Corporate Social Responsibility
Corporate Social Responsibility
Corporate social responsibility (CSR) is the voluntary actions which the organization takes, over and above compliance with minimum statutory and legal requirements, to address both its own competitive interests and the interests of wider society. The obligation of the organization is to maximize its positive impact and minimize its negative impact on the society.
in the recent years, there has been a sea change in the nature of the triangular relationship between organizations, the state, and the society. No longer organizations can continue to act as independent entities regardless of the interest of the general public. The evolution of the relationship between organizations and society has been one of slow transformation from a philanthropic coexistence to one where the mutual interest of all the stakeholders is gaining paramount importance. Presently, CSR is somewhat of a ‘catch-all’ phrase for an array of different concepts.
CSR typically includes ‘beyond statutory requirements’ commitments and activities pertaining to (i) corporate governance and ethics, (ii) health and safety, (iii) environmental stewardship, (iv) human rights (including core labour rights), (v) sustainable development, (vi) and conditions of work (including safety and health, hours of work, and wages etc.), (vii) employee relations, (viii) community involvement, development and investment, (ix) involvement of and respect for diverse cultures and disadvantaged peoples, (x) corporate philanthropy and employee volunteering, (xi) customer satisfaction and adherence to principles of fair competition, (xii) anti-bribery and anti-corruption measures, (xiii) accountability, transparency. and performance reporting, and (xiv) supplier relations, for both domestic and international supply chains.
The present century is characterized by unprecedented challenges and opportunities, arising from globalization, the desire for inclusive development, and the imperatives of climate change. Globally, it is being recognized now that integrating social, environmental and ethical responsibilities into the governance of organizations ensures long term success, competitiveness, and sustainability. This approach also reaffirms the view that organizations are an integral part of society, and have a critical and active role to play in the sustenance and improvement of healthy ecosystems, in fostering social inclusiveness and equity, and in upholding the essentials of ethical practices and good governance. This also makes a business sense as organizations with effective CSR, have image of socially responsible organizations, achieve sustainable growth in their operations in the long run, and their products and services are preferred by the customers.
CSR was earlier referred to as social responsibility and sometimes it is frequently called as corporate responsibility. Over the years, the concept of CSR has gained unprecedented momentum and today it has become a strategic issue and even include the way in which an organization carries its operations.
There is an impressive history associated with the evolution of the concept of CSR although it is stated that roots of the concepts and implementations can be traced back to prehistoric times. There had been earlier demonstrations of ‘corporate citizenship’ or ‘corporate philanthropy’ which can be considered forms of ‘social responsibility’ in business, dating from the pre-medieval period ranging from 5000 BCE (before common era) to 550 CE (common era), to the time where the concept gained social prominence (1930-1988).
In the present time, it is considered that its evolution started with 1950s, and 1990s are defined with its popularity and development of similar themes. In 1990s, increasing number of corporate social responsibility reports, standards and code of conduct show the interest for CSR.
Bowen (1953) is identified as the pioneer in modern CSR since then, the field has evolved assuming different names such as corporate social responsiveness (in the 1970s) and corporate social performance (in the 1980s). The term ‘corporate social responsibility’ became popular in the 1960s and has remained a term in use since then. This evolution also reflects an increase in awareness in important areas of action and performance which the early definitions have overlooked.
In the present-day environment, more and more organizations are realizing that in order to stay productive, competitive, and relevant in a rapidly changing global market, they have to become socially responsible. In the last decade, globalization has blurred national borders, and technology has accelerated time and masked distance. Given this sea change in the corporate environment, organizations want to increase their ability to manage their profits and risks, and to protect the reputation of their brands. Because of globalization, there is also fierce competition for skilled employees, investors, and consumer loyalty. How an organization elates with its employees, its host communities, and the market-place can largely contribute to the sustainability of its success.
