- Corporate social responsibility, or CSR, is a form of self-regulation that reflects a business's accountability and commitment to contributing to the well-being of communities and society through various environmental and social measures.
- CSR plays a crucial role in a company's brand perception; attractiveness to customers, employees, and investors; talent retention; and overall business success.
- A company can implement four types of CSR efforts: environmental initiatives, charity work, ethical labor practices and volunteer projects.
- This article is for business owners who are looking to implement or improve CSR initiatives and want to learn more about the benefits, best practices, and potential pitfalls.
The definition of business success goes beyond profitability, growth rate and brand recognition. In today's world, customers, employees and other stakeholders judge a company by how its activity impacts the community, economy, environment and society at large. In other words, by whether it cares about the greater good and not only greater profit. Corporate social responsibility practices are a way to demonstrate your business's stance on the matter.
What is corporate social responsibility?
Corporate social responsibility is a type of business self-regulation with the aim of social accountability and making a positive impact on society. Some ways that a company can embrace CSR include being environmentally friendly and eco-conscious; promoting equality, diversity, and inclusion in the workplace; treating employees with respect; giving back to the community; and ensuring business decisions are ethical.
CSR evolved from the voluntary choices of individual companies to mandatory regulations at regional, national and international levels. However, many companies choose to go beyond the legal requirements and embed the idea of "doing good" into their business models.
There is no one way a company can embrace CSR, but one thing is certain – to be perceived as genuine, the company's practices need to be integrated into its culture and business operations. In today's socially conscious environment, employees and customers place a premium on working for and spending their money on businesses that prioritize CSR. They can detect corporate hypocrisy.
To ensure CSR authenticity, a company should look at its values, business mission and core issues and determine which initiatives best align with the business's goals and culture. The business can do this internally or hire a third party to conduct an assessment.
Reviewing the United Nations 17 Sustainable Development Goals is a good place to start. While goals like Good Health and Well-Being or Gender Equality can apply to most businesses, specific goals like Life Below Water or Affordable and Clean Energy may be relevant to select industries like water technology or energy providers.
Why CSR is important
There are many reasons for a company to embrace CSR practices.
1. It improves customers' perception of your brand.
It's increasingly important for companies to have a socially conscious image. Consumers, employees, and stakeholders prioritize CSR when choosing a brand or company, and they hold corporations accountable for effecting social change with their beliefs, practices, and profits.
"What the public thinks of your company is critical to its success," said Katie Schmidt, founder and lead designer of Passion Lilie. "By building a positive image that you believe in, you can make a name for your company as being socially conscious."
To stand out among the competition, your company needs to prove to the public that it is a force for good. Advocating and raising awareness for socially important causes is an excellent way for your business to stay top-of-mind and increase brand value.
The Kantar Purpose 2020 study demonstrated a direct correlation between perceived positive impact and brand value growth. Companies that the public considers highly impactful demonstrated a brand value growth of 175% over 12 years, while businesses with a low positive impact showed only 70% growth.
Schmidt also said that sustainable development could help a business financially. For example, using less packaging and less energy can reduce production costs.
2. It attracts and retains employees.
Consumers aren't the only ones drawn to businesses that give back. Susan Cooney, head of global diversity and inclusion at Symantec, said that sustainability strategy is a big factor in where today's top talent chooses to work.
"The next generation of employees is seeking out employers that are focused on the triple bottom line: people, planet and revenue," she said. "Coming out of the recession, corporate revenue has been getting stronger. Companies are encouraged to put that increased profit into programs that give back."
According to Deloitte's 2021 Millennial and Gen Z Survey, the modern workforce prioritizes culture, diversity, and high impact over financial benefits. An estimated 44% of millennials and 49% of Gen Zers rely on their personal ethics in determining the type of work and companies they'd join. The respondents of the Porter Novelli Purpose Tracker 2021 report go even further, with 70% saying they wouldn't work for a company without a strong purpose.
What's more, employees that share the company's values and can relate to its CSR initiatives are much more likely to stay. Deloitte's 2020 Global Marketing Trends Report shows that purpose-driven companies retain talent up to 40% more than their competitors. Considering that the estimated cost of losing an employee averages 40% of their annual salary, according to a report by the Washington Center for Equitable Growth, offering your team a sense of purpose and meaning in their work is worth the effort.
3. It increases your appeal to investors.
By demonstrating a developed CSR program and initiatives, your company is bound to become more appealing to both current and future investors. CECP's influential 2021 Giving in Numbers report shows that investors play a growing role as key stakeholders in corporate social responsibility. Almost 80% of surveyed businesses were open to providing them with data and considering their perspectives on sustainability. Just like customers, investors are holding businesses accountable when it comes to social responsibility.
