Week 2

INTRODUCTION TO CSR

What Is Corporate Social Responsibility (CSR)?

Corporate social responsibility (CSR) is a self-regulating business model that helps a company
be socially accountable to itself, its stakeholders, and the public. By practicing corporate social
responsibility, also called corporate citizenship, companies can be conscious of the kind of
impact they are having on all aspects of society, including economic, social, and environmental.

Engaging in CSR means that, in the ordinary course of business, a company is operating in
ways that enhance society and the environment instead of contributing negatively to them.

Corporate social responsibility is a broad concept that can take many forms depending on the
company and industry. Through CSR programs, philanthropy, and volunteer efforts, businesses
can benefit society while boosting their brands.

For a company to be socially responsible, it first needs to be accountable to itself and its
shareholders. Companies that adopt CSR programs have often grown their business to the point
where they can give back to society. Thus, CSR is typically a strategy that's implemented by
large corporations. After all, the more visible and successful a corporation is, the more
responsibility it has to set standards of ethical behavior for its peers, competition, and industry.

Types of Corporate Social Responsibility

In general, there are four main types of corporate social responsibility. A company may choose
to engage in any of these separately, and lack of involvement in one area does not necessarily
exclude a company from being socially responsible.

1. Environmental Responsibility

Environmental responsibility is the pillar of corporate social responsibility rooted in preserving

mother nature. Through optimal operations and support of related causes, a company can ensure
that it leaves natural resources better than before its operations. A company can pursue
environmental stewardship through:

 Reducing pollution, waste, natural resource consumption, and emissions through its
manufacturing process.
 Recycling goods and materials throughout its processes, including promoting re-use
practices with its customers.
 Offsetting negative impacts by replenishing natural resources or supporting causes that
can help neutralize the company's impact. For example, a manufacturer that deforests
trees may commit to planting the same amount or more.
 Distributing goods consciously by choosing methods that have the least impact on
emissions and pollution.
 Creating product lines that enhance these values. For example, a company that offers a
gas lawnmower may design an electric lawnmower.

2. Ethical Responsibility

Ethical responsibility is the pillar of corporate social responsibility rooted in acting in a fair,
ethical manner. Companies often set their own standards, although external forces or demands
by clients may shape ethical goals. Instances of ethical responsibility include:

 Fair treatment across all types of customers regardless of age, race, culture, or sexual
orientation.
 Positive treatment of all employees including favorable pay and benefits in excess of
mandated minimums. This includes fair employment consideration for all individuals
regardless of personal differences.
 Expansion of vendor use to utilize different suppliers of different races, genders, veteran
statuses, or economic statuses.
 Honest disclosure of operating concerns to investors in a timely and respectful manner.
Though not always mandated, a company may choose to manage its relationship with
external stakeholders beyond what is legally required.

3. Philanthropic Responsibility
Philanthropic responsibility is the pillar of corporate social responsibility that challenges how a
company acts and how it contributes to society. In its simplest form, philanthropic responsibility
refers to how a company spends its resources to make the world a better place. This includes:

 Whether a company donates profit to charities or causes it believes in.

 Whether a company enters into transactions only with suppliers or vendors that align
with the company philanthropically.
 Whether a company supports employee philanthropic endeavors through time off or
matching contributions.
 Whether a company sponsors fundraising events or has a presence in the community.

4. Financial Responsibility

Financial responsibility is the pillar of corporate social responsibility that ties together the three
areas above. A company might make plans to be more environmentally, ethically, and
philanthropically focused; however, it must back these plans through financial investments of
programs, donations, or product research. This includes spending on:

 Research and development for new products that encourage sustainability.

 Recruiting different types of talent to ensure a diverse workforce.
 Initiatives that train employees on DEI, social awareness, or environmental concerns.
 Processes that might be more expensive but yield greater CSR results.
 Ensuring transparent and timely financial reporting including external audits.

Benefits of Corporate Social Responsibility

As important as CSR is for the community, it is equally valuable for a company. CSR activities
can help forge a stronger bond between employees and corporations, boost morale, and aid both
employees and employers in feeling more connected to the world around them. Aside from the
positive impacts to the planet, here are some additional reasons businesses pursue corporate
social responsibility.
Brand Recognition

According to a study published in the Journal of Consumer Psychology, consumers are more
likely to act favorably toward a company that has acted to benefit its customers as opposed to
companies that have demonstrated an ability to deliver quality products. Customers are
increasingly becoming more aware of the impacts companies can have on their community, and
many now base purchasing decisions on the CSR aspect of a business. As a company engages
more in CSR, it is more likely to receive favorable brand recognition.

