Building socially responsible corporate cultures

CSR as a framework for business growth

Corporate social responsibility (CSR) largely refers to the responsibility of an organization — whether it be a corporation, a governmental body or a nonprofit organization — to its stakeholder, the wider society and environment. The mainstream view is that organizations, as ‘corporate citizens,’ ought to be accountable to and responsible for the consequences of their activities which directly and/or indirectly affect society and the environment.

Legislation is a driving force in the uptake of CSR, and with penalties for poor implementation particularly for FTSE 100 companies, there is a tendency to view it as having a ‘check-list’ quality. This approach may generate only incremental changes, with limited innovation as organizations are cautious to go above and beyond such legislation in light of potential risks and unknown rates of return on investments.

Despite this, there are a cluster of organizations which are shaking up the traditional business models in favor of new, alternative models. The concept of the circular economy — an alternative to the existing linear economy of ‘take, make and dispose’ as one that sees products re-enter the economy continuously — is inspiring a number of organizations to reject the traditional business model in favor of something quite innovative. For example, Method, a pioneer in homecare and personal care products, manufactures products using materials that can be infinitely recycled in technological and biological cycles through a process that uses only renewable sources of energy. It generates clean water as a by-product and the business culture is one that practices social fairness.

Alternative models have the capacity to not only exist, but to also thrive in an economy that is, by and large, quite conventional. This should offer confidence to organizations in moving away from the traditional business model, which is typically profit driven, to one that holistically embraces CSR and delivers value systemically, across the triple bottom line: people, planet and profit.

There is a strong business case to be made for CSR, evidenced by the current shifts in the finance and investment markets whereby the adoption of CSR policies, and perhaps most importantly, the availability of published CSR reports, is of growing interest to investors. The establishment of the Social Stock Exchange (SSX) in London is evidence of this shift, becoming the first platform of its kind in the world to serve as a marketplace for publicly listed social impact businesses. Currently, the SSX has a market capitalization of $1.91 billion and the market for social impact business is anticipated to grow between $200 billion and $650 billion in the next decade.

To ensure that the investments are realized, it is important to identify and minimize the risks associated with CSR implementation. Most risks are associated with poor strategic integration — this is where a CSR strategy has not been integrated at the core of the business and manifests in a strategy that is not in line with stakeholder interests with poor communication of strategy and impact. Such challenges can be overcome by ensuring a material assessment is conducted prior to strategy development, to ensure that it meets the needs of stakeholders.

Having achieved this, it is then crucial to communicate this narrative to stakeholders to ensure long-term engagement. This need to report and communicate is partly driven by an increasing culture of transparency. It is estimated that 90 percent of consumers would actively recommend an organization who had excellent CSR credentials, with a report in place through which they can locate this information. Aside from the advantages an organization may receive through this increased transparency, it is the process of reporting that yields the most benefits. The process provides a window of opportunity to analyze and evaluate an organization’s internal systems and processes, and enables risk to be fairly assigned across all departments, stakeholders and partners by integrating them into an organization-wide process. As Alberto Andreu, then Head of CSR & Reputation for Telefónica, said in an interview with EMG, “if risk has no owner, you have a problem.” Risk can only be managed when identified, understood and communicated.

CSR is not a static concept and it is important that an organization doesn’t get caught up with the terminology. Instead, they need to understand the common goal; a concerted effort by organizations of all types to identify and take responsibility of the risk that it generates as part of its day-to-day running. The success of a CSR strategy, measured by its impact and return on investment, will depend largely on its applicability and relevance to the organization itself. As such, it is crucial that organizations remain focused on the aspects important and unique to them.

Daan Elffers is the founder and chief executive of EMG and chairman of the advisory board of the Islamic Reporting Initiative.

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