What Is Corporate Social Responsibility?
Definition and Examples of Corporate Social Responsibility
Corporate social responsibility, or CSR, is the act of incorporating environmental and social concerns into a company’s planning and operations. These programs center around the idea that businesses can make the world a better place, or at the very least, they can reduce their negative social and environmental footprint on the world.
Here's what you should know about CSR programs, and how they can benefit both businesses and their shareholders.
What Is Corporate Social Responsibility?
Corporate social responsibility can refer to any effort to improve a company's environmental and social impact. Companies can deploy CSR efforts in a piecemeal way, or as part of a broader program. Increasingly, companies are creating comprehensive CSR programs that engage every business unit and have dedicated staff and resources.
CSR programs vary in scope, but a few common initiatives include:
- Direct giving to non-profit groups, such as a local food bank, often in conjunction with volunteer efforts by employees and donations from the company
- Job training programs for the disabled, or other disenfranchised groups
- Commitments to ensure diversity in the workforce across race, gender, and sexual orientation
- A focus on reducing the company’s environmental footprint through more efficient supply chains, recycling, reduced energy use, and other efforts
Another common manifestation of CSR plays out after natural disasters. For example, in 2017, Walmart and its foundation committed up to $20 million toward relief efforts related to Hurricane Harvey in Texas. In 2018, Home Depot said it would commit $3 million for disaster relief efforts in communities impacted by Hurricanes Florence and Olivia, the California wildfires, and flooding in the Midwest.
CSR programs can begin as a result of pressure from community members who want companies to be good neighbors. However, research from Harvard Business School shows that once in place, these programs often receive broad support from within the company. CSR programs may start as the result of external pressure, but internal pressure often contributes to the continuation of these programs.
One report found that 86% of S&P 500 companies published reports outlining their efforts related to corporate social responsibility and sustainability in 2018. This number increased from 72% in 2013 and less than 20% in 2011.
- Acronym: CSR
How Corporate Social Responsibility Works
One could argue that CSR programs should exist for their own sake, but the durability and support of these programs can improve if companies see direct benefits. There’s evidence that companies with robust CSR programs benefit from better public relations, happier customers, and improved company profits that will satisfy stakeholders.
In some cases, the positive financial impact 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 and found that they can have a strong positive impact on market value and overall brand reputation, while also reducing risk for the company. The report's findings included the potential of CSR programs to:
- Increase market value by up to 6%
- Reduce systemic risk by up to 4%
- Reduce the cost of debt by 40% or more
- Increase price premium by up to 20%
- Reduce staff turnover rate by up to 50%
CSR vs. ESG
CSR is similar to another concept known as environmental, social, and corporate governance (ESG) principals. The primary difference is that CSR is an internal function, while ESG is an external one.
CSR programs are internally proposed and executed. It's up to those within the company to measure the success of these programs, decide which ones to continue, and rework the ones that aren't achieving the desired results. ESG, on the other hand, is a measurement that analysts can use to objectively compare the effectiveness of different corporate efforts to address environmental, social, and corporate governance issues.
|CSR vs. ESG|
|Success of programs internally measured||Success of programs externally measured|
|Used by businesses to improve their impact on society||Used by investment groups to guide investment decisions|
Many investment groups evaluate companies based on their commitment to environmental, social, and governance (ESG) criteria. Institutional investors and mutual fund companies may outline how ESG principles are integrated into their investment philosophy (often with positive results) in their annual reports.
The framework for the ESG reporting stems from the Global Reporting Initiative, an independent standards organization that has sought to standardize corporate sustainability reporting since the late '90s. In 2006, the United Nations launched the Principles for Responsible Investment, a voluntary program that institutional investors can use to incorporate ESG values into their decision-making process.
More than 3,000 investors and investor groups have signed onto the Principles for Responsible Investment, promising 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. These investors can buy into mutual funds and exchange-traded funds (ETFs) that are grouped according to their commitment to sustainability and corporate social responsibility. Examples of this include the iShares MSCI KLD 400 Social ETF (DSI) and the SPDR SSGA Gender Diversity Index Fund (SHE).
- A company practices corporate social responsibility (CSR) when it seeks to improve its environmental and societal impact.
- Even for those unconcerned with environmental or social issues, there is ample evidence that a commitment to CSR can have a positive effect on a company’s finances.
- CSR is similar to ESG, which is a process by which investors make decisions based in part upon CSR programs and a company's societal impact.