Investor Relations

In a study by Boston Consulting Group, companies that are considered leaders in

environmental, social, or governance matters had an 11% valuation premium over their
competitors. For companies looking to get an edge and outperform the market, enacting CSR
strategies tends to improve how investors feel about an organization and how they view the
worth of the company.

Employee Engagement

Another study by professionals from Texas A&M, Temple, and the University of Minnesota
found that CSR-related aligning firms and employees serve as non-financial job benefits that
strengthen employee retention.

Workers are more likely to stick around a company that they believe in. This in turn reduces
employee turnover, disgruntled workers, and the total cost of a new employee.

Risk Mitigation

By adhering to CSR practices, companies can mitigate risk by avoiding troubling situations.
This includes preventing adverse activities such as discrimination against employee groups,
disregard for natural resources, or unethical use of company funds. This type of activity is likely
to lead to lawsuits, litigation, or legal proceedings that may harm the company financially or
expose it to negative news headlines.

CSR strategies may be difficult to assess strategically because not all benefits may be
financially translatable back to the company. For example, it might be very difficult to assess
the positive impact to a company's brand image that planting 1 million trees may have.

ISO 26000

In 2010, the International Organization for Standardization (ISO) released ISO 26000, a set of
voluntary standards meant to help companies implement corporate social responsibility. Unlike
other ISO standards, ISO 26000 provides guidance rather than requirements because the nature
of CSR is more qualitative than quantitative, and its standards cannot be certified.

ISO 26000 clarifies what social responsibility is and helps organizations translate CSR
principles into practical actions. The standard is aimed at all types of organizations, regardless
of their activity, size, or location. And because many key stakeholders from around the world
contributed to developing ISO 26000, this standard represents an international consensus.

Examples of Corporate Social Responsibility

Starbucks

Starbucks (SBUX) has long been known for its keen sense of corporate social responsibility and
commitment to sustainability and community welfare. In its 2022 Environmental and Social
Impact Report, the coffee giant highlights taking care of its workforce and the planet among its
CSR priorities. Starbucks points to its investments in its employees through stock grants and
providing additional medical, family, and educational benefits. In terms of environmental
sustainability, the company's goals include achieving 50% reductions in greenhouse gas
emission, water consumption, and waste by 2030.

Home Depot
As part of its annual reporting on ESG, Home Depot (HD) highlighted its achievements in
focusing on its employees, operating sustainably, and strengthening its communities. The
company has invested more than 1 million hours per year in training to help front-line
employees advance in their careers, aims to produce or procure 100% renewable energy to
operate its facilities by 2030, and has plans to spend $5 billion per year with diverse suppliers
by 2025.

General Motors

General Motors won the Sustainability Leadership Award from Business Intelligence Group in
2022 and was among Diversity Inc.'s top 50 companies for diversity for a seventh consecutive
year in 2021. According to its latest Sustainability Report, the automaker provided $60 million
in grants to more than 400 U.S. nonprofits focusing on social issues, and it has agreements in
place to use 100% renewable electricity at its U.S. sites by 2025.

Why Should a Company Implement CSR Strategies?

Many companies view CSR as an integral part of their brand image, believing that customers
will be more likely to do business with brands that they perceive to be more ethical. In this
sense, CSR activities can be an important component of corporate public relations. At the same
time, some company founders are also motivated to engage in CSR due to their convictions.

Why Is CSR Important?

The movement toward CSR has had an impact in several domains. For example, many
companies have taken steps to improve the environmental sustainability of their operations,
through measures such as installing renewable energy sources or purchasing carbon offsets. In
managing supply chains, efforts have also been taken to eliminate reliance on unethical labor
practices, such as child labor and slavery.
Although CSR programs have generally been most common among large corporations, small
businesses also participate in CSR through smaller-scale programs, such as donating to local
charities and sponsoring local events.

What Are the Benefits of CSR?

