Why should an organization be socially responsible?
To be ‘socially responsible’ is to operate in ways that are not harmful to- and at the same time positively impact- the society or the environment. Therefore, socially responsible/conscious organizations are companies that build, execute, and optimize self-regulating strategies to ensure their business operations (and identity) are socially, economically, and environmentally beneficial. Now, an important distinction needs to be made here between two similar concepts: Corporate Social Responsibility (CSR) and Environmental, Social, and Governance (ESG). While both terms are related to an organization’s social and environmental impact- and important to its sustainability agenda;
- CSR is the organization’s general framework (their ideal) for approaching their social and environmental commitments while ESG is the measurable outcome of those efforts;
- While CSR aims to hold an organization accountable, ESG measures it;
- ESG is quantitative, CSR is qualitative, and lastly;
- CSR impacts the company’s culture and internal processes while ESG showcases its performance to external stakeholders (partners and investors).
Here are two reasons why organizations should strive to be socially responsible:
A socially responsible organization understands its true cost of doing business which promotes sustainable practices. Typically, the cost of doing business is made up of all the expenses incurred while producing. This includes the operating expenses: cost of the input materials (this applies to goods and services), the cost of compliance with regulations, labor, taxes, interest rates, etc.; and the overhead expenses. In the business’ typical growth plan, it will strive to reduce its ‘cost of doing business’ so it is easier to operate while improving its bottom line.
The true cost of business is far more complex and it usually exceeds what is traditionally measured. The true cost of doing business includes the external costs (also known as externalities) as well as its associated benefits and dis-benefits. For instance, the total cost of food production in the U.S is $1.1 trillion annually. According to the Rockefeller Foundation, when its external costs such as diet-related medical costs, cost of productivity losses due to diet-related illness and absenteeism, biodiversity losses, etc., were accounted for, the total (true) cost was estimated at $3.2 trillion. This means the true cost of food production in the U.S is three times its typical value. i.e. Americans only pay one-third of their food’s true value.
The external costs can also be beneficial: an apple farmer unintentionally (or intentionally) provides a good source of nectar for a neighboring beekeeper’s bees, which results in more honey being produced, and more honey being sold. Conversely, the bees- the world’s dominant pollinators- play an essential role in pollinating the trees within the apple orchard. Without bees, apple yields would not be economically viable. Understanding the true cost of doing business empowers the development of superior and sustainable operational strategy.
Being socially responsible improves your bottom line.
The bottom line is more than just the profitability of a business. It is an important indicator of overall business performance but it reflects a brew of various factors that includes customer value (which is a function of customer loyalty, willingness to pay premium prices, and positive brand equity, among others), market selection, competitive advantage; employee productivity, etc.
Caring for the interests of customers, employees, and other stakeholders encourages their willingness to support a company. Companies with high CSR activity have been found to:
- Possess/deliver increased customer value. Engaging in socially responsible activities can be a powerful marketing tool helping to position companies favorably to their target market such that their customers feel they are supporting the company’s chosen causes. For every pair of TOMS shoes sold, the company gives away a new pair of shoes to a child in need. TOMS shoes sold 10,000 pairs of shoes in its first year of business (it was established in 2006) and, within seven years, TOMS shoes was operating in over 50 countries. It is more recently known as TOMS as it has now diversified into sunglasses, coffee, healthcare, and education. Although TOMS is more a social enterprise than a for-profit, the same benefits apply to profit-driven organizations. Lego Inc saved 7,000 tons of cardboard when they shrunk their carton sizes by 14 percent between 2013 and 2014; in 2018 150 botanical pieces made from sustainably-sourced sugarcane were introduced, and the company set a 2025 goal to remove all single-use plastic packaging from its materials in addition to committing $167 million to research and development at the Sustainable Materials Center. Yet, net profit increased by more than 60 percent since 2011: from 559.6 million euros to 1.7 billion euros in 2021- more customers led to greater revenue and greater profit. Patagonia, one of the leading outdoor clothing retailers in the U.S and a strong critic of the consumerism society, has donated over $180 million to environmental and conservation activities since it was founded in 1973 yet, it experienced a 25 percent Year on Year (YoY) increase between 2013 and 2017-revenue in 2017 was $1billion.
- Possess enhanced capacity for innovation. It is a well-known fact that Innovation is highly essential for a company’s organizational effectiveness and long-term survival. Research shows that engaging in socially responsible activities tends to enhance a company’s employees’ perception, intrinsic motivation, and attitude toward their work which in turn drives innovation. CSR-driven Innovation could lead to operational cost savings (e.g. Lego Inc shrinking their carton sizes), novel business models (e.g. SalesForce’s 1–1–1 Philanthropy Model), and groundbreaking world-saving inventions (e.g. Coca Cola’s paper bottle).
