The Role of Corporate Social Responsibility in Latin America:
Is It Different From That in Europe?1

Antonio Vives
Manager, Sustainable Development Department
Inter-American Development Bank


Introduction

This paper discusses the role of corporate social responsibility (CSR) in developing
countries and compares it to the role CSR plays in more developed nations. The question
that it attempts to answer is: Should a company’s CSR strategy be the same in developed
and developing markets? Or, put another way: Does the degree of responsibility of a
company vary with the level of development of the country in which it operates?

Some of the topics discussed in this article have already been covered in this volume’s
preceding articles. Nevertheless, this discussion is not a repetition of what went before.
Instead, it provides a new perspective on the problem from the vantage point of Latin
America. It is like the story of the experienced professor and the new professor. When the
new professor arrives at the university, he asks the experienced professor: “Professor, I
have noticed that you always ask the same questions in your exams. How do you do
that?” The experienced professor responds: “It’s very simple, I just change the answers!”
The reader will notice that my answers are very different because the questions are
addressed from a very different perspective, that of Latin America. I believe that this
viewpoint has significant contributions to make the role of Spanish companies operating
overseas.

Before entering into the analysis of corporate social responsibility in Latin America, the
paper provides an overview of the evolution of CSR in the region and of the
characteristics of the Latin American environment that shape corporate behavior and give
rise to the differences observed between CSR in Latin America and Europe. It examines
the drivers of social responsibility in developing countries (that is, the stimuli businesses
respond to) to then discuss the role of social responsibility in the region, and conclude
with a review of the implications for Spanish businesses.

CSR in Latin America

Corporate social responsibility in Latin America derives from a philanthropic tradition.
Small and medium family businesses dominate the sector in the region and have been
influenced by European immigrants, particularly those from Italy, Spain and Portugal.
These new immigrant entrepreneurs brought with them to the New World a natural social
conscience that stems, in part, from having had to leave their countries of origin. This

1 Paper presented at the Iberoamerican Workshop on Corporate Social Responsibility, Fundacion Carolina
of Spain, Cartagena de Indias, Colombia, June 2006.

---

made them better able to appreciate the value of employment opportunities and the ability
to participate in the economic life of their adopted countries. They emphasize creating
good working conditions for their employees, some of whom are their own family
members, as well as contributions to the community with which they identify.

Despite the evolution of entrepreneurship, the CSR market remains underdeveloped in
Latin America.2 By market we dot mean the market in which businesses operate, which
is an efficient competitive and developed market, but rather, to the environment of
incentives (or disincentives) faced by market participants and other CSR stakeholders.
This relatively underdeveloped market limits the spread of responsible behavior.

In order to understand the development of corporate responsibility, we must remember
that 99.8 percent of Latin American businesses are micro, small and medium enterprises.
Only 0.2 percent of the region’s businesses are large. Analysis of CSR in the region is
generally based on 10, 15 or 20 anecdotal cases that tend to be treated as the norm.
Unfortunately, they are not the norm but the exception. There are very few businesses in
the region that include CSR as part of their corporate strategy. And, those that do are
generally large enterprises (mainly multinationals) that are exposed to the effects of
globalization. Philanthropy, which should not be confused with corporate responsibility,
remains the dominant modality. In some cases, strategic philanthropy can resemble CSR
more closely.

Yet, much progress has been made in the past 15 years. The Inter-American
Development Bank and IKEI (a Basque consulting firm) undertook a survey3 of 1300
small and medium businesses in Latin America and found that a significant number of
activities could be construed as CSR, even when, at times, the businesses themselves did
not characterize them as such. These activities were related to their philanthropic actions
or were a natural reaction to demands (i.e., community or environmental activities), or
resulted from efficient management practices (dealing with human resources, resource
use, recycling, etc.).

Measuring CSR in terms of weighted averages of the level of corporate activities that
include social responsibility components (in all dimensions: internal, external and
environmental), the country whose small and medium enterprises (SMEs) have the
highest CSR is Chile, followed by Argentina and Mexico. Surprisingly, Brazil does not
rank very high in measures of SME corporate social responsibility, despite the fact that it
normally ranks at the top with respect to CSR by large businesses.

