What Is Corporate Social Responsibility?

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 diversity, equity 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 business 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 company 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, company 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 its 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.”

According to the Amazon Ads Higher Impact report, customers are increasingly using their buying power to support brands whose values they perceive as aligning with their own. 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.

What’s more, research by Jump Associates demonstrates a direct correlation between perceived positive impact and financial growth. Purpose-driven companies provide shareholders with a 13.6 percent CAGR return over a 20-year period, which is three times their closest competitors and five times the S&P 500, the research found.

Schmidt also said that a business model based on sustainability could help a company 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, a growth and leadership coach who was formerly the 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 Gen Z and Millennial Survey, the modern workforce prioritizes culture, diversity and high impact over financial benefits. Three-quarters of Gen Z and millennials say an organization’s community engagement and societal impact is an important factor when considering a potential employer. The survey found 86 percent of Gen Z and 89 percent of millennials say having a sense of purpose is important to their overall job satisfaction and well-being. These generations are more likely to reject potential employers whose values don’t align with their own.

What’s more, employees that share the company’s values and can relate to its CSR initiatives are much more likely to stay. Purpose-driven workplaces retain talent up to 40 percent more than their competitors. Considering that replacing a departing employee can cost up to 150 percent of their salary, according to an Express Employment Professionals-Harris Poll, 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. The Giving in Numbers report by Chief Executives for Corporate Purpose shows that investors play a growing role as key stakeholders in corporate social responsibility. Eighty-three percent of surveyed businesses said they considered the investor perspective when outlining social impact key performance indicators (KPIs) in their annual reports. 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.

1. 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.
2. 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.
3. Ethical labor practices: Companies can demonstrate CSR by promoting workplace ethics and treating employees fairly. This is especially true of businesses that operate in international locations with labor laws that differ from those in the U.S.
4. Volunteering: Participating in local causes yourself and promoting employee volunteerism at 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 percent, 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 employee 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: Social Responsibility Tips from PayPal]

“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.”

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 get involved in your local 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: Socially Responsible Businesses to emulate]

CSR certifications and assessments

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 organizations 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 an organization 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.

Other CSR certification programs include:

SA8000 Social Accountability Standard: An auditable certification that encourages businesses to adopt practices that promote fair and decent working conditions.

Business Social Compliance Initiative: A social compliance certification that allows companies to ensure fair workplace practices across its entire supply chain.

SEDEX SMETA: A social compliance audit program that helps businesses ensure the ethical and responsible social and environmental performance of their sites and suppliers.

ISO 14001: A certification that implements an environmental management system to improve a company’s environmental stewardship.

ISO 45001: A certification that implements a framework to prevent worker accidents and promote a culture of worker health and safety.

Corporate social responsibility for purpose and profit

A business’ commitments to social purpose and to profit don’t have to be mutually exclusive. In fact, research shows that purpose-driven companies often financially outperform their less purpose-driven competitors. Demonstrating your commitment to social responsibility can be a win-win for both social good and your company’s bottom line.

Gaining a CSR certification can be an excellent way to demonstrate to your customers, employees, shareholders and investors that your commitment to social good goes beyond lip service. But even if your social goals don’t meet certification thresholds, implementing them consistently and in good faith can gain trust and loyalty from stakeholders of all kinds. However you decide to approach CSR, be sure to walk the walk, not just talk the talk.

Skye Schooley and Nicole Fallon contributed to this article. Source interviews were conducted for a previous version of this article.