Profit with a conscience

Corporate social responsibility is not only essential, it pays off too, says Gareth Chadwick
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The Independent Online

Corporate social responsibility (CSR) is nothing if not a mouthful. But the jargon disguises a very simple idea: that rather than being narrowly focused on the pursuit of profit at the expense of all else, businesses should behave responsibly in the course of their profit-making, taking into account their wider role and impact on society.

Corporate social responsibility (CSR) is nothing if not a mouthful. But the jargon disguises a very simple idea: that rather than being narrowly focused on the pursuit of profit at the expense of all else, businesses should behave responsibly in the course of their profit-making, taking into account their wider role and impact on society.

It is not a new idea. From philanthropic Victorian industrialists such as the Lever brothers, the Cadbury brothers and Titus Salt, to the Co-operative movement and recent innovators such as The Body Shop or Ben & Jerry's ice cream, businesses have tried to be forces for good in the community, not just exploiters of manpower. Ben & Jerry's, for example, contracted the Greystone Bakery in Yonkers, New York, to bake its brownies, a firm that used its profits to house the homeless and train them as bakers.

But whether it is building links with community groups, treating staff fairly and ethically, implementing waste minimisation policies or sourcing environmentally friendly suppliers, modern CSR, or CR (corporate responsibility) as it is often shortened to, has moved far beyond philanthropy.

Today, the case is focused on the practical, tangible benefits of businesses behaving in a more responsible way. "Businesses are much more aware of the broader impact of what they do. They increasingly realise that it is a false economy not to consider the social aspect, including environmental issues. If you do ignore it, it will eventually come back and bite you and there are likely to be financial consequences in that," says Erik Bichard of the National Centre for Business and Sustainability.

Clearly, there is still a strong moral case for businesses to try to have a beneficial impact on society. But that has always been the situation and with one or two high profile exceptions, there has been very little to show for it.

But the business case has become harder to ignore. One issue is recruitment. An undergraduate survey in 2003 conducted across the world's 20 largest economies found that three in five undergraduates would choose to work for a company that could demonstrate its ethical values and positive impact on society, while in the UK 80 per cent said they were more likely to stay in their jobs if their employer adopted a responsible approach to the work-life balance.

A second benefit is in terms of the new ideas and innovation that a close connection with the community can engender. Businesses don't operate in isolation from the rest of society and a stronger link between the two facilitates a better understanding of the market, of who the customers are and how best to service their needs.

The third element is reputation and branding. Over 85 per cent of consumers have a more positive image of companies that are seen to be pursuing more responsible business practices and over half of European consumers say they are prepared to pay more for environmentally responsible products.

It is a figure which is borne out by the rapid growth in the market for fair trade products. Sales of fair trade products grew by more than 50 per cent in the UK in 2004, with shoppers spending £140m on them.

CSR can also provide a competitive edge for smaller companies. As consumer choice increasingly takes ethical considerations into account, so larger organisations are exercising similar discretion when sourcing suppliers.

The CSR element can be a key differentiator. Businesses want to work with other businesses that reflect their own values and attitudes - and those of their customers. "If as a business you are behaving in a way which doesn't accord with the way your customers thinks you should be behaving, it can withdraw your license to operate. Look at Andersen. It was tainted by the actions of its client Enron and disowned by the market. It never recovered," says Bichard.

'CR merely for PR value doesn't work in the end'

Nick Isles, associate director of The Work Foundation, formerly The Industrial Society, a not-for-dividend research and management consultancy

"Corporate responsibility, or CR, is firmly entrenched in the business lexicon.

"No large or medium-size organisation can afford to be without its CR policies. Many have CR directors and departments. For some of these organisations, CR is just a shield to fend off criticism of their poor business practices. For others, being CR is an integral element of their overall business strategy. These businesses are committed to strategies and practices that others may describe as CR, but which they themselves see more accurately as a means of securing high performance.

"It is in companies' long-term interests to be responsible to their workers, their supply chain, the environment in which they work and their customers.

"Long-term profitability and success requires long-term strategic vision. And companies have to understand that people have greater access to more information about what companies do and how they do that. CR merely for PR value doesn't work in the end. Just look at Enron's annual CR report the year before it went bust."

'British companies take CSR seriously'

Professor Jeremy Moon is director of the International Centre for Corporate Social Responsibility at Nottingham University Business School

"CSR has had its up and downs. It was big in the USA in the late 1960s and early 1970s. It emerged in the UK in the early 1980s in the wake of riots, mass unemployment and social alienation, particularly in urban areas.

"But CSR is getting more institutionalised now, which suggests it will endure. There are business associations devoted to it. CSR guidance and reporting systems are built into general policies on accountability and governance. It is even increasingly an investment consideration.

"A key phrase in understanding its development is: 'It is not what you do with your profits, it is how you make your profits', how you actually do business at a day-to-day level.

"British companies are among the leading international companies in CSR, whether it is signing up to relevant business associations, reporting their social responsibility or engaging in detailed stakeholder relations. Whatever the drivers may be, it is evidence that British companies take CSR seriously and feel it is important to demonstrate that, not just domestically, but internationally."

'MPs need to be informed about CSR'

Baroness Greengross is chair of the All-Party Parliamentary Group on Corporate Social Responsibility

"One of the reasons that this Group was set up was because we found that there was a very poor level of knowledge of CSR among MPs and only a slightly better one among members of the Lords.