Definitions of CSR
Although the idea of CSR has been around for more than half a century, still there is no single universally accepted definition of CSR. A variety of definitions of CSR have been proposed but a fundamental problem in the field of CSR is that no clear, universally accepted definition of the concept is given and there is no overall agreement or consensus in the ideal meaning of CSR. One of the challenges of understanding the concept of CSR is identifying a consistent and sensible definition from among a bewildering range of concepts and definitions for CSR. All the definitions which are prevalent these days underpin the impact which the organizations have on society at large and the expectations of the society on them. Several definitions which are prevalent today are given below.
Bowen offered one of the earliest definitions seeing CSR. He defined CSR as the ‘obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society’.
The European Commission (EC) has previously defined CSR as ‘a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis’. In October 2011 the EC published a new policy on CSR. Under this policy, the Commission defines CSR as ‘the responsibility of enterprises for their impacts on society’. To fully meet their social responsibility, organizations ‘should have in place a process to integrate social, environmental, ethical human rights and consumer concerns into their business operations and core strategy in close collaboration with their stakeholders’. The general definition of EC is an advantage as much as a drawback for CSR. It is an advantage since it allows CSR to reach a broad area of competence from environmental issues, eradication of poverty, employment creation and labour practices, environmental protection, and education and human development among others. But on the other hand this broad nature has attracted several critics who consider, ‘the term is a brilliant one; it means something, but not always the same thing, to every-body’.
United Nations Industrial Development Organization (UNIDO) defines CSR as ‘Corporate social responsibility is a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders. CSR is generally understood as being the way through which a company achieves a balance of economic, environmental, and social imperatives (Triple-Bottom-Line Approach), while at the same time addressing the expectations of shareholders and stakeholders. In this sense it is important to draw a distinction between CSR, which can be a strategic business management concept, and charity, sponsorships, or philanthropy. Even though the latter can also make a valuable contribution to poverty reduction, will directly enhance the reputation of a company and strengthen its brand, the concept of CSR clearly goes beyond that’.
The definition of CSR as per World Business Council for Sustainable Development (WBCSD) is ‘The continuing commitment by business to contribute to economic development while improving the quality of life of the workforce and their families as well as of the community and society at large’.
The definition of CSR from the World Bank Group is ‘Corporate social responsibility is the commitment of businesses to contribute to sustainable economic development by working with employees, their families, the local community and society at large, to improve their lives in ways that are good for business and for development’.
The working definition of CSR from ISO 26000 Working Group on Social Responsibility states that ‘Social responsibility (is the) responsibility of an organization for the impacts of its decisions and activities on society and the environment through transparent and ethical behaviour that is consistent with sustainable development and the welfare of society; takes into account the expectations of stakeholders; is in compliance with applicable law and consistent with international norms of behaviour; and is integrated throughout the organization’.
From the definitions of CSR, it can be seen that the CSR concept includes (i) CSR approach is holistic and integrated with the core business strategy for addressing social and environmental impacts of the organizations, (ii) CSR is required to address the well-being of all stakeholders and not just the shareholders of the organization, and (iii) philanthropic activities are only a part of CSR, which otherwise constitutes a much larger set of activities entailing strategic benefits to the organization.
Archie Carroll in 1991 has described CSR as a multi-layered concept which can be differentiated into four interrelated aspects, namely economic, legal, ethical, and philanthropic responsibilities. Carroll has talked about four obligations which the organizations have towards society. Fig 1 shows Carroll multi-layered concept for CSR which are described in detail below.
Fig 1 Carroll muti-layered concept for corporate social responsibility
Economic responsibility – As per Carroll, organizations have an economic responsibility towards the society which permits them to be created and sustained. The society expects the organizations to sustain themselves to continue producing goods and services which the society needs. As a reward, the society allows them to take profits. The organizations make profit by value addition and in doing so, they benefit all the stakeholders of the organization. Organizations need to make profit not just to reward the managements but also to reinvest the profit to grow the organization further. For fulfilling the economic responsibility, organizations employ several concepts which are directed towards financial effectiveness such as attention to revenues, cost-effectiveness, investments, marketing, strategies, operations, among several other professional concepts focused on augmenting the long-term financial success of the organization.
