What Is Corporate Social Responsibility (CSR)?
Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable to itself, its stakeholders, and the public. By practicing corporate social responsibility, also called corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society, including economic, social, and environmental.
To engage in CSR means that, in the ordinary course of business, a company is operating in ways that enhance society and the environment instead of contributing negatively to them.
- Corporate social responsibility is a business model by which companies make a concerted effort to operate in ways that enhance rather than degrade society and the environment.
- CSR helps both improve various aspects of society as well as promote a positive brand image of companies.
- Corporate responsibility programs are also a great way to raise morale in the workplace.
- CSRs are often broken into four categories: environmental impacts, ethical responsibility, philanthropic endeavors, and financial responsibilities.
- Some examples of companies that strive to be leaders in CSR include Starbucks and Ben & Jerry's.
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Understanding Corporate Social Responsibility (CSR)
Corporate social responsibility is a broad concept that can take many forms depending on the company and industry. Through CSR programs, philanthropy, and volunteer efforts, businesses can benefit society while boosting their brands.
For a company to be socially responsible, it first needs to be accountable to itself and its shareholders. Companies that adopt CSR programs have often grown their business to the point where they can give back to society. Thus, CSR is typically a strategy that's implemented by large corporations. After all, the more visible and successful a corporation is, the more responsibility it has to set standards of ethical behavior for its peers, competition, and industry.
Small and midsize businesses also create social responsibility programs, although their initiatives are rarely as well-publicized as those of larger corporations.
Types of Corporate Social Responsibility
In general, there are four main types of corporate social responsibility. A company may choose to engage in any of these separately, and lack of involvement in one area does not necessarily exclude a company from being socially responsible.
Environmental responsibility is the pillar of corporate social responsibility rooted in preserving mother nature. Through optimal operations and support of related causes, a company can ensure it leaves natural resources better than before its operations. Companies often pursue environmental stewardship through:
- Reducing pollution, waste, natural resource consumption, and emissions through its manufacturing process.
- Recycling goods and materials throughout its processes including promoting re-use practices with its customers.
- Offsetting negative impacts by replenishing natural resources or supporting causes that can help neutralize the company's impact. For example, a manufacturer that deforests trees may commit to planting the same amount or more.
- Distributing goods consciously by choosing methods that have the least impact on emissions and pollution.
- Creating product lines that enhance these values. For example, a company that offers a gas lawnmower may design an electric lawnmower.
Ethical responsibility is the pillar of corporate social responsibility rooted in acting in a fair, ethical manner. Companies often set their own standards, though external forces or demands by clients may shape ethical goals. Instances of ethical responsibility include:
- Fair treatment across all types of customers regardless of age, race, culture, or sexual orientation.
- Positive treatment of all employees including favorable pay and benefits in excess of mandated minimums. This includes fair employment consideration for all individuals regardless of personal differences.
- Expansion of vendor use to utilize different suppliers of different races, genders, Veteran statuses, or economic statuses.
- Honest disclosure of operating concerns to investors in a timely and respectful manner. Though not always mandated, a company may choose to manage its relationship with external stakeholders beyond what is legally required.
Philanthropic responsibility is the pillar of corporate social responsibility that challenges how a company acts and how it contributes to society. In its simplest form, philanthropic responsibility refers to how a company spends its resources to make the world a better place. This includes:
- Whether a company donates profit to charities or causes it believes it.
- Whether a company only enters into transactions with suppliers or vendors that align with the company philanthropically.
- Whether a company supports employee philanthropic endeavors through time off or matching contributions.
- Whether a company sponsors fundraising events or has a presence in the community for related events.
Financial responsibility is the pillar of corporate social responsibility that ties together the three areas above. A company make plans to be more environmentally, ethically, and philanthropically focused; however, the company must back these plans through financial investments of programs, donations, or product research. This includes spending on:
- Research and development for new products that encourage sustainability.
- Recruiting different types of talent to ensure a diverse workforce.
- Initiatives that train employees on DEI, social awareness, or environmental concerns.
- Processes that might be more expensive but yield greater CSR results.
- Ensuring transparent and timely financial reporting including external audits.
Some corporate social responsibility models replace financial responsibility with a sense of volunteerism. Otherwise, most models still include environmental, ethical, and philanthropic as types of CSR.
Benefits of Corporate Social Responsibility
As important as CSR is for the community, it is equally valuable for a company. CSR activities can help forge a stronger bond between employees and corporations, boost morale, and aid both employees and employers in feeling more connected to the world around them. Aside from the positive impacts to the planet, here are some additional reasons businesses pursue corporate social responsibility.
According to a study published in the Journal of Consumer Psychology, consumers are more likely to act favorably towards a company that has acted to benefit its customers as opposed to companies that have demonstrated an ability to delivery quality products. Customers are increasingly becoming more aware of the impacts companies can have on their community, and many now base purchasing decisions on the CSR aspect of a business. As a company engages more in CSR, they are more likely to receive favorable brand recognition.
