Corporate Social Responsibility
What is Corporate Social Responsibility?
Increasingly, corporate social responsibility is seen as part of best practice by both investors and government. Most companies are keen to talk about social and environmental issues in their annual reports, and many argue that complying with CSR guidelines has become a commercial necessity: CSR builds trust, trust builds reputation, and reputation drives value.
Corporate social responsibility is defined by the European Commission as "the responsibility of enterprises for their impacts on society". The Commission encourages enterprises to "have in place a process to integrate social, environmental, ethical human rights and consumer concerns into their business operations and core strategy in close collaboration with their stakeholders".
The Association of British Insurers, whose members own more than 20 per cent of the companies on the London Stock Exchange, publishes guidance on CSR-related issues for both companies and investors. Its 2007 “Socially Responsible Investment Guidelines” asked that annual reports highlight company’s environmental, social and governance (ESG) risks. A remuneration committee should also disclose whether it considers corporate performance on ESG issues when setting remuneration for senior executives, and whether an incentive structure may inadvertently encourage “irresponsible” ESG behaviour.
A 2015 study by the Kenexa High Performance Institute in London (a division of Kenexa, a global provider of business solutions for human resources) found that organisations that had a genuine commitment to CSR substantially outperformed those that did not, with an average return on assets 19 times higher. Additionally, the study showed that CSR-orientated companies had a higher level of employee engagement and provided a markedly better standard of customer service.
UK requirements for corporate social responsibility
The UK Corporate Governance Code requires boards to set the company’s values and standards and ensure that its obligations to its shareholders and others are understood and met, and the Turnbull Report makes clear that risk assessment should cover not only narrow financial risks but also those related to health, safety and environmental, reputation, and business probity issues.
The UK Companies Act 2006 requires directors to have regard to community and environmental issues when considering their duty to promote the success of their company.
The Corporate Social Responsibility (CSR) report
The corporate social responsibility report (also commonly known as a corporate citizenship, sustainability or social performance report), due to the typical breadth of information most relevant to stakeholders’ interests, can be a key component of a company’s stakeholder engagement strategy.
As companies acknowledge the importance of stakeholder engagement, the use of corporate social responsibility reports has rapidly increased. A 2012 survey revealed that 53% of S&P 500 companies were reporting and disclosing CSR information, compared to approximately 20% of such companies in 2010.
What should a CSR Report include?
Corporate CSR reports vary greatly in format, length and detail. There are, however, certain elements and disclosures that consistently appear in such reports. Those elements and disclosures include:
- an opening letter from the company’s chief executive officer and/or chief CSR executive,
- the company’s CSR policy or mission statement,
- a ‘forward-looking statements*’ disclaimer and
- disclosures addressing issues most important to each of the company’s key stakeholders.
*A forward-looking statement or safe harbour statement is a statement that cannot sustain itself as merely a historical fact, it merely predicts, projects, or uses future events as expectations or possibilities.
Issues to cover in a CSR Report
In a paper to the Harvard Law School Forum on Corporate Governance and Financial Regulation, Bill Libit, partner at Chapman and Cutler LLP, describes issues that could be included in a CSR report:
- Shareholders – addressing the company’s business model and corporate governance, including disclosing the role of the board in risk management, in sustainability reporting and in evaluating CSR performance.
- Employees – addressing diversity, health and safety, training and mentoring, employee relations, and wages and benefits.
- Customers – addressing customer service and privacy.
- Suppliers – addressing labour standards and whether suppliers are required to implement their own CSR programmes.
- Communities – addressing corporate philanthropy and charitable contributions, community investment and partnerships, volunteerism and the environmental impact of operations.
- Governments and regulators – addressing lobbying, public policy and the effects of and compliance with environmental regulations.
- Economic considerations – disclosing the company’s impacts on the economic conditions of its stakeholders and on economic systems at local, national and global levels.
- Environmental issues – disclosing the company’s impacts on living and non-living natural systems (land, air, water and ecosystems), including impacts related to inputs (such as energy and water), outputs (such as emissions, effluents and waste) as well as environmental compliance and expenditures.
- Ethics and integrity – disclosing the company’s values, principles and standards, and its internal and external mechanisms for seeking advice on ethical and lawful behaviour and reporting concerns about unethical or unlawful behaviour and matters of integrity.
- Social impact – disclosing the company’s impacts on the social systems within which it operates, including those relating to human rights, society and product responsibility.
- Stakeholder engagement – disclosing the company’s stakeholder engagement during the reporting period and not limiting it solely to engagement conducted for purposes of preparing the CSR report.
Guiding principles of a CSR plan
It is too easy to understand corporate social responsibility as a form of public relations and to apply the concept through contribution to charities, pet projects and local causes.
Better to focus on one or two critical areas in the business where it interfaces with, and has an impact on, society. Identify some core long-term needs for both the organisation and society that can be addressed using resources or capabilities and taking advantage of opportunities.
McKinsey & Company suggests three guiding principles in support of co-creating value for the business and society.
- Concentrate your CSR efforts in areas where the business not only can gain a deeper understanding of the mutual dependencies but also in which the highest potential for mutual benefit exists.
- Build a deep understanding of the benefits where there is symmetry between the two sides and be open enough to understand issues both from a business and a societal perspective.
- Find the right partners, who will benefit from your core business activities and capabilities—and that you can benefit from in turn.
The International Institute for Sustainable Development (IISD) outlines what it considers to be the six key components which go towards a coherent CSR plan:
- CSR Assessment
- CSR Strategy
- CSR Commitments
- Implementation Plan and Actions
- Verification and Evaluation of Results