According to Carroll, those organizations which are not successful in their economic or financial sphere go out of the market and any other responsibilities which can be obligatory upon them, become moot considerations. Hence economic responsibility is the basic responsibility of any organization and has been placed at the bottom of the CSR pyramid.
Legal responsibilities – The society has established minimum ground rules under which the organizations are expected to function. The organizations are expected to follow fair practices and operate within the rules and regulations laid down by the authorities at the local and national levels. Compliance executives are employed by the organizations to ensure compliance to these rules and regulations. As per Carroll, while meeting these statutory responsibilities, important expectations from the organization include (i) performing in a manner consistent with expectations of the statutory authorities and law, (ii) complying with different national, state, and local regulations, (iii) conducting themselves as law-abiding corporate citizens, (iv) fulfilling all the statutory obligations to societal stakeholders, and (v) providing goods and services which at least meet minimal statutory requirements.
Ethical responsibilities – Laws and regulations are necessary but not enough. Society also expects organizations to operate and function in an ethical fashion. Ethical responsibilities imply that the activities, norms, standards, and practices taken up by the organizations need not necessarily be codified in law, but still the organizations are expected to follow them. The ethical expectations carry the legal expectations a step further to uphold the norms, values, principles, and standards considered important by the customers, employees, managements, and the community at large. The activities of the organizations are also to abide by the universal principles of moral philosophy such as rights, justice, and utilitarianism. While meeting the ethical responsibilities, important expectations from the organizations include (i) performing in a manner consistent with expectations of societal culture and ethical norms, (ii) recognizing and respecting new or evolving ethical / moral norms adopted by society, (iii) preventing ethical norms from being compromised in order to achieve organizational goals, (iv) being good corporate citizens by doing what is expected morally or ethically, and (v) recognizing that organizational integrity and ethical behaviour goes beyond the mere compliance with laws and regulations.
Philanthropic responsibilities – For philanthropic responsibilities, organizational activities are done purely on voluntary basis. Though philanthropy is not a responsibility, it is what the public expects the organization to give back to society. It is mainly guided by the desire of the organizations to participate in activities which are neither mandated by regulations nor expected from ethical point of view. It stems out of the expectations of the citizens to be good corporate citizens as is expected from individuals as well. Different philanthropic activities in which the organizations engage include gifts of monetary resources, product and service donations, volunteerism by employees and management, community development, and any other discretionary contribution to the community. Organizations are also driven by motivation to engage in philanthropic activities in an effort to improve organizational reputation. The philanthropic category of organizational activities is different from the ethical category in the sense that philanthropic activity is not necessarily expected in ethical sense. Organizations are not called unethical if they do not practice philanthropic activity. It is more voluntary in nature and organizations practicing philanthropic activities are considered as practicing good ‘corporate citizenship’.
The economic responsibility being the fundamental requirement in any organization is placed at the base of the pyramid. The infrastructure needed for a sound CSR is based on the economic soundness and sustainability of the organization. The organization is expected to operate following certain laws and regulations which forms the second part of the pyramid. The existence of legal and regulatory framework in a country considerably affects the multi-national investments in the country. Thirdly, organization is expected to operate in an ethical way to avoid causing harm to any stakeholder and always do what is just, fair, and right. Finally, the organization is expected to be a good corporate citizen and provide any financial, physical, or human resource contribution to the communities within which it operates.
John Elkington first coined the term Triple-Bottom-Line in his book “Cannibals with Forks: The Triple-Bottom-Line of the 21st Century Business”. Triple-Bottom-Line theory expands the traditional accounting framework to include three dimensions i.e., economic, social, and environmental. These three bottom lines are also referred to as the 3 ‘Ps’ i.e., people, planet and profit. According to Elkington, all the three dimensions are to perform sustainably.