In a study by Boston Consulting Group, companies that are considered leaders in environmental, social, or governance matters had an 11% valuation premium over their competitors. For companies looking to get an edge and outperform the market, enacting CSR strategies tends to positively impact how investors feel about an organization and how they view the worth of the company.
In yet another study by professionals from Texas A&M, Temple, and the University of Minnesota, it would found that CSR-related values that align firms and employees serve as non-financial job benefits that strengthen employee retention. Works are more likely to stick around a company that they believe in. This in turn reduces employee turnover, disgruntled workers, and the total cost of a new employee.
Consider adverse activities such as discrimination against employee groups, disregard for natural resources, or unethical use of company funds. This type of activity is more likely to lead to lawsuits, litigation, or legal proceeds where the company may be negatively impacted financially and be captured in headline news. By adhering to CSR practices, companies can mitigate risk by avoiding troubling situations and complying with favorable activities.
CSR strategies may be difficult to strategically assess because not all benefits may be financially translatable back to the company. For example, it might be very difficult to assess the positive impact to a company's brand image that planting 1 million trees may have.
In 2010, the International Organization for Standardization (ISO) released ISO 26000, a set of voluntary standards meant to help companies implement corporate social responsibility. Unlike other ISO standards, ISO 26000 provides guidance rather than requirements because the nature of CSR is more qualitative than quantitative, and its standards cannot be certified.
ISO 26000 clarifies what social responsibility is and helps organizations translate CSR principles into practical actions. The standard is aimed at all types of organizations, regardless of their activity, size, or location. And because many key stakeholders from around the world contributed to developing ISO 26000, this standard represents an international consensus.
Examples of Corporate Social Responsibility
Starbucks has long been known for its keen sense of corporate social responsibility and commitment to sustainability and community welfare. According to its 2020 Global Social Impact Report, these milestones include reaching 100% of ethically sourced coffee, creating a global network of farmers and providing them with 100 million trees by 2025, pioneering green building throughout its stores, contributing millions of hours of community service, and creating a groundbreaking college program for its employees.
As part of its annual reporting on ESG, Home Depot highlighted its achievements on focusing on its employees, operating sustainably, and strengthening its communities. In fiscal year 2020, it invested over $2 billion in increased salaries and benefits to enhance its employee well-being. It also reduced energy consumption by 14% from the year prior and are on track to reduce company-wide emissions by 40% by 2030.
In 2021, General Motors was placed on the Bloomberg General Equality Index for a fourth consecutive year as well as being placed in Diversity Inc.'s top 50 companies for diversity for a sixth consecutive year. In addition, it has planned for a $35 billion investment from 2020 to 2025 in electric vehicles and aims for 100% renewable electricity at U.S. sites by 2025.
Why Should a Company Implement CSR Strategies?
Many companies view CSR as an integral part of their brand image, believing that customers will be more likely to do business with brands that they perceive to be more ethical. In this sense, CSR activities can be an important component of corporate public relations. At the same time, some company founders are also motivated to engage in CSR due to their convictions.
Why Is CSR Important?
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 labor practices, such as child labor and slavery.
Although CSR programs have generally been most common among large corporations, small businesses also participate in CSR through smaller-scale programs, such as donating to local charities and sponsoring local events.
What Are the Benefits of CSR?
CRS initiatives strive to have a positive impact on the world through direct benefits to society, nature and the community in which a business operations. In addition, a company may experience internal benefits through the initiatives. Knowing their company is promoting good causes, employee satisfaction may increase and retention of staff may be strengthened. In addition, members of society may be more likely to choose to transact with companies that are attempting to make a more conscious positive impact beyond the scope of its business.
What Are the 4 Types of CSR?
CSR initiatives are often broken down into four categories: environmental, philanthropic, ethical, and economic responsibility. Environmental initiatives focus on preservation of natural resources, while philanthropic initiatives focus on donating to worthy causes that may not relate to a business. Ethical responsibility ensures fair and honest business operations, while economic responsibility promotes the fiscal support of the goals above.
What Companies Have the Best CSR?
There is no single defining rubric for evaluating the CSR of all companies. Various sources will review and compile rankings differently. Since 1999, Corporate Responsibility Magazine has ranked the top 100 Best Corporate Citizens each year among the 1,000 largest U.S. public companies. Rankings are determined based on employee relations, environment impact, human rights, governance, and financial decisions.
In 2021, the top five ranked companies on the list included Owens Corning, General Motors, H.P., Cisco, and Intel.
The Bottom Line
Companies striving to measure success beyond bottom line financial results may adopt corporate social responsibility strategies. These strategies may target environmental, ethical, philanthropic, and fiscal responsibility that extend beyond the products they sell. CSRs aim to make the world a better place beyond transacting with customers and may result in company-specific benefits as well.