Corporate Social Responsibility — Where Is It Going?
It’s not a piece of news that responsible business is a key factor of sustainable development. Companies and big corporations are expected by the governments and societies to behave responsibly and to provide additional goods to the communities.
To this day there is no unified definition of the term ‘Corporate Social Responsibility’, the idea of the CSR sounds like a new one, however, it isn’t so really. In essence, the CSR’s approach is to view business as part of society and to find ways to maximize the positive benefits that business endeavor can bring to human and environmental well-being whilst minimizing the harmful impacts of irresponsible business.
The agenda that has resulted from these concerns has variously been called ‘corporate citizenship’, ‘corporate social responsibility’ (CSR), ‘corporate accountability’ or simply ‘corporate responsibility’, according to Tom Bigg and Halina Ward, authors of discussion paper ‘ Linking Corporate Social Responsibility, Good Governance and Corporate Accountability Through Dialogue’.
Let’s take a closer look at the history of the nascence of this concept.
It dates back to the 1930s, according to Eric Orts of the University of Pennsylvania.
Just before World War II, German industrialist Walter Rathenau claimed that business corporations had become very large and that they had grown to be a significant part of the society. According to Rathenau, even though fundamentally a corporation’s intent is the pursuit of private interests and profits for owners of the company, they are increasingly bearing the marks of an undertaking and, to an increasing degree, have been serving the public interest (Kessler, 1930). Further, philosophers John Dewey and James H. Tufts, in their book Ethics (1908), raised the concept that it is not sufficient to view companies as purely economic machines and that companies should be involved in public duty as well.
The term got back to life in 2010, following 2 major events — Lehman Brothers collapse in 2008 when panic reigned in the financial markets, banks caved in and had to be nursed back to health with tax dollars; and mixed results of the Copenhagen summit in 2009 where only a “weak political statement” was anticipated at the conclusion of the conference. The Copenhagen Accord, a document that recognized that climate change is one of the greatest challenges of the present day and that actions should be taken to keep any temperature increases to below 2 °C, was “taken note of”, but not “adopted” in a debate of all the participating countries the next day, and it was not passed unanimously.
These events had consequences that changed the rules of the game for businesses and governments, calling them to re-consider its roles and commitments in society.
Lessons learned
Following the events, Companies took an obligation to focus on long-term value creation and take into account the interests of stakeholders when it comes to restoring confidence in today’s markets. To this end, companies need to integrate environmental, social and governance factors (ESGs) into their risk management strategies and should engage more deeply in their communities.
Governments, in their turn, are tasked with returning markets, that have been shaken by crisis, back to the path of finding solutions to complex global changes.
The goals of Corporate Social Responsibility, therefore, are:
- to avoid the next crisis;
- to interweave environmental, economic and governance approaches in such a way as to achieve sustainable development;
- to create a more sustainable and inclusive economy.
Integration of the Environmental Social Governance (ESG), as the key aspects of the business activity, is a crucial factor in ensuring long-term viability and success of the business itself.
What Do Governments Do to Enhance CSR?
Governments around the world create opportunities for the development of Corporate Social Responsibility as they see it as an issue of relevance to public policy through the ability to promote sustainable and inclusive development, increasing national competitiveness and stimulating investment.
They usually go through 4 main steps:
■ Increasing awareness about creating a common understanding of corporate responsibility between companies and the general public;
■ Partnerships aimed at creating win-win situations where different stakeholders work together to achieve a common goal;
■ Soft legal approaches that promote and stimulate voluntary business activities as complementary to state regulation;
■ Providing tools that enable governments to monitor and enforce corporate accountability.
Researchers agree that despite governmental involvement efforts, the companies that take a lead in the Corporate Social Responsibility movement are better off without rigid and tight frames of ‘how-to’. In short, the voluntary approach wins in this sphere over policies, regulations, and laws.
What is Corporate Social Responsibility (CSR)?
There is still no single, unified definition to CSR. The modern notion of the CSR was identified and proposed by Richard Holme and Phill Watts in the “Making Good Business Sense” publication of the World Business Council for Sustainable Development as:
“… the constant commitment of the business to behave ethically and contribute to economic development by improving the quality of life of employees and their families, as well as the local community and society as a whole.”
All the companies have 2 approaches — to improve qualitatively (management of people of processes) and qualitatively (impact of the society). The approaches can be different, but the goal is one.