Economic dimension / profit – As per the theory, the most important thing for an organization, is not to make large profits but rather, to make continuous profit on a sustainable basis over a long period of time. Sustainable profits can be achieved by drawing a strategic plan which takes into account expenditures and taxes, forecasting organizational climate factors, evaluate market benchmark, and avoid maximum risk threats. Triple-Bottom-Line organizations also recognize that profit is not diametrically opposed to people or planet.
Social dimension / people – As per the theory, for organizations to be sustainable in the long run, they are to take up activities which satisfy the needs of the society in which they operate. According to the Triple-Bottom-Line CSR framework, it is necessary that the organizations achieve social sustainability. Since societal needs vary from one region to another, the organizations need to collect data on different social parameters including unemployment rate, female participation in the workforce, educational services, and health services etc. This helps in prioritizing the community needs and the organizations then take steps to satisfy the societal needs to the extent possible. A Triple-Bottom-Line organization also pays fair wages to its employees and provides safe working conditions.
Environmental dimension / planet – Environment is an important dimension of the Triple-Bottom-Line approach. Organizations are to pay attention to maintaing environmental sustainability. They are to try to reduce ecological footprints as much as possible and those organizations which harm the environment are also to bear the cost. Some of the factors which help in maintaining environmental sustainability include reducing waste, investing in renewable energy, managing natural resources more efficiently, and improving their logistics.
Stakeholder theory was given by Dr. F. Edward Freeman, a professor at the University of Virginia, in his book, ‘Strategic Management: A Stakeholder Approach’ suggests that, shareholders are just one of the several stakeholders of the organization. Stakeholders are described broadly as any identifiable group or individual who can affect the achievement of the organizational objectives or who are affected by the achievement of the organizational objectives. The stakeholder can include the customers, employees, suppliers, political action groups, environmental groups, local communities, the media, financial institutions, and governmental groups etc. For the organization to be successful in the long run, the concerns of all groups are to be taken into account. If the organization ignores the concerns of its stakeholders, it can gain profits in the short term but in the long term, once the stakeholders become dissatisfied, the organization cannot survive. Fig 2 shows involvement of stakeholders in CSR activities.
Fig 2 Involvement of stakeholders in CSR activities
As per Freeman, “If you can get all your stakeholders to swim or row in the same direction, you’ve got a company with momentum and real power” He goes on that, “Saying that profits are the only important thing to a company is like saying, ‘Red blood cells are life.’ You need red blood cells to live, but you need so much more.” The organization is required to be aware not just of the needs of its shareholders but also of its employees, those who live near the plant, and the competitors etc. The functioning of different stakeholders under this theory is described below.
Employee – The employees expect to be treated and compensated fairly and to be given reasonable working hours. Otherwise, there is bad word of mouth among potential workforce and the organization gets impacted adversely.
Suppliers – Like employees, the expectations of the suppliers in the stakeholder theory also includes fair treatment and compensation. The stakeholder theory also expects due diligence on the part of the suppliers that they also conduct their business in a fair and ethical manner.
Manufacturers – There are examples when the product or their parts are manufactured at a location away from the plant, sometimes even in a different country. It is expected that the working conditions and wages are to be fair for the manufacturers as well.
Environmentalists – People living in vicinity of the plant need to be assured that the environment, power, or water does not get adversely affected because of the plant. The people who are affected by the local ecology are also considered as stakeholders in the stakeholder theory and need to be apprised of the plans and developments and they are to be taken into account while planning activities in the plant.
Regulatory authorities – Different approvals are needed for the plant operations. Hence different regulating authorities are also considered stakeholders.
Community – People living in the nearby neighbourhoods, are also stakeholders and the organization is required to consider their concerns of whether it is to improve or maintain their quality of life and in no case it is to impact negatively.
