Executive Summary
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Consumers increasingly expect companies to act in “responsible” ways.
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Because of their scale and reach, companies have unusual opportunities to address social concerns in innovative and productive ways.
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Evidence suggests that corporate social responsibility (CSR) practices produce long-term benefits with financial performance gains.
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Advancing CSR is made easier with modern risk management tools, reporting guidelines, and committed leadership and employees.
The Emergence of Corporate Social Responsibility
Global greenhouse gas emissions continue to rise. Diseases wreak havoc across entire continents. An entire host of seemingly intractable issues confront governments throughout the world, which are sometimes unable to effect positive changes. With the emergence of companies as some of the most powerful institutions for innovation and social change, more shareholders, regulators, customers, and corporate partners are increasingly interested in understanding the impact of these organizations’ regular activities upon the community and its natural resources. With the world’s largest 800 nonfinancial companies accounting for as much economic output as the world’s poorest 144 countries, the importance of these organizations in addressing trade imbalances, income inequality, resource degradation, and other issues is clear. While companies are not tasked with the responsibilities of governments, their scale and their ability to influence these issues necessitate their involvement and create opportunities for forward-looking organizations to exercise great leadership.
In public opinion surveys, consumers admit that they prefer to buy products and services from companies they feel are socially responsible (72%) and that they sell shares of those companies they feel don’t pass muster (27%). Challenging Nobel laureate Milton Friedman’s notion that companies’ only responsibility is to make profit, executives are increasingly seeking ways to combine economic gain with social well-being in ways that will produce more customer loyalty, better relationships with regulators, and a host of other advantages. CSR practices may, in fact, prove pivotal to the success of a company.
Sometimes described simply as “doing well by doing good,” corporate social responsibility initiatives gained traction in the 1990s as consumer interest in management practices erupted in the wake of several substantial incidences of executive malfeasance and of escalating environmental challenges. While originally focused on environmental factors, CSR reports increasingly include social measures. Likewise, company leaders today express interest in business models that weave together explicit goals for profit, environmental performance, and social factors, at the same time recognizing that these efforts will likely yield no short-term financial benefits but rather long-term performance improvements.
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