Corporate social responsibility (CSR) has become one of the standard
business practices of our time. For companies committed to CSR it means kudos
and an enhanced overall reputation – a powerful statement of what they stand
for in an often cynical business world.
The establishment of a CSR strategy (sometimes referred to as a
sustainability strategy) is a crucial component of a company’s competiveness
and something that should be led by the firm itself. This means having policies
and procedures in place which integrate social, environmental, ethical, human
rights or consumer concerns into business operations and core strategy – all in
close collaboration with stakeholders.
For companies, the overall aim is to achieve a positive impact on
society as a whole while maximising the creation of shared value for the owners
of the business, its employees, shareholders and stakeholders. Not so long ago,
the European Commission defined CSR as “the responsibility of enterprises for
their impacts on society”, a succinct and distinct summation for sure.
A 2015 study by the Kenexa High Performance Institute in London (a
division of Kenexa, a global provider of business solutions for human
resources) found that organisations that had a genuine commitment to CSR
substantially outperformed those that did not, with an average return on assets
19 times higher. Additionally, the study showed that CSR-orientated companies
had a higher level of employee engagement and provided a markedly better
standard of customer service.
And yet, despite the positivity and optimism that CSR brings to the
corporate table, companies do not always accept their responsibilities in this
area in good heart, with a fair number admitting to having adopted CSR mainly
as a marketing gimmick. In some cases, firms may have been coerced into
adopting CSR and did so with insufficient enthusiasm and vigour, leaving many
of them to ponder what they could and should have done differently.
For those considering CSR as a strategic option the question to ask may
very well be this: is the CSR payoff always worth the outlay?
Establishing a CSR programme
The factors driving companies to pursue a CSR agenda are fairly consistent
across the corporate world; however, once a company makes the decision to adopt
CSR orientated activities, a plan (involving a lot of engagement with
employees, managers, suppliers, NGOs and others) must be implemented to carry
out the agreed CSR programme.
Within the pages of its CSR Implementation
Guide the International Institute for Sustainable Development (IISD) outlines
what it considers to be the six key components which go towards a coherent CSR
plan: (i) CSR Assessment; (ii) CSR Strategy; (iii) CSR Commitments; (iv)
Implementation Plan and Actions; (v) Verification and Evaluation of Results,
and (vi) Refinement. “Perhaps most important, however, is an underlying
commitment to multi-stakeholder engagement as a foundational pillar to any credible
CSR program,” says Jason Potts, a senior associate with IISD’s sustainable
markets and responsible trade initiative. “CSR is fundamentally about ensuring
that companies forward broader public objectives as an integral part of their
daily activities and this can only be ensured with the appropriate
communication channels with stakeholders.”
“CSR policies need to be considered as a core
and inseparable component of the overall service or product offering.”
For Klara Kozlov, head of corporate clients at the Charities Aid
Foundation, every company’s situation is unique, with many different
models in existence which can help organisations to achieve their CSR aims. In
turn, this preponderance of choice has led to many companies recognising that
they are defined by what they do, not just what they give. “Companies are not
solely providing a financial contribution but are increasingly unlocking their
intellectual assets and the power of their people to achieve a positive
impact,” claims Ms Kozlov. “Ultimately, coherency comes from clear purpose,
programmes of work which are authentic to and valued in the business and an
acceptance that it is critical to business performance.”
Tobias Webb, founder and managing director of
the Innovation Forum, is clear on what a CSR programme, or a sustainability
strategy, should accomplish. “It comprises re-evaluating how the company thinks
about its impact, engaging stakeholders beyond shareholders and coming up with
a plan to improve the impact of the business on society and seize business
opportunities and make cost savings as a result,” he attests. “This would
involve a lot of planning and engagement with employees, managers, suppliers,
NGOs, perhaps academics and others, to figure out where and how this is best
done.”
CSR resistance
Cynics suggest that companies often develop a CSR agenda not because of
an altruistic desire to assist in curing the ills of society, but for reasons
more akin to a box ticking exercise. Whatever the consensus, some organisations
either implement their CSR programme with a distinct lack of heart or resist
adopting a CSR policy altogether.
In the opinion of Mr Potts, if a resistance to CSR policies does exist,
it usually stems from the notion of allowing external stakeholders to directly
influence corporate policies and strategies, an idea that is largely
antithetical to the basic mindset under which many, if not most, corporations
operate. “An honest adoption of CSR often requires a serious reformulation of
corporate purpose and decision-making structures,” advises Mr Potts. “Such
change also implies, and rests upon, the adoption of a corporate culture which
actively encourages employees to consider how the company might be able to do
better in the world. When CSR policies are adopted without simultaneous tools
for stimulating and allowing deep change, one can expect similarly soft results
in terms of CSR outcomes and impacts.”
