CSR Often Misunderstood

As Albert Einstein said, “It is every man’s obligation to put back into the world at least the equivalent of what he takes out of it.”

From a sustainability perspective, that can take many forms. Yes, it is about reducing your carbon footprint. But it is even more multifaceted, more ubiquitous than that. “Look at what U2 and Bono have come to stand for: a multi-million-dollar entertainment juggernaut pushing an agenda for social justice’” says Richard Kadzis, Vice President Strategic Communications, CoreNet Global. “It is time to pay attention”

As Keith Perske and his co-authors shared in CoreNet Global’s LEADER Magazine, a Corporate Social Responsibility (CSR) Report is increasingly integral component of an organization’s relationship with its stakeholders: customers, tenants, employees, and share-holders. A common definition of a CSR report or an integrated report is a form of value reporting where an organization publicly communicates their “economic, environmental, and social performance”.

Corporate social responsibility (CSR) remains a misunderstood and sometimes controversial issue. Kadzis says, “The new ‘uber-sustainability’ is here.” Uber meaning the ultimate, above all, the best, top, something that nothing is better than. It includes design, energy conservation and environmentalism. It extends to smart buildings, community reinvestment and mobility.

Organizations report for several reasons, including marketplace pressure, brand value, and risk management. When companies state their concern for social responsibility issues such as the environment, it may attract consumers with a green conscience: that in turn increases revenues. Like-minded workers who think it is important that their employer has a CSR policy will work harder and even accept a lower salary than if the firm had no such policy.

CSR initiatives generate government subsidies or tax credits and prevent government regulation aimed at imposing CSR policies. And the cost of capital, or more precisely, the cost of equity may go down. CSR is about the core business functions of a company, and about the demands of company stakeholders that hold companies accountable for the social and environmental impacts of their operations.

Stakeholder expectations are expressed in forms ranging from legislation and regulation to shareholder resolutions and disruptive protests. The legitimacy of business has fallen to levels not seen in history. Often it seems, the more business has begun to embrace corporate responsibility, the more it has been blamed for society’s failures. This diminished trust in business leads political leaders to set policies that undermine competitiveness and sap economic growth.

There is a misunderstanding over CSR may be because it is such an emotionally loaded term. It gives the impression that firms who do not have a CSR program are socially irresponsible. But, let’s be realistic, the demand for results is not new. CSR is about the core business functions of a company, and about the demands of company stakeholders that companies be held accountable for the social and environmental impacts of their operations.

These are expressed in forms ranging from legislation and regulation to shareholder resolutions and disruptive protests. These days the public is raising its expectations of corporations: not just to make things less worse, but to solve social problems. That is a problem. In light of this demand, corporations are trying to figure out the right metric. These metrics are seldom tied to any meaningful outcomes and carry little currency with next to no explanatory value.

The problem lies with companies that remain trapped in an outdated approach to value creation. Sustainability metrics are critical to a company’s credibility, transparency and endurance. Responsibility has never been more important or more appealing, Gensler once reported on new research showing that through simple cost-effective measures, sustainable design can support human performance and workplace. Despite the growing interest in measuring results, measurement often seems to fail. It all ties back to the ever-increasing demand for results. When results are defined upfront and strategies are designed with specific results in mind, measuring these results is easy.

We are not just going through an economic downturn; we are going through a social and environmental downturn. The real driver for results is value creation. Companies must take the lead in bringing business and society back together. Yet we lack a framework for guiding these efforts, and so remain stuck in a “social responsibility” mind-set in which societal issues are at the periphery, not the core.

An increasing number of companies known for their hard-nosed approach to business such as Google, IBM, Intel, Johnson & Johnson, Nestlé, Unilever, and Wal-Mart have begun to embark on important shared value initiatives. But our understanding of the potential of shared value is just beginning.

Enterprises without Borders Corporations, causes and activists are supplanting governments. As issues get less local, government is less effective at solving problems. “More people vote for who’s going to stay on American Idol than in government elections,” political economist Dr. Noreena Hertz once joked at a CoreNet Global Summit.

Companies often get tangled in the web of stakeholder engagement, spending too much time soliciting input from third parties like distant NGOs and activists, rather than focusing on their direct stakeholders: employees, customers, leadership, investors, and the board. The trick is figuring out what results are most meaningful for your company and designing the right strategies to produce them. Real business strategies are designed to generate business value through social change.

By opening new markets, removing social barriers and creating affordable products to address unmet market needs, customers are transformed into brand advocates. “In the end,” says Kadzis “the drive for measurement is really a drive toward relevance even legitimacy, for companies that report within the triple bottom line format.”

Photo Credit: Logos made by Taylor McKnight for Web2.0

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One Response to CSR Often Misunderstood

  1. Sidra March 2, 2012 at 10:40 am #

    Again a very interesting, thoughtful. I like how the post highlights creating business value through social change.

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