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What is 'Corporate Social Responsibility'

Corporate social responsibility, often abbreviated "CSR," is a corporation's  initiatives to assess and take responsibility for the company's effects on environmental and social wellbeing. The term generally applies to efforts that go beyond what may be required by regulators or environmental protection groups.

CSR may also be referred to as "corporate citizenship" and can involve incurring short-term costs that do not provide an immediate financial benefit to the company, but instead promote positive social and environmental change.

BREAKING DOWN 'Corporate Social Responsibility'

Large companies are immensely powerful entities, to the point that they have frequently trumped the interests of sovereign nations. American businessmen deposed the queen of Hawai'i in 1893 because they were incensed with her tariff policies. The formerly independent country became an American territory a few years later. Corporate interests frequently harm local communities, as in 1928 when the Colombian army massacred an unknown number of striking United Fruit Company workers. The U.S. had threatened a military invasion of Colombia to protect the company's interests.

Corporations can have enormously detrimental effects on the environment. Oil spills are some of the most conspicuous examples, but industries as varied as chemical manufacturing, mining, agriculture and fishing can do permanent damage to local ecosystems. Climate change can also be attributed in large part to corporations. While their responsibility is hard to untangle from that of the consumers who demand electricity and transportation, it is difficult to deny that many corporations have profited from the deterioration of the global environment. 

In many cases, harm to the environment and harm to vulnerable communities go hand-in-hand: indigenous groups in the Amazon rainforest, for example, have been decimated and even wiped out, both intentionally and unintentionally, in order to make room for logging, cattle ranching, gold mining, oil and gas drilling and hydroelectric power generation. 

In light of this often dark legacy, some areas of corporate culture have begun to embrace a philosophy that balances the pursuit of profit with a commitment to ethical conduct. Google Inc's (GOOG) slogan sums up the idea of corporate social responsibility nicely: "Don't be evil."

The same money and influence that enable large companies to inflict damage on people and the environment allows them to effect positive change. At its simplest, a corporation can give money to charity. Companies can also use their influence to pressure governments and other companies to treat people and resources more ethically. When Martin Luther King, Jr. won the Nobel Peace Prize in 1964, Atlanta's business leaders initially refused to attend a dinner celebrating the Atlanta native's achievement. Coca Cola Co.'s (KO) CEO, recognizing the damage such a display of segregationist attitudes could do to the firm's international brand, threatened to move Coke out of the city, causing an immediate change of heart in the local business elite.

Companies can invest in local communities in order to offset the negative impact their operations might have. A natural resources firm that begins to operate in a poor community might build a school, offer medical services or improve irrigation and sanitation equipment. Similarly, a company might invest in research and development in sustainable technologies, even though the project might not immediately lead to increased profitability.

In order to account for the importance of social and ecological considerations in doing business, some organizations advocate the concept of the "triple bottom line": social, environmental and economic – or "people, planet, profit."

In recent years, supply chains have emerged as a central focus of corporate social responsibility. Company X's management might make extraordinary efforts to hire, foster and empower a diverse workforce. They might offer generous paid maternity and paternity leave. They might sponsor after-school programs in crime-affected neighborhoods, fund the clean-up of local river systems and put pressure on elected officials to consider the needs of all citizens rather than simply seeking political expediency. None of that would change the fact that they source their raw materials, albeit indirectly, from outfits that use slave labor.

The diamond industry, for example, has come under fire for benefiting from injustices along its supply chain. "Blood diamonds" or "conflict diamonds" are diamonds which have been sourced from war zones, where rebel groups will often fund their campaigns through mining, frequently using forced—often child—labor. Such situations have arisen in Angola, Liberia, Ivory Coast, Mozambique, Zimbabwe, the Democratic Republic of the Congo and Congo-Brazzaville. International consumer and NGO pressure has caused diamond companies to scrutinize their supply chain, and has reduced the number of diamonds reaching the market from conflict zones.

Today, a shift has occurred in the way people conceptualize corporate social responsibility. For decades, corporate business models have been assumed to be necessarily harmful to certain communities and resources. The intention was therefore to mitigate or reverse the damage inherent in doing business. Now many entrepreneurs consider profit and social-environmental benefit to be inextricable. Few tech startups pitch their ideas without describing how they will change the world for the better. Social media platforms believe they will facilitate democracy and the free exchange of information; renewable energy companies believe they will make money by selling sustainable solutions; sharing economy apps believe they will cut down on the waste and inefficiency of a post-war economy myopically geared toward the individual consumer.

To be sure, some companies may engage in greenwashing, or feigning interest in corporate responsibility. Companies may tout window-dressing contributions to "the greater good" while engaging in morally questionable or inherently unsustainable conduct in the background. Google's "don't be evil" slogan can seem hypocritical when viewed in terms of the company's collaboration with repressive regimes, not to mention the questionable practice of compiling reams of personal data on every customer.

Some think corporate social responsibility is an oxymoron. Others see corporate social responsibility as a distraction of a different sort, that is, from the lawful pursuit of profits. To them, a corporation's sole responsibility is to generate returns for its shareholders, not to try to save the world or to fret over its own impact. Laws and regulations must be followed in all jurisdictions in which the company operates, but management should not go beyond that, as that could hurt its bottom line and violate its duties to the owners. Some counter that this concerned is misplaced, since responsible initiatives can increase brand loyalty and therefore profits. This may become increasingly true as ethical consumer culture gains wider acceptance.

A few cynical executives will inevitably try to portray themselves as responsible when they are decidedly not. And for some critics, nothing short of a massive overhaul of the world system will suffice. The truth is that many large corporations are devoting real time and money to environmental sustainability programs and various social welfare initiatives. These activities should be encouraged, but at the same time, continually questioned and reassessed. 

In 2010, the International Organization for Standardization released ISO 26000, a set of voluntary standards meant to help companies implement corporate social responsibility.

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