The business case for CSR is complex, yet, in a more sophisticated,
inter-connected, post global-recession world, the business case is stronger
than ever before.
Moreover,
climate change, poverty, social disenfranchisement and inequality must be
addressed in a meaningful manner that is both qualitative and quantitative.
With economic uncertainty and weakness, governments are reluctant to put
greater burdens on business, as economic growth is essential if we are to create
a fairer, more idealized world. And, as expressed frequently by CEOs and CFOs,
creating new revenue streams, cost efficiency, corporate value and the
mitigation of risk are seen as main priorities for business. And yet, here lies
the business case for CSR.
Firstly,
businesses who do not manage their impact on the environment and the impact on
the societies within which they operate will begin to hand their business over
to competitors who are taking a lead in understanding what CSR can bring to
their business. This view is supported by the Carbon Disclosure Project –
Supply Chain Report 2012, which states: “Suppliers that do not measure,
quantify, and manage their greenhouse-gas emissions will soon see their
business move to competitors that can provide better information and clearer
evidence of change.” Indeed, the evidence supporting this statement, from the
CDP 2012 report, states of respondents to their survey that 39 percent will
soon begin deselecting suppliers that do not adopt such measures (compared to
17 percent in 2009 and 23 percent in 2010).
Understanding
CSR and the wider workings of sustainability delivers competitive advantage.
Yet, to reap the rewards, there has to be a change in attitudes and behavior.
And, whilst being simply the application of common sense, it needs leadership.
Essentially, business leadership sets the tone for the company, being based on
what the CEO stands for, what their ethics and values are; to inspire, engage
and motivate every employee, and all stakeholders in that business: to create
balance, and bridge the duality of making money whilst addressing environmental
and social concerns.
However,
leadership takes many forms. The CEO sets the tone, but leadership can also
include individual employees who, for example, represent the company’s values
and build the advocacy for the company to exist, as well as inspire other
employees, while assisting the company towards its overall leadership
ambitions.
Responsible
leadership ensures CSR issues are factored into the core business model, taking
action on key issues: people or planet and empowering future leaders, as well
as leading the public discussion on responsible business issues.
Building
Cost Efficiency
Additionally,
responsible leadership imbued in the precepts of CSR protects the business
against the vulnerability of employee instability. For example: unequal and
disengaged employees are more vulnerable to concerns related to job loss or age
concerns so fostering discontent among those who are excluded from the benefits
of the social and economic progress enjoyed by some. Thus, gauging the impact
of income inequality in the business could be expanded to measuring how
excessive inequality could be expected to have a negative affect on
productivity. Therefore, CSR bridges the gaps, creating cohesion, and supports
sustainable competitiveness and productivity because it requires focus on
economic performance, employee development and cohesion.
This
further underpins the case for embedded sustainability, ensuring that goods,
services, labor and financial capital are allocated in the most productive
manner, which delivers technological readiness, business sophistication, and
innovation, to represent both short and long-term drivers for competitiveness.
Furthermore, with evidence suggesting CSR attracts best talent, there is a
natural progression toward evolving products and services reducing customer
impact since well educated workers are able to adapt rapidly to their changing
environment and the evolving needs of the production system.
A Positive
Halo for the Brand
Therefore,
CSR creates a positive halo for the brand amongst staff, developing the right
experience, chemistry and attitudes for the staff to be proud, while creating
the right spirit with which customers are engaged and attracting the new
customers for both the new range of eco-efficient products and services, as
well as attracting new customers away from competitors who still run on the
corrosive out-of-date operations of yesterday.
In
addition, the interdependencies of innovation, engagement and learning are
considered a major aspect to retaining employees (saving money) and improving
their productivity (generating money). And the increase in contribution and
satisfaction elicits improvement to both the bottom line as well as the top
line. Indeed, this outcome, shown to have occurred during the “Great
Recession,” suggests companies are becoming more sophisticated in their
approach to being a responsible business, with more value realized from, and
for, employees.
