Corporate Social Responsibility (CSR): how is it defined?

Corporate social responsibility (CSR) is the act of merging environmental and social concerns with a company’s planning and operations. It is based on the idea that companies can reduce their negative social and environmental impact on the world.

Here we will discuss what you should know about CSR programmes and how they benefit a company.

Definition and examples of corporate social responsibility

Corporate social responsibility is a way of doing business that aims to increase a company’s social impact while meeting business objectives such as growth and revenue goals.1 It can also refer to any effort to improve a company’s eco-friendliness or carbon footprint. Companies can implement CSR efforts as a stand-alone programme or as part of a broader campaign.

• Acronym: CSR
• Alternative name: Corporate Citizenship

An example of corporate social responsibility is Starbucks’ commitment to global human rights. This commitment is written into official company policy and includes compliance requirements in all of the company’s business units. From hiring to the supply chain to the way the company works with its business partners, adherence to this social mission affects all levels of Starbucks’ operations.

How corporate social responsibility works

Companies can create CSR programmes that involve every part of their business and often have staff and resources dedicated to CSR.

CSR programmes vary in scope, but some examples might include:

• Giving to non-profit groups, such as local food banks, by providing volunteers or through monetary donations
• Offering job training programmes for the needy
• Committing to ensuring diversity in the workforce
• Focusing on reducing the company’s carbon footprint through improved supply chain efficiency
• Although CSR programmes are often the result of pressure from within the community, research shows that once instilled, these programmes often receive broad support from within the company as well.

One report found that 92% of companies in the S&P 500 and Russell 1000 have published reports describing their CSR and sustainability efforts in 2020.4 In 2011, this figure was less than 20%.

There is no doubt that CSR programmes should exist in every company. Companies with strong CSR programmes can benefit from better public relations and happier customers. Corporate profits usually improve, in turn satisfying stakeholders.

In some cases, the positive financial impact of CSR is clear. For example, a shift towards renewable energy sources, such as solar panels on corporate campuses, could result in lower electricity costs over time.

A Babson College report reviewed hundreds of studies of CSR programmes. The reviewers found that programmes can have a strong impact on a company’s market value and brand and reduce risk.7 The report’s findings found that CSR programmes have the potential to do the following:

• Increase market value by up to 6%.
• Reduce systemic risk by up to 4%.
• Reduce the cost of debt by 40% or more.
• Increase the price premium by up to 20%.
• Reduce the staff turnover rate by up to 50%.

CSR vs. ESG

CSR is similar to environmental, social and corporate governance (ESG) principles. The main difference is that CSR is an internal function, whereas ESG is an external function.

With CSR programmes, it is up to those within the company to measure the success of their actions. They decide which programmes to continue and rework those that do not go well.

ESG, on the other hand, is a metric that external analysts can use to compare the effect of different corporate efforts to address environmental and social issues.

Many investment groups rate companies on their efforts to integrate ESG criteria. Institutional investors and mutual fund companies can outline how ESG guidelines are incorporated into their philosophies in their annual reports.

The framework for ESG reporting comes from the Global Reporting Initiative (GRI), which is a private standards body that seeks to standardise corporate sustainability reporting. It has been working towards this goal since the late 1990s.8

In 2006, the United Nations launched the Principles for Responsible Investment (PRI), a programme that institutional investors can use to integrate ESG values into their decision-making process.9

More than 3,000 investors and groups have signed the PRI, committing to these six principles:

1. We will incorporate ESG issues into our investment analysis and decision-making processes.
2. We will be active owners and incorporate ESG issues into our ownership policies and practices.
3. We will seek appropriate disclosure of ESG issues by the entities in which we invest.
4. We will promote the acceptance and implementation of the Principles within the investment industry.
5. We will work together to improve our effectiveness in implementing the Principles.
6. We will each report on our activities and progress in implementing the Principles.

Individual investors may wish to have their investments reflect their values. They can buy mutual funds and exchange traded funds (ETFs), grouped according to their commitment to CSR. Examples of this include the iShares MSCI KLD 400 Social ETF (DSI) and the SPDR SSGA Gender Diversity Index Fund (SHE).

Key points to consider

• Corporate Social Responsibility (CSR) involves actions taken when a company seeks to improve its environmental and social impact.
• There is evidence that a commitment to CSR can positively influence a company’s finances.
• CSR is similar to ESG, a process through which investors make decisions based on a company’s CSR programmes and impact.

Article source: www.thebalance.