45 Forces Driving Corporate Social Responsibility
As the popularity of corporate social responsibility (CSR) and sustainability grows, it is interesting to investigate the various drivers of its growth. Why are businesses engaging in CSR? What are their motivations? Where are the demands coming from? As we'll see in this article, these drivers are many and varied, and they come from every different stakeholder group imaginable.
I have organized these drivers into overarching themes. Despite this separation, it is worth noting that many of these drivers are related and complementary. It is a necessary simplification that we review them here in a linear fashion.
With no further ado, here are the 45 biggest drivers of corporate social responsibility and sustainability.
Increased Public Expectations: More than ever before, the public-at-large is placing social, ethical and environmental expectations on organizations large and small. Many companies are now engaging in corporate social responsibility simply to catch up with these expectations.
Ethical Consumerism: Ethical consumerism is a strategy to encourage sustainability and responsibility in our systems of production and consumption, by making purchase decisions based on social and environmental criteria. This strategy is increasing in popularity. In the UK, for example, spending on ethical food and drink increased threefold from 1999 to 2008. Green home expenditures increased fivefold and spending on eco-travel and transport increased ninefold. [See also: Guide to Ethical Consumerism]
New Markets: Not only are these trends increasing demand for socially-responsible, sustainable products, they are also creating whole new markets centered on them. For example, organic foods, green brands, and locally-produced goods are niche markets quickly becoming mainstream. Further, heightened demand for energy conservation and renewable energy has propelled a rapidly-growing environmental industry focused on innovation to meet those needs.
Socially Responsible Investing (SRI): Consumers aren't the only ones demanding social responsibility. Investors large and small are incorporating ethical criteria when making their investment decisions. By 2007, at least $2.7 trillion in assets was managed using an SRI strategy, an increase of nearly 18% from two years earlier. Institutional investors control the majority of these assets but SRI-focused mutual funds, ETFs, and other pooled investment products are also growing in popularity. SRI indices, such as FTSE4GOOD, the Jantzi Social Index, and the Dow Jones Sustainability Indexes, are also facilitating investment in socially responsible companies.
Shareholder Activism: Investors are also bringing their social concerns straight to the boardroom. Shareholder resolutions related to social and environmental issues have steadily increased year-on-year. Through these resolutions, activist investors attempt to sway management policies either by passing a binding resolution or simply by forcing the board and senior management to respond publicly to social concerns. And shareholder support for these resolutions is growing too: a 57% increase from 2005 to 2007.
Managers' Values: Despite these external drivers, perhaps the most important drivers of CSR at many companies, especially smaller ones, are the personal values and attitudes of business leaders and owner-managers. Evidence shows that many social responsibility initiatives simply arise because the CEO feels a moral obligation to act while recognizing the opportunities the company has to create positive social change. Middle managers too, are often the socially-responsible change agents, even without the support of top management.
Lack of Meaning at Work: Some of this activism by managers can be attributed to feeling that their work is unimportant and insignificant. Many managers have been successful in their business roles but have not been rewarded with a meaningful impact on the world. Many are turning to CSR as a way to add meaning to their everyday work by having a visible positive impact on their workplace, their community, and their world.
Grassroots Employee Activism: Indeed, employees at all levels are suffering a lack of meaning at work. Even at the lowest levels of many companies, entrepreneurial employees are launching their own initiatives targeting social and environmental issues within the context of their company. Oftentimes, word of these initiatives and their successes will reach the boardroom, and will inspire top management support for a more formalized CSR program.
CSR & Ethics Education: In response to the growing interest in corporate social responsibility, companies are sending staff to workshops focused on sustainability, ethical decision making, and other dimensions of CSR. MBA programs worldwide are incorporating these aspects into their curriculum. These programs aren't only in response to CSR interest, they also enhance interest by reinforcing CSR principles, establishing them in the mainstream, and giving managers the confidence to implement CSR successfully.
CSR Reporting Norms: Nearly all of the world's largest corporations now report their social and environmental impact (see the KPMG study here). And as more companies report, more are being driven to follow suit. The reporting norm is even spreading to smaller companies. As a driver of CSR activities, this norm is important because these companies need to create positive initiatives to include in their reports. Of course, some reporting companies that aren't sincere about CSR have attempted to "greenwash" their activities, but this becomes more difficult as the public becomes more better informed and more demanding.
Social Awareness: A greater proportion of the population is now acutely aware of the major social and environmental issues that plague our planet. To a large degree, our education systems can be credited for this. Social problems and environmental threats are now covered extensively in most school systems. But media coverage and the activism of non-governmental organizations and celebrities are also responsible for a mainstream concern about society and the environment.