Elements of CSR
One of the studies on CSR has identified two distinct elements of CSR namely (i) the explicit, and (ii) the implicit. ‘Explicit CSR’ refers to corporate policies assuming and articulating responsibility for some societal interests. It normally includes voluntary programmes and strategies of the organization combining social and organizational values and addressing issues perceived as being part of the social responsibility of the organization. In this regard, it can be response to stakeholder pressures and it can involve partnerships with governmental, non-governmental organizations, and alliances with other organizations. Here the main point is the voluntary character of explicit CSR.
‘Implicit CSR’ stands for the organizational role within the wider formal and informal institutions for society’s interests and concerns. It involves values, norms and rules which impose requirements for the organizations to deal with stakeholder issues and defines obligations in collective. In this regards, the role of industry associations in the definition and legitimization of these requirements is acceptable, but the individual organizations have inability for articulating their own versions of responsibility.
Organizations practicing explicit CSR use the language of CSR in communicating their policies and practices to their stakeholders, while those practicing implicit CSR normally do not describe their activities.
Another study has pointed out three major elements of CSR. These are (i) product-use which focuses on contribution of industrial products and which helps in the well-being and quality of life of the society, (ii) organizational practice which focuses on good corporate governance and gives high impetus for the environmental well-being, and (iii) equity which tries for distribution of profits equitably across different societies especially the host community.
Since CSR issues are becoming increasingly integrated into modern organizational practices, there is a trend towards referring to it as ‘responsible competitiveness’ or ‘corporate sustainability’. A key point to note is that CSR is an evolving concept which presently does not have a universally accepted definition. Normally, CSR is understood to be the way, organizations integrate social, environmental, and economic concerns into their values, culture, decision making, strategy, and operations in a transparent and accountable manner and thereby establish better practices within the organization, create wealth, and improve society. As issues of sustainable development become more important, the question of how the industry sector addresses them is also becoming an element of CSR. Fig 3 shows the basic constituents of CSR.
Fig 3 Basic constituents of corporate social responsibility
Concept of CSR
Properly understood, CSR is seen as the way that the organizations, working with those most affected by their decisions (frequently called ‘stakeholders’), can develop innovative and economically viable products, processes, and services within core organizational processes, resulting in improved environmental protection and social conditions.
CSR underlines the commitment of the organization to find the answers for the questions with respect to climate change, health, and water as well as to develop solutions, working in partnership with governments and civil society. In other words, CSR is aligning core organizational strategy with the changing social and environmental context.
With the implementation of CSR, the organization provides goods and services and reach new customers in ways which address the major challenges of the world which include poverty, climate change, resource depletion, globalization, and demographic shifts.
It is important to bear in mind that there are two separate drivers for CSR. The first one relates to public policy. Since the impacts of the industry sector are so large, and with a potential to be either positive or negative, it is natural that governments and wider society take a close interest in what organizations do. This means that the expectations on organizations are rising and the governments are looking for ways to increase the positive contribution of the organization.
The second driver for CSR relates to the organization. Here, CSR considerations can be seen as both costs (e.g., of introducing new approaches), or benefits (e.g., of improving brand value, or introducing products which meet sustainability demands). Since organizations play a pivotal role both in job and wealth creation in society and in the efficient use of natural capital, CSR is a central to the management concern. It positions an organization to both proactively manage risks and take advantage of opportunities, especially with respect to the corporate reputation and the broad engagement of stakeholders. The latter can include shareholders, employees, customers, communities, suppliers, governments, non-governmental organizations, international organizations, and others affected by the organizational activities. Above all, CSR is about sensitivity to context, both societal and environmental, and related performance.
CSR is about moving beyond declared intentions to effective and observable actions and measurable societal impacts. Performance reporting is part of transparent, accountable, and, hence, credible organizational behaviour. There is considerable potential for problems if stakeholders perceive that the organization is engaging in a public relations exercise and cannot demonstrate concrete actions which lead to real social and environmental benefits.