Avoiding ethical blowback
According to Mr Webb, many companies are shackled by an adherence to a
20th century mindset imbued by the Milton Friedman paradigm of ‘only
shareholder returns count’. Instead, companies should be looking at business
strategy through the lens of sustainable supply or resilience – a very
different proposition from the Friedman philosophy. “Tesco suffered hugely
because all their suppliers hated them, and so did everyone else,” says Mr
Webb. “This was because they squeezed everyone and it backfired on them in the
end. The Wharton Business School professor Thomas Donaldson calls this type of
scenario the ‘ethical blowback’.”
Sustainability is clearly important. More businesses are adopting a
strategic approach to their CSR policies because they are increasingly seeing
the benefit across their business and for their stakeholders. “Many businesses
have made significant strategic advances in sustainability,” affirms Ms Kozlov.
“CSR allows businesses to demonstrate their values, engage their employees and
communicate with the public about how they operate and the choices they make,
to ensure a sustainable future. CSR helps pave the way for partnerships between
businesses and civil society that are based on common goals and shared actions
to deliver impact-driven outcomes.”
Pressure to deliver strong financial results
As CSR programmes continue to evolve and extend their reach, it may well
become the case that companies find themselves under added pressure to have
their CSR initiatives deliver a strong financial result. If this is indeed
true, many would question whether this financially-orientated approach is not
somewhat at odds with what the core aims of a CSR programme are supposed to be.
“This depends on your timescale,” suggests Mr Webb. “In three to five years, a
good CSR strategy will have delivered more engaged employees, better access to
talent, lower capital constraints and a better reputation. In the longer term
it can deliver serious business innovation and transformation of the company
culture and how the firm sees its role in the world. Companies attempting this
– not yet successfully, but on the way – include Unilever and Nestle, among
others. Two well-known examples of those that are already there are Interface
and Patagonia.”
Others are not convinced that organisations are feeling extra pressure
due to a need to demonstrate stronger financial outcomes in conjunction with
their CSR activities. “Significant pressure to bolster financial outcomes has
always existed and will continue to exist,” says Mr Potts. “There is no reason
why CSR commitments cannot deliver strong financial results, and it would be
folly to expect companies to throw this core corporate objective out the window
altogether.”
The problem arises when companies attempt to measure the financial
results of their CSR policies independent of their other corporate activities.
Rather, CSR policies need to be considered as a core and inseparable component
of the overall service or product offering. Furthermore, the costs related to
CSR should not be expected to demonstrate traceable financial gains.
CSR policies should set the ‘rules of the game’ which the company
concerned has established, and within which broader corporate financial returns
need to be secured. “Basic CSR principles and commitments should be considered
non-negotiable parameters of business operations rather than being subject to
specific financial performance requirements,” says Mr Potts.
Future embrace
At present, the incorporation of CSR programmes by businesses on a
fundamental level appears as prevalent as ever. However, the jury is still very
much out as to whether companies have it within them to embrace a broad or
multifaceted vision of CSR. “It would be utopic to expect a sea change among
industries,” says Mr Potts. “While there are plenty of examples of companies
using strong CSR performance as a brand-building and product marketing
strategy, far too many corporate executives still rely on the old financial and
hierarchical models of yesteryear as the basis of their own planning. The
biggest and most influential companies also tend to be the most reliant on the
‘conventional way’ of doing business. What is happening, however, is a broad
transition to the adoption of external multi-stakeholder processes – in the
form of multi-stakeholder sustainability standards and labels – as a way of
outsourcing the stakeholder engagement process.”
Ultimately, there are no hard and fast rules governing CSR. The more
companies understand the growing resilience, reputation and legal risk they
face, the more opportunities our globalised and connected world has to offer
them. “This often depends on the sector,” points out Mr Webb. “If you make
mining equipment, your focus will be energy efficiency and perhaps new
technology that is safer. If you sell chocolate, your concerns are around the
economic viability of your supply chain.”
With a number of recent legislative and behavioural developments, such
as the transparency of supply chains, sustainable development goals, the
ramifications of the Modern Slavery Act 2015 and the zero landfill initiative,
all contributing to the CSR melting pot, Ms Kozlov is in no doubt that
companies are unifying their CSR activities under an overarching,
business-aligned strategy, and using them as a tool to drive innovation, tackle
material issues, strengthen community engagement and mitigate risks.
Whether a force for good or an exercise in brand enhancement, what
cannot be denied is that CSR is very much an integral part of the global
business landscape.
-Financier Worldwide
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