What is Corporate Social Responsibility?
Corporate social responsibility, or CSR, is the commitment by business to behave ethically and contribute to economic development while improving the quality of life of the citizens in the communities they operate in.
Corporate social responsibility embodies a set of values which are not only beneficial for society and shared prosperity but also essential for business success. Corporate social responsibility according to Fintalent’s Corporate Social Responsibility consultants, is not only an ethical issue but a strategic one as well. It overlaps with many other issues such as sustainability, corporate governance, human rights, poverty reduction, transparency and accountability.
Since the notion of CSR and its relationship to value creation is still emerging, many companies and business leaders are still on the fence regarding its importance. However, according to studies conducted by Deloitte & Touche in 2007, 92% of executives agree that responsibility is relevant in business today. In fact, 92% of those executives also claimed that CSR has either led or will lead their organization to more success. Currently more than half of FTSE 100 companies measure their performance against CSR measures.
Nevertheless, there is a lack of CSR guidelines in emerging economies where corporations are increasingly being held accountable for human rights violations. A few corporations though have developed corporate social responsibility policies within these countries. For example, Nestle has developed a community development program called “Nescafé Plan” in Africa, India and Latin America. The company has also created a “Child Protection Policy” that lays out the steps the company will take to prevent human rights violations among its suppliers.
Some argue that CSR is an oxymoron because a corporation’s primary responsibility is to make money for shareholders. Critics say that CSR interferes with shareholder value and diverts money from core business operations. But the American government thinks otherwise. In 2010, the US Supreme Court ruled that corporations have a responsibility to take actions to mitigate potential harm they cause – even if they are not directly responsible.
The United Nations defines corporate social responsibility as: The voluntary initiatives taken by business enterprises to contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large. The Corporation for Enterprise Development expands this definition to include: Any action a firm takes — internal or external — that effects change in its economic relationships with society, other firms and natural capital.
Corporate social responsibility takes many forms and can exist in the private or public sector. The concept can be defined as a code of conduct for an organization, a policy or set of principles or responsibilities assumed by the organization with regards to its impact on society. It can also be seen as an organisation’s way of measuring and mitigating its effect upon society, or conversely, the obligations that society may have to ensure that the organisation remains responsible. This is rooted in the Roman law principle “qui facit per alium facit per se” which translates into English as: “who acts through another acts himself.”
A modern definition for CSR was proposed by Professor Roberto Verganti of Italy’s IESE Business School. He argues that it is a “systematic way of managing the interactions between an organization and society”. The Emilia-Romagna Region of Italy, where IESE is located, has taken this definition one step further by adopting “Corporate Social Responsibility”.
At the global level, a UNCSR has been created to monitor CSR practices and foster exchanges on best practices. Amongst Global Compact member states are: Australia, Austria, Belgium, Canada, China, France, Germany, India Netherlands. South Africa and Switzerland.
Many companies have a CSR policy, but do not effectively implement them. As an example, in 2008-2009, of the top 500 public corporations listed in the United States, 93% claimed some form of commitment to corporate social responsibility; however only 2% reported having policies that took place at all times and involved all levels of the organisation. This suggests that CSR programs have not effectively bridged the gap between theory and practice. A survey of chief sustainability officers showed that 76% reported difficulty in aligning their organisations’ strategies with their sustainability goals.
While some companies see a rising trend in the importance of CSR, others see a trend of declining concern over the issue. In both cases, there is an overall trend towards more “integrated” CSR strategies. In March 2012, the World Economic Forum (WEF) released a report researching how companies are performing in the area of CSR. They studied over 2,000 companies from over 50 different industries, focusing on how well companies align their business practices with their CSR commitments. The study conducted by WEF revealed that nearly half of the 1,000 enterprises evaluated did not demonstrate commitment to their commitments. This also includes 13% of those who made commitments that were not yet implemented or only partially implemented. The report also revealed that 26% of the enterprises evaluated were not even aware of the commitments made and did not have a system in place to monitor their performance.
Criticisms of Corporate Social Responsibility
CSR has been criticized or contradicted by some analysts. Some claim that companies will always keep on making money, even if they make socially responsible decisions. Others say that there are other ways for shrinking the environmental footprint of corporations, for instance by choosing less polluting products and processes, rather than trying to eliminate them. Others still have questioned whether it’s even possible for companies to have a completely “socially responsible” business model.
To some, much of CSR is just a public relations exercise or “green-washing”. However, companies can be genuinely committed to CSR without necessarily measuring their success in any way or having any mechanism for being held publicly accountable for it. There is no standard way to measure the impact of such initiatives in terms of social or environmental benefit, so many companies and NGOs will use their reputation as an indicator for the success of such efforts.
These measures may be seen as indicators of how successful a company is at understanding the impact that their products and services can have on others. This impact can include not only aspects such as employment, economic, and investment implications but also intangible impacts such as psychological or emotional benefits to employees; safe working conditions; the promotion of civility and equality in society; or corporate reputation. In this light, many companies are using CSR initiatives as part of a social responsibility strategy, which encompasses more than just the production and distribution of goods. These managers use CSR strategies to improve their image among stakeholders (the general public, social activists, regulators) as well as within their own organizations in order to achieve organizational goals.
There are a number of initiatives aimed at measuring the impact of CSR on a company’s social and environmental performance. Many companies have adopted one or more CSR indices to measure their overall performance and in some cases, their effectiveness as an indicator for stakeholders.
Companies may be motivated to publish their CSR data because it allows them to demonstrate that they are making efforts to address global issues. Some examples include publishing data on greenhouse gas emissions, water consumption in manufacturing, the equitable distribution of profits, or corporate payments towards projects such as clean water initiatives.
In April 2007, the European Union (EU) launched a new initiative to create a database for CSR reporting and to provide increasing transparency for companies. An EU Working Group was established in July 2006 to look into ways that the EU could assist and promote CSR reporting efforts around the world. In March 2008, the EU published its “Guiding Principles on Corporate Social Responsibility”. According to this document, companies should publicly report their commitment to sustainable development, and that they should publish the data in their annual reports. The EU encourages public policy-makers to use CSR data to develop and implement sound policies.
The Global Reporting Initiative and CSR Reporting Guidelines
The Global Reporting Initiative (GRI) is an organization that provides reporting guidelines for companies. It also produces a report, the G4 Sustainability Reporting Guidelines, which defines and explains sustainability reporting for the private sector. The GRI has published reports on CSR which says that organizations should measure the social and environmental impact of their business on all levels from operations, supply chain management, corporate governance to performance tracking (process level indicators), risk management (impact level indicators), reputation building and stakeholder engagement as well as communication strategies. The GRI also defines a structure of standards integrated into the GRI framework. The GRI guidelines are written in a way that allows companies to select those indicators that apply most closely to their business, thereby allowing the companies to use CSR as an effective tool for continuous improvement.