Corporate Sustainability vs. Corporate Social Responsibility
The business world is becoming more environmentally and socially responsible.
Customers demand it. Employees demand it. Partners and vendors demand it.
As businesses continue taking steps to be more purpose-driven, conscientious and responsible, the terms “corporate sustainability” and “corporate social responsibility” (CSR) are thrown around a lot, often without clarity and without knowing what these terms mean.
This article tries to explain the differences, similarities and overlap in terms. We’ll explain the importance of CSR, CSR benefits and how to implement an effective CSR strategy. You’ll then learn why CSR initiatives need to be used alongside a more holistic and long-term sustainability strategy.
Sustainability and CSR Trends
In 2019, the Governance Accountability Institute (G&A) announced that 90% of large companies (S&P 500 Index) published sustainability and responsibility reports. This push for sustainability and responsibility reporting is a reaction to growing stakeholder expectations. For instance, 73% of investors are looking for environmental and social responsibility and sustainability in business. Plus, 77% of consumers are more likely to use brands committed to making the world a better place.
What is corporate social responsibility (CSR)?
Corporate social responsibility (CSR) is a business practice that considers the impact a company has on society, employees, and other stakeholders. A CSR strategy is implemented by an organization to: minimize harm, practice fair business, be responsible along a global supply chain, exercise philanthropy and create a self-oriented human resource management system.
What is business sustainability?
Business sustainability is a comprehensive approach to business management that works to maximize long-term economic, social, and environmental value. Sustainability aims to leave systems capable of continued existence.
There are three dimensions to a sustainable business model:
- Environmental: This refers to the environmental systems within which the business operates. Business operations can degrade nature and destroy ecological systems. Examples include deforestation and burning fossil fuels. By harming environmental systems, businesses prevent future generations from obtaining equal environmental value. This is not sustainable.
- Social: This refers to a business’s impact on social systems. Such systems include society, local communities, employees, consumers and other stakeholders. If business activities harm social systems, degrading the wellbeing of future generations, then operations are not socially sustainable.
- Economic: For a business to survive, it has to be financially stable. Economic sustainability means meeting the financial needs of a business, funding business operations and supporting sustainable social and environmental initiatives.
Corporate social responsibility and sustainability
Thinking about the above definitions, you’d be right to believe that CSR refers to the social aspects of sustainability. Yes, good CSR practices can create a socially sustainable organization. Both corporate sustainability and CSR help companies run in a way that allows them to be ethically profitable, but never at the expense of others.
Yet, CSR shouldn’t be used interchangeably with the term corporate sustainability and its social aspects. There are subtle differences between the two concepts.
For one, sustainability and responsibility have different meanings:
- Sustainability: To be maintained at a certain rate or level.
- Responsibility: The state or fact of being accountable.
As such, the vision and targets of the two concepts diverge, as summarized below:
- CSR looks back and reflects on what a company has done to contribute to society.
- Corporate sustainability is forward-thinking and looks to develop a future strategy.
- CSR often targets opinion formers such as the media, politicians, and pressure groups, and focuses on balancing current stakeholder interests.
- Corporate sustainability takes a more holistic approach, considering the social impacts from business alongside the environment and economy. Corporate sustainability will address multiple stakeholders and consider long-term impacts.
Practicing good CSR is regarded as the engine to social sustainability and progress, supporting companies to fulfill their responsibilities as good citizens.
CSR is a business commitment that contributes to corporate social sustainability. Corporate social sustainability works with employees, their families, local communities and society at large to improve human-life quality, the environment and the economy in the long-term.
The benefits of CSR
The American economist Howard Bowen is cited as the father of CSR. His book Social Responsibilities of the Businessman advocates the ethics and responsiveness of business to societal stakeholders. Yet it wasn’t until the 1970s that true CSR was declared by the Committee for Economic Development. In 1971, a social contract between business and society was announced.
CSR arose from an awareness that business functions within a broader framework, amid a complexity of interactions and relations between multiple stakeholder groups. Building good relations is crucial, through engagement and dialogue. This not only minimizes social risks to a business, but also supports progressive development, creates value via a good brand image and gives organizations a competitive edge.
CSR has arisen in response to the challenges the modern world faces, from both the public and private sectors. Such challenges include creating a diverse and equal workforce, human rights and workplace health and safety. Rising to these challenges through effective CSR can bring tremendous benefits to an organization, as explained below.
Benefit #1: CSR presents new business opportunity
Responding to the social challenges and risks of the modern world can open up new opportunities for businesses in emerging markets. The following example shows how.
Ambuja Cements is an India Subsidiary of the global building materials company Holcim. In 2010, Ambuja organized several plant-level social and environmental responsibility programs, which included improved water management in drought-prone areas. This minimized the impact of Ambuja’s operations on local communities.
One such program was a water recharge plan. Ambuja worked to reserve water from its operations, to support drought-prone communities. This created a water surplus which was then used to replenish groundwater systems, transforming arid wasteland into land suitable for farming. Ambuja was able to offer farmland in exchange for new mining terrain.
Here you can see how Ambuja’s CSR initiatives expanded the business model, meaning the organization was able to trade reclaimed farmland for new mining areas.
