corporate social responsibility (CSR)

What is corporate social responsibility (CSR)?

Corporate social responsibility (CSR) is a strategy undertaken by companies to not just grow profits, but also to take an active and positive social role in the world around them. The term is also associated with the related term corporate citizenship.

CSR is an approach that espouses the notion that a company can do good in the world and make a difference to improve social order. It's a topic that can engage the board of directors in an organization, as CSR reflects company culture and business practices. Social responsibility is a broad topic; it includes human aspects, such as having ethical labor practices both internally and as part of a larger supply chain.

CSR has also long been associated with the concepts of community engagement and philanthropy. Some of the earliest examples of CSR, according to the Association of Corporate Citizenship Professionals, date back to the early 1900s when industrialists first launched community foundations to help with various charitable causes.

In recent decades, CSR has become associated with sustainability and the environment as individuals, governments and nonprofit organizations increasingly blame corporations for not doing enough to help limit the risks of climate change and the corresponding environmental impacts. To that end, CSR is also often related to the concept of environmental, social and governance (ESG). There is, however, a difference between ESG and CSR. Where CSR is often seen as focusing on the big picture strategy, ESG has more detail on sustainability, environmental and ethical concerns from a measurable perspective.

CSR operates in a self-regulating approach, though there are some guidelines and standards that organizations can choose to comply with. Among the primary standards for CSR is ISO 26000, which was first released by the International Organization for Standardization (ISO) in 2010. ISO 26000 provides voluntary guidance to help an organization assess its strategy and progress in social responsibility initiatives.

What's driving the adoption of corporate social responsibility strategies?

Over the last century, there have been many trends and concerns that have helped drive the adoption of CSR strategies, including the following:

• Altruism. At the most basic level, it's about organizations and the people that own and manage them wanting to do good and help their communities and the larger world around them.
• Consumer demand. In the 20th century, consumers began to hold corporations accountable by asking them how they were being socially and environmentally responsible.
• Employee satisfaction. Attracting and retaining staff is a goal of any organization. Potential employees want to know that the companies they work for are socially responsible.
• Brand reputation. Being socially responsible -- or not -- can have direct effect on an organization's brand and how it's viewed in the market.
• Investors. There is a growing trend of investors wanting to only invest in organizations that have well defined CSR strategies.
• Regulatory compliance. Across industries, regulations are coming into play because of different ethical concerns, driving a need for CSR practices.

There are cases where organizations choose to have a CSR strategy simply because they realize it's the right thing to do. In other cases, companies have come to realize that CSR strategy adoption or lack thereof can impact an organization's ability to conduct business operations and be successful.

Different types of corporate social responsibility practices

CSR isn't a single uniform set of operations. Rather, there are a series of CSR practices that organizations can choose to work with across environmental, philanthropic and economic concerns.

Environmental responsibility

In the modern era where climate change is an inconvenient truth, it's important for organizations of all sizes and in every industry to embrace environmental responsibility. There are several different approaches to environmental CSR practices:

• Reduce, reuse, recycle. Environmental CSR practices that organizations can operationalize include taking steps to reduce waste that the company and its products generate. Promoting the use of recycling and supporting efforts that make it easier to reuse products is also important.
• Offsets. Organizations can choose to help restore environmental balance through the use of offsets, most commonly carbon offsets. The basic idea is that by doing something positive for the environment, such as planting trees, an organization can help offset the negative effect it has on the environment.
• Sustainable practices. CSR can include the development of sustainable operational practices that help minimize an organization's environmental impact.

Ethical responsibility

Acting in an ethical manner that is fair and responsible to employees, as well as the customers and communities that companies service, is a primary principle in CSR. There are many ethical responsibility initiatives that corporate management can consider, including these practices:

• Diversity, equity and inclusion. Promoting policies and programs that help encourage and support diversity, equity and inclusion is a core element of encouraging ethical responsibility.
• Fair treatment. Treating employees, users and communities fairly is a cornerstone of ethical best practices for CSR.

