What’s it: Corporate social responsibility (CSR) refers to a concept in which companies balance three aspects: profit, people, and the environment. They pursue high profits and operate ethically in a socially and environmentally responsible manner. It requires them to be not only economically efficient but also fair in their dealings with their stakeholders.
Philanthropic activity is an example of corporate social responsibility. Other examples are the company’s efforts to deal fairly with stakeholders, comply with the law, operate environmentally soundly, and adopt diversity and fair employment practices.
Why is corporate social responsibility important?
Integrating commercial aspects and social and environmental responsibility in operating a business is becoming increasingly important as many parties demand it. Why? Environmental degradation and greater attention to social issues make people more aware of balancing these three aspects.
These three aspects influence each other. For example, in making a profit by selling products, businesses need two other aspects to operate.
- Businesses need natural resources as their input. Some businesses need it directly as raw material. While others, such as service companies, require resources indirectly through the various final outputs used.
- Businesses also need people as workers to help the production process. On the other hand, they generate income by selling goods and services to people.
So, without the other two, there is no profit. For this reason, companies should care about society and the environment, not just for profit.
Furthermore, three reasons why corporate responsibility is becoming increasingly important to adopt are:
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Build a corporate image. Companies can improve their image and reputation by being socially responsible company. On the other hand, increasing public awareness encourages more people to prefer dealing with more ethical companies. So, being a socially responsible company is one way to attract more people to buy the company’s products.
Higher concern for environmental sustainability. Many entrepreneurs have begun to prioritize ethical practices in operating. They are concerned about how dangerous environmental degradation is to our lives. For example, pollution from manufacturing processes impacts gas emissions and global warming, causing climate change and natural disasters.
Increased external demands. For example, publicity by pressure groups is intensified along with better access to communication channels. Through the internet, they can more easily raise funds to campaign their agenda and organize boycotts. If companies operate unethically, they can become prime targets for negative publicity.
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Legal changes have also forced businesses to be more ethical. For example, they can no longer pay staff very low wages just to support low operating costs. They are also not allowed to employ child labor. Otherwise, they could face lawsuits over their practice.
What is the triple bottom line, and how does it relate to social responsibility?
Triple bottom line refers to three aspects that companies should pursue or balance: profit, people, and the planet. Each represents a commercial, social and environmental aspect. It is usually used as a framework for measuring and reporting company performance, not just focusing on profits.
The triple bottom line underlines a sustainable business. First, of course, companies need to pursue the financial aspect – they make a profit. And, at the same time, to produce them, they also should strive to operate in an environmentally friendly manner and act in accordance with the expectations of society.
Furthermore, the concept underlies corporate social responsibility, which focuses on environmental management, stakeholder engagement, and social equity.
What are the types of corporate social responsibility?
Four categories of corporate social responsibility:
- Environmental responsibility – such as reducing pollution, saving energy, using renewable materials and energy, and offsetting negative environmental impacts with activities such as planting trees.
- Ethical responsibilities – treating stakeholders fairly, such as maintaining customer privacy, workforce diversity, and providing suppliers with fair prices for purchased inputs.
- Philanthropic responsibility – making changes for the better in society, e.g., donating education and supporting health initiatives such as blood donation.
- Economic responsibility – striking a balance between ethical, environmental, and philanthropic practices, for example, by modifying the manufacturing process to produce recyclable products.
What are the benefits of corporate social responsibility?
Being socially responsible is beneficial for the company, especially in the long run. Examples of the benefits of corporate social responsibility are:
Good corporate image. An environmentally friendly or socially responsible approach allows companies to improve their reputation and corporate image.
Competitive advantage. A good corporate image can attract new customers and loyalty from existing customers. Companies can also use rewards for their CSR programs as a marketing tool.
Free promotion. Positive publicity from activists and pressure groups is free promotion. On the other hand, negative publicity by a brand can significantly impact the company, for example, causing the demand for its products to fall.
Build goodwill. A good corporate image becomes an intangible asset, which flows economic benefits to the company. It also leads to better relationships with customers, suppliers, workers, and communities, which is critical to long-term success.
Competitive human resources. Responsibility to employees by improving working conditions motivates existing staff to be more productive. In addition, it is also easier for companies to attract talent because the company’s ethical values are in line with their own.
What are the drawbacks of corporate social responsibility?
However, being socially and environmentally responsible can also come at a cost to the company, for example:
Cost increase. For example, to reduce pollution, companies must incur costs to install anti-pollution equipment. Likewise, companies must incur costs to run their CSR programs.
Shareholder resistance. When a company spends more profit on investing in social and environmental responsibility aspects, it reduces the return to shareholders. In the short term, shareholders may be reluctant to accept the consequences.
Less profit. Increased costs for implementing CSR programs can reduce profits.
Loss of competitiveness. Rising costs make it difficult for companies to cut selling prices to better compete with competitors.
Pseudo demand. When the economy prospers, consumers are willing to pay higher prices and buy from environmentally friendly products. However, that may not happen if the recession hits, where they are more price-conscious and opt for cheaper products.
