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Report 1+2/2010
What is CSR?
Fred Luks / [email protected]
CSR stands for Corporate Social Responsibility. This concept
is an underlying element of current discussion on responsible
management and corporate sustainability, as well as of debate on voluntary initiatives and the role of state and nonstate norm setting for the economy. CSR is the corporate
application of the social guiding principle of “sustainable
development”. Just as the concept of sustainability has become a rhetorical universal weapon in society, the acronym
CSR is encountered wherever social and ecological issues and
their relevance for corporate initiatives are discussed.
Why CSR?
Many considerations on CSR start out from the definition of the EU
Commission, according to which CSR is understood as "a concept
whereby companies integrate social and environmental concerns
in their business operations and in their interaction with their
stakeholders on a voluntary basis". The question of voluntary
initiatives and of the relevance of norm-setting processes, which
involve paradox concepts such as “voluntary obligations”, raises
fundamental problems relating to economic policy and the regulatory framework. It is not possible to discuss this important point in
detail here. The purpose of this article is to present the multidimensional nature of CSR and to explain its potential benefits for
society and companies.
Sustainable development is a development which meets the needs
of people today without any risk that future generations may not be
able to meet their needs. This guiding principle always entails at
least three dimensions: social, ecological and economic. The three
dimensions are interlinked in a complex way, and a balance calls
for social discourse and careful consideration before taking a
decision in each individual case. If corporate social responsibility is
integrated in a company’s target system, decision-makers always
need to take into account economic, social and ecological objectives. In such a context, CSR increases the complexity of corporate
actions.
There are two “sources” of CSR. The one relates to a company’s
ethical values, which are often reflected in its guiding principles,
charter, mission statement or code of conduct and more or less
formulate the company’s set of values. These values – such as
fairness, good citizenship or transparency – can usually be easily
associated with objectives such as responsibility and sustainability.
The other source – and there is reason to assume that this will
prove to be more sustainable – is the frequently cited business
case. In other words, the economic motivation to act in a socially
and ecologically responsible and sustainable manner. A growing
number of companies are recognising that acting in a responsible
and sustainable manner is the precondition of success – and
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conversely, financial performance is a requirement for acting
responsibly in conformity with sustainability.
The three dimensions of CSR
Just as the concept of fairness predominates at the social level, so
economic considerations – which are more or less the beginning
and the end of corporate social responsibility – are at the forefront
of corporate sustainability initiatives. Social responsibility covers
more than the social commitment of companies: ecological issues
are a central element of corporate responsibility, as are genuine
economic questions, as the financial crisis has vividly shown in the
recent past (see diagram 1).
The three-dimensional nature therefore applies equally to CSR and
sustainability. Something else which sustainability and CSR have in
common is that corporate responsibility – as a mission statement
– has meanwhile reached a degree of dissemination and universality which makes it difficult to determine what is actually not a
part of CSR. And, as in the case of the guiding principle for sustainability, one can here find both risks and opportunities. The
opportunities lie mainly in the successful combination of economic
and socio-ecological objectives. CSR can be a factor in the following activities:
 Cutting costs
 Strengthening a company’s reputation
 Addressing customers
 Motivating employees
 Accentuating the brand image
 Stepping up innovation
 Identifying and minimising risks
These are advantages – also and particularly from an economic
perspective – which can be used by a company if it behaves in a
socially responsible manner. So one can find what one is looking
for in the search for the business case. In the context of implementing corporate social responsibility, reference is often made to
a win-win situation.
If, against this background, there are claims of a triumphant advance of CSR, this may be a correct diagnosis in rhetorical terms.
But in terms of actual content of such claims, it would be wrong or
at least premature. Although the benefits of CSR appear to be
quite clear, the objectives of this guiding principle are still generally
far from being an integral element of corporate activity. This is
because CSR does not only offer advantages. It can also cause
costs and, in extreme cases, it may question the viability of entire
business models. “Genuine” CSR, like sustainability, is not only
about initiative and innovation but also entails not taking any action, “exnovation” and the willingness to forgo opportunities to
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Report 1+2/2010
generate profits. A growing number of companies are for example
choosing to forgo business opportunities if these opportunities are
associated with inhumane working conditions, climate damage,
cruelty to animals and the production of weapons.
Stakeholders, reputation and integration
Today, most companies know that they have to satisfy their stakeholders if they want to be successful. It has been evident since
before the financial crisis that – as a fragile player in light of its
dependence on the business environment – a company has to
concern itself with how it is perceived by this environment. While
this does not apply equally to every economic sector, a company’s
reputation, at the end of the day, is a key factor of success for
every company. Reputation is how a company is perceived by its
stakeholders: its customers, employees, suppliers, neighbouring
community, NGOs, the media, etc. The issue of reputation is also
likely to be the key for the success and future development of CSR.
Today it is apparent that while CSR is still also used purely for PR
purposes, the substance of CSR-related activities has increased
significantly and that those who engage in “greenwashing” meanwhile take a considerable risk on reputation.
It is clear that the understanding of corporate responsibility has
changed, a development which is largely explained by the dissemination of the social guiding principle of sustainable development. A more traditional understanding of corporate responsibility
was based on the saying often attributed to Milton Friedman: “The
business of business is business.” This suggests that generating
profit is the only purpose of a company, implying that corporate
responsibility means being economically successful and thus
projecting a positive image. According to an interpretation of responsibility which goes beyond this attitude, some of the profit is to
be used for a good cause, such as making a donation. Simply
grafting sustainability considerations on business activities
“proper”, i.e. adding such topics to corporate responsibility, is not
appropriate nowadays. While responsible corporate behaviour
includes doing good and talking about it, such behaviour covers
much more according to modern day thinking. Today, the prevailing view is that what counts is the integration of sustainability and
responsibility in a company’s core business. Therefore one needs
to fully embrace together economic, social and ecological aspects
and work toward ensuring that the various dimensions of sustainability are well balanced. This form of CSR thus affects virtually all
areas of corporate activity.
In regard to the social/community dimension the focus is on the
treatment of employees and on a company’s contribution to the
well-being of communities. This includes initiatives such as sponsoring activities and corporate volunteering. And it covers the
active treatment of stakeholders. A growing number of companies
are realising that by engaging in active dialogue with their stakeholders they can learn a lot over and beyond the identification of
reputational risk. There is an increasing awareness that all this
affects economic questions, and that product ecology, for example, has to do with a company’s responsibility for the environment
as well as creating both profit and innovation opportunities.
Sustainability and CSR are fundamental social issues. They also
give companies scope for action, and scope within which they can,
and must, decide whether responsibility is of great or little importance to them. Efforts to overcome the “multiple crisis” – the term
used by some to diagnose the current situation in light of the
financial and climatic problems, poverty and other major challenges – will either not get underway at all or only very slowly if
companies fail to actively participate in these social challenges.
Chart 1:
Responsibility and sustainability: Dimensions
Economic dimension:
Creating long-term value
Dimensions of sustainability
and responsibility
Ecological dimension:
Using natural resources sparingly
Social dimension:
inspiring employess and
strengthening the social environment
In the future, activities carried out in the name of CSR will probably
increasingly include those which are inspired by the social guiding
principle of sustainable development, while also being an important component of business performance. This is why companies
like Bank Austria prefer the term corporate sustainability to CSR.
As stated above, modern day thinking on this issue stresses the
integration of sustainability and responsibility in all areas of a
company’s activities. In terms of environmental considerations this
applies to ecological improvements in the areas of operations and
products.
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