Entitlement Generation: Generation Y has been labeled - often pejoratively - the "entitlement" generation, for having high levels of self-esteem and an expectation that the world should yield to their preferences. But Generation Y is also helping to drive CSR forward because, more than any generation before, they are demanding jobs which are meaningful, companies that are responsible, work-life balance, and an environment that makes them feel good, respected, and appreciated. Even with youth unemployment between 15 and 20%, many first-time job seekers are declining second-best job offers, instead waiting for companies offering a better experience.
Diminished Trust in Business
Financial Crisis: The financial crisis has eroded trust in many industries. 77% of Americans trusted businesses less in 2009 than a year before. 58% trusted companies to do what is right in 2008 versus just 38%, the lowest level in ten years, when asked again in 2009. Companies working to regain public trust will use corporate social responsibility to bolster their image and reputation.
Corporate Ethics Scandals: In the last decade, a number of high-profile corporate scandals, from Enron to AIG to Nortel, have not only eroded corporate trust, but have also spurred calls for greater accountability and assurances of corporate responsibility. Perhaps most disturbing, these scandals impact whole industries, not just the parties involved. In the wake of Enron and Arthur Andersen, for example, public trust in auditors fell and the accounting profession as a whole was forced to do damage control.
Perceptions of Greed: Financial crisis and ethics scandals, while bad in their own right, have created a much more dire situation: a public perception that many companies and senior business leaders are driven solely by short-term greed. To combat this perception, leaders are doing three things: a) taking action to demonstrate long-term thinking, b) publicly showing generosity, and c) considering the needs of their full range of stakeholders. All three of these things are key components of CSR.
Supply Chain Demands
Ethical Consumerism "Trickle Down": For a time, business-to-business companies were insulated from the demands of ethical consumers; their corporate clients didn't generally have ethical buying criteria. But all that has changed as customers are now looking deep into a product's entire supply chain when evaluating the company that sells it. Subcontractors, outsourcers, and suppliers of all kinds are now being held to the same social and environmental criteria as front-line, customer-facing distributors.
Sustainable Procurement: Ethical consumerism is just one factor driving sustainable procurement, but companies with all sorts of CSR motivations are incorporating their supply chain into CSR programs and policies. In fact, ethical procurement is one of the most popular CSR initiatives because, depending on the supplies being bought, it can be fairly easy to implement.
Certification Programs: In order for buyers to verify the social and environmental record of their suppliers, many are turning to certification programs that provide independent verification. ISO 14001 was one of the first and most popular of these programs, but many more have been launched since. And as these programs become more numerous and well-established, they will facilitate sustainable procurement by those for which it would have been impractical before.
Ethical Labeling Initiatives: Some buyers look to ethical labeling initiatives to provide the information they need to make ethical procurement decisions. Others are driven to purchase ethically because these labels exist on their own products. Ethical labels put information about a product's social and environmental impact directly on the packaging, and this transparency motivates sellers to engage in CSR and ethical sourcing in order to improve these statistics. As a profound example, Walmart's upcoming sustainability index, which will roll out to each of its 100,000 global suppliers, will drive CSR initiatives at most, if not all, of those suppliers.
Waste Reduction & Operational Efficiency: One common myth of corporate social responsibility is that it is costly to implement. But on the contrary, many companies are being driven to engage in responsible business practices out of a desire to save money. Firms that conserve energy & resources and create a more efficient value chain help the environment and their bottom line. Some companies are even earning revenue through their activities. For example, some are installing solar panels on roofs and selling energy back to the grid.
Fluctuations in Energy & Resource Prices: Another reason driving energy and resource conservation is that it helps insulate companies from fluctuations in resource prices, a significant business risk in many industries.
Workforce Engagement & Pride: Employees that share the social, ethical and environmental values of their company are far more likely to be engaged, to be productive, and to stay with the firm. Even as far back as 1997, this fact could be appreciated. One study showed that amongst those employees saying their organization's ethics were positive, 86% were highly committed to the company. Among those not regarding the firm's ethics highly, only 14% were similarly committed. As companies in many industries struggle to recruit and retain top talent, and as workforce engagement is at some of its lowest levels ever, many companies will engage in CSR to overcome these challenges and bring their workforce together.
Commoditization: As globalization spreads, as market barriers break down, and as technology is diffused, the products and services sold in many industries are becoming commoditized. That is, they are becoming indistinguishable from supplier to supplier in terms of quality, service, convenience and price. Social and environmental performance has become a new way for companies to differentiate themselves from their competitors and command greater market share, especially when the traditional methods of differentiation are infeasible.
