An overview of corporate social responsibility
What is corporate social responsibility?
Corporate social responsibility (CSR) is also known by a number of other names: corporate responsibility, corporate accountability, corporate ethics, corporate citizenship, sustainability, stewardship, triple bottom line and responsible business, to name just a few.
CSR is an evolving concept that currently does not have a universally accepted definition. Generally, CSR is understood to be the way firms integrate social, environmental and economic concerns into their values, culture, decision making, strategy and operations in a transparent and accountable manner and thereby establish better practices within the firm, create wealth and improve society.
The World Business Council for Sustainable Development has described CSR as the business contribution to sustainable economic development. Building on a base of compliance with legislation and regulations, CSR typically includes "beyond law" commitments and activities pertaining to:
- corporate governance and ethics
- health and safety
- environmental stewardship
- human rights (including core labour rights)
- human resource management
- community involvement, development and investment
- involvement of and respect for Aboriginal peoples
- corporate philanthropy and employee volunteering
- customer satisfaction and adherence to principles of fair competition
- anti-bribery and anti-corruption measures
- accountability, transparency and performance reporting
- supplier relations, for both domestic and international supply chains.
Generally, CSR is understood to be the way firms integrate social, environmental and economic concerns into their values, culture, decision making, strategy and operations in a transparent and accountable manner and thereby establish better practices within the firm, create wealth and improve society.
These elements of CSR are frequently interconnected and interdependent, and apply to firms wherever they operate.
Since businesses play a pivotal role in job and wealth creation in society, CSR is a central management concern. It positions companies to both proactively manage risks and take advantage of opportunities, especially with respect to their corporate reputation and broad engagement of stakeholders. The latter can include shareholders, employees, customers, communities, suppliers, governments, non-governmental organizations, international organizations and others affected by a company's activities (see Part 3, which is exclusively devoted to stakeholder engagement).
Above all, CSR is about performance: moving beyond words on a page to effective and observable actions and societal impacts. Performance reporting is all part of transparent, accountable -- and, hence, credible -- corporate behaviour. There is considerable potential for problems when stakeholders perceive that a firm is just engaging in a public relations exercise and cannot demonstrate concrete actions that lead to real social and environmental benefits.
Why has CSR become important?
Many factors and influences, including the following, have led to increasing attention being devoted to CSR:
- Globalization -- with its attendant focus on cross-border trade, multinational enterprises and global supply chains -- is increasingly raising CSR concerns related to human resource management practices, environmental protection, and health and safety, among other things.
- Governments and intergovernmental bodies, such as the United Nations, the Organisation for Economic Co-operation and Development and the International Labour Organization have developed compacts, declarations, guidelines, principles and other instruments that outline social norms for acceptable conduct.
- Advances in communications technology, such as the Internet, cellular phones and personal digital assistants, are making it easier to track corporate activities and disseminate information about them. Non-governmental organizations now regularly draw attention through their websites to business practices they view as problematic.
- Consumers and investors are showing increasing interest in supporting responsible business practices and are demanding more information on how companies are addressing risks and opportunities related to social and environmental issues.
- Numerous serious and high-profile breaches of corporate ethics have contributed to elevated public mistrust of corporations and highlighted the need for improved corporate governance, transparency, accountability and ethical standards.
- Citizens in many countries are making it clear that corporations should meet standards of social and environmental care, no matter where they operate.
- There is increasing awareness of the limits of government legislative and regulatory initiatives to effectively capture all the issues that corporate social responsibility addresses.
- Businesses are recognizing that adopting an effective approach to CSR can reduce risk of business disruptions, open up new opportunities, and enhance brand and company reputation.
Companies should do more, multi-nation survey suggests
A 2004 GlobeScan CSR survey of more than 23000 individuals in 21 countries suggests that the public expects more from the corporate sector:
- In industrialized countries, trust in domestic (49 percent) and global companies (38 percent) was lower than that of non-governmental organizations (68 percent), the United Nations (65 percent), national governments (52 percent) and labour unions (50 percent).
- People in most countries surveyed - less so in Asia and Africa - gave a negative assessment of the CSR performance of large companies.
- By assessing the frequency with which people reward or punish companies, the ethically active consumer market in developed countries was identified at somewhere between 12 to 30 percent.
- The general public in industrialized nations has an appetite for CSR information, with one in five surveyed having read CSR reports of individual companies. GlobeScan notes that "[i]f properly positioned, CSR reports may be viewed as a new corporate communications tool for companies, one that could be particularly effective in our 'show me' world."
What is the business case for CSR?
