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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 April 2010 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 Bank Austria Economics & Market Analysis Austria 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. Bank Austria Economics & Market Analysis Austria April 2010 2