10 reasons why CSR is important for your business

Corporations are motivated to involve stakeholders in their decision-making and to address societal challenges because today’s stakeholders are increasingly aware of the importance and impact of corporate decisions upon society and the environment. The stakeholders can reward or punish corporations. Corporations can be motivated to change their corporate behaviour in response to the business case which a CSR approach potentially promises. This includes: 
1) stronger financial performance and profitability (e.g. through eco-efficiency), 
2) improved accountability to and assessments from the investment community, 
3) enhanced employee commitment, 
4) decreased vulnerability through stronger relationships with communities, and 
5) improved reputation and branding.
CSR Strategies: Corporate Social Responsibility for a Competitive Edge in Emerging Markets
CSR is about how companies manage the business processes to produce an overall positive impact on society.
Here we find that companies need to answer two aspects of their operations: 
1) The quality of their management – both in terms of people and processes (the inner circle). 
2) The nature and quantity of their impact on society in the various areas. 
Outside, stakeholders are taking an increasing interest in the activity of the company. Most look to the outer circle – what the company has actually done, good or bad, in terms of its products and services, in terms of its impact on the environment and on local communities, or in how it treats and develops its workforce. It is believed that this model may be more sustainable because here social responsibility becomes an integral part of the wealth creation process, which if managed properly should enhance the competitiveness of business and maximize the value of wealth creation to society. When times get hard, there is the incentive to practice CSR more.
The Age of Responsibility: CSR 2.0 and the New DNA of BusinessSince the early 1980s, a significant body of CSR research has centred around the debate over whether there is a relationship between good Corporate Social Performance ( CSP) and strong financial performance and what kind of relationships exist. Today businesses are becoming increasingly interested in the idea of the ‘Triple Bottom Line’ (TBL). This idea focuses not just on the economic value of the businesses that they may gain from acting in certain way, but also on the value that they may accrue to the company’s bottomline by engaging in environmentally and socially beneficial practices. The three ‘line’ represent the economy, the environment and the society and are all dependent on each other. Whether companies do actually take each line into account is difficult to measure as the arguments surrounding financial benefits of the company from being socially responsive are not clear cut. 
Although positive relationships have been found, there are several difficulties inherent in measuring these linkages. One problem is that it is not clear whether social responsibility leads to increased financial performance or whether better profits lead to more funds being available to devote to CSR activities. The other issue is that profit is an incomplete measure of social performance (Lantos 2001). Yet another is the difficulty of developing a consistent set of measures that define CSR or CSP.
The following factors are taken into account for understanding the importance of CSR:
  • Globalization and the associated growth in competition
  • Increased size and influence of companies
  • War for talent, companies competing for expertise
  • Increased importance of intangible assets

1. Improved Financial Performance:

While it remains difficult to determine a direct causal relationship between increased accountability and financial performance, a variety of studies suggest that such a link exists. For example, according to 2002 Global Investor Opinion Survey released by McKinsey & Company, a majority of investors are prepared to pay a premium for companies exhibiting high governance standards. Premiums averaged 12-14 percent in North America and Western Europe; 20-25 percent in Asia and Latin America; and over 30 percent in Eastern Europe and Africa. The study also found that more than 60 percent of investors state that governance considerations might lead them to avoid individual companies with poor governance.

The World Guide to CSR: A Country-by-Country Analysis of Corporate Sustainability and Responsibility2. Heightened Public Credibility: 

Companies that demonstrate a willingness to provide information that is credible, verifiable, and accessible can garner increased trust among stakeholders. Forthright and candid reporting about company achievements as well as performance shortfalls helps companies create a public reputation for honesty. At the same time, companies that make a public commitment to increase accountability and transparency need to ensure that they have robust systems for implementation, lest the company risk negative public backlash for failing to live up to its commitments.

