The Rising Interest in CSR and Where to From Here?
There is certainly increasing coverage in the media about CSR and CSR events taking place are also on the rise. So why the growing interest? What is the current status? Where to from here?
Firstly however, it is useful to define CSR. While there are many definitions available, the World Business Council for Sustainable Development is a good source. They describe it as:
“The continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce, their families and the local community and society at large.”
I particularly like the definition given by Mallen Baker, Development Director for Business in the Community in the UK on his personal site that “CSR is about how companies manage the business processes to produce an overall positive impact on society.”
The increasing interest in CSR is evident with 1000 CEOs, government ministers and heads of civil society attending the UN Global Impact Summit in mid-July. Furthermore, more than 4000 companies and stakeholders in 116 countries have committed to the Global Compacts 10 principles related to human rights, working conditions the environment and anti-corruption. Additionally, a survey of CEOs and top executives of companies participating in the UN Global Compact undertaken by McKinsey & Company (July 2007) revealed that 59% of respondents are incorporating environmental, social and governance (ESG) issues into their firm’s core strategy “much more” compared to 5 years ago and 34% “somewhat more.” Unfortunately, in the inaugural “Global Compact Implementation Survey”, Australian business participants accounted for only 1% of those companies that responded and are implementing the 10 principles and partnerships. European companies were the largest group accounting for 59%.
And the momentum will continue to build with the help of evidence that CSR assists companies to compete successfully as well as build trust and shareholder value. In fact, a recent report by Goldman Sachs showed that companies that are considered leaders in the implementation of environment, social and governmental policies have outperformed the general stock market by 25% since August 2005 and 72% of these companies outperformed their peers over the same period.
The rising interest in CSR in Australia is evident with an increasing number of companies publishing sustainability reports. Andrew Beatty from Baker & McKenzie reports that individuals have an interest as to how the dividends are derived from the portfolio of companies in their superannuation funds. There is also greater offshore income generation for companies, some in less regulated countries, thus requiring effective CSR strategies. The Australian Stock Exchange is currently examining changes to it corporate governance rules and two recent federal government inquiries into CSR have also been undertaken, one by the Parliamentary Joint Committee on Corporations and Financial Services (June 2006) and the Corporations and Markets Advisory Committee report (December 2006). However, they have resisted recommending changes to the Australian Corporations Act that would consider more than just the interests of the shareholders. The “Social Innovation in the 21st Century: A Dialogue” was also held in the Hunter Valley in NSW from 28-30 April, 2006.
On the consumer side, there is certainly a rising interest in social and environmental issues. This is highlighted in a 2006 survey undertaken by Cone Inc. in co-operation with AMP Insights. The survey found that 61% of Millennials in the US, those born between 1979-2001, feel personally responsible for making a difference in the world and 78% believe that companies have a responsibility to join them in this effort. In fact, they are prepared to reward or punish a company based on its commitment to social causes. 69% consider a company’s social/environmental commitment when deciding where to shop and 66% will consider a company’s social/environmental commitment when deciding whether to recommend its products and services. These statistics are further supported by a 2007 survey, also undertaken by Cone Inc, which highlighted that 85% of Americans say they would switch to another company’s products and services if a problem with business practices was uncovered. Also, 87% were likely to switch to another brand (price and quality being about equal) if the other brand is associated with a good cause — an increase of more than 31% from 1993.
This survey reinforces the increasing pressure from customers, the community, media, activists and governments for companies to take responsibility for their actions and “do the right thing”. If they don’t there are consequences to pay as the likes of Nike, Nestle and Shell have all experienced.
But CSR is changing with a move from “corporate citizenship that is based on risk management, towards value creation strategies” that will benefit both business and society reports Maggie Brenneke from SustainAbility. Also, in a recent report by Porter and Kramer on “Strategy & Society: The Link Between Competitive Advantage and Corporate Social Responsibility”, they highlight the transition from what they refer to as “Responsive CSR” which is mitigating harm to “Strategic CSR” which involves identifying and implementing an opportunity that benefits both society and a company’s own competitiveness and, at the same time, reinforces the company’s strategy. This is evident in the McKinsey & Company survey of CEOs and top executives of companies participating in the UN Global Compact, “now many companies are finding commercially viable models to manage the tension between the global and local dimensions of ESG and compete for trust to the benefit of society as well as their own bottom line.”
Yet there is more to be achieved in terms of a strategic approach to CSR with a recent McKinsey and Company report showing that while more than 90% of CEOs reported that they are doing more than 5 years ago to incorporate environmental, social and governance issues into their strategy and operations and 72% said that CSR should be embedded fully into strategy and operations, only 50% think their firms actually do so. Therefore, there is still more to do!
