State of play of Corporate Social Responsibility (CSR)
(Essay for RMIT University)
The aim of this essay is to present and analyse the current and future trends on Corporate Social Responsibility from the academic, business and government perspective. I want to identify and examine the main arguments and topics related to sustainability and CSR used by businesses and public organisations. According to this research I will design a business case along with some general recommendations to the future of a generic organisation CSR strategy.
Corporate Social Responsibility terminology
While there is not a single, universally accepted definition of Corporate Social Responsibility and different organisations have framed different definitions, there is an ample consensus that businesses and organisations need to be more responsible for their actions and encourage a positive impact through its activities on the environment, customers, employees, communities, stakeholders and all other members of the public sphere.
The World Business Council for Sustainable Development in its publication "Making Good Business Sense" (2000) used the following definition, "Corporate Social Responsibility is the continuing commitment by business to behave ethically and 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".
Another interesting definition comes from Corporate Watch, an independent research organisation, which states that, “CSR is a form of corporate self-regulation integrated into a business model and describes the principle that companies can and should make a positive contribution to society. CSR is the practice of managing the social, environmental and economic impacts of a company, being responsive to stakeholders and behaving according to a set of values which are not codified in law. In practice the term can refer to a wide range of actions that companies may take, from donating to charity to reducing carbon emissions.”
Therefore CSR is a holistic concept that involves a number of aspects and areas that are more relevant than others depending on the context and the priorities of the businesses and the stakeholders they affect. One of the main aspects of CSR is reporting, which according to the Global Reporting Initiative (GRI) is “the practice of measuring, disclosing and being accountable to internal and external stakeholders for organisational performance towards the goal of sustainable development.” Therefore “reporting” is the process of documenting a corporate social responsibility or sustainability process, action or strategy.
It is important to acknowledge these distinctions beforehand because this essay will refer to CSR as any activity, strategy, document or indication that an organisation (private or public) is being responsible within the social, economic and environmental context they act or affect, directly or indirectly.
Main approaches and trends to CSR
Today more companies understand that in order to stay productive, competitive, and relevant in a rapidly changing business world, they have to become socially responsible. In this context CSR has become a mainstream, especially within the public sphere and global corporations; the evidence that sustainability is becoming a core consideration for successful organisations around the world grows stronger however the concept of CSR seems to have changed its focus over the last 20 years.
While in the eighties and nineties CSR was considered in terms of philanthropy and charity, nowadays has become more as a stakeholder engagement activity and also as an environmentally friendly practice. Sustainability is the most common concept to describe CSR today. Some of the most important global consulting companies such as Deloitte and KPMG are even talking about a paradigm shift from industrial capitalism to sustainable capitalism (KPMG, 2008). However the definition of this concept seems to vary depending on the nature of the businesses and the sector they act. For example an energy company will tend to define sustainability in terms of energy efficiency, while a mining company will tend to define sustainability as a compliance requirement or even as a community engagement strategy.
However the evolution of CSR has not been easy mainly because many business leaders still see CSR as a threat to the profits and not as an opportunity. Sun, Steward and Pollard (2010) in their book “Reframing Corporate Social responsibility. Lessons from the Global Financial Crisis”, distinguish three models of CSR, a shareholder value model, a stakeholder model and a business ethic model.
Many conservative or more traditional businesses still perceived CSR from a shareholder value model, a perspective represented by Milton Friedman, arguing that the only social responsibility of business is to increase its profits while following legal rules. This model was popular during the 80s and states that management should first and foremost considers the interests of shareholders in its business decisions. Thus, this model is based in the idea of “business as usual” and it has been widely criticised particularly after the 2009 global financial crisis, because it does not recognise the business responsibilities within the social context.
Others have been a little more progressive and have adopted a stakeholder model where CSR is interpreted as ‘company stakeholder responsibility’ (Freeman cited by Sun et al 2010), this approach argues that the company should be driven by the interests of their stakeholders, rather than the interests of the shareholders alone. Freeman argues that managers who respond to stakeholders concerns make their firms more powerful and resilient to attack from outside groups. Others argue that the stakeholder model results in a superior level of long-term performance for specific firms and for society as a whole. However there are some doubts about the long term profitability of this model, basically because it is based on a “risk management” perspective which will not necessarily result in stronger performance, and also because often business interests are not necessarily aligned with stakeholders interests.