"But it is terribly important that MPs are well informed about CSR. If you are an MP representing an area where there's a lot of deprivation, initiatives from the corporate sector can make a big difference to your constituency.

"Smaller companies may worry about the cost, but the benefits far outweigh any cost in terms of reputation and image. You can't just look at it in terms of cash, because you can't sustain the environment by giving a donation.

"It is part of an important dialogue between society as a whole and the corporate sector. There is a growing expectation that business is accountable. People want to know what businesses are doing in terms of the environment. They want to know why business isn't being more responsible and ethical. That might frighten some organisations, but it is a positive part of the pressure group culture we live in. And pressure groups can often be much more influential than politicians."

'Integrating CR into the business is essential'

Bruce Bendell is director of corporate responsibility at United Utilities plc.

"It may sound trite, but our main CR focus is on the business itself. Getting customer service right, getting our environmental approach right, using resources efficiently, treating our staff appropriately.

"I don't claim that we have got it absolutely right yet, but we try to integrate CR into the business. This is essential. If you treat CR as something else, a sideshow which is largely run by the marketing team, it never gets integrated and it will never become sustainable. And it fools nobody.

"We have a partnership with the Prince's Trust, which encourages enterprise among young people. We we work on projects with them, but the crucial glue in the relationship is that we encourage our staff to volunteer to be mentors on their programmes.

"If you look at it as a business driver, if you want to develop employees with leadership and teamwork skills, what better way of doing it? It teaches them more than a training course.

"It might be hard to find a direct correlation between CR and business success. But if you look at the companies that take CR seriously they tend to be successful businesses. I don't think that is completely coincidental."

'Good to talk? We've found it's better to listen'

Caroline Waters is director of people and policy at BT

"Being socially responsible means treating your own employees responsibly. It is about sustainability. It's about the future and nature of business.

"Any successful business is about its people. By being a responsible business you're building trust-based relationships. It's a whole new kind of employment contract. A psychological contract with the individual which gives you huge voluntary contributions from them and really makes for a different kind of organisation.

"It makes basic business sense. Society - and that includes customers - is becoming more demanding and you have to respond to that. More and more people tell us that they make consumer decisions on the basis of whether they think a company behaves responsibly, and that includes its policy towards its employees and the role it takes in society.

"For a company that has had 'It's good to talk' as its strap line, what we've really found is it's better to listen. So we regularly engage with our people trying to understand what their needs are and how we can work in the broader society to help create that environment."

'Social enterprise takes CSR one step further'

Jonathan Bland, chief executive of The Social Enterprise Coalition, the trade body for businesses that exist solely for a social purpose

"Social responsibility is an increasingly mainstream business issue. For example, there has been a big increase in FTSE-250 companies reporting on their activities to a far greater extent than they are legislatively required to do.

"Social enterprises take it one step further. The whole point of a social enterprise is to deliver social or environmental goals. They want to be profitable, but their purpose isn't to maximise shareholder value, it is to tackle some of the social and environmental challenges that face us. It's a totally different business model.

"Social enterprise is about that triple bottom line, not just financial return, but social return and environmental return as well. But the enterprise bit is very important, too. It's about using a business model, not a traditional share-building model, but nonetheless a business model that has to operate in the market successfully and make profits. The profits are then re-invested into the business to do more good or to benefit a wider group of stakeholders than simply investors.

"You're in business solely for the benefit of that wider group of people."

'Far too often companies go for the safer option'

Simon Williams is director of corporate affairs at Co-operative Financial Services, which incorporates the Co-operative Insurance Society (CIS), The Co-operative Bank and Smile

"We believe business leaders should be much braver when it comes to championing causes. Far too often companies fail to grasp the nettle and instead go for the safer option.

"It is our experience that consumers are more knowledgeable of issues than they are generally given credit for and that they do recognise those companies who genuinely try to make a difference.

"The bank's Customers Who Care (CWC) campaign began in 1994 as a response to reward programmes offered by many credit card issuers. But CWC is not just about cheques to charities.

"Under the CWC banner, the bank has campaigned on a wide range of important and often controversial issues, such as for trade justice for the world's poorest countries. With CWC we donate money spent on cards to campaigns. A regular newsletter keeps account holders informed of progress on individual campaigns and offers customers the chance to vote for which good causes should receive the donations."

'We'll help investors make informed choices'

Simon Wilkinson is head of regulatory news service at the London Stock Exchange

"With pressure groups sometimes dismissing companies' social and environmental reports as 'greenwash', third party verification is increasingly commonplace as a means of bridging the credibility gap.

"This is a positive development, but a serious side effect has been the creation of an assortment of standards, questionnaires and codes. Responding to them all can be a major drain on companies' time. For investors, and consumers too, the mass of information is overwhelming.

"Working alongside leading research agencies, the London Stock Exchange is trying to address the problem through an online Corporate Responsibility Exchange (CRE). It serves as a single venue for companies to report non-financial information and will soon enable fund managers and, in some cases, the public, to access that.

"More streamlined reporting cannot change corporate behaviour overnight, but it will bring a better understanding of all the factors affecting a company's long-term performance. This will enable investors to make better informed choices and that is something to be welcomed."