What does CSR cover?
“At a minimum, corporate social responsibility includes environmental issues, but it also takes on social, ethical, governance, health, and other issues.”
— Norine Kennedy
Corporate Social Responsibility, as a managerial approach, helps businesses restore confidence and transform environmental, social and governance issues into strategic opportunities, as well as better equip the companies to deal with crisis situations.
Corporate Social Responsibility (CSR), as a rule, includes obligations and activities beyond the scope of the law, such as:
- corporate governance and ethics;
- health and safety;
- environmental management;
- human rights (including fundamental labor rights);
- sustainability;
- working conditions (including labor protection, working time, wages);
- production relations;
- community involvement, development, and investment;
- attraction and respect for different cultures and disadvantaged groups of the population;
- corporate philanthropy and employee volunteering;
- customer satisfaction and adherence to fair competition principles;
- anti-corruption measures;
- accountability, transparency and performance reporting;
- relations with suppliers for both domestic and international supply chains.
Such companies as Nike, have already started to include CSR in their strategic priorities. The CEO and other Nike executives strongly support CSR and consider it an element that raises strategic goals.
The CEO of Nissan North America puts the company’s CSR in the spotlight. The company is developing a half-year plan in such a way as to answer the question: ‘How do we grow in harmony with sustainability?’ … and publicly commits to execute the plan.
Nissan North America believes that it’s really important to have those people on the decision-making positions that live by the ‘Yes, now we have limited natural resources’ approach.
In many companies, departments responsible for CSR or sustainability play a significant role in training other business units on WHY companies should focus their efforts on sustainable development. It helps to influence organizational culture and values.
The most important factors of effective decision-making on internal corporate sustainability are:
- top-management leadership;
- organizational culture;
- people.
Factors and impacts that lead to increasing attention being devoted to the role of companies and CSR include:
- Sustainable development: United Nations’ (UN) studies and many others have underlined the fact that humankind is using natural resources at a faster rate than they are being replaced. If this continues, future generations will not have the resources they need for their development. In this sense, much of the current development is unsustainable — it can’t be continued for both practical and moral reasons. Related issues include the need for greater attention to poverty alleviation and respect for human rights. CSR is an entry point for understanding sustainable development issues and responding to them in a firm’s business strategy.
- Globalization: With its attendant focus on cross-border trade, multinational enterprises, and global supply chains — economic globalization is increasingly raising CSR concerns related to human resource management practices, environmental protection, and health and safety, among other things. CSR can play a vital role in detecting how business impacts labor conditions, local communities and economies, and what steps can be taken to ensure business helps to maintain and build the public good.
- Governance: Governments and intergovernmental bodies, such as the UN, the Organization for Economic Co-operation and Development (OECD) and the International Labor Organization (ILO) have developed various compacts, declarations, guidelines, principles and other instruments that outline norms for what they consider to be acceptable business conduct. CSR instruments often reflect internationally-agreed goals and laws regarding human rights, the environment, and anti-corruption.
- Corporate sector impact: The size and number of corporations, and their potential to impact political, social and environmental systems relative to governments and civil society, raise questions about influence and accountability. Even small and medium-sized enterprises (SMEs), which collectively represent the largest single employer, have a significant impact. Companies are global ambassadors of change and values. How they behave is becoming a matter of increasing interest and importance.
- Communications: Internet and mobile phones are making it easier to track and discuss corporate activities. Internally, this can facilitate the management, reporting, and change. Externally, NGOs, the media and others can quickly assess and profile business practices they view as either problematic or exemplary. In the CSR context, modern communications technology offers opportunities to improve dialogue and partnerships.
- Finance: Consumers and investors are showing increasing interest in supporting responsible business practices and are demanding more information on how companies are addressing risks and opportunities related to social and environmental issues. A sound CSR approach can help build share value, lower the cost of capital, and ensure better responsiveness to markets.
- Ethics: A number of serious and high-profile breaches of corporate ethics resulting in damage to employees, shareholders, communities or the environment — as well as share price — have contributed to elevated public mistrust of corporations. A CSR approach can help improve corporate governance, transparency, accountability, and ethical standards.
- Leadership: There is increasing awareness of the limits of government legislative and regulatory initiatives to effectively capture all the issues that CSR address. CSR can offer the flexibility and incentive for companies to act in advance of regulations, or in areas where regulations seem unlikely.