Organizations are an integral part of the communities in which they operate. A responsible organizational management knows that the long-term success is based on continued good relations with a wide range of individuals, groups, and institutions. Smart organizational management knows that the organization cannot succeed in societies which are failing, whether this is because of the social or environmental challenges, or governance issues. Further, the general public has high expectations from the organization in terms of responsible behaviour. Customers expect goods and services to reflect socially and environmentally responsible organizational behaviour at competitive prices. Shareholders are also searching for improved financial performance which integrates social and environmental considerations, both in terms of risk and opportunities.
Governments also, are becoming aware of the national competitive advantages to be won from a responsible industrial sector. At the same time, leading industry associations, such as the World Business Council for Sustainable Development, have also suggested that countries as well as organizations can gain a competitive advantage from CSR. In much of the developing world, governments and organizations understand that their respective competitive positions, and access to capital, increasingly depends on being seen to respect the highest global standards.
On a practical level, CSR approaches of the organization are required to be constructed by adapting best practices, existing initiatives, and analyses to local contexts and situations. Organizational management is to function and implement CSR in the organization within a larger sustainable development framework in a balanced manner.
CSR is a management concept and is a form of organization’s self-regulation integrated into a business model. Through CSR, organizations integrate social and environmental concerns with their operations. CSR policy functions as a built-in, self-regulating mechanism whereby the organization monitors and ensures its active compliance with the spirit of the law and regulations, ethical standards, and different norms. In some models, the implementation of CSR by the organization goes beyond compliance and engages in ‘actions which appear to further some social good, beyond the interests of the organization and that which is required by law’. CSR is a process with the aim to embrace responsibility for the organization’s actions and to encourage a positive impact through its activities on the environment, customers, employees, communities, stakeholders and all other members of the public sphere who can also be considered as stakeholders.
CSR is normally understood as being the way through which the organization achieves a balance of economic, environmental, and social imperatives (Triple-Bottom-Line approach), while at the same time addressing the expectations of shareholders and stakeholders. In this sense it is important to draw a distinction between CSR, which can be a strategic organizational management concept, and charity, sponsorships, or philanthropy. Even though the latter can also make a valuable contribution to poverty reduction, directly improve the reputation of the organization, and strengthen its brand, the concept of CSR clearly goes beyond these.
The concept of CSR encompasses today all related concepts such as Triple-Bottom-Line, corporate citizenship, philanthropy, shared value, corporate sustainability, and organizational responsibility.
Core elements of CSR
Key CSR elements include environmental management, eco-efficiency, responsible sourcing, stakeholder engagement, labour standards and working conditions, employee and community relations, social equity, gender balance, human rights, good governance, and anti-corruption measures. The CSR activities of the organization normally cover several core elements as described below.
Care for all stakeholders – The organization is required to respect the interests of, and be responsive towards all shareholders, employees, customers, suppliers, plant affected people, and society at large etc. The organization is required to create value for all of them.
Ethical functioning – The governance system of the organization is to be underpinned by ethics, transparency, and accountability. The organization is not to engage in practices which are abusive, unfair, corrupt, or anti-competitive.
Respect for employees’ rights and welfare – The organization is required to provide its employees a working environment which upholds the dignity of the employees. It is maintain equality of opportunities without any discrimination for its employees.
Respect for human rights – The organization is required to respect human rights for all and avoid complicity with human rights abuses by the organization or by the third party.
Respect for environment – The organization is required to take measures to check and prevent pollution, promote recycling, manage and reduce waste, and manage natural resources in a sustainable manner while ensuring optimal use of resources like land and water. It is to proactively respond to the challenges of climate change by adopting cleaner production methods while promoting efficient use of energy and environment friendly technologies.
Activities for social and inclusive development – The organization is required to undertake activities for economic and social development of communities and geographical areas, particularly in the vicinity of its operations.