At the same time, a company that takes CSR seriously signals to both investors and partners that it's interested in long-term as well as short-term gain. CSR goes hand in hand with environmental, social, and governance (ESG) metrics that help external analysts quantify the company's social efforts, and becomes a key factor for investors' consideration and continued interest.
4 types of corporate responsibility your business can practice
In recognition of how important socially responsible efforts are to their customers, employees and stakeholders, many companies focus on four broad CSR categories.
- Environmental efforts: One primary focus of CSR is the environment. Businesses have large carbon footprints, regardless of size. Any steps a company can take to reduce its footprint is considered good for both the company and society.
- Philanthropy: Businesses can practice social responsibility by donating money, products or services to social causes and nonprofits. Larger companies tend to have plentiful resources that can benefit charities and local community programs; however, even as a small business, your efforts can make a difference. If you have a specific charity or program in mind, reach out to the organization. Ask them about their specific needs and whether a donation of money, time or your company's products would best help them.
- Ethical labor practices: Companies can demonstrate CSR by treating employees fairly and ethically. This is especially true of businesses that operate in international locations with labor laws that differ from those in the U. S.
- Volunteering: Participating in local causes or volunteering your time (and your staff's time) to community events says a lot about your company's sincerity. When your company does good deeds without expecting anything in return, you express concern (and support) for specific issues and social causes.
Building a socially responsible business
While startups and small companies don't have the deep financial pockets that enterprises have, their efforts can have a significant impact, especially in their local communities.
"Even 5%, though it might not sound like a lot, can add up to make a difference," Schmidt said. "When thinking of ways to donate and give back, start local, and then move from there."
When identifying and launching a CSR initiative, involve your employees in the decision-making process. Create an internal team to spearhead the efforts and identify organizations or causes related to your business or that employees feel strongly about. You'll increase engagement and success when you contribute to something that matters to your employees. Involving your employees in the decision-making process can also bring clarity and assurance to your team.
"If decisions [about CSR] are made behind closed doors, people will wonder if there are strings attached and if the donations are really going where they say," Cooney said. "Engage your employees [and consumers] in giving back. Let them feel like they have a voice."
Whichever strategies you use for sustainable development, be vocal. Let your consumers know what you are doing to be socially conscious. [Related read: PayPal's Mission for Corporate Social Responsibility]
"Consumers deserve to share in the good feelings associated with doing the right thing, and many surveys have found that consumers are inclined to purchase a sustainable product over a conventional alternative," Cooney said. "Announcing these benefits is a win-win from both a commercial and sustainability perspective."
What to avoid when creating a socially responsible business model
Becoming a socially responsible business can be simple, but there are a few caveats.
1. Don't choose unrelated initiatives.
Avoid participating in charitable efforts that are not related to your core business focus or that violate your company's ethical standards in any way. Instead of blindly sending money to a completely unrelated organization, find a nonprofit that your company believes in or invest in a project in your community.
2. Don't use CSR as a marketing scheme.
Don't use CSR opportunities solely for marketing purposes. Schmidt said running a corporate responsibility campaign as a quick marketing scheme can backfire if your business doesn't follow through. Instead of trying a one-time stunt, adopt socially responsible business practices over time. Schmidt said employees and consumers react positively to companies that embrace long-term social responsibility.
3. Don't wait for the industry to catch up.
If you are considering sustainable activities that aren't legally required yet, don't wait. By adopting socially responsible norms early on, you set the bar for your industry and refine your process. [Related read: 14 Examples of Socially Responsible Businesses]
Undertaking CSR initiatives is a win for everyone involved. The impact of your actions will not only appeal to socially conscious consumers and employees, but can also make a real difference in the world.
CSR certifications
While many companies self-assess their CSR efforts, often the most practical and trusted way to prove your company's social accountability to the public is to undergo a third-party social impact assessment.
These three corporate social responsibility certifications can help you achieve public recognition for your sustainability and CSR efforts.
B-corp certification
Certified B corporations, or B-corps, are companies verified by B Lab to meet high standards of social and environmental performance, accountability, and transparency. To become a B-corp, a company must undergo a rigorous and holistic verification process every three years, integrate B-corp commitments to all stakeholders (rather than only shareholders) into its governing documents, and pay a sales-based annual fee.
