emission and environmental and health
deterioration.
 The challenge for proper governance
Governance practices towards cohesive objective as a whole country should be
develop without intervening the political agendas. Proper practices and
measurements should be make strong to assess the sustainability activities of the
government and corporate entities.

Conclusion

Sustainability activities need to incorporated the to the business model. If companies sustainability
activities solely comprise of charitable or philanthropic donations, if cost of the business increased
and then the cut off the investment for donations might be the most prominent scenario. Hence,
incorporating sustainability motive to the business strategies and act up on responsible
management behavior will ensure the successful long term commitment towards sustainability.

The Government of Sri Lanka is fully committed to comply with the Sustainable Development
Goals though the constraint on financial allocations hindered the fulfillment of all 17 Goals.

It is evident that achieving this global challenge need collaborative effort. The Agreed sustainable
development goals give an opportunity to Government and Corporate sector to reshape their
strategies. In Sri Lankan context it is observable that corporates are gradually deviating from
uncoordinated corporate social responsibility programs hitherto practices and concept of Triple
Bottom Line impact into their core business strategies. The companies should voluntarily comply
and commit to the set of sustainability principles. If follows the path to sustainability goals in
proper way corporates can be the pioneers of change while enjoying super profit.

But, when considering Sri Lanka as a whole country it is still doubtful whether county is leading
to sustainability or unsustainability. Despite the effort exampling by the Multi National companies
and other corporate sector initiatives, the frequently changing government policies, inconsistent
development plans, political intervene, lack of good governance ultimately push to the country to
an unstable situation.
.