CSR and sustainability reporting – The organization is required to report and disclose of all CSR and sustainability activities transparently and accountability gain to reinforce the trust of the stakeholders.
Factors influencing CSR
Several factors and influences have led to increasing attention being devoted by the organizations towards CSR. These are described below.
Sustainable development – United Nations (UN) study and several 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 do not have the resources they need for their development. In this sense, much of present development is unsustainable and hence cannot be continued for both practical and moral reasons. Related issues include the need for higher attention to poverty alleviation and respect for human rights. CSR is an entry point for understanding sustainable development issues and responding to them in the organization’s strategy.
Globalization – With its attendant focus on cross-border trade, multi-national organizational 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 an important role in detecting how organization operation impacts employee conditions, local communities and economies, and what steps can be taken to ensure the organization helps to maintain and build the public good. This can be especially important for export-oriented organizations in emerging economies.
Governance – Governments and inter-governmental organizations, such as the UN, the Organization for Economic Co-operation and Development (OECD) and the International Labour Organization (ILO) have developed different compacts, declarations, guidelines, principles, and other instruments which outline norms for what they consider to be acceptable business conduct for the organizations. CSR instruments frequently reflect internationally-agreed goals and regulations regarding human rights, the environment, and anti-corruption.
Corporate sector impact – The sheer size and number of organizations, 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 size enterprises (SMEs), which collectively represent the largest single employer, have a considerable impact. Organizations are ambassadors of change and values. How they behave is becoming a matter of increasing interest and importance.
Communications – Advances in communications technology, such as the Internet and mobile phones, are making it easier to track and discuss organizational activities. Internally, this can facilitate management, reporting, and change. Externally, non-governmental organizations, 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 – Customers and investors are showing increasing interest in supporting responsible organizational practices and are demanding more information on how organizations are addressing risks and opportunities related to social and environmental issues. A sound CSR approach can help building the 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 higher public mistrust of the organizations. A CSR approach can help improve corporate governance, transparency, accountability and ethical standards.
Consistency and community – Citizens in several countries are making it clear that organizations are to meet the same high standards of social and environmental care, no matter where they operate. In the CSR context, organizations can help build a sense of community and shared approach to common issues.
Leadership – There is increasing awareness of the limits of government legislative and regulatory initiatives to effectively capture all the issues which CSR can address. CSR can offer the flexibility and incentive for the organizations to act in advance of regulations, or in areas where regulations seem unlikely.
Operating tool – Organizations 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 organizational reputation and even improve efficiency.
Approach to CSR
A strategic approach to CSR is important to the competitiveness of the organization. It brings benefits in terms of risk management, cost savings, access to capital, customer relationships, human resource management, and innovation capacity. Since CSR needs engagement with internal and external stakeholders, it enables the organization to better anticipate and take advantage of fast changing societal expectations and operating conditions. Hence CSR drives the development of new markets and create opportunities for growth. With CSR, the organization address to its social responsibility and through it, the organization builds long term employee, customer and citizen trust as a basis for sustainable business model. Higher levels of trust in turn create an environment in which the organization can innovate and grow. A typical approach for CSR for large organizations is shown in Fig 4
Fig 4 Typical approach for CSR for large organizations
Benefits of CSR
There is growing consensus about the connection between CSR and the organizational success. The World Business Council for Sustainable Development has noted that a coherent CSR strategy based on integrity, sound values, and a long-term approach offers clear benefits to organizations and contributes to the well-being of society.
A properly implemented CSR policy in the organization can bring along a variety of competitive advantages, such as improved access to capital and markets, increased sales and profits, operational cost savings, improved productivity and quality, efficient human resource base, improved brand image and reputation, enhanced customer loyalty, better decision making, and risk management processes.
