Creating change through corporate social responsibility

June 2020  |  FEATURE  |  CORPORATE GOVERNANCE

Financier Worldwide Magazine

June 2020 Issue

Corporate social responsibility (CSR) is a broad, self-regulating mechanism. There is no industry-standard definition for CSR, and it can take many forms, depending on company and sector.

Generally, CSR aims to ensure that companies, at the very least, avoid exacerbating issues they have identified as important to them and to society, and hopefully contribute positively to enacting social and environmental change. To that end, companies with a CSR programme are expected to act in a non-discriminatory and environmentally friendly manner and become involved with worthwhile causes outside of profit-making activities. Done properly, businesses can use their CSR programmes to benefit society while boosting their brand and improving their bottom line.

There are many issues to consider when designing a CSR programme. Companies can address the needs of employees, customers and communities by evaluating the ethical, social, economic and environmental impact of their corporate strategies. And while this approach may have gone above and beyond expectations in past years, today it is virtually compulsory.

CSR has become increasingly important to employees. According to a Cone Communications survey, 64 percent of millennials refuse to take a job if a company does not have strong CSR values, 83 percent would be more loyal to a company that helps them contribute to social and environmental issues, and 88 percent say their job is more fulfilling when they are provided opportunities to make a positive impact on social and environmental issues. According to a Glassdoor survey, 75 percent of employees aged 18 to 34 expect their employer to take a stand on important issues, such as immigration and climate change.

Attracting and retaining talent is a perpetual business challenge. Activities that build on core values and inspire employees are key in an increasingly competitive environment. By pursuing CSR initiatives, companies can build trust with their employees.

In addition, as customers, millennials are particularly keen to align with brands that put out pro-social messages, adopt sustainable manufacturing methods and embrace ethical business standards.

Core CSR principles

Most CSR activities fall within the categories of philanthropy, environmental conservation, company diversity and labour practices. Companies can, for example, make donations, encourage employee volunteering, reduce their carbon footprint, improve labour policies, participate in fair trade schemes, develop corporate policies that benefit the environment, or invest in socially and environmentally conscious projects.

Many of the biggest names in the corporate world undertake CSR activities. Alphabet, Google’s parent company, is investing $1bn into sustainable and affordable housing in the San Francisco Bay Area, in response to ongoing housing shortages in the region, for example. The company has also committed over $1bn to renewable energy projects. Other firms, including Coca-Cola, Ford Motor Company and Pfzier also have high-profile CSR programmes.

“Our ‘Corporate Giving by the FTSE 100’ report, released in 2018, revealed that giving is declining among larger companies,” notes Klara Kozlov, head of corporate clients at the Charities Aid Foundation. “But we are seeing businesses begin to shift their giving, with support such as gifts in kind, skills-sharing, volunteering and in-house social enterprise accelerators.”

While some may dismiss CSR as a publicity stunt, there is undoubtedly a business case for implementing more ethical corporate practices. According to IO Sustainability and Babson College, CSR programmes could increase the market value of a company by up to 6 percent over a 15-year period. Furthermore, if a company fosters strong relationships with environmental and social non-government organisations (NGOs), its market value may rise 40-80 percent higher than its competitors.

“Corporate responsibility helps organisations manage their risks and reputation, it encourages resource efficiency and creates new opportunities for innovation and sustainable growth,” says Ms Kozlov. “It also helps companies create value not only for themselves and their shareholders, but crucially for wider society, helping to shape their business in terms of how it relates to real-world problems. This in turn builds resilience, innovation and brand. The FTSE4Good or the Dow Jones Sustainability Index both demonstrate that companies that effectively manage their social and environmental impact perform better over the long-term.”

Moreover, companies that ignore or act outside the scope of CSR may suffer damaging social and economic consequences. A subsidiary’s headline-generating breach of CSR principles, perhaps as a result of corner cutting, negligence or lack of coordination across the business, can easily harm its parent company.

Driven by values: building a CSR programme

Most organisations with a CSR programme use it to define the company’s role in society and to commit to meeting appropriate social, ethical, legal and responsible standards. Environmental, social and governance (ESG) factors have become mainstream in recent years, meaning companies can benefit from a values-driven approach to doing business.

According to McKinsey, in 2019 there were $22.89 trillion of assets being professionally managed under responsible investment strategies, an increase of 25 percent on 2014. Some of the world’s largest institutional investors, such as the Government Pension Investment Fund (GPIF) of Japan, Norway’s Government Pension Fund Global (GPFG), and the Dutch pension fund ABP, all now practice sustainable investing. Companies increasingly involved in social and sustainable business can attract impact investing, for example.