Despite the relative lag compared to other regions of the world, CSR activities in Latin
America are moving forward at a feverish pace. Every country of the region has a
business association that promotes social responsibility. There also exist regional groups
such as the Foro Empresa, which brings together business associations whose objective is
promoting CSR. Foro Empresa also includes institutions from Canada and the United
States and is similar to CSREurope. In addition, civil society organizations have shown

2 Below I explain what I mean when I refer to “the market” and who are “market” participants.
3 See www.csramericas.org

---

increased interest in the topic and the concentration on traditional philanthropy by large
enterprises is losing prominence. Yet, much remains to be done. A rough, subjective,
comparison of Latin America with the most advanced nation in terms of CSR, the United
Kingdom, would place the region at a ranking of 5 on a scale from 1 to 100, compared to
the UK’s ranking of 25. The United States and Spain would have similar classifications
(15 out of 100), despite the different styles of CSR in those countries. It should be noted
that the fact that there may be tens of businesses that are highly responsible does not
meant that we can generalize this to all other businesses

Factors Affecting Corporate Social Responsibility

Corporate social responsibility in Latin America, Europe or anywhere else in the world is
determined by the environment in which the business operates. There are some factors
that play a determining role in corporate behavior. We will review these factors and how
they apply to both regions to gain a better understanding of the differences in CSR in
each case. We will also review the role that corporate responsibility can and should play
in each case. This will be done through an analysis of the general characteristics of each
region that could have an influence on corporate behavior. Unfortunately, to do this we
will have to make some generalizations that the reader has every right to question. We
remind the reader that all generalizations are false (including this one!). In the end, what
is important is whether or not these abstractions allow us to carry out the analysis. If the
reader wants to undertake a more rigorous or more pertinent analysis of a particular
country, this paper provides the methodology to do so.

In order to understand the role that corporate responsibility should play, we analyze a list
of the characteristics of each region. While the list may seem very long and tedious, it is
key to understanding the role that CSR plays in Latin America. Again, we repeat that
these are generalizations that we find useful.

The boxes that follow show the main factors affecting CSR (they should be read in
parallel, first Europe and then Latin America, in order to gain a better understanding of
the differences between the two regions). From the analysis, we can conclude that some
CSR activities that can be considered important in Europe may not be important in Latin
America and vice versa.

---

Factors That Affect CSR in Europe

•
Mature economies
•
Consumer intensive; need to increase savings; recycling
•
Limited territorial expanse; need to import raw materials
•
Regional policies (health, welfare, environment, labor, etc.)
•
Lobbying for good governance
•
Stakeholders exert their influence
•
“Competition” among countries
•
Good infrastructure (infrastructure is not a limiting factor)
•
Governments are pressured to make sustainability efforts
•
Globalization is natural
•
High income
•
Trust in the private sector
•
Skilled workers
•
CSR is promoted throughout Europe
•
Countries have signed the Kyoto Accord
•
Efficient public services with wide population coverage
•
Long history of political and economic stability
•
Enterprises are “close” to the government

Factors That Affect CSR in Latin America

•
Emergent economies
•
Subsistence efforts
•
Wide territorial expanse, less of a need to conserve
•
Unstable policies; poor or limited sustainability policies
•
Inefficiency is tolerated; there is corruption
•
Underdevelopment of CSR stakeholders
•
Each one for himself
•
Main concern is resolving daily problems
•
Sustainability is not a luxury, but it is not a priority
•
Some sectors are isolated and look within
•
Inequality in the population is a problem (it defines consumption)
•
Lack of trust
•
Make do with what you have
•
Incipient CSR institutions
•
No restrictions on greenhouse gas emissions
•
Government failure in providing basic services
•
Stability is a recent phenomenon
•
Enterprises are “inside” the government
Europe’s economies are mature, while those in Latin America are emerging. The
European economy is consumption-intensive; resource savings need to be increased. In
addition, it is relatively small (Brazil is larger than all the European countries put
together). Finally, Europe has to import raw materials. The situation in Latin America is
quite the opposite. The region has vast land expanses and, as a result, a dispersed

---

population. It is rich in natural resources, which means that conservation is less of an
imperative. European health, welfare, labor and environment policies are supranational
and well established. It is possible to speak of European environmental and labor
practices and guidelines, for example. Latin American policies are unstable and
environmental sustainability policies are limited and poor.

All European countries face pressure to ensure good corporate governance.
Unfortunately, inefficiency is tolerated in Latin America. The people of the region have
learned to live with inefficiency and, even though corruption is not unheard of in Europe,
it is more generalized in Latin America.

Stakeholders are able to exert their influence throughout Europe, while in Latin America
the focus is on resolving problems, as stakeholders are rather underdeveloped. While
people pressure European governments to enforce environmental sustainability, in Latin
America sustainability is not a priority.

