The topic of Corporate Social Responsibility (CSR) has gradually become popular, especially in recent years. CSR is a wide concept that can have various meanings across the different industries and corporates. In general terms, it assists businesses and employees in securing a strong intra-corporation bond but also in making valuable connections with society and the environment where they operate.
The roots of CSR
The Committee for Economic Development declared the “social contract” between businesses and society in the USA during the 70s. It was based on the idea that businesses function due to public consent, thus they have an obligation to society to serve its needs and constructs. Today this consent is known as thelicense to operate and it serves more environmental and societal purposes than mere profit. One of the very early adopters of CSR was Johnson & Johnson. Today, there are more and more brands even of small scale that adopt and report their CSR efforts especially due to environmental concerns and sustainable demands from consumers (especially Gen Z and millennials).
CSR is a business management concept that binds companies to adapt and integrate social and environmental concerns in their business strategy and operations. It is also important for CSR to be applied in company’s interactions with stakeholders (investors, governmental agencies, suppliers etc.) since they directly or indirectly affect corporational goals and objectives. CSR is a company’s continuous commitment to behave ethically and contribute to economic growth by considering and improving the quality of life of employees and communities. In general terms, CSR is considered a strategy that achieves societal, economic and environmental balance. By assuming social responsibility, companies position themselves as good partners in society and thus create the conditions for long-term success.
There are two main CSR practices that companies follow:
Improvements on operational effectiveness: Companies work with existing business models to deliver social and environmental benefits, supporting operations across the value chain. In these practices they may increase revenue, decrease costs or both. Sustainability initiatives that reduce use of resources, waste or emissions are some examples. It enhances productivity, retention and company reputation.
Transformation business models: Companies create new business strategies especially for the purposes of social and environmental challenges.
Nowadays, companies are not only expected to announce their CSR practices to the public but also to provide proof that they live up to it. This is important since many brands state their CSR practices, however when they fall under governmental and social testing they fail to prove their operational license upon those practices. This can be very harmful for a company’s brand equity and brand image as consumers become ever more aware and informed about sustainable practices in the market. Especially, millennials prefer more ethical purchases and proof from companies about their CSR strategies. According to research, around 65% of millennials prefer buying from brands that clearly advocate their sustainability efforts.
In Germany, from 2017, market-oriented and financial companies of big scale are obliged to report on the ecological and social effects of their activities. The reason behind this is that risks across the supply chain must also be recorded as part of the overall reporting.
CSR and Sustainability: why is it so important?
As it was said already, consumer values and demands have changed over the last years due to environmental and ethical considerations. This means that, from a business side, companies need to project a more empowered sustainable image to protect their public image and have a competitive advantage. From a societal and environmental aspect, CSR builds more ethical supply chains, from more ecological raw materials to fair trade and employees’ rights. It aims at decreasing waste, establishing energy-saved measurements, developing ‘greener’ products or optimizing their life cycles. It creates responsibility over the use of sources with constant reports and measurements and obliges companies to work with environmentally-conscious suppliers and distributors. Of course, first of all the practices differ from company to company, according to their targets and business models and secondly the problem ofgreenwashing is still rather evident.