Companies and organizations are powerful entities. Though they have the potential to harm in the pursuit of profit, companies have just as much potential to do good. This “good” is corporate social responsibility (CSR), and it’s quickly becoming a necessity in the corporate world.
What Is CSR?
CSR, also called corporate sustainability, is defined as corporate initiatives that address social and environmental concerns, including pollution, natural resource depletion, public health, and the needs of the poor. A company’s CSR efforts are measured by the triple bottom line—an alternative business approach that considers environmental, social, and financial performance.
Some argue that CSR goals impede economic growth, but mounting evidence shows just the opposite. Arabesque and University of Oxford reviewed 200 studies of corporate sustainability and business performance and found that:
- 88 percent of the studies concluded that sustainable business practices result in better operational performance.
- 80 percent showed that stock price performance is positively correlated with sustainability initiatives.
In 2015, Fortune said it best:
Real sustainability efforts are core business efforts; because they are not always easy, they can help a company raise its game and perform better in all kinds of ways.
Why Is CSR Important?
Corporate social responsibility has become deeply ingrained in business strategy for several reasons. Here are the five biggest business benefits of corporate sustainability.
1. Minimized Risk.
Corporations with supply chains around the world can’t afford to ignore the damaging effects global warming and civil conflict. Problems like flooding, resource scarcity, and poor labor conditions at the supply-chain level can threaten a company’s operations and potential revenue.
For example, shifting climate patterns can change growing conditions and seasons, increase pests and plant disease, and lower crop yields. Harvard Business Review reported that after a 2010 drought, the agribusiness firm Bunge lost $56 million in its sugar and bioenergy segments. In 2011, flooding in Thailand affected 160 textile companies and halted almost a quarter of the country’s garment production, increasing global prices by 28 percent.
Business leaders who invest in CSR are investing in their business’s future. While calculating immediate costs of sustainable efforts, they should also ask themselves: What is the cost of inaction?
2. Constant Innovation.
Sustainability not only reduces risk, it also drives innovation. Redesigning products or services to meet environmental or social standards offers new business opportunities.
In 2016, Tesla, IKEA, Whole Foods, and nine other global companies made billions selling products created with social and environmental good in mind. Unilever says its “brands with purpose” are growing at twice the rate of its other product lines. And the company continues to fuel product innovation through corporate sustainability. Since Unilever introduced new Dove Body Wash bottles manufactured with less material, the company has saved 275 tons of plastic annually on that product alone. In response to water crises in several countries, Unilever developed self-foaming hand soap and laundry detergent that uses less water to rinse out. Sales of these soap products are growing fast, especially in those water-scarce markets.
3. Cost Savings.
The perception that corporate sustainability isn’t profitable has stuck around for a long time. Why? Because the notion that “the only business of business is profit” still lingers in the American conscious. So do the failed low-quality, high-priced environmental products of the ‘70s and ‘80s.
Despite this, sustainable businesses have proved that better operational efficiency and management of resources can result in significant cost reductions. Since 1994, Dow has invested $2 billion in improving energy and water efficiency in manufacturing, which saved the company $9.8 billion. In 2013, GE reduced greenhouse gas emissions by 32 percent and water use by 45 percent, saving $300 million.
One study reported that between 2006 and 2010:
The top 100 sustainable global companies experienced significantly higher mean sales growth, return on assets, profit before taxation, and cash flows from operations in some sectors compared to control companies.
4. Investor and Consumer Loyalty.
Okay, organizations can reduce risk, fuel innovation, and save money by acting responsibly. But do investors and consumers really care about corporate social responsibility? Research shows that the majority of them do.
A 2015 survey reported that 59 percent of investors view nonfinancial disclosures—such as environmental and social business factors—as essential or important to their investment decisions.
And then we have consumers. Today, people can pick from a range of reasonably priced, high-quality products. So, a company’s transparency and honesty becomes a factor in the buyer’s decision. In 2013, a corporate social responsibility survey reported that nine in ten customers would boycott companies they believe are irresponsible. This trend has held up in recent years. In 2017, 50 percent of millennials said they would be more willing to buy from a company that supports a cause. Almost 40 percent said they would pay more to purchase a product or service that supports a cause they believe in.
5. Happier, More Productive Employees.
One of the least talked-about benefits of CSR is its effect on employee recruitment, retention, and morale. Today, employees are more focused on the mission and purpose behind their work.
Research shows that in companies that prioritize CSR, employees are 16 percent more productive and morale is 55 percent higher. Greater corporate sustainability performance is also correlated with 25 to 50 percent reductions in turnover.
To see these business benefits of CSR, organizations need sustainable management professionals on staff. Sustainable managers are experts at leading change and implementing corporate sustainability initiatives that will be good for business as well as people and the planet. Read more about sustainable managers.
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