Create New
Income Streams
For
example, innovation is driven by highly motivated and engaged organizations in
the search for the creation of new revenue streams and the attraction of new
customers for the shifting markets towards more sustainability orientated
products and services. This has been borne out by GE, who first launched its
Ecomagination drive back in 2005. Ecomagination very quickly generated 6.5
percent of company sales, and by 2010 was generating approximately 10 percent
of GE revenue – representing $18 billion.
But CSR
goes further towards creating company value, through traversing risk management
and the understanding of corporate vulnerability. For example: goodwill and
enhanced reputations can reduce risk of boycotts and minimize negative press.
And, as the internet has improved access to information, it also has created
many more corporate touch points with negative “events” being communicated to
millions of people in a matter of hours, and consequently facilitated public
pressures on organizations such as exposure to previous unknown supply chain
vulnerabilities such as corruption, child labour or conflict minerals. First by
identifying risk better and by then reducing exposure to risk, companies
protect against financial shock and create awareness of cost savings.
Basically, positive community relations help to decrease exposure to risk and
conflict and protect a company’s social contract, i.e. its license to operate.
Measuring
the Risk
Ultimately,
CSR traversing Risk Management is an opportunity to understand the
vulnerabilities in the company’s value chain better, protect its brand and
organization in a wide ranging, over-arching long-term manner, forcing the
organization to understand and deal with the multiple environmental and social
stressors such as climate change, deforestation, pollution, ocean health,
bio-diversity protection and the rise of climate change refugees and
urbanization. These issues are being driven by the market, by the rising
stakeholder expectation that businesses have a role in addressing these issues
and that they have a duty of care to be a good corporate citizen.
CSR as an
Agent of Change – Driving Value
The
combination of these agents of change has a positive financial impact that is
felt throughout the organization and its value chain. As such, not only does
the company create the attraction of new revenue streams, but also, for
example, attracts the investor community, who are becoming more sensitive to
the ethical nature of their investment portfolios. As such, Socially
Responsible Investment (SRI) is benefiting organizations through improving
access to capital. Indeed, as of April 2012, over 1000 investment institutions
have become signatories of the United Nations Principles for Responsible Investment
(UNPRI), with assets under management in excess of $30 Trillion. Moreover, as
discussed by the International Integrated Reporting Committee: “The need for a
broader information set is clearly demonstrated by the small percentage market
value now explained by physical and financial assets – down to only 19 percent
in 2009 from 85 percent in 1975. The remainder represents intangible factors,
some of which are explained within financial statements, but many of which are
not.”
The
information investors are seeking is in line with a strategic sustainability
policy and its reported schedule of actions and achievements. This is
particularly pertinent for listed companies, who are more used to including
sustainability in their annual report and accounts. Reporting is a commitment,
and a company’s statement to stakeholders throughout the value chain.
Notwithstanding non-listed, smaller companies, in the supply chain, are just as
affected, as investors need to understand the vulnerabilities that lie in that
supply chain.
Thus,
sustainability reporting is pivotal to the health of any company across the
globe. Indeed, if there is a poor level of reporting it would be deemed the
business must have climate-related risks. Silence presumes guilt. Because such
reporting is becoming commonplace, any due diligence is going to demand
reporting as part of the process.
Common
sense will ultimately prevail, and reporting will become regulated and
obligatory. It is better to get used to it now, and make the preparations for
the behavioral change to start saving money whilst creating new opportunities.
Financial
reporting laws already require companies to disclose any information that may
have a material effect on a company’s health, now, or in the foreseeable
future. With the adoption of SRI there have had to be an increase in the tools
available to make this more inclusive.
For these
reasons, disclosure is becoming contractual and insistent as climate change and
social inequality is being pursued through the market and inter governmental
drivers.
CSR and the
wider sustainability agenda assist in creating new revenue streams, cost
efficiency, corporate value and the mitigation of risk, which are seen as main
priorities for business.
Christopher
Gleadle is author of Sustainable Growth Through Sustainable Business and
founder & CEO of the sustainability performance agency The CMG Consultancy.
Source
Environmentalleader
