Corporate social responsibility, or "CSR," is the act of fusing environmental and social concerns with a company’s planning and operations. These programs are based on the idea that businesses can reduce their adverse social and environmental impacts on the world.
Here we'll discuss what you should know about CSR programs and how they benefit a business.
- Corporate social responsibility (CSR) involves actions taken when a company seeks to improve its environmental and societal impact.
- There is ample evidence that a commitment to CSR can positively affect a company’s finances.
- CSR is similar to ESG, a process by which investors make decisions based on CSR programs and a company's impact.
What Is Corporate Social Responsibility?
Corporate social responsibility can refer to any effort to improve a company's eco-friendliness and increase its social impact. Companies can deploy CSR efforts as a standalone program or as part of a broader campaign. More and more, companies are creating CSR programs that involve every part of their business and have dedicated staff members and resources for CSR.
CSR programs vary in scope, but a few features include:
- Giving to nonprofit groups, such as local food banks, by supplying volunteers or through monetary donations
- Offering job-training programs for those in need
- Pledging to ensure diversity in the workforce
- Focusing on shrinking the company’s carbon footprint through improved supply chain efficiency
Many large companies have shown their commitment to CSR in recent natural disasters. For example, in 2017, Walmart and its foundation gave close to $20 million toward relief efforts for Hurricane Harvey in Texas. In 2018, Home Depot committed $3 million for disaster relief efforts and donated to areas impacted by Hurricanes Florence and Olivia, the California wildfires, and floods in the Midwest.
Though CSR programs are often the result of pressure from within the community, research from Harvard Business School shows that, once instilled, these programs often receive broad support from within the company, too.
One report found that 86% of S&P 500 companies published reports charting their efforts related to CSR and sustainability in 2018. In 2013, that number was 72%; in 2011, it was less than 20%.
How Corporate Social Responsibility Works
There's little doubt that CSR programs should exist in every business. There’s evidence that shows that companies with robust CSR programs benefit from better public relations and have happier customers. This usually results in improved company profits, which in turn satisfies stakeholders.
In some cases, the positive financial impact of CSR is clear. For example, a shift toward renewable energy sources like solar panels at corporate campuses might result in lower electricity costs over time.
A report by Babson College reviewed hundreds of CSR program studies. The reviewers found that the programs can have a strong impact on a company's market value and brand and lower risk. The report's findings found that CSR programs have the power 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
- Raise price premium by up to 20%
- Reduce staff turnover rate by up to 50%
CSR vs. ESG
CSR is similar to environmental, social, and corporate governance (ESG) principles. The leading difference is that CSR is an internal function, while ESG is an external one.
With CSR programs, it's up to those inside the company to measure the success of their actions. They decide which programs to continue and rework those that aren't performing as well.
ESG, on the other hand, is a metric that outside analysts can use to compare the effect of different corporate efforts to address environmental and social issues.
|CSR vs. ESG|
|Success of programs measured from within||Success of programs measured from the outside|
|Used by a business to improve their impact on society||Used by investment groups to guide decisions|
Many investment groups gauge companies based on their pledge to integrate ESG criteria. Institutional investors and mutual fund companies may outline how ESG guidelines are incorporated into their philosophies in their annual reports.
The framework for ESG reporting stems from the Global Reporting Initiative (GRI), which is a private standards body that seeks to standardize corporate sustainability reporting. It has been working toward this goal since the late 1990s.
In 2006, the United Nations launched the Principles for Responsible Investment (PRI), a program that institutional investors can use to merge ESG values into their decision-making process.
More than 3,000 investors and groups have signed on to the PRI, pledging to stand by these six principles:
- We will incorporate ESG issues into investment analysis and decision-making processes.
- We will be active owners and incorporate ESG issues into our ownership policies and practices.
- We will seek appropriate disclosure on ESG issues by the entities in which we invest.
- We will promote acceptance and implementation of the Principles within the investment industry.
- We will work together to enhance our effectiveness in implementing the Principles.
- We will each report on our activities and progress toward implementing the Principles.
Individual investors may want their investments to reflect their values. They can buy into mutual funds and exchange traded funds (ETFs), grouped by 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).