Benefit #2: CSR creates a positive brand image
By helping people, CSR creates a positive brand image, and from this, business sales and revenue are boosted.
The global coffee franchise, Starbucks, has long been known for its keen sense of CSR and commitment to community welfare. For instance, in 2021 the Ethisphere Institute named Starbucks as one of the World’s Most Ethical Companies for the 15th year running.
According to Starbuck’s 2020 Global Social Impact Report, the business aims to:
- Obtain 100% of its coffee from ethical sources,
- Create a global network of farmers and supply them with 100 million trees by 2025,
- Support green building infrastructure throughout stores,
- Contribute to millions of hours of community service,
- Create a groundbreaking college program for employees,
- Hire 5,000 veterans and 10,000 refugees.
With it’s positive social image, Starbucks has seen year-on-year growth. In the fourth quarter of 2021, net revenues were up 31% to a record $8.1 billion. CSR drives value for Starbucks by giving the coffee chain a Unique Selling Point (USP), helping the company stand out over others.
Benefit #3: CSR manages business risk
Ignoring social responsibility is a risky business. The 2013 Dhaka garment factory collapse gives a heartbreaking and chilling reminder of this fact. On the 13th of May 2013, a eight-story high commercial building named the Rana Plaza collapsed killing 1,124 and injuring approximately 2,500 people. The disaster was considered the deadliest, non-deliberate accident in modern human history, and was the result of a structural failure.
The Rana Plaza housed clothing factories, a bank, and several shops. The owners of the building ignored warnings of cracks developing in concrete walls, showing a disregard for the lives of the employees working inside.
Brands linked to the factory included Mango, Matalan, Primark, Benetton, Bonmarché, H&M, and The Children’s Place. These brands faced worldwide criticism and consumer backlash after the crisis.
The Rana Plaza collapse brought consumer attention to the risks and consequences of fast fashion. In an attempt to restore their brand image, guilty fashion brands, among others, contributed $21.5 million to the Rana Plaza Donors Trust Fund, set up to award compensation to the victims.
Today, we have a fashion revolution day every year in response to the Rana Plaza crisis. This day aims to call out brands operating in a risky and socially irresponsible way.
Benefit #4: CSR creates a happy and productive workforce
Looking after employee health and wellbeing is an important aspect of CSR, and there’s increasing evidence indicating happy workers are productive workers. The book by Shawn Achor titled The Happiness Advantage analyzed over 200 relevant scientific studies, and concluded:
“[Happy employees] have higher levels of productivity, produce higher sales, perform better in leadership positions, and receive higher performance ratings and higher pay.”
Adding to this, a 2018 research study by the University of Tennessee presented the value of adopting an employee-friendly culture. Companies that supported their employees achieved a greater return on assets and equity due to the productivity gains attained.
Indirect productivity boost is an aspect of CSR that the tech-giant Google has capitalized on. Google has prided itself on an extensive employee benefit scheme, offering onsite wellness and healthcare services, generous retirement plans, competitive compensation, hybrid plus remote-work models and at-home fitness and wellness classes (plus many more).
One study compiled more than 250,000 independent employee reviews from companies around the United States, and announced that Google is the happiest place to work. Google’s perks not only benefit their employees but also benefit the company as a whole. As Google employee Eric Jang states, Google’s benefits make him all the more productive.
Understanding the three theaters of CSR
To be successful, CSR needs to align with a business’s purpose and values. For instance, rather than running unconnected, and multifaceted versions of CSR, CSR activities should be coordinated and have team-wide support.
With this in mind, the Harvard Business Review stated that CSR activities can be divided into three theaters of practice:
- Theater one initiatives: These initiatives focus on philanthropy and are not designed to boost profits or business performance. Examples include charitable donations, community engagement, and employee volunteering.
- Theater two initiatives: These initiatives are designed to deliver social benefits while improving the efficiency and effectiveness of operations. Business revenue is increased and costs decrease. An example would be investing in employee working conditions to enhance productivity.
- Theater three initiatives: These initiatives look to transform the business model to address social challenges. Actions call for new business models rather than incremental extensions.
It must be noted that the boundaries between each of these theaters are porous. That is, programs beginning in one theater can complement and migrate over to another theater. E.g. a theater one initiative could improve a brand’s reputation, which could then increase sales expanding the initiative to theater two.
To explain further, let’s look back at the Ambuja Cements example discussed earlier. We saw how Ambuja Cements initially used a theater two initiative, reducing water use from operations while simultaneously securing water stocks for drought-prone communities.
Ambuja then used the excess water from operations to replenish groundwater systems. As this act didn’t directly benefit the business, it is classed as a philanthropic, theater one CSR initiative.
Both these theater one and two actions later progressed into a theater three CSR enterprise. By restoring groundwater systems, Ambuja transformed arid unproductive terrain into arable land with a good water supply. Reclaimed farmland was then offered to landowners in exchange for new land for mining. This trading of land extended Ambuja’s business model.