The business case for CSR differs from firm to firm, depending on a number of factors. These include the firm's size, products, activities, location, suppliers, leadership and reputation (as well as the reputation of the sector within which the firm operates). Another factor is the approach a firm takes to CSR, which can vary from being strategic and incremental on certain issues to becoming a mission-oriented CSR leader.The business case for CSR also revolves around the fact that firms that fail to engage parties affected by their activities can jeopardize their ability to create wealth for themselves and society. Taking into account the interests and contributions of those with whom one interacts is the basis for ethical behaviour and sound governance. CSR is essentially a strategic approach for firms to anticipate and address issues associated with their interactions with others and, through those interactions, to succeed in their business endeavours.
There is growing consensus about the connection between corporate social responsibility and business success. The World Business Council for Sustainable Development has noted that a coherent CSR strategy based on integrity, sound values and a long-term approach offers clear business benefits to companies and contributes to the well-being of society. Ed Zander, Chairman and Chief Executive Officer of Motorola, states that “strong economic performance and good social and environmental performance are not mutually exclusive. In fact, I believe that good corporate citizenship improves our bottom line. It's not surprising that many analysts and investors are paying closer attention to a company's corporate citizenship efforts for purely fiduciary reasons. Firms with social citizenship records and a real commitment to corporate responsibility are arguably more sustainable, better managed and, therefore, better long-term investments.”1 As Tony Fell, Chair of RBC Capital Markets, has stated, “the ongoing vitality of our communities is both in our long-term business interest and in the interests of a healthy, vibrant country. No enterprise operates in a vacuum.”2
Investor recognition of CSR in the marketplace
The recent progress of the socially responsible investment (SRI) movement at the domestic and international levels provides evidence that the marketplace is developing both social and environmental criteria and related information to supplement the traditional financial criteria used to make investment decisions. Market indexes and professional firms now provide information to mutual funds, private equity funds, venture capital funds, commercial banks and other financial market investors about a wide range of corporate characteristics, including governance, human resource management, health and safety, environmental protection and community development. Some examples of SRI indexes are the Dow Jones Sustainability index, FTSE4 GOOD 100 Index, Jantzi Social Index Canada, Innovest, Calvert CALVIN Social Index and KLD Domini 400 Index. The indexes, mutual funds and banks involved in SRI state how they define corporate responsibility and sustainability. Initially, SRI was about screening out potentially undesirable sectors (e.g. tobacco, gambling) but more recently SRI has moved to using positive criteria related to leadership approaches, planning processes and management practices in areas such as corporate governance and environment. There are many approaches to presenting the information.
Potential benefits of implementing a CSR approach
Key potential benefits for firms implementing CSR include:
- Better anticipation and management of an ever-expanding spectrum of risk. Effectively managing social, environmental, legal, economic and other risks in an increasingly complex market environment, with greater oversight and stakeholder scrutiny of corporate activities, can improve the security of supply and overall market stability. Considering the interests of parties concerned about a firm's impact is one way of anticipating and managing risk.
- Improved reputation management. Organizations that perform well with regard to CSR can build reputation, while those that perform poorly can damage brand and company value when exposed. This is particularly important for organizations with high-value retail brands, which are often the focus of media, activist and consumer pressure. Reputation, or brand equity, is founded on values such as trust, credibility, reliability, quality and consistency. Even for companies that do not have direct retail exposure through brands, their reputation as a supply chain partner -- both good and bad -- for addressing CSR issues can make the difference between a business opportunity positively realized and an uphill climb to respectability.
- Enhanced ability to recruit, develop and retain staff. This can be the direct result of pride in the company's products and practices, or of introducing improved human resources practices, such as “family-friendly” policies. It can also be the indirect result of programs and activities that improve employee morale and loyalty. Employees become champions of a company for which they are proud to work.
- Improved competitiveness and market positioning. This can result from organizational, process and product differentiation and innovation. Good CSR practices can also lead to better access to new markets. For example, a firm may become certified to environmental and social standards so it can become a supplier to particular retailers.
- Enhanced operational efficiencies and cost savings. These flow in particular from improved efficiencies identified through a systematic approach to management that includes continuous improvement. For example, assessing the environmental and energy aspects of an operation can reveal opportunities for turning waste streams into revenue streams (wood chips into particle board, for example) and for system-wide reductions in energy use.
Socially responsible investing in Canada showing significant growth
A report released in April 2005 by the Social Investment Organization (SIO) (available at Social Investment Organization) (pdf file size 1.57mb) estimates that socially responsible investment in Canada has grown to $65.5 billion, a 27 percent increase in the last two years. The report shows that there has been solid growth across most categories of socially responsible investment, including asset management, retail investment funds, community investment, shareholder advocacy and socially responsible lending. "The market for socially responsible investment shows great potential," states the report, based on a survey of assets conducted by the SIO every two years. "It's clear that there is much room for growth in this market both for mainstream and non-mainstream players, and for the introduction of new products and services."
