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The Global Reporting Initiative (GRI) is an attempt to standardize sustainability reporting and the AA1000 standard is an attempt to improve their legitimacy.
Criticism of CSR
Some critics of CSR, such as Milton Friedman, argue that a corporation’s principal purpose is to maximize returns to its shareholders, whilst obeying the laws of the countries within which it works. Others argue that the only reason corporations put in place social projects is utilitarian; that they see a commercial benefit in raising their reputation with the public or with government.
It is clear that a CSR activity generally can only be effective at achieving social or environmental outcomes to the extent that it maximizes profits: hence the CSR slogan –
Some argue that it is self-evidently «good» that businesses should seek to minimize any negative social and environmental impact of their economic activity. It can be beneficial for a company’s reputation to publicize any environmentally friendly business activities. A company which develops new engine technology to reduce fuel consumption will be able to promote its CSR credentials as well as increase profits.
A conflict can arise when a corporation espouses CSR and its commitment to Sustainable Development on the one hand, whilst damaging revelations about its business practices emerge on the other. The McDonald’s Corporation has been criticized by CSR campaigners for unethical business practices, including mistreatment of workers, misleading advertising, and unnecessary cruelty to animals. Similarly Shell has a much-publicized CSR policy and was a pioneer in triple bottom line reporting, but was involved in 2004 in a scandal over the misreporting of its oil reserves, which seriously damaged its reputation and led to charges of hypocrisy.
Source: Wikipedia.
People, Planet, Profit: The Value of CSR
CSR, also referred to as corporate stewardship or corporate citizenship, has become increasingly important to companies competing in today’s business climate. Companies focusing on the ideals of People, Planet, and Profit further bolster the notion that addressing social and environmental issues supports the attainment of financial goals and can be critical to long-term corporate success.
But the biggest question surrounding CSR is not «Is this the right thing to do?» but a more in-depth, «Why should we do this?» Profitable business and CSR are not mutually exclusive. There are many solid reasons as to why CSR is good business.
Branding
The market has become oversaturated with company messages touting the newest, hottest, or cheapest. This has lessened the effectiveness of traditional marketing efforts and jaded the audiences they are aimed at. Relationship and cause marketing are two avenues in which companies can realize the value of their brand, build good will, and establish lasting impressions with their stakeholders. Brands like Avon, The Body Shop, Timberland, and Target have made their social commitments a fundamental component of their corporate mission, and reputation. This attitude is reflected in their marketing efforts and has resulted in a stronger brand reputation, and increased revenues. People want to align themselves with companies they admire and respect.
Conversely, companies that have tarnished their brands by not acting responsibly in regard to their stakeholders have discovered that ignoring social responsibility has irreparably damaged their brand image as well as their bottom line. Enron and WorldCom are two highly publicized examples of companies who put profitability ahead of responsibility. The glare of the media is aimed directly at corporations nowadays; any small glitch in a company’s reputation could dramatically impact their revenues both long– and short-term.
Socially Responsible Investment Institutions
Socially responsible investment funds (SRIs) offer perhaps the most direct financial link to CSR. The influence of SRIs internationally can be seen in the hundreds of funds, the number of shareholder resolutions filed, and the financial performance of companies associated with SRIs.
Globally, this group of funds has tremendous financial leverage. While each fund offers a unique perspective, common themes include their CSR criteria used for company selection and evaluation. Equally, companies not meeting a minimum threshold of social performance are those typically targeted for shareholder resolutions.
Building a business case for CSR is strengthened by the performance of SRI-based companies. The Dow Jones Sustainability Index (DJSI) has historically tracked the performance of companies with active CSR initiatives, measuring them against companies not aligned with CSR principles. Companies with CSR programs have consistently outperformed those without CSR over the past five years.
Legislation and Litigation
Generally, a company’s actions are governed by its adherence to laws and compliance with business regulations. Historically, it has been assumed that corporate leaders are guided by their own moral compass; values and ethics influence decisions and legislation is not required to govern morality and behavior. However, certain corporations have sullied the reputation of business in general. As a result, recently we have seen a rise in legislation, fines, and litigation surrounding corporate responsibility. To be in compliance with current laws, avoid penalties and litigation, adopting a philosophy of CSR makes good business sense.
Avoidance of litigation is another motivator for companies to adopt socially responsible practices. Increasingly, activist and non-governmental organization groups are using litigation in an attempt to change corporate behavior. Previously, efforts by these groups included shaming a company to change behavior through adverse media and filing shareholder resolutions to demand change. These same groups are now filing lawsuits in their attempts to force companies to embrace socially responsible practices.
Employees and Customers
Employee recruitment, retention, and morale are strong business reasons for corporations to integrate CSR into their organizations. Research studies that evaluate the impact that CSR has on employee recruitment and retention offer the following data.
Companies demonstrating strong CSR commitments find it easier to recruit employees, particularly in tight labor markets.
A 1997 study of 2,100 MBA students found that more than half said they would accept a lower salary to work for a socially responsible company.