- Increase employee productivity. ‘Happy employees produce great results’. Employees are positively influenced by a company’s strong CSR commitments. Studies have revealed that organizations committed to socially responsible initiatives will gain a 17 percent increase in productivity, among other benefits. These companies tend to attract, engage and retain talented and motivated employees. These employees develop more trust in the company which makes them more motivated and aligned with the company’s goals and vision. Committed and motivated employees are significantly less likely to leave, more likely to stay longer, and tend to work harder.
- Possess strong competitive advantage. Here, competitive advantage is used in the context of a differentiation strategy i.e. it describes how companies use CSR practices to set themselves apart in the market. The uniqueness of the company’s CSR initiative, and how it integrates with their core business strategies, is what differentiates them (this is known as corporate philanthropy). For example, McKinsey & Co offers free consulting services to non-profit companies in social, cultural, and educational sectors; while the Walt Disney Company and Netflix ensure diversity and inclusion in their storytelling and media production content, under various social equity initiatives. McKinsey’s strategy attracts more than 600 non-profit organizations, while Disney’s inclusive storytelling initiatives have built new partnerships and expanded their audience demographics.
- Attract funding/investment. CSR initiatives also have a positive impact on attracting investments. Socially conscious investors actively seek out companies with good reputation in corporate governance, societal and environmental impact, employee relations, and a high level of perceived effort and long-term commitment to a diversified CSR portfolio.
Alright. So, how?
Here are some best practices to consider for your strategic planning.
Align your CSR strategy to your company values
Today, the best CSR initiatives are aligned with the company’s core competencies, and their brand image, and are often central to their operational strategy, to the extent that some companies (like TOMS, Patagonia) are recognized as ‘CSR brands’. The type/form of the activity may be the same but executing it is bound to be different for every company.
Involve your stakeholders
Your CSR strategy should reflect what your stakeholders care about. This establishes internal buy-in and ensures stakeholder value is maintained. What environmental and societal issues matter most to your employees, investors, and customers? What is their current perception of your brand from an environmental and social perspective? This can be achieved with employee feedback surveys, town hall meetings, and customer polls, among others.
You don’t have to reinvent the wheel, you can adapt successful CSR strategies, downscaling and tailoring them to your context. Start exploring with reports like Fortune’s ‘Change The World’ list, Newsweek’s ‘Most Responsible Companies’ list, B-Lab’s Certified B Corporations list, or any other reputable locally relevant market research reports. Alternatively, start by designing your activities in line with the United Nations’ 17 Sustainable Development Goals (UN SDGs). Companies like Target and Chevron have CSR initiatives aligned with every goal.
Build authentic external partnerships
Like BMW, Apple Inc, IKEA, McKinsey, and the Walt Disney Company; your strategy should involve seeking out, engaging, and collaborating with individuals, communities, and organizations that are already addressing the societal and environmental issues you are interested in.
Test. Learn. Improve. Repeat
CSR is people and environment-focused and both are dynamic. The strategy should evolve, informed by the data (and feedback) collected from these activities- and insights gleaned from it. For example, many companies pivoted their CSR programs in 2020 to support the global response to the COVID-19 pandemic as well as racial justice movements.
Your CSR strategy should be clear and transparent so that it keeps all stakeholders on the same page; it makes monitoring and evaluation (ESG) more effective, and it maintains a positive brand image.
Your CSR strategy should include a clear plan for how it will be communicated internally and externally to foster enthusiasm, engagement, and accountability.
Apply your business strategy tools and techniques
If Porter’s Five Forces, PESTEL Analysis, SWOT Analysis, Business Model Canvas, etc., are good enough to facilitate the creation of your business strategy, then they are good enough to build a robust CSR strategy.
On its own, social responsibility can be considered a valuable business asset. As expressed by the U.S Committee of Economic Development in 1971, there is a social contract between companies, society, and the environment: like a ‘social license to operate’. Businesses are increasingly being expected to positively affect the quality of societal and environmental life, in addition to supplying goods and services.
As you ponder through how your organization can become more socially responsible, understand that this new exciting path to sustainability lies at the intersection between people, the planet, and profit (the triple bottom line).
Also, be conscious of the fact that today’s customers are well informed and have access to limitless investigative resources. If they detect your CSR efforts are simply greenwashing (i.e. deceptively marketing yourself as socially and environmentally friendly only to gain market share), you will not only lose them, they will also announce it to the world.