- Consistency and Community: Citizens in many countries are making it clear that corporations should meet the same high standards of social and environmental care, no matter where they operate. In the CSR context, companies can help build a sense of community and a shared approach to common problems.
- Business tools: Businesses are recognizing that adopting an effective approach to CSR can reduce the risk of business disruptions, open up new opportunities, drive innovation, enhance brand and company reputation and even improve efficiency.
Advantages of CSR Implementation for Сompanies
According to the research of PwC in 2015, 70% of Europeans choose a brand of a socially responsible company when making a buying decision; 1 out of 5 Europeans can pay 5 times more for a product produced with minimal harm for the environment; 65% respondents want to work in a socially-responsible company; brands with integrated sustainable development principles, e.g. brands of Unilever, grow 30% faster than others.
The research of AT Kerney, ‘Green Winners’ (2009) showed that companies, that start a sustainable approach in their operations, also win in financial terms. Of the 18 surveyed companies, 16 showed a better result over that of competitors. This indicator translates into an average of $650 million in market capitalization of the company.
Key potential advantages for businesses:
- Improved brand value;
- Introduction of products that meet the requirements of sustainable development;
- Better anticipation and management of the constantly expanding risk spectrum;
- Better reputation management;
- Increased ability to hire, develop and maintain staff;
- Improved innovation, competitiveness and market positioning;
- Improved efficiency and cost savings;
- Improved ability to engage and build effective supply chain relationships;
- Advanced features ahead of the changes;
- Stronger “social license” for the work in a community;
- Access to capital;
- Improved relations with regulatory authorities;
- Catalyst of responsible consumption.
Corporate social responsibility, as a strategic instrument of future business forming, happens in 3 contexts:
- Inside of the market;
- Outside of the market;
- Changing market conditions;
Edelmann Trust Barometer, that encourages companies to adopt a multilateral approach to stakeholder engagement, trust, and transparency, in 2010 showed for the first time, that trust and transparency are as important for corporate reputation, as the quality of goods and services.
In the US and most of Western Europe these factors are now standing much higher than product quality — and far outweigh financial gains, a factor that is ranked lowest among the dozens of criteria that affect corporate reputation around the world.
Speaking of the European Union, the Lisbon Strategy, adopted in March 2010, aimed at boosting the EU economy through social and environmental renewal, for the first time in the history of the EU, has identified Corporate Social Responsibility as a top priority in its political program. On top of it, Corporate Social Responsibility (CSR) is an important part of the EU’s “Europe 2020” Strategy.
Key questions of the state policy that appeared on the European level, include:
■ Ensure accountability and disclosure of environmental, social and governance (ESG) information;
■ Support and impact on various international CSR tools, such as the UN Global Compact, the OECD Guidelines for multinational enterprises, as well as an ISO 26000 Standard on social responsibility;
■ Promote business and human rights in line with the principles supported by the United Nations Secretary-General’s Special Representative for Business and Human Rights.
In 2010, the UN Global Compact, an important multilateral initiative to support CSR, has concluded a new agreement with the Global Reporting Initiative (GRI) to enhance the quality of corporate sustainability reporting. These two initiatives are aimed at the further development of their united forces — the GRI framework for reporting and strategic advancement of the UN Global Compact in tackling key sustainable development issues.
What the Future Holds?
Development of flexible, practical and standardized approaches to CSR requires the involvement of intergovernmental initiatives, such as:
- UN Global Compact;
- Declaration of the International Labor Organization;
- OECD & the World Bank Guidelines;
- Reporting Guidelines for Global Reporting Initiative (GRI);
- Standards of the International Organization for Standardization (ISO);
- AccountAbility AA1000 Series;
- International Standard of Social Responsibility SA8000.
Governments across the world try to make the process of CSR regulation as transparent and understandable as it possibly can be.
Here is the 6-step process for developing a Corporate Social Responsibility policy:
What is interesting is that globally businesses are not waiting to be regulated by the governments in the countries where they operate, but take leadership and introduce their own CSR initiatives, all the way while changing the lives of their stakeholders, environment around, as well as their internal corporate indicators (including financial) for best.
In the next articles, I will uncover CSR governmental and corporate initiatives separately.
Stay tuned!
Writer Anna Chashchyna