In the present-day scenario, organizational managements believe in CSR since it is a proposition not only aligned with the organizational values, but also since it makes business sense. Today, organizational commercial partners expect from the organization sound environmental and social practices. Organizational management gets and understands this message and are actively promotes CSR among associates. Organization managements want the organization to be recognized as a responsible organization, adding value to the products. Key potential benefits for the organizations implementing CSR are described below.
Better anticipation and management of an ever-expanding spectrum of risks – Effectively managing governance, legal, social, environmental, economic and other risks in an increasingly complex market environment, with greater oversight and stakeholder scrutiny of corporate activities, can improve the security of supply and overall market stability. Considering the interests of parties concerned about the organizational impact is one way of better anticipating and managing risks.
Improved reputation management – Organizations which perform well with regards to CSR can build their reputation, while those which perform poorly can damage brand and organizational value when exposed. Reputation, or brand equity, is founded on values such as trust, credibility, reliability, quality and consistency. Even for the organizations which do not have direct retail exposure through brands, their reputation for addressing CSR issues as a supply chain partner, both good and bad, can be crucial commercially.
Improved ability to recruit, develop, and retain employees – CSR can result into the pride in the organizational products and practices, or into introducing improved human resources practices. It can also be the indirect result of programmes and activities which improve the employee morale and loyalty. Employees are not only front-line sources of ideas for improved performance, but are champions of the organization for which they are proud to work.
Improved innovation, competitiveness, and market positioning – CSR is as much about seizing opportunity as avoiding risk. Drawing feedback from diverse stakeholders can be a rich source of ideas for new products, processes, and markets, resulting in competitive advantages. As an example, an organization can become certified to environmental and social standards so that it can become a supplier to particular retailers. The history of good customer relations has always been one of being alert to trends, innovation, and responding to the markets. Increasingly, mainstream advertising features the environmental or social benefits of products.
Improved operational efficiencies and cost savings – These flow in particular by implementing CSR which results into improved efficiencies identified through a systematic approach to management which includes continuous improvement. As an example, assessing the environmental and energy aspects of an operation can reveal opportunities for turning waste streams into revenue streams.
Improved ability to attract and build effective and efficient supply chain relationships – An organization is vulnerable to the weakest link in its supply chain. Like-minded organizations can form profitable long-term relationships by improving standards, and hence reducing risks. Larger organizations can stimulate smaller organizations with whom they do business to implement a CSR approach.
Improved ability to address change – An organization with its ‘ears to the ground’ through regular stakeholder dialogue is in a better position to anticipate and respond to regulatory, economic, social, and environmental changes which can occur. Increasingly, organizations are using CSR as a ‘radar’ to detect evolving trends in the market.
More robust ‘social license’ to operate in the community – Improved citizen and stakeholder understanding of the organization and its objectives and activities translates into improved stakeholder relations. This, in turn, can evolve into more robust and enduring public, private and civil society alliances (all of which relate closely to CSR reputation). CSR can help build ‘social capital’.
Access to capital – Financial institutions are increasingly incorporating social and environmental criteria into their assessment of the plants. When making decisions about where to place their money, investors are looking for indicators of effective CSR management. An organizational plan incorporating a good CSR approach is frequently seen as a proxy for good management.
Improved relations with regulators – In a number of jurisdictions, regulatory authorities have expedited approval processes for organizations which have undertaken social and environmental activities beyond those needed by regulation. In some countries, regulatory authorities use (or are considering using) CSR indicators in deciding on procurement or export assistance contracts. This is being done since the regulatory authorities recognize that without an increase in industry sector engagement, the sustainability goals cannot be reached.
A catalyst for responsible consumption – Changing unsustainable patterns of consumption is widely seen as an important driver for achieving sustainable development. Organizations have a key role to play in facilitating sustainable consumption patterns and lifestyles through the goods and services they provide and the way they provide them. ‘Responsible consumerism’ is not exclusively about changing customer preferences. It is also about what goods are supplied in the market-place, their relationship to customer rights and sustainability issues, and how regulatory authorities mediate the relationship between producers and customers.