Most recently some businesses leaders have adopted CSR directly into the business strategy, in a business ethic model, which is concerned with broader social obligation, and the moral duty business has to society. “This model justifies CSR on the three slightly different but interrelated ethical grounds: (1) intrinsic ethical values; (2) emerging and changing social expectations and social responsiveness to specific social issues, and (3) corporate citizenship.” (Sun et al, 2010). The Business ethics model is concerned with different social obligations and the moral duty business has to society, this model conceive CSR more as an ethical and philanthropic responsibilities rather than economic and legal responsibilities.
Another current approach to CSR is by creating shared value, a model developed by Michael Porter and Mark Kramer, in the Harvard Business Review article “Strategy & Society, The Link between Competitive Advantage and Corporate Social Responsibility”, which is based on the idea that corporate success and social welfare are interdependent.
In this article Porter argues that a business needs a healthy, educated workforce, sustainable resources and capable government to compete effectively. Competitive businesses must be developed and supported to create income, wealth, tax revenues, and opportunities for philanthropy. This approach focuses on the opportunities for competitive advantage from building a social value proposition into corporate strategy.
(Porter & Kramer, 2006). However his approach could also be included in a business ethic model.
In the public sector, entities have adopted the concept of sustainability to demonstrate their social responsibility, mainly because “they have a civic responsibility to properly manage public goods, resources, and/or facilities in a way that supports sustainable development objectives and promotes the public interest…. They are expected to be open and transparent in their management of public funds and assets. As significant employers, providers of services, and consumers of resources, public agencies also have a major impact on national and global progress towards sustainable development.” (GRI, 2005)
As we can observe there are different approaches to CSR and it seems that much depends on the business case and the key stakeholders. A complex shift has occurred in how organisations understand themselves in relation to a wide variety of both local and global stakeholders. Today, in a globalised economy, the quality of relationships that an organisation has with its employees and other key stakeholders is crucial to its success, as is its ability to respond to competitive conditions and corporate social responsibility.
However, approaches and models are general ideas of how CSR should be and they are mostly based in academic and business theory rather than in the real practice. Trends on the other hand, are based in facts and statistical interpretation of data; trends are more specific and vary depending on the particular conditions of a given organisation. Trends within the global context appear to be even more dynamic than the theoretical approaches mainly because they touch different areas of CSR such as governance, risk management, value chain, social issues, stakeholders, environment and measurement.
“CSR trends 2010” developed by the consulting firm Price Warehouse Cooper, and based in a survey of 423 global corporations, indicates that “CSR has changed from a voluntary good practice, to a core business value that defines the best global firms.” (PWH, 2010)
According to this survey the number of companies disclosing CSR information on their website has increased to 81%, with European companies leading the trend. This means that companies are openly trying to show their commitment to sustainable development, not just with shareholders but also with everyone.
Another important global trend is the issue of materiality, which is basically, the process of identifying and reporting, “what matters more”. The adoption of materiality assessments is becoming a common use within the global business context for a variety of reasons such as transparency, accountability, efficiency and decision making process.
In the study European, Japanese and Australian companies appear to be leading this trend.
Climate Change has been indicated as a dominant issue in global CSR reporting.
Concerns about climate change, the potential introduction of emissions trading scheme and significant changes in demographics and society in general have combined to make sustainability a mainstream global issue, as a result 92% of the companies’ surveyed reported Greenhouse gas emissions.
User friendly CSR tools, tactics and techniques is another relevant trend indicating that companies are using the full capacity of the internet’s capabilities with blogs, micro- sites, videos, social networks and interactive maps, diagrams or games.
