Corporate social responsibility (CSR) has become something of a buzz phrase in recent years. There have been many arguments regarding whether CSR can actually help companies to improve their reputation and improve profit margins, if it costs businesses money and whether businesses are doing it to genuinely help the environment and society, or if it is solely a marketing technique.
Despite the arguments, many companies have found that CSR does help them – it improves their reputation, attracts better employees and saves them money. While all businesses must operate within the law (e.g. health and safety standards, human rights laws, emissions guidelines) many are now becoming proactive and going above and beyond what the law requires.
When correctly employed, CSR should create value for all stakeholders (e.g. anyone who has a direct or indirect interest in a company) in a business, not just shareholders.
Approaches to CSR
One of the most popular approaches to CSR is philanthropy. This usually involves financial donations or other aid to local or international charitable organisations. However, many companies do not like this approach to CSR as it does not involve building any skills, either within their employees or with the recipients of the donations.
Community-based development is a less common method, although it is becoming more popular. Companies using this method become more involved with communities to help them improve their skills or better themselves. This method can involve helping disadvantaged communities to educate children or assisting adults to develop new skills.
Other companies are now building CSR into their corporate strategies. One example of this could be Cadbury’s, who have only recently been able to label their packages as Fair Trade certified.
A more intricate approach to CSR is creating shared value (CSV). This model is based on the idea that social welfare and corporate success are inextricably linked. The idea behind the model is that businesses need a healthy, well-educated workforce, suitable government and sustainable resources to survive and compete, whereas society requires profitable businesses to create income and opportunities. CSV focuses on how companies can build competitive advantage by adding social value to their activities. A paper by Michael E Porter, entitled Strategy & Society: The Link between Competitive Advantage and Corporate Social Responsibility, describes in detail how companies have linked their business strategies and CSR.
Many companies now use benchmarking to ensure they remain competitive in their CSR activities. This involves measuring and evaluating the impact that CSR activities undertaken by competitors have on both the environment and society, and how customers perceive this activity. Companies then develop their CSR strategies according to the outcome of their research.
Methods of CSR
There are many different forms of CSR, both social and environmental. These can include reducing waste, recycling, community projects, changing working methods and monetary donations. Some of the main CSR activities currently undertaken are listed.
- Using fair trade goods to create products, or selling fair trade goods
- Ensuring that no animal testing takes place anywhere in your supply chain
- Removing harmful chemicals from the production process, or decreasing emissions
- If purchasing from abroad, ensuring that all factories pay a living wage to employees, that health and safety standards are up to the same standard we would expect in the UK and that no human rights violations are made by other companies in the supply chain
- Using less energy and / or fuel
- Using organic materials in production
- Recycling office waste, and ensuring recycled materials are used in production or packaging
- Taking part in community projects or making donations to charities and organisations
- Ensuring diversity and equality in the workforce
- Ensuring employees have a healthy work/life balance
Effects of CSR
When undertaken appropriately, CSR can have many positive impacts on a business such as helping to enhance the reputation of a company. However, business owners must be sure to take care with their activities. In the past some consumers have questioned CSR activities, arguing that businesses partake only to improve their public image. While this has mostly been the case with large companies such as McDonald’s and BP, small businesses must ensure that they are undertaking CSR for the right reasons.
Another reason for including CSR activities is product differentiation. This allows businesses a unique selling point over their competitors. An example would be the Body Shop. The Body Shop was the first cosmetics company of its kind in the UK, using all natural ingredients in its products. The company was from its inception heavily involved in social and environmental awareness campaigns.
Many companies now find that CSR is essential in attracting and retaining talented employees. Many graduates now say that they would prefer to work for companies with a CSR policy, which can also help to improve staff perception of a business and motivate employees, e.g. through community volunteering or fundraising activities.
There are several ways in which CSR can help companies to reduce costs or improve profits. Firstly, businesses can aim to reduce their use of energy and fuel, saving money by having lower bills. Those who are able to differentiate their product or service via their CSR activities may find that consumers are more likely to choose their product over competitors, as buyers become more ‘green’ or socially aware.