Corporate social responsibility (CSR) is a business model that helps a company be socially accountable for its actions. Alternatively known as corporate citizenship. It makes businesses, especially big multinational businesses aware of the impact they have on different aspects of society such as economics, the environment, employee and consumer rights, etc.
Engaging in CSR means that, in its course of business, a company is operating in such a way that it enhances society and the environment rather than causing its degradation. With the help of CSR programs, philanthropy, and volunteer efforts, businesses can benefit society while elevating their brands. Corporate social responsibility is a broad concept, it can appear different in different companies and industries.
To be socially responsible a business/company needs to be accountable to itself and its shareholders. Companies that take on CSR programs are the ones that are in a position where they can give back to society. Hence, we generally see big corporations adopting CSR as a strategy for virtue signaling. Having said that some corporations are actually giving back in meaningful ways as well, proving it is not just a strategy for brand promotion.
Now that we understand broadly what corporate social responsibility is, let us try to deconstruct why it is so important.
Importance of corporate social responsibility
1. It improves customers' perception of your brand
Social media makes it increasingly important for companies to have a socially conscious and politically correct image. Companies are held accountable for their actions by consumers, employees, and stakeholders alike. It has become more common for consumers, especially in developed countries, to prioritize CSR when choosing a brand or company.
To be respected in the public eye, a brand or company must appear to be a force of good, making a difference. Many brands advocate and raise awareness for social causes through campaigns, volunteer work, donations, and advertisements for their product or service.
2. It helps in attracting and retaining employees.
Society is becoming more socially conscious. This includes the young talent that will come and work for you. Increasingly, millennials and gen Z are choosing to work with jobs that align with their values than the ones that don't.
Additionally, when the company's and employees' values coincide, they are more likely to stay and actively contribute to its CSR initiatives. It also makes employees feel more connected and loyal to the corporation they work for.
3. It increases your appeal to investors.
A developed CSR program and initiatives make your company more appealing to current and future investors. Like customers, investors are also holding businesses accountable when it comes to their actions and impact on society.
When a company takes corporate social responsibility seriously, it shows that they are not just interested in short-term gains but in it for the long haul and are hence committed to sustainable development. Corporate social responsibility goes hand in hand with environmental, social, and governance metrics that help external analysts quantify the company's social efforts and becomes a key factor for investors' consideration and continued interest.
Types of Corporate Social Responsibility
Environmental responsibility is the key feature of corporate social responsibility. Through optimal operations and support of related causes, a company can ensure it leaves natural resources better than before its operations. Companies often take responsibility for the environment in the following ways:
- By reducing pollution, waste, natural resource consumption, and emissions through its manufacturing process.
Utilizing recycled goods and materials throughout its manufacturing.
Reducing negative environmental impacts by replenishing natural resources or supporting causes can help neutralize the company's impact. For example, a company that requires wood for manufacturing may commit to planting more trees and recycling paper.
Distributing goods consciously by choosing methods with the most negligible impact on emissions and pollution.
Creating products that align with company values. For example, a fashion brand can develop a line of clothes made from recycled materials or a beauty brand that discusses equality and diversity and launches that suit more skin colors.
Ethical responsibility means functioning in a fair, ethical manner. Companies shape their ethical goals and standards based on external forces or demands from clients, investors, and employees. Instances of ethical responsibility include:
Providing fair treatment to all customers regardless of age, race, culture, or sexual orientation.
Favorable treatment of all employees, including fair wages, incentives, and benefits. This includes fair employment opportunities for all and a functional work environment.
Expansion of vendors used to provide opportunities to small-scale vendors and producers.
Disclosure of operating concerns with investors in a timely and respectful manner.
External audits are published for the public to view. This increases transparency and builds a trusting relationship between the brand and the public/investors/employees.
Philanthropic responsibility shows the world/public how you as a company act and how you contribute to society. In some ways, philanthropic responsibility can be seen as the way a company spends its resources to make the world a better place. This may include:
Donations made by the company to charities and non-profits.
Whether a company donates the profit to charities or causes, it believes it.
Whether a company only enters transactions with big suppliers or works with small-scale/local manufacturers, labor, farmers, etc.
Whether a company supports employee philanthropic endeavors. For example, offer time off for volunteer work or match their donations to a particular charity or non-profit.
Whether a company organizes fundraising events for charities and social causes.
Financial responsibility is an essential facet of corporate social responsibility. It brings together the three areas mentioned above. If a company plans to be more environmentally, ethically, and philanthropically focused, it must back these plans through financial investments. In other words, they need to put their money where their mouth is.
For example -
Invest in research and development for creating environmentally friendly products, more inclusive products, etc :
R&D for new products that encourage sustainability.
Recruit a diverse workforce by providing fair opportunities to all.
Train its employees on DEI, social awareness, or environmental concerns.
Do timely external audits.
Have more open and transparent communication within the corporation and with the public.
- Corporate social responsibility is a business model. It prescribes companies to function in ways that enhance society and the environment rather than degrading them.
- CSR helps in promoting a positive brand image of companies.
- Corporate responsibility programs also help in raising morale in the workplace.
- CSRs are often broken into four categories: environmental impacts, ethical responsibility, philanthropic endeavors, and financial responsibilities.
I hope this helped improve your understanding of CSR and motivated you to adopt this business model.
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