Engaging with stakeholders is a main trend of CSR processes and reporting, with a large 91% of all companies explaining engagement processes on their reporting. The relevance of this trend is given by the increase interest of stakeholders to be informed about the organisations activities and the need of companies to become (or be perceived) as more socially responsible by their key stakeholders and make strategic positioning decision as to the key stakeholder audience. (KPMG, 2008)
Another global and also local trend that was not included in this survey is the growing use of GRI as a standardised reporting guidance. According to many studies and industry surveys, GRI is by far the most common ‘ foundation framework’ for aligning and developing CSR and sustainability reports.
Local context. Analysis of the 2011 State of CSR in Australia developed by ACCSR
Although relatively new to the concept of CSR, in comparison to the US and Europe, Australian corporate sector, particularly in the resources field, is showing its commitment for more than a decade, and many of the major companies regularly report their activity. The public sector in Australia is also a large supporter of CSR and sustainability being indicated as the major reporter in the country. (Carrots and Sticks, 2010)
Currently Australia has an increasing number of organisations (public, private and not for profit) embracing CSR in their governance structures and policies as a means of delivering improved competitive advantage and creating new products and services. However improved reputation remains the strongest outcome from CSR.
According to the 2011 State of CSR in Australia, developed by the Australian Centre for Corporate Social responsibility, which surveyed almost 500 managers across a broad spectrum of Australia Industry sectors; 74% of managers consulted are involved in sustainability, and most of them see a clear alignment between sustainability and their overall business strategy. However this survey also suggests that many companies have a gap between their leader’s aspirations with regard to sustainability and the way that sustainability is enabled within their organisations. This gap is probably due to the rapid evolution of sustainability issues in the market and the challenges involved in building the capacities and infrastructure to address them. It could also be due to the lack of clarity to make the business case of sustainability, difficulty in integrating CSR with organisational values and practices and the lack of organisational and internal commitment to CSR.
Therefore one of the main challenges for companies is to find ways to close the gap between their stated sustainability principles and the actions and investments they make to pursue their sustainability objectives, particularly in those instances where sustainability objectives may lack a clear financial return on investment (ROI) or drive long-term rather than short-term benefits.
The report also indicates that almost 80% of respondents to the survey agreed that CSR contributed to strengthened reputation and just over 60% of respondents said CSR contributed to reduced costs.
The research also reveals changing attitudes towards climate change within Australian businesses. The report says that there was a significant decline in organisations reporting the need to understand climate change, probably because there is a shared acceptance and consensus about the issue.
The most important issues for CSR managers this year were ‘’Reducing environmental impact” and “building an understanding of CSR within their organisations”.
According to this analysis we could conclude that Australia is moving faster to a business ethic model of CSR widely accepted by organisations, although the research shows there’s still a long way to go before corporate social responsibility is truly integrated into business strategy and the main challenge seems to be closing the gap between the principles and the actions.
The Future of CSR
A personal analysis based in referred literature
Looking forward and analysing the main approaches and trends, we could deduce that the traditional concept of CSR needs to be interpreted in the broader conceptual framework of how the organisations embrace their corporate values as a new strategic asset, to build a basis for trust and cooperation within the wider stakeholder community.
Academic and business literature show us evidences of a paradigm shift from charity to a long-term strategy, yet the concept still seems to be strongly linked to philanthropy. (Sun et al 2010). and it seems there is a need to bring about an attitudinal change in people about the concept.
By having more coherent and ethically driven discourses on CSR, it has to be understood that CSR is about how corporate place their business ethics and behaviours to balance business growth and commercial success with a positive change in the stakeholder community. Several businesses today have specific departments to operationalise CSR. There are either foundations or consulting firms or a separate department within an organisation that looks into implementation of practices. Being treated as a separate entity, there is always a flexibility and independence to carry out the tasks.
However CSR cannot be in isolation and need to create synergy with other departments of the organisation. Consequently there is a need to understand that CSR is not only a pure management directive but it is something that is central to the company and has to be embedded in the core values and principles of the organisation. CSR has to be related to core business. It has to utilise things at which businesses are good; it has to be something that takes advantage of the core skills and competencies of the companies. It has to be a mandate of the entire organisation and its scope does not simply begin and end with one department in the organisation.
In my view, the next step of CSR is illustrated by the concept of corporate citizenship, which conceives CSR as a business strategy and a new way of doing business.
