Whatever your corporate social responsibility (CSR) priorities, it’s important they are embodied in your company’s DNA.
While the former provides a framework for the consideration of extra-financial factors in the investment process, the latter is about the practices a company has put in place that contribute to its sustainability over the long term.
CSR was conceived as a business model that enables a company to be socially accountable to itself, its stakeholders and to the public, by measuring and controlling its economic, social and environmental impacts on society – sometimes described as the “triple bottom line”.
While ESG has made more companies focus on sustainability metrics, implanting strong CSR practices will enable them to score well in the context of their own operations.
How has CSR evolved?
The origins of CSR can be traced back as far as the mid-1800s (and arguably before that), due to growing concerns over working conditions during the industrial revolution; this coincided with a rise in philanthropy. At that time, steel and oil industry business magnates Andrew Carnegie and John D. Rockefeller made large financial donations to causes related to religion, education and science.
Skip forward a century, and the concept of a “social contract” between businesses and society – the idea that businesses function and exist because of public consent and so they should therefore contribute positively to society – took form in the early 1970s.
In the 1990s the publication of Corporate Social Performance Revisited by University of Pittsburgh professor Donna J. Wood and The Pyramid of Corporate Social Responsibility by University of Georgia professor Archie B. Carroll led to broader acceptance of CSR.
Today, CSR is well-understood, with many supporting programmes like the ISO 26000 standard, which provides guidance on CSR initiatives. Combined with a growing understanding of the societal challenges we are facing and frameworks for addressing them like the UN’s Sustainable Development Goals, we have seen business leaders move towards putting CSR and sustainability at the heart of their business models.
Why does CSR matter?
Many consumers and stakeholders now prioritise CSR when determining which brand or company to buy from.
Research indicates over 60% of consumers want businesses to drive social and environmental change forward themselves even in the absence of government regulation. Separate research has found that 87% of consumers will purchase a product because the company is an advocate for issues they care about, and 76% of consumers will refuse to buy from a company that has supported issues contradicting their beliefs.
It’s not only consumers that are interested in CSR, but employees as well. In order to attract the best people for the job, companies need to think hard about their social and environmental image and initiatives. These are an important consideration for top talent. Regulators are paying closer attention to company practices, and of course, NGOs continue to do the same.
For CSR to be a success, it has to be more than something dealt with by a single team working in a silo. It needs instead to flow through a company’s veins and play a role in its business strategy. At BNP Paribas Asset Management, CSR is one of our six sustainable investment beliefs. This means moving beyond simply volunteering for causes in the local community and philanthropic donations (though both continue to be an important part of the toolkit).
Commitments to economic, social, civic and environmental responsibility should be integrated into all business operations, to foster the application of comprehensive sustainability practices across the business. For financial services firms such as BNP Paribas, this can include setting internal targets for renewable energy financing. Or incorporating performance against CSR targets into loan arrangements, otherwise known as sustainability-linked loans, which offer more favourable terms for firms that are reaching their own sustainability targets. It can also mean setting employee diversity targets and ensuring employees have access to training so they have the right kind of skills in a rapidly evolving business environment.
There are benefits to be had that stretch beyond wider societal gains and mere altruism – evidence suggests organisations committed to CSR will nurture a better image, have lower staff turnover and operating costs, receive loyalty from customers, and generate better community support. Together these elements can ultimately act to reduce business risk and can strengthen competitive advantage and financial performance. Finally, one of the key factors in a successful approach to CSR is to make sure it is authentic. Connecting your CSR activities closely to your business strategy can help you “walk the talk”, better engage your employees and ultimately, help build a culture of sustainability that runs through your organisation’s DNA.
Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.
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