In the current economic climate, it might seem somewhat irrelevant to be talking about corporate social responsibility or CSR. But, while corporate heads have been turned towards market turmoil, the resulting mangling of corporate governance and death of long standing companies, makes it a fitting time to re-visit the concept of CSR and its relevance to a profit making enterprise.
Firstly, the acronym. It’s all wrong. While businesses can be social enterprises, most are not. So let us rescue the concept and call it ‘common sense really’, ‘enlightened self interest’ or indeed, good old fashioned ‘corporate governance’. Let us also accept that a company that is financially successful over a long period is, by dint of this success, a company that is corporately responsible in relation to people and the environment. See Adam Smith for details.
It seems sensible to believe that commercial longevity is more likely to be achieved by those companies that innovate, that are sensitive to the needs of their employees, customers and suppliers, that manage and mitigate their impacts on the environment and whose systems are efficient and effective, that are not afraid of making hard decisions based on a long term view, that enjoy what they do and bring stakeholders along with them. There is also a strong reputational aspect to this and, particularly for public companies, there is a relationship to share price.
Having taken a stab at a definition, it’s worth mulling over the question of who drives the CSR agenda. Like all good concepts there is no simple answer. Orthodoxy says that CSR should be embedded within the values of the business and driven from the top. In reality there will be all manner of prods and pressure from customers, peers, regulators, investors, local communities, as well as the management team and, yes, even the CEO. Then we have the activists, non-governmental organisations and elements of the CSR industry. Here perhaps, and this is admittedly a cynical view, the agenda is less about accountability but more about an aversion to profit and the abhorrent pursuit thereof. Let’s whip the fat cats in their pinstripes and make them atone for their wicked ways!
Being a trendy concept, CSR also comes with its own mountain of written material, created by companies, academics, commentators or CSR professionals. Too much of this material can be inappropriate, boring, turgid and seemingly created to satisfy a generic audience that does not actually exist (hence no-one reads, listens or watches). This has a particular relevance in a world where communication channels are globalising and multiplying and ‘audiences’ are disaggregating. While the media and communications paradigm shifts, those wishing to say something about CSR need to work that much harder to make their information coherent, relevant and interesting, ensuring that it engages and is tailored for different channels and different recipients.
We have gone this far and not even mentioned carbon and climate change. Is the latter the same as CSR? Of course not, even given the strong focus on the carbon impacts of commercial enterprise. Briefly, abundant evidence exists that climate change will shape the business environment, which in turn will shape CSR. End of story.
So where does that leave us? CSR – it’s a piece of cake, or should it be POC, for an innovative, well run company with long term growth ambitions. Those of us for whom this simple goal is not as easy as falling off a log (or FoaL) also need a little bit of a steer. Above all, companies must not lose sight of the fact that they are there to create value for their shareholders, employees and customers, retaining a focus on profit, performance and governance.
While this is all well and good, how do investors best take a view on CSR when there is no official ‘standard’ against which companies can be measured. The Global Reporting Initiative is useful, but for many companies, even listed corporates, getting to grips with all of its tenets is a mammoth task. The resulting outputs can also offer a major interpretive challenge, even to fund managers. Third party tools and services are available, but again, they define their own criteria and assessment structures.
Clearly the level of due diligence will vary amongst investors and some will be more engaged with environmental, social and governance risks than others. At the same time, the investee companies, and this returns to a point already raised, could help themselves through better, clearer information provision in relation to CSR related issues. Put simply, investors need to be more engaged and clued up, while investees need to recognise the importance of ESG risks as both management and communications challenges.
In conclusion; when looking to a globally warmed future, the successful companies will innovate, take a long-term view, manage risk, pursue strong governance and effectively communicate. Those that do not will die. It’s common sense really.
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