Social responsibility is one of the corporate values at AES (others being fun, fairness and integrity). The founders of the company Roger Sant and Dennis W. Bakke were intent on providing clean, safe and reliable electricity even if it meant that profits were sacrificed. It was identified that AES contributed towards global warming by emitting CO2 from fossil fueled plants and thus steps were taken to mitigate this impact by investment in control technology and funding projects such as those of planting trees.
However in recent times AES has been forced to reconsider its strategy for social responsibility. With the expansion of the business in developing countries in the 1990's the company found out that although global warming is an important issues there are issues of far greater significance that require immediate attention such as provision of quality education, hunger, poverty, or inadequate medical care. The company had a very "narrow" definition of social responsibility and was focused on mitigating CO2 effects only while people were dying of malnutrition and hunger.
With the advent of this matter a number of issues were raised. Although the AES is focused on meeting more than the legal and political requirement and in ensuring that all its project fulfill their social responsibility steps need to be taken that enough is done to mitigate the effects of the project. In developing countries this could mean a lesser focus on CO2 emission and greater focus on health and education provisions. This raises a potential conflict as many employees of AES feel that the company is selling its vision of concentrating on the environment. The founders nevertheless feel that the social impact of each project is to be determined by its team members and steps need to be taken to ensure that the projects have a "positive" social impact in ALL aspects.
Even though global companies are expected to adhere to same set of standards worldwide exceptions are possible under certain circumstances. The company rather than being adamant on pursuing the standards it has set in USA could flex its rules in developing countries such as India. Although some may feel that this is a direct blow on the social responsibility values of the company what needs to be kept in mind is that the company is not denying its social responsibility but rather is expanding is vision of social responsibility and is thinking on broadening the social impacts of a given project.
The key here is how AES is able to adapt its business principle and commitment to social responsibility to local needs such as those in India. The environmental standards could be lowered a bit so that they are in line with the standards set by the Indian government and the World Bank. This would mean the use of PC boilers with low NOx burners and electrostatic precipitator to remove particulates rather than the use of CFB boilers which are used by AES in USA projects. Pc boilers have a lesser capacity to for reducing SO2 emissions but still meet the local and World Bank standards. By not investing in control strategy the company can free up resources for investment in other social responsibility projects.
Janette Kessler, the finance director of Indian AES team also favored this view. She felt that having clean water or better education was far more important for the local people than a bit cleaner air.
This does not mean that the company is to forge its commitment to reduction of CO2 emission. Environmental standards should be a balance between ensuring that there are sufficient CO2 offset projects going on along with concentrating on "broad" social impacts.
Bearing in mind the new concept of social responsibility AES is faced with a number of decisions and trade off. For starters this would mean that the organization is sacrificing its initial concept and embracing the social responsibility on a much wider level. Investment in new reduce CO2 emissions would be reduced so that funds can be invested elsewhere. The number of opportunities is endless and includes health care, education, water supply and sanitation. In choosing each one of these projects to work upon the organization faces a difficult task of forgoing the other one.
AES always regarded its employees and their ideas as a core part of its operations and the change towards this concept might mean that the AES employees might not feel inclined towards this notion. Employee values might be sacrificed in the pursuit of this new objective.
Social responsibility entails the spending of hard core cash and widening this concept would mean that the company faces an increase in the cost and thus lower profit levels. Although it has repeatedly emphasized that profits come later in the ever competitive market it is necessary for the organization to satisfy the shareholders expectations. The question on how much should be spent on social responsibility is hard to determine specially in relation to NPV.
The organizational structure also changes as a result of social responsibility. As all projects face different circumstances their social impacts and steps to mitigate them also differ. At a centralized level this would be pretty difficult to analyze on which projects the company should spent and how much. This requires the need to delegate extra responsibility to the team members who can conduct an audit for social impacts and then suggest projects which would result in net "positive" social impact.
The corporate values drive the organization and a deviation from them is likely to bring about adverse consequences. Repeatedly the founders have said that fun, integrity, fairness and social responsibility are the main aims of the organization followed by profit. Thus if the organization feels that it is sacrificing its core values it should not pursue that project even if it is profitable.
A situation could arise where the organization finds that the social impacts of the project are far greater and going ahead with the project would incur only a few benefits and far greater "social" costs. In the accounting terms theses social costs would not be accounted for but AES being sensitive to such issues would identify these due to the audit being conducted. Social costs would include potentially negative environmental effects such as air and water pollution and any economic costs being incurred in terms of local people. If these social costs cannot be mitigated by taking appropriate steps and spending on welfare projects the investment although would be financially viable would not be accepted in terms of social impacts.
However, this form of extreme situation is highly unlikely and given the previous experience the organization has always been able to effectively take steps to mitigate the social impacts so that the project are socially beneficial and not harmful or even neutral. More often than not the organization would find itself in a situation where it can effectively counter the negative impacts.
Nevertheless, the organization should uphold its values in terms of social responsibility and indeed abandon any projects where the social costs exceed the social benefits. The final decision should be based on the conscience of the team members and the fact that they feel that enough has been done regarding the social responsibility aspects of a particular project.
In conclusion it can be said that the AES team always had been a big supporter of social responsibility and has worked hard to counteract the negative impacts that it causes. The only difference between now and then is that initially the organization had a narrower concept of social responsibility and focused on CO2 emissions only. But now with the expansion of the company in overseas country AES broadened its concept to include those projects such as investment in provision of education, health, animal rights and housing…