Corporate Social Responsibility
At a time when financial markets worldwide show first signs of recovery, or green shoots commonly addressed, there is an increasing emphasis on Corporate Social Responsibility (CSR) and Sustainability. The general perspective of CSR as a “luxury” is finally being replaced by the more accurate interpretation of a business strategy, with its performance indicators and objectives. The articulated approach leverages socio-environmental practices to achieve efficiency rather than something large corporate environments do when financial surpluses exist; hence feeling compelled to “give something back”.
Despite the general understanding of CSR as a synonym of corporate philanthropy, there is so much more that meets the eye. CSR is a business strategy that measures non-financial performance in socio-environmental engagement strategies. This management trend is driving what is considered a new dawn in corporate best practices, in a way somewhat similar to the ascent of HR competencies to senior management spells.
Now that the buzzwords and fancy terminology is out of the way, how does CSR look operationally? For a start, you must be able to show corporate stakeholders that a CSR strategy is helping the company’s bottom line. Unless an indicator of performance is utilized, it would be advisable to re-label the programmes to corporate philanthropy.
The difference between CSR and Philanthropy is in the fact that CSR is meant to increase corporate profitability. Performance management is an important element of any CSR activity. The only plausible way to engage in long terms CSR programmes is showing shareholders how socio-environmental strategies increase corporate profitability. However, it is usually at this stage that eyebrows start arching and disbelief settling-in. The concept of a CSR programme being built as a money making endeavor does not please the masses.
Indeed. Under no circumstances it would be savvy to expect the private sector to take over development and humanitarian activities, just like you would not be comfortable with a politician designing you next home (despite the hidden architectural skills a politician could have). The reason being competencies. A private sector entity considered to be successful will have a demonstrated know-how in the industry or sector where it operates. By entering a new segment (humanitarian or developmental), their core competencies would be diluted by non-value added services. Rather than reinventing the wheel, the best approach is to leverage international best practices from around the globe.
Some of the best examples I have seen come from the South-to-South Cooperation, or the technical exchange of knowledge and resources within developing countries, generally addressed as the “Global South”. When resources are limited, innovation and creativity are encouraged to overcome limitations present. Therefore the value proposition is in the establishment of knowledge sharing methodologies and frameworks where rather than pumping cash to remove barriers, more sustainable approaches are identified. Certainly you can now see the beginning of the trend towards CSR!
At a moment when global financial markets are dim, the tolerance for inefficiency is set to zero. Most companies, organizations and even governments go back to the design board and re-assess their strategies. So rather than focusing on short term greed, this post-financial meltdown era will be assessing sustainable growth and prosperity.
CSR is therefore a tool to implement strategies that would otherwise not make sense! The introduction of “soft” performance indicators allow senior management to assess non financial performance and, more importantly, allows for the shareholders to accept the fact that profits are not generated in the short term, but leveraged as medium to long term prosperity. Risks are mitigated through CSR and monitored regularly to ensure compliance to normative frameworks.
Management dashboards, balanced score card and sustainability reporting are some of the elements that will be considered. There is no model that universally fits the diverse nature of every business. On the other hand, a successful CSR programme is bespoke to the corporate culture and acts as a communication buffer between its stakeholders. What performance should we monitor? This is easy. Only monitor what is directly relevant to the core business itself. The number of indicators being standardized is only meant to provide guidance and benchmarking.
A motor insurance investing in road safety would do so predominantly to reduce premium payouts. Therefore the indicator of choice would be the payouts to the incident’s category being advocated against. A large scale developer is concerned with the cost of shared infrastructure required; hence energy efficiency in the individual household units has a positive impact on the capital investment and reduces the household’s running costs. Many examples worldwide can demonstrate the validity of the argument. The actual communication of the activity is a by-product, conceptualized by the respective communication units. Whether the focus is internal or external, corporate communication units would suggest an appropriate tool.
An important element in CSR is the concept of “voluntary”. When market forces or government policies govern CSR, what is being looked upon is mere compliance. There is no element of voluntary in the strategy. However efforts above the compliance threshold are what we consider CSR and therefore eligible for incentives. In Europe, the growth of CSR is linked to Taxes, whereas the organization utilizes this mechanism to drive public funds (taxes or incentives) towards themes important to its own industry.
However in a GCC environment, where taxes are not the issue, the government utilizes statistical data to generate the incentives and share public liabilities. In the case of environment, the example is easy, whereas projects that are less profitable but more environmentally friendly can avail of an added revenue stream through Carbon Credits to match (if not exceed) benchmarked initiatives.
There is a lot to be said, and in an effort to drive a widespread adoption of CSR practices, questions and comments are encouraged. A business-oriented FAQ on Corporate Social Responsibility and the numerous by products can become regular through a general participation form the public. In an effort to practice what we preach, this is our engagement strategy and unless we address the gap in perspectives, CSR will continue to be a misunderstood and inefficient.
