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What is corporate social responsibility?

Posted on: January 26, 2022
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Corporate social responsibility (CSR) is sometimes known as corporate citizenship and is a commitment by organisations to supporting society at large, the environment, and stakeholders. This is rather than primarily serving shareholders as was the traditional business strategy. 

CSR initiatives look at a company’s environmental impact and how it can give back to the local communities all along the supply chain. Ensuring that processes have sustainability built in from start to finish helps create a closed loop with regards to any waste as well as respecting the human rights of any worker along the chain.

The triple bottom line (TBL) is a business model adopted by firms when they commit to measuring their social and environmental impact alongside their financial performance. It is represented by the “three Ps”: profit, people, and the planet. There’s no doubt that CSR can improve brand image but It’s important that any CSR strategy is grounded in genuine intent to carry out responsible business practices and can demonstrate measurable positive impact.

CSR programs are often guided by partnerships with nonprofits or NGOs. These programs can also benefit employee engagement and well-being because workers are given the opportunity to give back through social impact and employee volunteering on company time. In one survey in the USA, 94% of people said that volunteering improved their mood and 78% said that it lowered their stress levels.

Why is corporate social responsibility important?

CSR is important because consumers are increasingly aware of and concerned about how companies and brands do business. They want to know about the working conditions of the people who produce the garments they buy, for example, or whether a company is actively reducing its carbon footprint and taking environmental sustainability seriously.

The pandemic and climate crisis have converged making people even more conscious of our need to reduce waste and unnecessary energy usage, especially where fossil fuels are concerned. At the COP26 conference in November 2021, the hope was to end the use of fossil fuels and aid the aim of limiting global temperature rise to 1.5 degrees. There was a last-minute change to the Glasgow Climate Pact which meant that China and India chose to “phase down” rather than “phase out” coal. At the close of the conference, the United Nations chief, Antonio Guterres, said of the document “It is an important step but is not enough.”

The UN Global Compact offers 17 Sustainable Development Goals (SDGs) for companies of all sizes to follow. In the UK, ISO-26000 offers a similar framework of guidance for companies that are committed to sustainability and social responsibility. However, the need for governments to align themselves with collective goals is also important to set a precedent for renewable energy, environmental responsibility, and sustainable business.

There is the question of whether corporations have more power now than governments and perhaps that they have greater influence when it comes to sustainable development and fighting climate change. Back in 2017, The Guardian reported that just 100 companies were responsible for 71% of global emissions according to the Carbon Majors Report. Corporations certainly understand that the spotlight is on them and in 2019, The Business Roundtable, a group of CEOs from nearly 200 major U.S. corporations, issued a statement that redefined the “purpose of a corporation.” The points it covered include:

  • Delivering value to customers
  • Investing in employees
  • Dealing fairly and ethically with suppliers
  • Supporting the communities in which corporations work
  • Generating long-term value for shareholders

The statement received signatures from CEOs including Jamie Dimon of J.P. Morgan Chase, Amazon’s Jeff Bezos, Apple’s Tim Cook, Bank of America’s Brian Moynihan, Dennis A. Muilenburg of Boeing, and General Motors’ Mary Barra.

General Motors (GM) and their consistency in committing to the statement offer one of the more notable case studies for corporate responsibility. During the height of the initial wave of Covid-19, GM decided that their parts factories could start manufacturing ventilators and PPE. Supporting a small West Coast ventilator maker, GM increased production from 250 ventilators per month to 30,000 in 150 days. CEO Mary Barra said that “Doing the ventilator project was kind of a game changer from a General Motors perspective, from a culture-change perspective.” Not only did pivoting fast from manufacturing cars to making health care equipment feel like the right thing to do, but it changed the company culture by helping teams see what was possible in a short space of time and empowering them. During that time, GM also suspended dividends to shareholders.

At the other end of the scale of CSR commitment, Amazon and Jeff Bezos have been under pressure for not respecting the human rights of the company’s workers. In the USA, there have been staged walkouts of Amazon employees, increasing unionisation, and an investigation into a building collapse during a tornado which led to six deaths. Amazon continues to face questions about its health and safety policies and approach to human resources management.

What’s the difference between CSR and ESG?

Environmental, Social and Governance (ESG) refers to a set of criteria used by potential investors to screen companies in which they have an investment interest. ESG standards look at environmental impact and relationships with employees, suppliers, customers, and the wider community. They also look at a company’s leadership, executive pay, audits, internal controls, and shareholder rights.

ESG and CSR are both concerned with the impact on society and the environment that a company can have. However, the main difference between them is that CSR is a business model used by individual companies while ESG is a set of criteria used by surveilling investors. Issues that investors are increasingly interested in include diversity of board members, environmental management (e.g. the correct disposal of toxic materials), policies on sexual misconduct, and ethical supply chains. ESG can be seen as more thorough by some because it holds a company up to more scrutiny and asks for evidence of its claims.

There are studies suggesting that more environmentally-minded firms offer better returns for investors, so ESG and CSR are two important considerations for businesses, especially start-ups that are looking for investment to grow.

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According to a 2015 survey by Nielsen called “The sustainability imperative”, more than 50% of consumers are willing to pay more for a product or service if the business prioritises sustainability. Employees are also increasingly circumspect when it comes to potential employers and whether their CSR activities are authentic or simply greenwashing.

Understanding CSR and how to implement it effectively is key to running a credible and successful business today, whether you consider yourself to be amongst a new breed of entrepreneurs or work for a global corporation. Expand your knowledge of CSR with an online MBA from Keele and become skilled in decision-making for a better tomorrow.

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