Companies cannot simply pay lip service to CSR, however. A CSR programme needs to demonstrate real commitment to social issues, aligned with the company’s business model. This can be a challenge for any firm – particularly for those with subsidiaries operating in culturally or geographically disparate regions. “There is no perfect way to design and implement a CSR programme because how this process is managed internally must be unique to the organisation,” says Ms Kozlov. “We encourage companies to recognise CSR as a journey and view it as a plan that needs to build over time as lessons are learned along the way about what best suits their organisation.”

There are several ways companies can craft a CSR programme unique to them. To maximise the benefits, a structured, systematic approach to managing socially responsible activities is important. The aim is to build a strategy around their core competencies, recognising issues that matter to their customers and promoting initiatives that make their employees proud, which ideally delivers return on investment (ROI) to benefit shareholders.

With these goals in mind, it is vital that CSR is embraced at every level of the business to engage the workforce. Leaders must be prepared to make a personal commitment. “In our experience there are a few core components to any successful CSR programme,” says Ms Kozlov. “The first is top-level commitment. For any idea to be embraced by an organisation it must be backed by its leaders. They must recognise the benefits of investing in CSR, show bravery and take ownership to see implementation through. CSR cannot be a corporate ghetto. Secondly, in the design of the CSR strategy it is key to clearly define the impact you wish to have as a business and the social need that you hope to address. Zeroing in on a particular social or environmental issue ensures CSR programmes remain lean and can achieve more clear-cut results.”

Many companies have created dedicated CSR teams to coordinate with non-profit organisations, government agencies and like-minded private sector partners to improve CSR offerings. Such teams, sometimes in collaboration with the human resources department, monitor adoption of the CSR programme throughout the company and document its success for employees, the environment, the community and the marketplace.

Communication is also key. Companies must be truthful and transparent when announcing to stakeholders the steps they are taking on CSR. Some firms may be hesitant, fearing criticism or worrying they will set expectations too high, but stakeholders want to be kept in the loop. Corporate websites, press releases and social media channels are all vital tools for making actions visible. Organisations should leverage the internet’s immense influence to disseminate information about their CSR programmes. In this way, companies can increase employee satisfaction, boost customer loyalty and enhance their reputation.

Reporting

Though entirely voluntary, reporting can serve an important function in reinforcing the credibility of a CSR programme. There is no template, which means companies can be creative in designing a CSR report that reflects their vision, values and personality.

Companies should not appear self-congratulatory in their reporting, however. Instead, the report should explain how the programme aligns with the company’s overall strategy, outline what the company has achieved backed up with accurate data, and explain how initiatives have added value to the business. It should present this information in an interesting and digestible way to engage stakeholders.

Pressure is growing for companies to disclose non-financial information, such as greenhouse gas emissions. Political impetus for environmentally friendly policies may lead to more concrete, perhaps mandatory, CSR reporting requirements in the future.

COVID-19: a lasting effect on CSR

In the coming years, companies will expand and refine their CSR programmes. Part of this evolution will of course be affected by the perilous state of the global economy. It is clear that the COVID-19 crisis will have a lasting effect financially, but also in terms of how companies are perceived from a CSR point of view.

While some companies have chosen to focus only on themselves during previous crises, this time many are rising to the broader challenge. “The ongoing COVID-19 pandemic is leading many companies to think about their position in the wider community and act accordingly to help and support,” says Ms Kozlov. “It is impossible to believe that this crisis will not redefine CSR and the relationship between companies, employees and communities for decades to come.”

The decision to make employees redundant or to implement wide-ranging wage reductions has been adopted by some companies. But others are taking more measured, socially responsible action. Asking the highest paid employees to accept a deep salary cut while lower paid colleagues take only a minor drop is one example. A number of retailers have continued to pay staff despite store closures.

Companies have also updated sick leave policies to provide additional coverage and support for their most vulnerable workers, and taken steps to address employees’ wellbeing by expanding mental health benefits.

Larger businesses have also allocated funds to support smaller companies. Amazon, for example, announced a $5m relief fund for small businesses in the vicinity of its headquarters impacted by the pandemic, while Google pledged $1m for a similar cause.

Today, it is impossible for companies to ignore their CSR obligations. While there are compelling ethical reasons, ultimately it is simply good business. Companies can use their CSR programmes to instigate social, environmental and economic change while also generating greater shareholder value. Organisations must deliver profits to shareholders, and resounding CSR efforts can contribute to this goal.

© Financier Worldwide

BY

Richard Summerfield