CSR – no more the cuddly face of business
Risks: Done well, social and environmental reporting is a great way to manage some pretty unpredictable risks
Austerity, fast becoming the defining word for our age, ought to the antithesis of corporate social responsibility. Often what is deemed to be a 'luxury' is ditched by management when times are tough, but a good CSR policy may turn out to be a winning strategy in these austere times.
Yet CSR remains firmly planted in the top 10 risks for business, as judged in the Ernst & Young annual survey of global managers concerns. It appears on the list simply because CSR is no longer about presenting a cuddly face to the world or generating positive press. It’s become a serious business issue.
“Definitions are important here,” explains James Close, partner at EY who leads its work on the government’s clean technology agenda. “In the past, CSR was seen as a ticket to play – you needed a plan in order to be able to win business from certain clients. But people are now taking it much more seriously as a source of competitive advantage.”
For example, since 2010 Unilever has had a ‘sustainable living plan’. The company is applying 60 targets for sustainability right across its supply chain – not just direct operations, but suppliers, distributors and even consumers. Marks & Spencer is another good example – delivering cost savings through its ‘Plan A’ programme.
But companies looking at CSR to cut waste (which is what many of the programmes are designed to do, essentially) might be missing a trick. “For CFOs, there’s one other important factor: value,” Close says.
“It might be revenue creation – CSR activities can be a good way of generating more sales from more customers. It could be cost saving - through efficiencies or improvements in the supply chain which leads to increased profit. There’s value from risk mitigation – CSR almost inevitably touches on some other pretty clear risk areas like safety. Then finally, there's brand value. The ultimate test of CSR is that it should support a brand premium.”
That list is important. According to research from professor Dr. Stefan Schaltegger of the Centre for Sustainability Management at Leuphana University of Lüneburg in Germany, the key to judging the business performance of a CSR programme really lies in what you choose to measure.
“The economic return of social or environmental management will vary whether cost- or profit-driving activities are chosen,” he explains in his recent study.
“There is no general answer to the question how it pays to be sustainable. Instead, managing social and environmental engagement in a way that contributes to business and economic success has to be accepted as an entrepreneurial and managerial challenge … Success depends on what kind of measure is chosen.”
In other words, if you measure solely by the economic value added, your CSR programme might look very different compared to one engineered to support broader values – like industry reputation.
In fact, says Close, communication of your CSR achievements has to be a central part of the plan, whatever objectives are chosen. “The companies that are getting the most from CSR tend to be the ones where they've got good traction on the communications side,” he explains.
“They can see not only operational and financial benefits, but their investors are rewarding them for embedding CSR, too.”
And for some sectors, that reputational component is absolutely critical.
Government respondents to the EY survey, for example, rated CSR a much bigger risk than those in the private sector. “In many developing countries, the combination of the spread of mobile phones and access to the internet has [undermined] the capacity of governments to maintain the control of information that is essential for the maintenance of an authoritarian regime,” says one respondent.
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