- Improved ability to attract and build effective and efficient supply chain relationships. Like-minded companies can form profitable long-term business relationships. Larger firms can stimulate smaller firms with whom they do business to implement a CSR approach. For example, some large automakers insist their suppliers be certified to environmental management systems standards. Similarly, some large apparel retailers require their suppliers to comply with worker codes and standards.
- Enhanced ability to address change. A company with its “ear to the ground” through regular stakeholder dialogue is in a better position to anticipate and respond to regulatory, economic, social and environmental changes that may occur.
- More robust “social licence” to operate in the community. Improved citizen and stakeholder understanding of the firm and its objectives and activities translates into improved stakeholder relations. This, in turn, may evolve into more robust and enduring public, private and civil society alliances (all of which relate closely to CSR reputation, as discussed above).
- Access to capital. Financial institutions are increasingly incorporating social and environmental criteria into their assessment of projects. When making decisions about where to place their money, investors are looking for indicators of effective CSR management.
- Improved relations with regulators. In a number of jurisdictions, governments have expedited approval processes for firms that have undertaken social and environmental activities beyond those required by regulation.
As these points suggest, businesses are beginning to recognize that their corporate reputation is closely connected to how well they consider the effects of their activities on those with whom they interact. As a result, reputation is an invaluable, albeit largely intangible, corporate asset that must be managed as carefully as any other.
Firms typically put a CSR approach in place for more than just economic reasons. In many cases, it is also due to moral principles, belief that it is the right thing to do and concern for the welfare of present and future generations that spur a firm to consider its responsibilities.
Finally, it is also important to acknowledge that while positive or neutral correlations between social and environmental responsibility and superior financial performance have generally been supported by the evidence, conclusive causal links have not. Many studies are being undertaken, with varying conclusions.3 Suffice it to say that research is continuing on this issue.
Canada Pension Plan Investment Board's Policy on Responsible Investing
In October 2005, the Canada Pension Plan (CPP) Investment Board announced its new Policy on Responsible Investing. The policy includes the commitment to build an engagement capability and to use its influence as a shareholder in more than 1800 companies to encourage improved performance on and disclosure of environmental, social and governance factors. The CPP reserve fund exceeds $90 billion. The CPP Investment Board is accountable to the 16 million Canadians who contribute to or benefit from the CPP. For further information, go to CPP website
Study shows benefits of CSR Based on a two-year study, the World Business Council for Sustainable Development has drawn several conclusions about the benefits of CSR to companies.
- A coherent CSR strategy, based on integrity, sound values and a long-term approach, offers clear business benefits to companies and helps a firm make a positive contribution to society.
- A CSR strategy provides businesses with the opportunity to show their human face.
- Such a strategy requires engagement in open dialogue and constructive partnerships with governments at various levels, intergovernmental organizations, non-governmental organizations, other elements of civil society and, in particular, local communities.
- When implementing a CSR strategy, companies should recognize and respect local and cultural differences, while maintaining high and consistent global standards and policies.
- Being responsive to local differences means taking specific initiatives.
Working with Aboriginal peoples
In view of the special role Aboriginal peoples, culture, rights and treaties play in Canadian society, it is important to highlight the potential and actual connections between CSR and work with Aboriginal peoples.
CSR is based on the fundamental notion of social and cultural respect for those with whom a firm interacts. Increasingly, Canadian firms are recognizing the value of working with Aboriginal peoples, communities and businesses to develop business approaches that benefit all concerned. There are opportunities for such collaborations in both urban and rural settings.
In the fall of 2004, IBM Canada announced a program to enhance Aboriginal economic opportunities and do more business in Aboriginal communities and with Aboriginal-owned businesses. The company is partnering with the Manitoba government to address barriers to Aboriginal participation in the economy and is planning to launch the Aboriginal People in Technology hiring program. The company is also developing partnerships with several Aboriginal-owned companies.
Syncrude is now one of the largest industrial employers of Aboriginal people in Canada: more than 13 percent of Syncrude's employee-contractor workforce is Aboriginal. In 2000, the value of Syncrude's business contracts with Aboriginal-owned or -controlled firms was $72 million. Syncrude also has Aboriginal educational, environmental and cultural programs in place.
Placer Dome and Kinross Gold Corporation and six First Nations communities in northern Ontario have negotiated and renewed an impact benefit agreement related to the Musselwhite Mine. The agreement includes provisions on revenue sharing, employment and training, supply contracts and involvement of the affected communities in environmental protection and monitoring.
