What is Corporate Social Responsibility?
Corporate Social Responsibility (CSR) is the concept that a company should be accountable for the social impact of its activities and make a positive contribution to society as well as to its stakeholders. Businesses typically consider CSR as part of corporate governance and employ a variety of strategies to achieve the goal of social responsibility. CSR is often considered to be a form of self-regulation but can also serve as a catalyst for various corporate initiatives.
Most of the companies that receive attention for CSR strategies are larger organizations that have sufficient resource to give back to society. With the rapid expansion of ESG, investors today pay greater attention to companies’ CSR policies than ever, and challenge corporate leadership on their performance in this sphere. Depending on the level of an organization’s CSR efforts, its valuation can be positively or negatively affected.
Key Learning Points
- The idea that a company should behave in a socially responsible manner and consider the needs of not only all stakeholders, but the wider society is defined as Corporate Social Responsibility (CSR).
- Most companies issue a CSR report that is separate from annual financial reporting and presents key sustainability issues that are material to the business.
- While there are no formal standards, CSR is typically divided into four broad categories – environmental, ethical, philanthropic, and economic responsibility.
- Although it is not a new concept, CSR is becoming increasingly popular with sustainable and ethical investors and may drive their decisions.
- A well thought out and executed CSR strategy can create yield benefits such as an enhanced brand reputation, customer loyalty, increased talent retention, and easier access to capital.
What is a CSR Report?
A CSR report is a publicly available document that outlines a company’s sustainability efforts, goals, and mission. Although this form of reporting is still not mandatory, many companies take the initiative to create and publish a CSR report at least once a year. However, there is no set of common reporting standards and firms have the freedom to report on issues at their own discretion. Therefore, comparisons between companies, even those in the same industry, can be challenging. Moreover, companies may focus only on positive aspects while neglecting to mention areas in which they fall short, offering an incomplete and potentially misleading picture.
What are the Different Categories of CSR?
Although CSR is a broad concept and there are no universally applicable standards, four categories are typically mentioned.
Environmental responsibility is the most common form of CSR and incorporates anything that a company does regarding the environment. This includes climate-related issues and the firm’s approach to managing its environmental footprint. Some of the strategies businesses employ are intended to reduce harmful practices. A company may make efforts to reduce pollution generated by their operations or reduce greenhouse gas emissions, for example. They may also employ strategies to offset negative impact, such as using clean energy, planting trees, and or support environmental charities.
Ethical responsibility refers to the company’s fair treatment of all stakeholders including employees, suppliers, consumers, management, and the general population. This can involve paying fair wages, avoiding suppliers with exploitative practices, monitoring worker safety across the supply chain, and ensuring that no inputs or products are the result of child or forced labor.
Companies may also set aside a proportion of their earnings to apply toward making the world a better place. This strategy often takes two forms –donating to charities and non-profit organizations that align with the businesses’ mission and goals or donating to different causes. Some large companies may establish independent structures themselves, for example Virgin Unite, which is the independent non-profit foundation of the Virgin Group.
The idea of improving operations while simultaneously participating in sustainable practices is defined as economic responsibility. It captures activities in the three previously mentioned categories and seeks to not only maximize revenues but have a positive impact on the environment and society.
Carroll’s Pyramid of CSR
The earliest forms of CSR date back to the 1950s, but in 1991 Archie Carroll created a four-level model called the ‘pyramid of corporate social responsibilities. It includes four different areas of responsibility – economic, legal, ethical, and philanthropic.
Examples of CSR
The fashion industry faces challenges in both labor safety and greenhouse gas emissions. In their CSR report, H&M describes how they address these issues throughout their production and supply chains. By providing quantified outcomes, for example a threefold increase in the use of recycled materials and a 27.8% reduction in the use of plastic, the company offers evidence of achieving CSR goals.
Please see the download to access the full report.
The Importance of CSR
Historically, CSR was viewed as a powerful marketing tool to help companies position themselves more favorably with investors and regulators. However, decision-makers, consumers, and potential employees alike are increasingly considering CSR as an expression of a company’s moral stance and view it as a core part of strategic business objectives.
Setting clear CSR objectives and delivering results can help a company in many ways, for example strengthening its brand and customer base, which can lead to more stable and growing revenues. Businesses with strong CSR credentials are also perceived as high quality and typically trade at a premium to their peers. Other benefits include lower employee turnover, more opportunities to build external partnerships, and easier access to funding.
ESG principles underpin investment strategies. Enroll in the ESG Certificate course to learn how to identify these principles, and how they are applied to create and maintain shareholder value.