The Boston College Centre for Corporate Citizenship defines this concept as “the business strategy that shapes the values underpinning a company’s mission and the choices made each day by its executives, managers and employees as they engage with society”. (Boston College Centre for Corporate Citizenship, 2010)
The four key principles that define the essence of corporate citizenship are:
Minimise risks: work to minimise the negative consequences of business activities and decisions for stakeholders including customers, communities, ecosystems, employees, shareholders and suppliers
Maximise benefits: contribute to societal and economic well-being
Be accountable and responsive to stakeholders: build relationships of trust that involve becoming more open about the progress and setbacks businesses experience in an effort to operate ethically
Support strong financial results: The responsibility of a company to return a profit to shareholders must always be considered a part of its obligation to society.
Thus, the concept of corporate citizenship is an approach to CSR that focus its attention on the position of the organisation in the political, social and cultural community, with a particular interest for business strategies and social capital.
Business case for CSR
Focus in Corporate Citizenship
Following my argument of a Corporate Citizenship approach to CSR, I look at the business case for this model, according to the Boston College Center for Corporate Citizenship, which is an authority entity in this subject.
However there is no such a single ‘business case’ for a generic organisation as every context and organisation has different strengths, needs and priorities, it could be discussed that a good business case for a Corporate Citizenship approach of CSR, would be based in strategic and ethic considerations. Thus, a strong business case for an organisation which have adopted the Corporate citizen approach to CSR would be focus on the following benefits:
The reputation of a company as a corporate citizen affects its attractiveness as a prospective employer. With 3 out of 5 people reporting that they want to work for a company whose values are consistent with their own, being seen by employees as a responsible company as well as a fair employer helps to attract and retain the best staff.
2- Learning and Innovation:
Corporate citizenship objectives can encourage creativity and innovation that leads to bottom-line benefits.
3- Competitiveness and market positioning:
CSR is still breaking into the mainstream. Investing in corporate citizenship now means that a company can position itself as the market leader in its field, and will be ahead of the game if regulations are brought in or when other companies in the sector take up CSR as a business strategy.
4- Operational efficiency:
Focusing on corporate citizenship goals can lead to direct improvements on the bottom line. Reducing material use and waste can save money, as well as reduce environmental impact. These are often the type of measures prioritised by companies.
While there is still a lack of consensus on a definition of CSR, the range of business adopting CSR models and approaches have increase dramatically in the last decade not just in Australia but globally.
More organisations have shift from a philanthropic perspective of CSR to a more stakeholder engagement and ethical practice.
Stakeholder engagement and Climate change are the main reasons for organisations to adopt CSR. The main challenge for Australian organisations seems to be closing the gap between the principles and the actions towards sustainability.
In the near future the traditional concept of CSR needs to be interpreted in the broader conceptual framework of how the organisations embrace their corporate values as a new strategic asset, to build a basis for trust and cooperation within the wider stakeholder community.
A corporate citizenship approach is proposed as a potential future, focusing CSR as a business strategy and a new way of doing business within a dynamic social context.
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Corporate Social responsibility: making good business sense. World Business Council for sustainable Development. Richard Holme, Phil Wats, January 2000.
Framework for the Future, Center for Corporate Citizenship, 2009, Boston College of Management. Carroll Scholl of Management. Center for Corporate Citizenship.
KPMG Advisory NV. United Nations Environment Programme, Global Reporting Initiative, Unit for Corporate Governance in Africa. (2010) “Carrots and Sticks: promoting transparency and Sustainability”. An update on Trends in Voluntary and Mandatory Approaches to Sustainable Reporting, http://www.globalreporting.org/NR/rdonlyres/649A345D-8BD7-413D-A696 7E12F6EA37C5/4198/Carrrots2010final.pdf
M. Porter and M. Kramer , 2006. Strategy and Society: The Link between Competitive Advantage and Corporate Social Responsibility.
Sun, Steward and Pollard, 2010. Reframing Corporate Social responsibility. Lessons from the Global Financial Crisis. Emerald group Publishing limited. Accessed through RMIT Library.
Sector Supplement Development Process. Global Reporting Initiative, 2005
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