Husky Injection Molding Systems Ltd. worked with the Moose Deer Point First Nation to construct a world-class injection molding facility on the reserve, which the community now fully owns and operates.
A number of Canadian organizations have developed sustainable forestry management standards, such as the Canadian Standards Association's Sustainable Forestry Management Standard and the Forest Stewardship Council's sustainable forestry standards. These standards emphasize the distinctive and significant role that Aboriginal peoples and communities should play in Canadian forestry cultivation.
The Conference Board of Canada and others have noted that non-Aboriginal businesses have a strong interest in economic collaboration with their Aboriginal counterparts. Over the past 20 years, numerous and substantive relations between these groups have developed, emerging due to the strong economic, social and legal motivations for all involved. For more information visit Conference Board's website.
This trend of collaboration is further supported by Canadian Business for Social Responsibility's soon-to-be released guide to leadership practices, based on the Building Sustainable Relationships: Aboriginal Engagement and Sustainability Conference in February 2005. The mutually beneficial and innovative practices profiled at this conference reflect the value of collaboration between Aboriginal and non-Aboriginal partners, building economic, cultural, social and environmental sustainability for companies and communities. For more information, go to Canadian Business for Social Responsibility's website.
Are firms benefiting from CSR activities?
A number of Canadian firms are beginning to benefit from their CSR activities. Here are some examples.
- Husky Injection Molding Systems Ltd. expended considerable energy developing and implementing its Purpose and Core Values initiative, which emphasizes people, the environment, the community and ethics. The company reports that this approach has led to governments issuing various permits faster than previously. The firm also reports that a $4.2 million investment in environmental and health and safety programs resulted in estimated savings of $9 million, including fewer injuries and lower absenteeism among employees.
- After studying Falconbridge's sustainability and operations track record and being impressed by it, Société minière du Sud Pacifique approached the firm to develop a ferronickel plant in New Caledonia, an environmentally sensitive tropical island. The plant is now up and running.
- Montréal-born eco-designer Joanna Notkin discovered that most cotton and wool products are finished with chemical processes and that cotton crops use more than 25 percent of the world's pesticides, which often seep into the water table. Notkin established the home furnishings company LoooLo in an effort to minimize the environmental impacts of the textile industry, one of the world's worst industrial polluters. LoooLo products are now receiving considerable media attention because they use specially sourced, organically grown or chemical-free, and compostable materials.
CSR financial indicators
Corporate Knights is a Canadian publishing company devoted to making business more responsible through various CSR transparency and accountability measures. With support from the federal government, the organization assembled a multi-stakeholder team that has developed a set of industry-specific and industry-wide CSR financial indicators. For more information, go to Corporate Knights website.
- The Responsible Care initiative of the Canadian Chemical Producers' Association comprises a comprehensive set of principles and codes and an associated verification and public reporting process. It sparked similar initiatives in more than 40 other countries. The Association's website notes a number of examples of successful community outreach programs, in which chemical plant operations were improved following public consultation.
- British Columbia-based Vancity Savings Credit Union has developed a number of innovative financial products and services, stemming from its Statement of Values and Commitments and the stakeholder engagement associated with it. These products include a values-based credit card (EnviroFund VISA), self-reliance business loans that do not require collateral, a socially responsible mutual fund, and a number of products that allow members to choose investments that reflect their values.
- In 2001, the forestry company Tembec committed to having its nearly 13 million hectares of forestry lands certified by the Forest Stewardship Council by 2005. In 2002 and 2003, Tembec made agreements with a number of environmental groups to conserve certain environmentally significant areas. Tembec officials have remarked that this action has led to increased market security and more tangible results: in late 2003, Tembec signed an agreement that more of the lumber it supplies to Home Depot will come from its certified forestry operations. In March 2004, Tembec was ranked the number one forestry company in Canada, according to Report on Business Magazine's CSR rankings.
- Suncor Energy Inc. has gone to considerable lengths to put effective sustainability practices in place and to work with local communities. The company is reaping rewards in the form of increased community acceptance of its plans for expansion.
- New Society Publishers is devoted to building an ecologically sustainable and just society. In 2001, the company made a public commitment to publish all of its new titles on 100 percent post-consumer recycled paper. As a result of this initiative, the firm made significant contacts throughout the environmental movement, was named B.C. publisher of the year in 2003 and received the Ethics in Action award.