In Europe, globalization is seen as something, more or less, natural, while many sectors
in Latin America are still focused within their countries. Europe is a high-income region,
while inequality remains a major problem in Latin America. Inequality is an important
factor in determining the role that social responsibility must play. Inequality should be a
concern of business and should guide its actions, even if it is not the responsibility of
business to solve it.

Europe has skilled workers. This is not the case in Latin America and the region must
make do with the workers it has. Although social responsibility is promoted throughout
Europe, institutional development to promote social responsibility in Latin America is
still incipient. The countries of Europe have ratified the Kyoto Accord and are concerned
about environmental pollution and committed to reducing greenhouse gas emissions.
There are no such restrictions in Latin America, at least for now. The ability of the
countries of Latin America to sell emission credits to the countries of Europe through the
Kyoto Accord’s clean development mechanism is a matter of concern. There are fewer
pollution restrictions in Latin America than in Europe, despite the fact that it is a concern
in some of the larger cities.

Public services in Europe are efficient and widely available. In Latin America, there is a
failure of the state in the provision of basic services, which in some cases becomes a
critical deficiency that is reflected in the behavior of businesses. It is believed that
businesses have a responsibility to correct these failures in some cases. Even when some
of these problems are not strictly the responsibility of business, it is sometimes forced to
find a solution.

In Europe, businesses are “close” to the government. In some Latin American countries,
businesses are “within” the government. Again, this affects business behavior in general
and their vision of corporate responsibility in general.

---

A Comparison of CSR in Europe and Latin America

We have no knowledge of studies that compare corporate social responsibility activities
in Europe with that in Latin America. However, the aforementioned survey about the
status of CSR in small and medium enterprises in Latin America could help us make
some limited comparisons. The survey was designed by the same team that
undertook a survey of CSR in European SMEs, and was carried out using some common
questions to the European survey. While the behavior of SMEs cannot be used to give an
indication of the practices of large enterprises, the comparison can shed light on the
different roles that socially responsible activities can play. The survey covered internal
responsibility activities (personnel, corporate governance, suppliers), external
responsibility activities (that is, toward the community), and environmental responsibility
activities (environmental impact, natural resource use such as water, electricity,
recycling, and the use of byproducts).

The survey shows that Latin American SMEs, on the aggregate, engage in more socially
responsible activities than their European counterparts. Without going into details, we
can still discuss the reasons that businesses behave in a responsible manner. For
instanced, in Spain, businesses engage in socially responsible behavior toward the
community largely for ethical and religious reasons. The same is true in Latin America,
but to a lesser extent than in Spain. Businesses in Latin America face greater community
pressure, probably because the community identifies more with the businesses. Pressures
from workers, associates and clients play a relatively more relevant role in Latin America
than they do in Spain, although, in general, this type of pressure is exerted for different
reasons.

Much greater emphasis is placed in Latin America to providing support to education and
to disadvantaged groups, such as the disabled and indigenous persons or those of African
descent. The reason for this has to do with the factors discussed above: social and
environmental needs are much more evident in Latin America and shortcomings in the
public provision of services must be filled. European SMEs devote a relatively larger
share of their resources to sports activities. SMEs in both regions devote roughly the
same proportion of their resources to health, cultural and environmental activities. In
Latin America this support is more likely to be provided through direct grants or
donations and to take place with the participation of workers and managers rather than
through sponsorship, which is the mechanism favored in Europe.

The survey results are not strictly comparable with respect to questions regarding the
environment because the European survey did cover those issues. However, a qualitative
analysis shows that environmental responsibility has different causes in Europe and Latin
America. While economics plays an important role in both regions, environmental
responsibility in Latin America is driven by ethical and regulatory concerns. In Europe,
on the other hand, corporations behave in an environmentally responsible way to improve
both efficiency and their corporate image. This does not mean that environmental
responsibility in Europe is not undertaken to comply with the law. Instead, the
implication is that in Latin America it is done because the law requires it. That is,

---

legislation is required in Latin America to force businesses to behave in an
environmentally responsible manner. This fact should be taken into consideration when
designing public policies. In some cases, public policies are not needed because adequate
behavior occurs spontaneously. In most other cases, however, that behavior must be
compelled.

According to the survey, the main reason that European SMEs do not engage in socially
responsible practices is because of lack of time. In Latin America, the reason they do not
do so is for lack of resources and knowledge about the benefits of socially responsible
behavior.