Brand Image & Reputation: For some companies, corporate social responsibility is becoming a core component of their overall branding strategy. Given the positive impact that CSR can have on a firm's reputation, and the usefulness of CSR to bond with stakeholders on an emotional level, firms are increasingly turning to it as an alternative to traditional marketing activities.
Technology & Media
Affordable "Green" Technology: As technology improves, costs for renewable energy and "green" technology will fall, becoming more attractive to buyers from a cost-benefit perspective. Ultimately, the argument that these sustainable technologies are too costly will completely erode. We are already seeing instances where these practices can save money, and as technologies improve, the number of these instances will increase.
The Internet & Social Media: Once, the internet enhanced the public's access to information - including information about social issues and the social & environmental performance of companies. With "Web 2.0", this diffusion of information has reached new levels. On Facebook, Twitter, Myspace, thousands of review sites and tens of thousands of discussion forums, people's compliments, complaints, and criticisms are readily shared with the world. And customers are listening. Thanks to social media technology, even a single incident can become a major controversy (consider Dave Carroll's broken guitar song on Youtube that created a PR nightmare for United Airlines). Companies ignoring their broad spectrum of stakeholders now risk a backlash that can be viral in a matter of hours.
Mobile Access to Information: Information once accessible only while sitting in front of a desktop computer can now be at your fingertips wherever you find yourself. Standing in the dairy aisle of the grocery store with just a cell phone, you can scan the bar code of a product and learn about its environmental footprint and the producer's CSR record. Information like this - easy, fast, and free - is making it far more practical for individuals to make split second decisions based on social and environmental criteria. Although still new, these technologies will quickly enter the mainstream. [For more information, see the discussion of "Good Guide" in our article about ethical consumer resources.]
Crowdsourcing: "Social media" isn't the only thing giving individuals a louder voice. The traditional media is complicit too. Many prominent news outlets (CNN perhaps being the most famous example) have turned to the public-at-large to provide news reports and opinion. Their focus is now less on reporting the facts of a story, and more on reporting public reaction. Expert commentary is slowly being supplanted and some networks are even using social media applications, like Twitter, to comb and report public sentiment.
Climate Change: With widespread scientific agreement that human activity is responsible for increasing greenhouse gas concentrations and rising mean surface temperatures, the pressure is on for those responsible to halt the trend. Thus, many consumers are searching for products with smaller environmental footprints. And businesses, which directly cause the majority of all greenhouse gas emissions, are reducing their dependence on fossil fuels, reducing waste and unnecessary packaging, and taking other measures to avoid the consequences of global climate change and the public criticism associated with their role in it.
Resource Depletion: Oil is undoubtedly the most often discussed depleting resource, but other renewable and non-renewable resources are also facing resource depletion as demand grows beyond the capacity of current supplies. These constraints drive up prices and lead progressive companies to seek alternatives and find ways to manage current resource stocks in a more sustainable fashion.
Development and Industrialization: To meet consumer demand domestically and abroad, and to facilitate their own economic development, developing countries like China, India and Brazil are undergoing rapid industrialization. But we already know that our current levels and systems of production and consumption are environmentally unsustainable. Should the planet have any hope of maintaining our current standards of living, these systems will need to change dramatically. Companies are being pressured to engage in CSR, particularly the innovative aspects of it, in order to realize this change.
Inequality: Globalization was once touted as a great equalizer - a force that would close the gap between countries rich and poor. To some extent, this has happened. One need only look at Taiwan, Hong Kong, Vietnam and now Mainland China to see how export-oriented growth can indeed bring millions of people out of poverty. But, by and large, the benefits of globalization have accrued disproportionately to multinational companies and their shareholders and the consumers in the "West" that enjoy the low prices of products built overseas. CSR is being driven by those that seek to redress this inequality and some specific initiatives, like Fair Trade, target this issue directly.
Heightened Competition: Globalization has also forced domestic companies to compete like never before, often with foreign firms that have different core competencies, resources, and strengths. In response to this heightened competition, some companies are turning to their social and environmental record to differentiate themselves. Others have no choice, because their new competitors are already leading the way in CSR and they are forced to play catch up.
Values Exporting: Domestic companies that also operate in developing nations offer a unique opportunity for those concerned with international development. By persuading these companies to adopt the development cause, they can "export" things that we largely take for granted, like a living wage, occupational health and safety, and freedom from harassment. Individuals and groups inside and outside of these companies are recognizing this opportunity and are pressuring firms to carry out this bidding in order to apply their social values overseas.
Government & Regulation
Regulation on Social & Environmental Reporting: In a fairly recent development, some jurisdictions are now pursuing legislation or securities regulation that would force companies to report on social and environmental performance, similar to mandatory financial reporting to shareholders. These laws will have a similar effect as the CSR reporting norms already established for large companies, but more pronounced and more widespread.