While B-corp status is mainly associated with multinationals like Patagonia or Ben & Jerry's, small businesses and startups that strive for social and environmental excellence can also receive this CSR certification. The first step is to complete the free and confidential B Impact Assessment on the B Lab website and receive a minimum score of 80. If you meet the baseline, you can submit the impact assessment for review and start the verification process.
ISEAL code compliance
ISEAL Alliance is a global membership organization for credible sustainability standards whose members include Fairtrade International, Gold Standard, Alliance for Water Stewardship and more. An assessment from ISEAL is carried out by an independent third-party verification provider that determines whether a business meets Codes of Good Practice and can be deemed ISEAL Code Compliant. This assessment offers a reputable seal of approval for companies that emphasize sustainability.
In some circumstances, verifications from ISEAL members can directly impact business continuity. For example, the absence of a certification from the Roundtable for Sustainable Palm Oil can effectively close down a supply chain for some consumer brands.
SASB standards
The Sustainability Accounting Standards Board is one of the most established environmental, social, and governance (ESG) guidance frameworks, providing standards for disclosing the financial impact of a company's sustainability efforts. In other words, it allows businesses to communicate the financial outcomes of their CSR and ESG measures to investors and other stakeholders.
SASB Standards are evidence-based, cost-effective, market-informed, and industry-specific, covering 77 industries. These standards help produce structured, comparable, and standardized data that is perfect for both internal and external communications of CSR and ESG impacts.
Examples of CSR companies
If you're looking for CSR inspiration for your business, here are six companies practicing corporate social responsibility on a large scale.
- LEGO: The toy company has invested millions of dollars into addressing climate change and reducing waste. LEGO's environmentally conscious efforts include reduced packaging, sustainable materials, and investments in alternative energy.
- TOMS: TOMS donates one-third of its net profits to charities that support physical and mental health as well as educational opportunities. During the pandemic, the brand directed all charitable donations to the TOMS COVID-19 Global Giving Fund.
- Johnson & Johnson: The brand Johnson & Johnson focuses on reducing its environmental impact by investing in alternative energy sources. Globally, Johnson & Johnson also works to provide clean, safe water to communities.
- Starbucks: The global coffee chain has implemented a socially responsible hiring process to diversify its workforce. Its efforts are focused on hiring more veterans, young people looking to start their careers, and refugees.
- Google: Google has demonstrated its commitment to the environment by investing in renewable energy sources and sustainable offices. CEO Sundar Pichai is also known to take stands on certain social issues.
- Pfizer: The pharmaceutical company's focus on corporate citizenship is reflected in its healthcare initiatives, which include spreading awareness about non-infectious diseases and providing accessible health services to women and children in need.
Corporate social responsibility FAQs
Corporate social responsibility is a modern approach to running a business. Here are some of the most frequently asked questions about it.
What is corporate social responsibility (CSR)?
Corporate social responsibility is a way of describing how companies measure and control their impact on society. This includes a company's contributions – both positive and negative – to the economy, environment and greater community.
Who is CSR for?
Businesses of all sizes can choose to introduce a comprehensive CSR program or selected initiatives and reap the associated benefits. No matter the size or maturity of your business, an investment in ethical behavior and sustainable practices can improve your brand value, build customer trust, grow your company, and improve the bottom line.
What are the benefits of CSR for companies?
CSR can be beneficial to a company in several ways. The first is by improving its brand image. When customers or clients see evidence that a business is socially responsible, they tend to respond positively.
The second benefit is improving employee morale. Morale tends to be higher at companies that invest effort and resources into ethical and socially responsible behavior.
The third involves appealing to new talent. Modern employees often choose purpose-driven and environmentally conscious companies over financial benefits.
Lastly, CSR-active companies attract investors and partners. A company that is willing to invest in long-term policies and improvements offers security to potential investors.
What are examples of CSR initiatives?
Some examples of CSR components are reducing carbon footprint and energy consumption, engaging in wildlife conservation initiatives, encouraging charity and volunteer work, supporting local communities, improving labor policies, ensuring diversity and equality in the workplace, investing in nonprofit organizations, and guaranteeing ethically sourced materials.
Whichever practices you employ, make sure they are authentic and match your corporate values. Otherwise, your business might be accused of greenwashing.
How do you monitor CSR?
There are a few key ways to measure CSR. The first is to break CSR goals into categories, such as philanthropy, labor practices, and environmental efforts.
To track the success of these investments, look for measurable key performance indicators. How much has your company's carbon footprint changed? How many people did you reach with a charitable effort? Monitor new developments and keep a pulse on general public perception of issues associated with your company's social causes.
Skye Schooley, Nicole Fallon and Sammi Caramela contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.