Philanthropic responsibility

The idea of giving back and being charitable is an important aspect of CSR. These are just a few of the many ways that organizations can demonstrate philanthropic responsibility:

• Donations. Giving money to charitable causes is one way to demonstrate social responsibility.
• Matching contributions. Providing matching contributions to help aid a specific cause and encouraging others to contribute is another activity with a positive impact.
• Community fundraising. Management teams can organize and lead community fundraising efforts and events.
• Volunteerism. Employees should feel encouraged and supported to volunteer in the community.

Economic responsibility

Although making money will always be a core goal for most companies, there are also economic practices behind CSR as well, including the following:

• Honest disclosure. Provide honest, timely and transparent disclosure about operating issues that affect an organization. That disclosure can be related to social practices or financial accounting.
• Policy development. Organizations must invest in efforts that yield CSR improvement, whether those are process-related or human resource investments.
• Training. Educating and training both staff and management can help further promote CSR.

Corporate social responsibility's potential business benefits

Being a good and responsible corporate citizen is a somewhat altruistic goal. CSR isn't solely about doing the "right things" that yield social benefits; it can also lead to positive business benefits, such as the following:

• Lower costs. Reducing waste and having optimized sustainable operations can help organizations lower costs and improve overall financial performance.
• Risk management. Engaging in CSR practices enables companies to better handle environmental and social risks that arise -- and avoid future legal compliance-related issues.
• Employee retention. CSR practices can aid businesses in attracting and retaining skilled employees who are dedicated to making a positive difference.
• Customer loyalty. Being a good corporate citizen can also help increase brand and customer loyalty over time, as consumers tend to gravitate toward organizations that have CSR practices that align with their own views.
• Addressable market gains. In different jurisdictions and markets around the world, there can be specific regulations for CSR initiatives. By having established policies, an organization can have a larger addressable market to go after.

Examples of corporate social responsibility initiatives in organizations

There are a century's worth of examples on how different organizations have enacted CSR initiatives. Here are a few:

• Better World Books. A Mishawaka, Ind.-based company that sells used books online, Better World Books bases its business strategy on "doing well by doing good" and says on its website that both social and environmental responsibility are "at the core of our business." For example, for each book purchased, it donates books to people in need and offers an annual grant program for literacy and educational nonprofits and libraries.
• Johnson & Johnson. Among the early and most basic examples is consumer goods manufacturer Johnson & Johnson, which integrated CSR into its corporate credo in 1943. The credo outlined the need to ensure that the needs of the community are put first. "Our Credo articulated the company's dedication to corporate social responsibility long before the term came into popular use," Johnson & Johnson stated in its Our Story website.
• Patagonia. The Ventura, Calif.-based outdoor apparel company has a CSR program that includes analyzing and managing the effect it has on the workers in its supply chain and the communities where externally run factories are located, with goals to both benefit them and minimize harm. That includes programs to support fair trade, living wage and responsible purchasing practices. Patagonia has said it also evaluates the social and environmental practices of factories "equally with quality standards and business requirements."
• Starbucks. In more recent years, coffee retailer Starbucks has also taken an aggressive stance with regard to CSR policies. The company has been publishing a Corporate Social Responsibility report for over two decades. The 69-page 2021 report, published in April 2022, provided extensive details on myriad CSR initiatives at Starbucks, including both people and environmental efforts.

Mistakes to avoid on corporate social responsibility efforts

Implementing CSR isn't without pitfalls. Here is a list of some common mistakes to avoid:

• Short-term planning. Unlike financial reporting where quarterly gains are prized, CSR isn't about short-term gains, but rather about long-term planning that can deliver sustainable changes over the long haul.
• Greenwashing. For environmental-related CSR efforts, it's advisable to avoid greenwashing, which is when organizations make efforts to appear sustainable, though in reality they aren't.
• Empty promises. CSR efforts must be backed up by real actions. Organizations that promise things they don't deliver on aren't particularly well regarded.
• Inconsistent reporting. A big mistake to avoid is a lack of consistent reporting. To be successful, organizations must be accountable for CSR policies. One way to do that is with clear, consistent and transparent reporting on CSR.
• Lack of engagement with stakeholders. For CSR to work, all stakeholders must have a say and they must buy into the effort. That includes both employees and investors.