The voluntary compliance of social and ecological responsibility of companies is called Corporate Social Responsibility (CSR).
Corporate social responsibility is a concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment. Corporate social responsibility is represented by the contributions undertaken by companies to society through its business activities and its social investment.
Over the last years an increasing number of companies worldwide started promoting their Corporate Social Responsibility strategies because the customers, the public and the investors expect them to act sustainably as well as responsibly. In most cases CSR is a result of a variety of social, environmental and economic pressures.
The term 'Corporate Social Responsibility' is imprecise and its application differs. CSR refers not only to the compliance of human rights standards, labour and social security arrangements, but also to the fight against climate change, sustainable management of natural resources, consumer protection, philanthropy and volunteering.
The concept of Corporate Social Responsibility was first mentioned 1953 in the publication ‘Social Responsibilities of the Businessman’ by William J. Bowen. However, the term CSR only became popular in the 1990s, when the German company Betapharm, a generic pharmaceutical company, decided to implement CSR. The generic drug market is characterised by an interchangeability of products. In 1997 a halt in sales growth led the company to the realisation that in the generic drugs market, companies could not differentiate on price or quality. This was the prelude for the company to adopt CSR as an expression of the company’s values and as a part of its corporate strategies. Betapharm began by introducing programmes that allowed sick children to play with animals and take pony rides and later launched a school-based programme teaching kids healthy ways to express their feelings. Through these programmes, Betapharm engaged with the community - and gave themselves a strategic advantage in the marketplace.
In July 2001, the European Commission decided to launch a consultative paper on Corporate Social Responsibility with the title "Promoting a European Framework for Corporate Social Responsibility". This paper aimed to launch a debate on how the European Union could promote Corporate Social Responsibility at both the European and international level.
The paper further aimed to promote CSR practices, to ensure the credibility of CSR claims as well as to provide coherence in public policy on CSR.
Responsible Companies in the Age of Globalisation
How a company perceives its societal responsibility depends on various factors such as the markets in which it operates, its business line and its size.
In recent years CSR has become a fundamental business practice and has gained much attention from the management of large international companies. They understand that a strong CSR programme is an essential element in achieving good business practices and effective leadership. Savvy businesses are attuned to the fact that their impact on the economic, social and environmental sector directly affects their relationships with investors, employees and customers.
For a long time, Corporate Social Responsibility was mainly promoted by a number of large or multinational companies. It is now also becoming important to small national companies.
Teflon Companies Shell was one of first companies to experience that early responsible action is better than crisis management after the fact. The company was taken by surprise when the Greenpeace campaign against sinking the former drill platform Brent Spar achieved its goals. There was a widespread boycott of Shell service stations. The Brent Spar affair has brought quite a change of attitude to Shell.
As companies assess their brand in the context of globalisation, they are increasingly aware that Corporate Social Responsibility can be of direct economic value. Although the prime goal of a company is to generate profits, companies can at the same time contribute to social and environmental objectives by integrating corporate social responsibility as a strategic investment into their business strategy.
A number of companies with good social and environmental records indicate that CSR activities can result in a better performance and can generate more profits and growth. Research has shown that company CSR programs influence consumer purchasing decisions, with many investors and employees also being swayed in their choice of companies.
A major challenge for companies today is attracting and retaining skilled workers. There is not only an image gain for the companies using CSR, but it is also important for the employees. Within the company, socially responsible practices primarily involve employees and relate to issues such as investing in human capital, health and safety and managing change.
In India there are a small number of companies that practice CSR. This engagement of the Indian economy concentrates mainly on a few old family owned companies, and corporate giants such as the Tata and Birla group companies which have led the way in making corporate social responsibility an intrinsic part of their business plans. These companies have been deeply involved with social development initiatives in the communities surrounding their facilities. Jamshedpur, one of the prominent cities in the northeastern state of Bihar in India, is also known as Tata Nagar and stands out at a beacon for other companies to follow. Jamshedpur was carved out from the jungle a century ago. TATA’s CSR activities in Jamshedpur include the provision of full health and education expenses for all employees and the management of schools and hospitals.
In spite of having such life size successful examples, CSR in India is in a very nascent stage. In the informal sector of the Indian economy, which contributes to almost the half of the GNP and where approximately 93% of the Indian workforce is employed, the application of CSR is rare. On the contrary, the fight against poverty, the development of education, as well as the conservation of the environment are not existent in most of the Indian enterprises.
India has an advantage as far as labor is concerned. To some extent, business and capital go to those places where costs are less or standards are lower like the ones in India. But also in India, the demand for responsible and ethical goods is constantly increasing.
To guarantee the supply of responsible and ethical goods, it is especially important to implement a nationwide system of CSR standards.
How "Socially Responsible" are Companies in Reality?
Due to the lack of international CSR guidelines, the practical application of CSR differs and CSR Strategies within most companies still show major deficiencies. There are still complaints about multinational companies harming the environment and NGOs still denouncing human rights abuses in companies.
Some critics believe that CSR programs are undertaken by multinational companies in particular to distract the public from ethical questions posed by their core operations. While companies increasingly recognise their social responsibility, many of them have yet to adopt management practices that reflect it; company employees and managers need training in order to acquire the necessary skills and competence.
Pioneering companies can help to implement socially responsible practices by guiding the processes. The Copenhagen Centre and CSR Europe have recently launched a program to bring the business and academic community together with the aim of identifying and addressing the training needs of the business sector on Corporate Social Responsibility. While corporate social responsibility can only be taken on by the companies themselves, employees, consumers and investors can also play a decisive role in areas such as working conditions, environment or human rights, in the purchasing of products from companies that have already adopted CSR or in prompting companies to adopt socially responsible practices.
Critics suggest that better governmental and international regulation and enforcement, rather than voluntary measures are necessary to ensure that companies behave in a socially responsible manner. Corporate social responsibility should therefore not be seen as a substitute to regulation concerning social rights or environmental standards. In countries where such regulations do not exist, efforts should focus on putting the proper regulatory framework in place on the basis of which socially responsible practices can be developed.
International Initiatives for Corporate Social Responsibility
Why are governments interested in CSR? Their task is to make sure that the process of global and economic and social change is managed properly and fairly. Several guidelines or standards have been developed to serve as frameworks for CSR:
The OECD Guidelines for multinational Enterprises and the ILO - International Labour Standards form the principles for the societal responsibility of companies and will help to implement CSR on the international level.