The CSR Market

To understand the intensity of corporate responsibility activities in a country or region, it
is important to first study how the CSR “market” works; that is, one must look at how the
promoters of CSR operate. The analysis of CSR factors and of the CSR market in a
particular country allows us to determine the role that CSR should play and the likelihood
that it will play that role as well as the intensity with which it will do so.

The box shows ten drivers that promote corporate social responsibility. Corporate social
responsibility will be greater or lesser to the extent that these drivers are well developed
within a particular country. It is unlikely that a country will have socially responsible
Ten Drivers of CSR

1. Enforcement of laws and regulations
2. Engaged civil society
3. Developed
financial
markets
4. “Educated” buyers and consumers
5. An activist media
6. Monitoring institutions that report corporate behavior
7. Activist
workers
8. Structure of the private sector (“capture” of the state by the private sector)
9. Exposure to competition and globalization
10. Executives who are committed to action

businesses if its environmental and labor laws are deficient or are not enforced; or if civil
society does not put pressure on the public and private sector; or if financial markets do
not demand responsibility before and after making loans or investments. The same is true
if buyers and consumers lack knowledge about these topics or about corporate
responsibility, or when they do have this information, they do not act on it. If the media
does not disseminate information about the behavior of businesses, or if monitory
institutions are not well developed, then it is unlikely that businesses will behave in a
responsible manner. Similarly, workers cannot be indifferent to the behavior of the
businesses that they work for (particularly because there are few other employment
options), and the private sector cannot be allowed to become so powerful that it can
control the government and avoid supervision. Finally, if an enterprise is not exposed to

---

competitive pressures and markets that demand responsible behavior, and if business
executives are not committed to CSR, then it is unlikely that it will exist.

Comparing Europe to Latin America, it becomes apparent that, in general, the CSR
market and the drivers are much more developed in Europe. This has important
implications for the behavior of those businesses that operate in both markets and for the
role that CSR can play. Given that the factors that affect CSR will exert different degrees
of pressure in each market, a business operating in both regions will react differently in
each area, and its CSR activities will be determined by those pressures. While CSR in a
Latin American business should play a particular role, that role will be affected and
changed by the presence or absence of the determining factors that promote CSR. For
example, while a business may consider it important to support community development,
it could ignore it if the community in which it operates is not organized.

The Role of Corporate Social Responsibility in Latin America

Can we say that CSR has a role to play in Latin America? Could it be that CSR only
plays a role within the firm? Should the particular conditions of each country in which it
operates mold a business’ socially responsible efforts? Can something that is considered
socially responsible behavior in one context not be considered so in another? Should all
firms have the same CSR behavior within a country?

There isn’t (or there shouldn’t be) much debate regarding the fact that CSR activities can
be used by individual enterprises to further their business strategy. What is being debated
is whether or not the concept of responsibility can be generalized from country to country
and firm to firm. From the foregoing it should be clear that responsibility depends on the
factors mentioned earlier and how they apply in each country. It should also be
understood that the concept of corporate social responsibility could not, in fact, be
generalized.

We can now ask whether the welfare approach seen in many Latin American businesses
is the result of the philanthropic tradition or is the approach a result of a real need. In
developed countries the welfare approach is not a necessity. If such an approach exists, it
is likely to be as a vestige of the past when the country was relatively less developed.
However, in developing countries, the welfare approach may be the only option to fill the
gap left by various types of failures, be they deficiencies in the overall economic
environment or of the State.

For example, should a business be responsible for building community infrastructure? Is
that part of its corporate responsibility? In a developed country the answer is almost
always “no.” In a developing country, the answer is also “no,” in principle; however, it is
colored by the particular circumstances. For instance, local government failure may force
the firm to get involved in some services, like water and sanitation or basic electricity
service provision, to assure a decent environment for their workers. In a developing
country, businesses must have a more comprehensive concept and a much longer-term
vision than would be the case in a relatively more developed nation. CSR can be an

---

instrument of social development and cohesion, as well as help promote political
stability. The negative reaction of some sectors of society to the private sector,
particularly to foreign enterprises, is related to the fact that the entrepreneurial oligarchy
has forgotten that it needs to operate in a successful society and cannot allow itself the
luxury of segmenting the market, concerning itself with only one part of it and disregard
completely the problems of the rest of society. In developing countries, businesses must
realize that they do not operate in a vacuum, but within a developing society. While it is
true that they interact with only a small percentage of the population, they can have an
impact on a good portion of the environment within which they operate. For this reason,
the role of corporate social responsibility becomes much more important.