3. Reduced Costs:

The enhanced communication that is often part of corporate accountability efforts can help build trust between companies and stakeholders, which can reduce costly conflict and improve decision-making. Companies that proactively and effectively engage shareholders and address their concerns can reduce the costs associated with shareholder proposals. In addition, social and environmental reporting efforts can help identify the effectiveness of various programmes and policies, often improving operating efficiencies and reducing costs. Reporting information can also help identify priorities to ensure that company is achieving the greatest possible impact with available resources.
CSR for HR: A Necessary Partnership for Advancing Responsible Business Practices
4. Increased Attractiveness to Investors:

Investors — whether shareholders invested in socially responsible funds that screen companies for social and environmental attributes, or large institutions — welcome the increased disclosure that comes with corporate accountability. A growing number of investors are including non-financial metrics in their analysis of the quality of their investments. New metrics cover labour and environmental practices; board diversity, independence, and other corporate governance issues; and a wide variety of other social and environmental criteria. Research suggests investors may be willing to pay higher prices for the stock of companies considered to be accountable. For example, a 2000 survey of 200 large institutional investors conducted by McKinsey & Co., the World Bank, and Institutional Investor’s regional institutes found that three-quarters of stackholders consider board practices as important as financial performance when evaluating companies for investment. The study also found that more than 80 percent of investors would be willing to pay more for the shares of a well-governed company than for a poorly governed company with comparable financial performance.

5. Improved Relationships with Stakeholders:

Companies that make an effort to be transparent and accountable for their actions and decisions are better able to build trust among their stakeholders. This engagement helps companies understand how community groups and other stakeholders perceive them, and educates them about future issues and concerns that may affect their operations. The information gained can help companies better define priorities and ensure business activities align with professed business principles or ethical codes. Many government agencies and stakeholders look favourably at companies that self-identify and publicly disclose accountability challenges and demonstrate that they are working to solve them. Best practice solutions include the development of management systems that reduce the likelihood of recurrence.

6. Early Identification of Potential Liabilities:

Innovative CSR: From Risk Management to Value CreationThe strategic information that can come from efforts to develop a more accountable company — including social and environmental auditing and reporting and stakeholder dialogue — can identify practices or situations that could pose liabilities to a company. Early identification can provide companies with the opportunity to resolve problems before they result in costly legal actions or negative public exposure. Issues that might surface more quickly in an accountable company include: environmental problems that could endanger public health, workplace discrimination or harassment that could result in lawsuits, marketing practices that do not price products or services equitably, or hiring practices that inadvertently give unfair advantage to certain populations. Social and environmental auditing and reporting can also identify where company practices may be in violation of government regulations or the standards or expectations of key stakeholder groups.

7. Marketplace Advantages: 

Accountability can make entry and success in new markets easier by helping establish direct relationships with key customers and business partners. These relationships can contribute to innovation in product development or delivery, help mitigate potential negative media coverage, and enhance market presence. Some companies have used dialogue with stakeholders to help make decisions on overseas investments and operations, or to overcome the challenges of operating in markets with different cultures, laws, and languages. For example, Unilever’s Indian subsidiary, Hindustan Lever, has worked with local stakeholders to develop a new delivery system for laundry detergent in Indian villages. The company was experiencing difficulty in selling its product until it was suggested by stakeholders that the company package its product in single-use quantities that would be affordable to local residents with limited disposable incomes.

8. Improved Overall Management:

The Market for Virtue: The Potential And Limits of Corporate Social ResponsibilityMany companies that have developed clear CSR performance and accountability systems inside their organizations report experiencing an improvement in their management practices overall. Increasingly, companies are finding that the impact of systems designed to increase accountability for CSR performance is not limited to the CSR realm, but can also impact performance in other areas as the culture of the organization undergoes change. An analysis of Fortune 500 companies conducted at the Boston College, Carroll School of Management found that companies judged as treating their stakeholders well are rated by peers as also having superior management.

9. Improved Organizational Effectiveness: 

The process of self-assessment and evaluation, which is part of increasing accountability can have beneficial impact on company operations. For example, social and environmental auditing and reporting give companies the opportunity to assemble and assess more comprehensive information on operations and impacts. This information can help coordinate and maximize efficiencies and collaborations across departments, facilities, and business units. Through this process, companies compile examples of successful programmes from various parts of their organizations and share the learnings throughout the company, leading to more effective and efficient policies and practices. Dialogue and partnerships with stakeholder groups can help companies build skills and competencies, or align company operations with overarching mission and values.

10. Decreased Risk of Adverse Publicity:

Accountable companies may be better prepared to address the concerns of customers or other stakeholders who might otherwise take negative action on social issues. For example, by engaging in a dialogue with stakeholders about their interests and concerns, and addressing those concerns in business implementation processes, companies may be able to head off or minimize the impacts of boycotts organized by consumer groups. Similarly, companies that proactively address the concerns of shareholders can reduce the risk of adverse publicity stemming from high-profile shareholder disputes.