Corporations can have more detrimental effects on the environment than one can imagine. They cause pollution, dump toxic waste, deplete natural resources, and contribute to the rapid deterioration of the planet. Unfortunately, many corporations are not even aware of the damage they are doing. This is where corporate social responsibility (CSR) comes in.
A corporation with CSR is one that is conscious of its social responsibilities and makes an effort to fulfil these responsibilities.
But what is corporate social responsibility? What is its purpose, what are the different types of corporate social responsibility (CSR), and which corporations practice it?
What Is Corporate Social Responsibility?
Corporate social responsibility (CSR) is a company’s commitment to behave ethically and contribute to the betterment of society and the environment in which it operates.
Also referred to as corporate citizenship, corporate social responsibility is a form of self-regulation that applies to both public and private companies seeking to make a positive contribution towards the development of society and reflect their concern for their community and environment.
A better definition of CSR would be “the practice of a company balancing profit-making with a concern for society and the environment.”
However, there is no legal definition of CSR. It is generally defined as any positive actions a company takes to benefit the community, protect the environment and treat all its stakeholders (employees, customers, suppliers, the community and the environment) fairly and justly.
History Of Corporate Social Responsibility
The term corporate social responsibility was first coined by an American economist Howard R. Bowen in 1953 in his book Social Responsibilities of the Businessman.
He referred to social responsibility to be “the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action that are desirable in terms of the objectives and values of our society.”
However, the topic was still wasn’t popularised until the 1970s when the Committee for Economic Development introduced the concept of the ‘social contract’ between businesses and society.
Finally, the 1990s led to the widespread approval of CSR when Pittsburgh University professor Donna J. Wood published Corporate Social Performance Revisited, which expanded on the existing CSR models and provided frameworks and guidelines for the CSR frameworks.
Today, many countries like India have passed laws that make it compulsory for high net-worth corporations to have a CSR policy. Moreover, several other companies like the USA see CSR as a soft law where companies must be socially responsible.
What Is The Purpose Of Corporate Social Responsibility?
The primary purpose of corporate social responsibility is to ensure that companies consider the interests and welfare of society by evaluating their actions.
This means that businesses can consider CSR an attempt to balance profit-making with human, environmental, community interest, and health concerns.
The other major reason companies practice corporate social responsibility is to enhance their public image and increase their market share. It’s been shown that corporate citizenship can impact the profitability of a company, especially when the CSR commitment is visible in a company’s operations. It can also help build strong relationships with partners and stakeholders, which will eventually help promote sales and provide positive feedback from customers.
Importance Of Corporate Social Responsibility
CSR is becoming increasingly important to companies and their stakeholders. In fact, it is now considered one of the critical indicators of a company’s success.
A study shows that 92% of the customers are more likely to trust a company that supports social or environmental issues.
Another study by Reputation Institute found that 42% of how the public feels about a company is based on their perceptions of its corporate social responsibility.
So yes, corporate social responsibility is essential to build a corporate or brand image in society.
An effective CSR policy can also lead to more customers and even loyal customers as 87% of the people purchase a product because the company advocates for the cause they care about, and 76% of people even refuse to purchase if they find out that the company supports an issue contrary to their beliefs.
This means that a responsible company has an enormous competitive advantage over a non-responsible company
CSR also leads to innovation. Innovation is bound to happen when an established business with good financial backing uses its capital to solve societal problems. This innovation helps in finding solutions that society didn’t find before.
In some countries, failure to address environmental and societal problems can result in heavy fines, operation disruption, negative regulatory outcomes, and damaged reputation. A good CSR policy is essential to mitigate such risks.
Types Of Corporate Social Responsibility
Traditionally, experts categorised CSR into four different types.
- Environmental Responsibility
- Ethical Responsibility
- Philanthropic Responsibility
- Economic Responsibility
Environmental responsibility is a belief that organisations should try to reduce their environmental impact as much as possible.
Companies that practice this type of CSR are conscious of the environment and concerned about their products’ effects. They try to fulfil this responsibility by:
- Reducing pollution: This involves taking steps to reduce pollution, greenhouse emissions, wastage, and over-consumption of plastic, water, and pollution-causing resources.
- Increasing reliance on renewable energy: Relying more on renewable energy like wind and solar energy and opting for recycled and partially recycled products reduces the stress on the environment.
- Offsetting negative environmental impact: Environmental impact is often negated by planting trees, funding research, donating to related causes.
Ethical responsibility is a belief that organisations should try to behave ethically as much as possible.
Companies that practice this type of CSR are concerned with fair treatment of all their stakeholders – employees, customers, partners, and suppliers- and are cognizant of the impact their business activities have on society.
They try to fulfil this responsibility by:
- Treating employees fairly: Providing them with fair working conditions and pay, offering opportunities for training and development, and not exploiting them through long hours, low pay or unfair practices.
- Treating customers fairly: Providing superior customer service, honest and clear information about the ingredients, protecting their privacy, and even using ingredients, materials, and components that meet the set standards.
- Being responsible to society at large: Companies that ethically conduct business are also concerned about their impact on the environment and the communities in which they operate. They may have processes set to ensure that they don’t connect with businesses that engage in slavery or child labour.
Philanthropic responsibility is the belief that companies should give back to society in the form of time, money or resources.
It is the idea that companies, besides being ethically and environmentally friendly, should also contribute something to the betterment of the lives of others. This could be a portion of their earning, time, expertise, product donations, facilities and so on. This type of CSR is more about the “giving” part rather than the “doing right” aspect of CSR. Some examples of Philanthropic Responsibility include providing underprivileged children with a good education – by donating school supplies, paying teachers, or funding scholarships, sponsoring community activities such as blood drives, sports events, or raising money for hospitals, churches or other charities.