When we speak of responsibility, are we talking about taking responsibility for solving
society’s problems? Unfortunately, those who criticize the CSR concept believe that its
role is just that. When The Economist published a special supplement in February 2006
attacking social responsibility it was attacking the concept of responsibility as a synonym
for being responsible for solving society’s problems. It is true that in a developed country
(The Economist’s main market) economic and social development is not the
responsibility of business, but rather of the public sector and civil society. However, in a
developing country, economic and social development can become, to some degree, a
responsibility of businesses.

An interesting example is the case of a business that includes, as part of its social
responsibility, providing elementary education in a remote community where it operates
one of its plants. Is it the responsibility of the business to provide elementary education in
the community in which it operates? At first light the answer might be “no,” since
education is the responsibility of the government. However, a closer look at the problem
shows that as workers leave the area (whether through emigration or because they retire),
it becomes more difficult for the company to find skilled workers. A business with a
long-term vision will see that it not only has to train current employees, but that it also
needs to assist the community so that it can generate future workers. The question
becomes, is providing training to its future workers the responsibility of the enterprise?
Again, in the developed world the answer is, most probably, “no”. However, in
developing countries the answer is likely to be “yes.” This example shows how the
responsibility to solve a social problem can be part of the business strategy and can be
justified from a financial point of view if a long-term perspective is taken.

There are less clear-cut cases such as, for example, that of an European oil firm operating
in a Latin American country that believes that part of its responsibility includes
improving the country’s judicial system by providing training to judges. While these
activities could improve the country’s legal security, which would eventually benefit the
firm, the link to the firm’s activities is much less apparent and difficult to sustain in the
long term. Indeed, the firm could be accused of trying to influence the justice system in
its favor.

These two examples show, in a simplified manner, the role that corporate responsibility
can take in developing countries. It also illustrates the potential danger of exceeding those

---

responsibilities because undertaking activities that are not in the firm’s purview can
create a dependency. This could be the case of a relatively powerful business in the
community that is forced to decide to provide services that the local government is unable
or does not want to provide, such as drinking water and electricity. The risk here is that
the community could become dependent on the business, and the local government would
face the wrong incentives, making it possible for it to shirk its responsibilities. In
addition, the company could easily be accused of controlling the local government.

A company’s social responsibility depends on the context within which it operates. There
are no unique answers. For example, is community security a corporate responsibility? In
principle, the answer is “no.” But, what about a group of hotels at a tourist destination? If
the local government fails to provide adequate levels of security, then the hotels would
have no choice but to take matters into their own hands or risk losing their clientele. This
is a rather common occurrence in developing countries.

Regardless of the level of development of the country, there is no debate about a firm’s
responsibility regarding the impacts of its activities on the local environment and
community. Businesses cannot evade their responsibility for the consequences of their
actions, be they short or long term, measurable or not. We cannot adopt the extreme and
shortsighted position that only that which is measurable or obvious matters!

The role of social responsibility in Latin America includes understanding that the
region’s societies have a significant concern for improvements in the basic standard of
living. These are things that, at first blush, may not be considered the responsibility of
business. Issues such as health, education and basic infrastructure hold a very high
priority in Latin America. Clearly, in order for some of these issues to be considered the
responsibility of a particular business, some kind of tangible or intangible link with the
firm’s short or long-term activities needs to be established.

Similarly, stability and labor benefits are also highly valued in Latin America. Corporate
volunteerism, particularly by a firm’s executives, is much more valued in the region than
in Europe. Business executives in Latin America need to roll up their sleeves and get
involved in the community, using their know-how, expertise and access to technology to
help improve local living conditions.

Another issue that has a higher priority in Latin America than in Europe is social
inclusion. As mentioned earlier, the region lacks social cohesion and there are problems
surrounding discrimination toward certain vulnerable groups, both of which are not as
significant in Europe. Nevertheless, the influx of migrants into Spain is beginning to
make these topics the object of some concern in that country. An example of corporate
social responsibility and good business sense in this area is provided by financial
institutions that are creating special programs for immigrants to developed counties to
address their lack of access to financial services.

It is not surprising that there is less concern for the environment in Latin America than in
Europe. While corporate actions in favor of the environment are appreciated, they do not

---

Document Outline

• ÿ
• ÿ
• ÿ

---