Taxes, Penalties & Subsidies: Governments are also using positive and negative financial incentives to encourage more sustainable behaviour by both individuals and corporations. Here, governments attempt to reward companies for the positive impact they have on society as a whole, and punish them for negative impacts. Typically, these social benefits and costs (often referred to as "externalities") are not included in the normal prices that a company faces, which is why profit-maximizing firms might engage in less CSR than would be socially-optimal. Through financial incentives, governments attempt to correct this problem and encourage appropriate levels of CSR.
International Treaties: Another important type of government intervention driving CSR involves national accession to international treaties. Generally these treaties target specific areas of CSR, for example the UN Declaration of Human Rights, the Convention on the Rights of the Child, the Convention Against Corruption, the Montreal Protocol on Substances that Deplete the Ozone Layer, the Convention on Environmental Impact Assessment in a Transboundary Context, and so on. Some treaties have been straightforward, built upon a widespread existing consensus. Others have been far more controversial, such as current attempts to develop an ambitious climate change mitigation treaty. In either case, these treaty efforts are indicative of growing pressures for public bodies to address CSR-related issues.
Voluntary Regulation & Industry Codes of Conduct: Whether out of attempts to avoid binding government regulation or simply out of a growing consensus that social issues are important, many industries are attempting voluntary regulation. For example, the Electronic Industry Code of Conduct is a set of guidelines on labour practices, health and safety, environmental management, governance and ethics that can be voluntarily adopted by interested companies. The mere existence of these codes encourage CSR activities, and can punish the image of companies that hesitate to participate.
Perceived Government Failure: Through most of the 20th century, social and environmental concerns were considered the domain of government. Now, despite the actions discussed above, many feel that government has failed to properly address many of these issues. Lobbyists, whether individual citizens or well-organized advocacy groups, are turning their attention to companies, who have the potential to solve many social and environmental problems directly, without the lag and bureaucracy of government. [See also: Why Not Leave "Social Responsibility" to Governments? for more reasons.]
Global Governance Challenges & Political Conflict: A major area where governments have difficulty is in issues of global governance. These are issues that, like climate change and international trade, involve and affect people and organizations in many different countries. The response to these problems requires the cooperation and coordination of many different jurisdictions. Sometimes, this has been straightforward, like in some of the international agreements named above. Other times, it has been incredibly contentious and has led to a great deal of political conflict. In these cases especially, there is pressure on other global actors, especially corporations, to take voluntary action instead.
NGO Pressure: A major role of the non-governmental organization (NGO) is to raise public awareness of social issues and to pressure those with the power to fix those issues. This activism is responsible for much of the increase in public awareness of social issues and the questionable activities of some companies, as well as shifting attitudes toward the social role of the corporation.
Partnership Opportunities: Corporations and NGOs historically had adversarial relationships, precisely because of the pressure corporations felt from NGOs and the fact that many NGOs regarded companies as untrustworthy, unfeeling, capitalist machines. Today, many companies and NGOs are recognizing the benefits of cooperation. Corporate-NGO partnerships have grown considerably in recent years and companies can enhance their credibility and reputation, build relationships with the social sector, and gain expertise. The possibility of these partnerships is thus just another driver of CSR activities.
International Standard Setting: Major international standards and methodologies, such as ISO 14001, ISO 26000, the UN Global Compact, the Equator Principles, the GRI Guidelines, the AA1000 Standards, and the SA8000, drive CSR in at least four ways. According to Wayne Visser of CSR International, these codes can be activist tools that strive to shift awareness and behaviour; they can generate and consolidate consensus; they can embed incremental improvement, giving companies a path to follow in order to improve performance; and they can completely change industry sectors, like the Forest Stewardship Council has done to the forestry products industry.
Independent Certifiers & Auditors: The emergence of independent certifiers of social and environmental performance, together with public interest in CSR performance, leads to demands for and expectations of the performance needed to meet those standards. Companies attempting to demonstrate their social responsibility to stakeholders will be motivated to improve performance in order to attain the recognition of certifying bodies.
CSR-themed Membership Associations: Finally, companies in all industries are being encouraged to join membership associations focused on social responsibility and sustainability. For example, Canadian Business for Social Responsibility (CBSR) in Canada, Business for Social Responsibility (BSR) in the UK, and the Boston College Center for Corporate Citizenship in the US. These organizations provide a platform to share stories, best practices, advice, and encouragement regarding the practice of CSR.
What else is driving corporate social responsibility at your company? Please leave a comment below!
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