CRS initiatives strive to have a positive impact on the world through direct benefits to society,
nature and the community in which a business operations. In addition, a company may
experience internal benefits through the initiatives. Knowing their company is promoting good
causes, employee satisfaction may increase and retention of staff may be strengthened. In
addition, members of society may be more likely to choose to transact with companies that are
attempting to make a more conscious positive impact beyond the scope of its business.

What Are the 4 Types of CSR?

CSR initiatives are often broken down into four categories: environmental, philanthropic,
ethical, and economic responsibility. Environmental initiatives focus on preservation of natural
resources, while philanthropic initiatives focus on donating to worthy causes that may not relate
to a business. Ethical responsibility ensures fair and honest business operations, while economic
responsibility promotes the fiscal support of the goals above.

What Companies Have the Best CSR?

There is no single defining rubric for evaluating the CSR of all companies. Various sources will
review and compile rankings differently. Since 1999, Corporate Responsibility Magazine has
ranked the top 100 Best Corporate Citizens each year among the 1,000 largest U.S. public
companies. Rankings are determined based on employee relations, environment impact, human
rights, governance, and financial decisions. In 2022, the top five ranked companies on the list
were Owens Corning (OC), PepsiCo (PEP), Apple (AAPL), H.P. (HPQ), and Cisco (CSCO).
The Bottom Line

Companies striving to measure success beyond bottom-line financial results may adopt
corporate social responsibility strategies. These strategies may target environmental, ethical,
philanthropic, and fiscal responsibility that extend beyond the products they sell. CSR aims to
make the world a better place beyond transacting with customers and may result in company-
specific benefits as well.

Carroll’s Pyramid :
Carroll’s CSR Pyramid. According to Carroll (1983:608), “corporate social responsibility
involves the conduct of a business so that it is economically profitable, law abiding, ethical and
socially supportive. To be socially responsible then means that profitability and obedience to the
law are foremost conditions when discussing the firm’s ethics and the extent to which it supports
the society in which it exists with contributions of money, time and talent”. And the different
layers in the pyramid help managers see the different types of obligations that society expects of
businesses.

 Economic responsibility in Carroll’s CSR Pyramid : It concerns the responsibility of

business of producing goods and services needed by society and selling them making a
profit. Novak (1996) has contributed to this are by defining seven responsibilities of
companies. Companies have shareholders who demand a reasonable return on their
investments, they have employees who want safe and fairly paid jobs, and they have
customers who demand good quality products at a fair price. So, here comes the first
responsibility of the business as it is to be a properly functioning economic unit and stay
in business. And this is the base of the pyramid, where all the other layers rest on.
 Legal responsibility in Carroll’s CSR Pyramid : the legal responsibility of corporations
demands that businesses abide by the law and play by the rules of the game. Should
companies choose to “bend” or even ignore their legal responsibilities the price can be
very high for the business. And US software giant Microsoft has faced a long running
anti-trust case in Europe for abusing its monopolistic position to disadvantage its
competitors which resulted in tough settlements against the company.
  Ethical Responsibility in Carroll’s CSR Pyramid : the main concept of ethical
responsibility as defined and expressed by Carroll (1991) is that the ethical responsibility
consists of what is generally expected by society over and above economic and legal
expectations. Ethical responsibilities of companies cover its wide range of
responsibilities. Ethical responsibilities are not necessarily imposed by law, but they are
expected from ethical companies by the public and governments And this case was seen
in the example of Shell, where the decision of the government was reversed for disposing
of oil platform after a campaign and disagreement by the society and public.
 Philanthropic responsibility in Carroll’s CSR Pyramid: as it is in the top of the pyramid,
it focuses on more luxurious things such as improving the quality of life of employees,
local communities and ultimately society in general. Some points of the philanthropic
responsibilities of the businesses can be controversial and requires separate studies aimed
to it. For example, who should decide on what cause to spend the money, how much, and
on what basis these decisions should be made.
 Among comparatively recent theories concerning firm’s social responsibility is “Theory
of the firm/strategic leadership theory” which was proposed by Waldman et al (2004).
The theory states that some aspects of CEO leadership can have a direct effect on the
inclination of firms to engage in CSR and companies which are run by intellectually
stimulating CEOs do engage more in strategic CSR than average companies.

References

 Waldman, D, Siegel, D & Javidan, M, 2004, “CEO Transformational Leadership and

Corporate Social Responsibility”, Working Paper, Rensselaer Polytechnic Institute