4 steps to implement an effective CSR strategy
A CSR strategy is a plan of action that addresses current social concerns relevant to a business. The aim is to meet an obligation to not harm society, communities, employees, customers, and other stakeholder groups.
Keeping the three theaters of CSR in mind, the Harvard Business Review developed a 4-step program to develop an effective CSR strategy. There’s no need to execute these steps in order, plus they are both interactive and iterative.
Step #1: Aligning CSR programs within theaters
This step is about bringing coherence to CSR initiatives, both across and within theaters. This means reducing and eliminating actions that do not address an important social or environmental problem. Initiatives should also support a company’s purpose, identity, and values. For instance, the CSR activities of a local, family-run coffee shop would be different from that of an international clothes retailer.
To explain step one further, let’s consider the following example. The bank PNC developed a Grow Up Great CSR program to provide school-readiness resources for under-resourced communities. This CSR initiative aligned with the bank’s community-development-oriented identity. Other initiatives that didn’t fit this program were dropped. Budgets were allocated to support activities that aligned with PNC’s purpose and social goals – to support early education.
Step #2: Develop metrics that gauge performance
What you measure depends on the goals of the initiatives, and what theater they reside in. For instance, initiatives that are in theater two look to give business benefits in some way. Measures may look at cost reduction or profitability.
Theater one initiatives, being completely philanthropic, are not expected to bring business benefits, and are so measured using non-financial indicators. For instance, for PNC’s Grow Up Great program, initiative one activities were measured by the number of hours an employee spends reading to children, for example.
Step #3: Coordinate programs across theaters
Coordination is about choosing initiatives that are related to one another. The aim is to gather a portfolio of mutually reinforcing and consistent plans.
Coming back to the Ambuja Cements example, this company wanted to support communities local to the limestone quarries. Ambuja developed a range of programs – across multiple theaters – to do just that. These include the initiatives already mentioned, and others such as:
- Alternative fuel sources to reduce community reliance on fossil fuels
- Farmer education programs
- Truck safety lessons for local workers
Step #4: Developing an interdisciplinary CSR strategy
Finally, for CSR initiatives to work, they need effective communication and coordinated support from top-level executive management right down to the core workforce. That is, all business units need to be engaged with a CSR program. This demands ultimate transparency over business actions, causes, goals, values, and purpose.
Giving this degree of transparency to a business’s CSR activities can be difficult, yet it’s vital for getting everyone on board to deliver an effective program. The Green Business Bureau can help you with this step.
Rallying top-down and bottom-up support for CSR initiatives with GBB
GBB is an online platform where businesses can track their environment and social performance. GBB’s EcoPlanner and EcoAssessment help businesses compare current operations to their sustainability agenda. This allows businesses to plan where they want to be in terms of environmental, economic, and social responsibility, and select initiatives that will help them get there.
With this in mind, let’s say a company has a specific CSR goal they want to reach. That company can document that goal and select the initiatives supporting it. Selected initiatives and a company’s progress towards them are accessible from a brand’s Ecoprofile. This profile can be viewed and accessed by the relevant personnel.
GBB reporting and certification gives teams the transparency they need to understand and support a business’s CSR program. Create your own GBB account here to support the implementation of your CSR strategy.
CSR policy and standards
CSR is known as a soft law, which means initiatives are not legally binding. There’s no current U.S. statute or regulation to enforce good CSR practice. Yet, as mentioned at the start of this article, there’s mounting pressure for companies to operate in a socially responsible way. This is marking an international trend to move CSR into a legally-binding and enforceable hard law.
- UN Guiding Principles on Business and Human Rights
- ISO 26000
- OECD Guidelines for Multinational Enterprises
- UN Global Compact (UNGC)
Concluding Remarks: Approaching CSR with caution
If we refer back to the vision of sustainability and CSR, we note that CSR works in the moment, whereas sustainability is forward-thinking and looks to develop a future strategy. In addition, sustainability takes a holistic approach, considering social sustainability along with environmental and economic facets.
Although CSR is an engine to drive sustainable social development, the lack of a holistic, future-thinking strategy could cause CSR initiatives to impose long-term liabilities on the affected communities.
To exemplify this, consider the following example. Magna International is a technology company for automakers. The auto part empire ran into trouble after building a new town from scratch in a sugar-cane field near Simmesport, Central Louisiana. The town was built for victims of the hurricanes Katrina and Rita. Magna International planned to build a farming community that would then be self-sustaining, giving rent-free homes to those impacted by the hurricanes.
While the efforts were sincere, the CSR initiatives created problems for Louisiana citizens. With an ineffective maintenance plan in place, the project came to an end. A few years down the line, the new town’s residents are kindly being encouraged to move on. The project is known as Magnaville’s unfinished dream.
Well intentioned as they may be, CSR initiatives need to be thought of in the context of sustainability. Problem solving needs to be analyzed holistically, taking into account long-term effects and challenges. Had Magna International done so, a more thorough and self-sustaining social development plan could have been implemented.
About the Author
With a Biology degree from Imperial College London and further studies at Imperial College’s Business School, Jane Courtnell has an enthusiasm for science communication and how biology can be used to solve business issues, such as employee wellbeing, culture, and business sustainability.