Economic responsibility involves practices that ensure long-term growth and meet the standards set for ethical, environmental, and philanthropic practices.
It is concerned with creating and maintaining a healthy and sustainable business. Economic responsibility is different from philanthropic responsibility in that the former is concerned with the business’s bottom line, whereas the latter is more concerned with what the company chooses to do with its resources after it makes a profit. An example of economic responsibility would be modifying manufacturing processes to reduce pollution or the need for scarce raw materials.
Advantages Of Corporate Social Responsibility
Unlike what some people believe, corporate social responsibility isn’t a burden to a company. In fact, it has its own set of benefits for the business as well as the society.
Benefits Of CSR To The Business
- Builds public trust: A research by Better Business Journey proved that 88% of consumers are more likely to buy from a business that supports and engages in activities to improve society.
- Helps build brand image: CSR activities increase brand awareness and brand equity as customers get to know about the good-doings of a brand.
- Helps gain a competitive advantage: Research concluded that customers are more loyal to brands that care for society and do good.
- Attracts media attention: CSR activities attract more PR than normal business activities. It helps the company make use of earned media to increase its brand awareness, brand image, and brand equity.
- Reduces regulatory burden: Governments of several countries have made it compulsory for businesses a percentage of their revenue to give back to society. Having a good CSR policy reduces regulatory fines and the burden of noncompliance.
- Helps identify new business opportunities: CSR activities force the business to identify and understand the societal problems of their customers. This, in turn, often results in businesses identifying new problems that can be converted into businesses.
- Increases the market value: Research proves that a high CSR score increases the overall market value of the business. That is, helping the society not only helps give back but to gain in the form of better valuations as well.
- Tax benefits: Some countries even provide tax benefits to companies that indulge in CSR activities.
Benefits Of CSR To The Society
- Forces businesses to solve societal problems: Some societal problems remain for years because businesses don’t find profits in solving them. CSR policies force firms to solve such problems, and this helps the society at large.
- Helps connect corporations with communities: CSR connects corporations to the customers and helps them understand their problems at large. This helps to solve problems that require huge funds that only such corporations have. Moreover, big corporations also bring in innovation to solve such problems.
Disadvantages of Corporate Social Responsibility
While corporate social responsibility is considered a great move in helping the business and society, it has its own set of disadvantages. These are:
- Has high costs: CSR often involves high financial and non-financial investments from the side of a corporate. This affects the corporate’s business, especially during hard times.
- Conflicts with profit motive: Businesses operate with a profit motive. Most consider societal problems to be a problem of the government. The development and execution of CSR policies often conflict with the business’s fiduciary duty to its shareholders.
- May lead to greenwashing: Excessive pressure to serve the societal problems of the customers often lead to the problem of greenwashing where a corporation makes cosmetic changes in its practices just for the sake of marketing its offerings as environmentally friendly.
Challenges Of Corporate Social Responsibility
Solving social problems is not an easy task. Strategising and executing a good CSR policy has its own challenges like:
- Priority Mismatch: Sometimes, the business runs well as it is, and making changes to its business model or operating model or adding a department to enforce social responsibility may result in meddling with the profit-making priority of the business.
- Performance Measurement: Sometimes,it’s hard to measure the performance of CSR initiatives by the business, and this poses a great challenge.
- Limited Resources: CSR initiatives require substantial resources in the form of human resource, finance, innovation, etc. This could become a challenge for some businesses.
- Lack of Management Commitment: Management considers themselves to be solely responsible for profit-making and future growth of the business. They might sometimes consider CSR to be their second priority.
Corporate Social Responsibility Examples
Corporate social responsibility focuses on several different problems relating to climate change, social justice, human rights, inequality, environmental sustainability, etc. Some companies do set an example for others to follow. Here are some of the most relevant CSR examples one should know about.
Google is one of the companies with the best CSR reputations. The company is carbon neutral since 2007 and plans to be carbon-free by 2030. It boasts its new carbon-free energy generation and storage technologies and its work with governments, utilities, and policymakers to deploy those technologies and drive system-level change.
The company also commits €10M to fund ideas to lead towards a greener and more resilient future.
Besides this, Google is also the best place to work at. More than 50% of consumers in 15 markets agree that Google is a great place to work where employees are treated well.
Microsoft’s founder Bill Gates is a philanthropist who loves to give back to society. Hence, the company is among the highly recognised companies for its CSR efforts.
It has a global initiative called YouthSpark, creating new opportunities for education, entrepreneurship, and employment for more than 103 million young people worldwide.
It also runs an Employee Giving Campaign where its employees start fundraising events for their favourite nonprofit organisations and causes.
The company is also vocal and active in solving social problems like discrimination, fundamental rights violation, climate change, etc.
TOMS’ is one company that built its business model around its corporate social responsibility program. It was launched with a mission of donating one pair of shoes to a child in need whenever someone buys a pair of shoes from the company.
The brand sold 10,000 pairs of shoes in its first year. Today, it doesn’t operate on the same One-For-One model. Still, it operates in over 50 countries and invests one-third of its profits in grassroots efforts, like organisations creating change at the local level and driving progress from the ground up.
Moreover, TOMS’ shoes are environmentally friendly as well. They include natural help, organic cotton, and recycled polyester. Even the boxes are made up of 80% recycled post-consumer waste and printed with soy ink.
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A startup consultant, dreamer, traveller, and philomath. Aashish has worked with over 50 startups and successfully helped them ideate, raise money, and succeed. When not working, he can be found hiking, camping, and stargazing.