Corporate social responsibility (CSR) is a form of international private business self-regulation which aims to contribute to societal goals of a philanthropic, activist, or charitable nature by engaging in or supporting volunteering or ethically-oriented practices.
According to the World Business Council of Sustainable Development, corporate social responsibility 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.” It is also called corporate sustainability, sustainable business, corporate conscience, corporate citizenship, conscious capitalism, or responsible business.
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. It is a management concept that helps companies be socially accountable to themselves, their stakeholders, and the public. Corporate social responsibility is now a familiar metric of how well a brand interacts with stakeholders and communities, both locally and globally.
On April 1, 2014, India became the first country to legally mandate corporate social responsibility. The new rules in Section 135 of India’s Companies Act make it mandatory for companies of a certain turnover and profitability to spend two percent of their average net profit for the past three years on CSR.
Some examples of CSR in action include:
- Reducing carbon footprint
- Engaging in charity work
- Purchasing fair trade products
- Investing in environmentally conscious businesses
- Getting involved in volunteer work
- Improving labour policies
Types of Corporate Social Responsibility
Corporate social responsibility is divided into four categories: environmental, philanthropic, ethical, and economic responsibility.
Environmental Responsibility: Environmental responsibility refers to the belief that organizations should behave as environmentally friendly as possible. It’s one of the most common forms of corporate social responsibility. Some companies use the term “environmental stewardship” to refer to such initiatives.
Companies that seek to embrace environmental responsibility can do so in several ways: Reducing pollution, greenhouse gas emissions, the use of single-use plastics, water consumption, and general waste; Increasing reliance on renewable energy, sustainable resources, and recycled or partially recycled materials; Offsetting negative environmental impact; for example, by planting trees, funding research, and donating to related causes.
Ethical Responsibility: Ethical responsibility is concerned with ensuring an organization is operating fairly and ethically. Organizations that embrace ethical responsibility aim to achieve fair treatment of all stakeholders, including leadership, investors, employees, suppliers, and customers.
Firms can embrace ethical responsibility in different ways. For example, a business might set its own, higher minimum wage if the one mandated by the state or federal government doesn’t constitute a “livable wage.” Likewise, a business might require that products, ingredients, materials, or components be sourced according to free trade standards. In this regard, many firms have processes to ensure they’re not purchasing products resulting from slavery or child labour.
Philanthropic Responsibility: Philanthropic responsibility refers to a business’s aim to actively make the world and society a better place. In addition to acting as ethically and environmentally friendly as possible, organizations are driven by philanthropic responsibility often dedicate a portion of their earnings. While many firms donate to charities and nonprofits that align with their guiding missions, others donate to worthy causes that don’t directly relate to their business. Others go so far as to create their charitable trust or organization to give back.
Economic responsibility: Economic Responsibility is the practice of a firm backing all of its financial decisions in its commitment to do good in the areas listed above. The end goal is not to simply maximize profits, but positively impact the environment, people, and society.
Examples of CSR Companies
- Lego: The toy company has invested millions of dollars into addressing climate change and reducing waste. Lego’s environmentally conscious efforts include reduced packaging, using sustainable materials and investing in alternative energy.
- TOMS: TOMS donates one-third of its net profits to various charities that support physical and mental health as well as educational opportunities. As of April 1, 2020, the brand is directing all charitable donations to the TOMS COVID-19 Global Giving Fund.
- Johnson & Johnson: The brand focuses on reducing its environmental impact by investing in various alternative energy sources. Globally, Johnson & Johnson also works to provide clean, safe water to communities.
- Starbucks: The global coffee chain has implemented a socially responsible hiring process to diversify their workforce. Their efforts are focused on hiring more veterans, young people looking to start their careers, and refugees.
- Google: Google has demonstrated its commitment to the environment by investing in renewable energy sources and sustainable offices. The company’s CEO, Sundar Pichai, is also known to take stands on certain social issues.
- Pfizer: The pharmaceutical company’s focus on “corporate citizenship” is reflected in its healthcare initiatives. Some of the company’s initiatives include spreading awareness about noninfectious diseases and providing accessible health services to women and children in need.
A properly implemented CSR concept can bring along a variety of competitive advantages, such as enhanced 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.
While the goal of CSR is to push businesses to act responsibly and ethically toward the environment and community, there are some disadvantages. Engaging in CSR is not always cheap. It can rely on expensive structures and strategies to plan, execute and measure. A poorly planned CSR strategy that doesn’t deliver what it says it can quickly become a failure and business liability. The impact on a business’s reputation can be detrimental, and the community will be quick to scrutinise its actions.
H&M’s Greenwashing campaign is an example of a misleading or disingenuous CSR – Swedish fast-fashion chain H&M has been called out recently for supplying insufficient information about the sustainability of their “sustainable style” collection. This is known as greenwashing (the act of giving a false impression that a company and its products are more environmentally friendly than they truly are). The internationally renowned fashion company has marked some of its products as ethical and environmentally friendly, yet they still produce materials at a non-environmentally friendly rate. The Norwegian Consumer Authority called out the chain for failing to produce sufficient information on how their products have “environmental benefits”. As a result, H&M have received criticism in the media.
The movement toward CSR has had an impact in several domains. For example, many companies have taken steps to improve the environmental sustainability of their operations, through measures such as installing renewable energy sources or purchasing carbon offsets. In managing supply chains, efforts have also been taken to eliminate reliance on unethical labour practices, such as child labour and slavery.
As the use of corporate responsibility expands, it is becoming increasingly important to have a socially conscious image. Consumers, employees and stakeholders prioritize CSR when choosing a brand or company, and they are holding corporations accountable for effecting social change with their business beliefs, practices and profits. In today’s socially conscious environment, employees and customers place a premium on working for and spending their money with businesses that prioritize CSR.
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