- According to oil and gas firm Nexen Inc., its global reputation as a fair and ethical company is a key competitive advantage: the trust it has earned helps it attract and retain talented employees. "We're welcome in the communities where we operate because we involve local people in decisions that affect them and develop mutually beneficial relationships."4
- RBC Financial Group has been included in the Dow Jones Sustainability World Index of financial, social and environmental leaders. The index recognizes more than 300 companies from 22 countries as being among the top 10 percent of firms in their industry in terms of corporate sustainability. The rankings are based on an assessment of environmental, social and economic performance.
What is the relationship between CSR and the law?
There is a close relationship between CSR and the law. The main instrument governments use to address a firm's social, environmental and economic impacts is the law. For example, in Canada there is a wide range of laws at the federal, provincial, territorial and local levels of government pertaining to consumers, workers, health and safety, human rights and environmental protection, bribery and corruption, corporate governance and taxation. A firm's corporate social responsibility approach should ensure compliance with the social, environmental and economic laws already in place. The CSR activities of firms can be seen as a proactive method of addressing potentially problematic conduct before it attracts legal attention.
SustainAbility's view on the changing landscape of liability
"The issue of past, current and potential liabilities has exercised boards of large companies for decades. This report makes the case that the landscape of liability -- and therefore the risks for companies and to shareholder value -- is changing and changing rapidly. It explores the evidence, maps the changes and attempts to guide business with the help of studies to navigate new and uncharted territory. The studies examine and draw conclusions in relation to climate change, human rights, obesity and legacy issues."
- Performance reporting and the law. There are a number of federal laws in place requiring firms in particular sectors to publicly disclose certain of their practices and activities. For example, banks and federally incorporated trust and insurance firms with more than $1 billion in equity are now required by federal law to produce annual public accountability statements outlining their contributions to the Canadian economy and society. The Canadian Environmental Protection Act, 1999, requires businesses to disclose their use of certain toxic substances through the National Pollutant Release Inventory. The federal Competition Act prohibits false or misleading business practices. It should also be noted that due to increased scrutiny from the investment community, companies are now under more legal pressure to disclose activities and issues that may have a material impact on the companies and their investors' decision making. (See, for example, the Canadian Institute of Chartered Accountants' management discussion and analysis document, which addresses many of these issues; .)
- Corporate governance and disclosure. In June 2005, new corporate governance guidelines passed by the Canadian Securities Administrators came into force. The guidelines cover the following topics: board independence, the role of the board and management, board assessment, director selection, senior officer compensation, written codes of business conduct and ethics to promote integrity and deter wrongdoing, and board responsibility for monitoring compliance with the codes. These codes are to address legal compliance and reporting of illegal or unethical behaviour. In this sense, social and environmental issues are integral components of the new corporate governance agenda. Firms issuing securities are required to publicly disclose their corporate governance practices. When a firm adopts an approach to corporate governance that varies from the guidelines, it is required to describe how that approach still meets the guidelines' objectives.
- Bribery. Corporate social responsibility also stresses that firms should adopt responsible practices wherever they operate. In 1999, as a follow-up to the Organisation for Economic Co-operation and Development's 1997 Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, the Government of Canada passed the Corruption of Foreign Public Officials Act, making it illegal for Canadian businesses and individuals to bribe foreign officials to obtain or retain business.
- Other jurisdictions. In the United Kingdom, legislation now requires pension fund trustees to publish a comment in their investment statements on the extent to which their investment policies address social, ethical and environmental issues. In France and other European countries, laws require companies to report on their social and environmental performance. In the United States, a number of firms have been sued under the Alien Tort Claims Act (e.g. Doe v. Unocal), which raises the possibility that corporate liability could be established through transnational civil litigation. The United States has also significantly revised its corporate governance legislation in recent years, in particular, passing the Sarbanes-Oxley Act in 2002. The net effect of this legislation has been to increase the obligations on executives to certify and report on a public corporation's activities. At the United Nations, a Special Representative on Business and Human Rights to the Secretary-General was appointed in July 2005. The Special Representative is expected to identify standards of corporate responsibility and accountability, enhance understanding and recognition of these standards, and issue recommendations on future United Nations work pertaining to business and human rights issues.
- Motorola, Corporate Citizen Report, 2004.
- Imagine Canada, Public Policy Forum and The Conference Board of Canada, Towards a new partnership for community building: A report from the Private/Voluntary Sector Forum, April 2004.
- See, for example, Orlitzky, M., Schmidt, F. and Rynes, S., “Corporate social and financial performance: A meta-analysis,” Organizational Studies 24, 2003, pp. 403-441, a review of 52 studies over the past 30 years. See also Ganzi, J.T., Steedmand, E., Quenneville, S., Linking Environmental Performance to Business Value: A North American Perspective, Commission for Environmental Cooperation, 2004.
- See www.nexeninc.com/
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