Corporate Social Responsibility Overview

Corporate Social Responsibility (CSR)

• CSR is a company's responsibility to society and the world.
• CSR is a part of ESG (Environmental, Social and Governance).
• CSR can be broken down into different types of responsibilities:
  • Economic: Keeping the lights on and operating within the free market.
  • Legal: Not breaking any laws while conducting business.
  • Ethical: Doing what's right and avoiding harm where possible.
  • Philanthropic: Contributing directly to societal well-being.

Types of CSR

• Economic: Companies must be profitable to maintain their business.
• Legal: Companies must comply with all applicable laws.
• Ethical: Companies should uphold ethical standards even if not required by law, like CVS stopping tobacco sales due to health concerns.
• Philanthropic: Companies should engage in activities that directly benefit society, going beyond monetary donations.

CSR Pyramid

• The CSR pyramid is a model that categorizes the levels of CSR responsibility.
• The base of the pyramid is economic responsibility, followed by legal responsibility.
• Ethical and philanthropic responsibilities are at the top of the pyramid.

The Triple Bottom Line

• The Triple Bottom Line assesses company performance across three dimensions:
  • Environmental: Environmentally sustainable practices, like CO2 emissions and waste reduction.
  • Social: Fair treatment of workers, encouraging diversity, and supporting local communities.
  • Governance: Oversight and leadership accountability, transparent decision-making, and compliance with regulations.

Why CSR?

• Pragmatic: Maintain a good reputation, provide value to all stakeholders, and protect long-term viability.
• Ethical: Businesses owe it to society to do the right thing, promoting stakeholder well-being and protecting the natural environment.
• Strategic: Recognizing the need for a healthy society to remain competitive, considering the entire value chain, mitigating harm, and making ethical decisions

Benefits of CSR

• A good reputation leads to lower costs, higher sales, increased attractiveness for talent, employee satisfaction, and customer loyalty.

Socially Responsible Investors

• Investors are becoming more ethically conscious and will consider both financial and non-financial metrics when investing.
• Socially responsible investors avoid investing in companies deemed unethical, such as tobacco companies or those with poor labor practices.
• New stock indexes, like the Dow Jones Sustainability Index and FTSE4Good, promote sustainable investments.

Costs of Illegal Conduct

• Illegal or unethical conduct can result in:
  • Jail time for individuals.
  • Slashed stock prices.
  • Loss of relationships with business partners.
  • Increased government regulation.

Virtuous Circle

• Companies that engage in CSR initiatives are more likely to experience positive outcomes, like improved reputation, reduced risk, increased innovation, and financial success.
• This can create a virtuous circle, where success encourages further investment in ethical practices and sustainable growth.

Key Takeaways

• CSR is important for companies due to pragmatic, ethical, and strategic reasons.
• Companies must be financially sustainable before they can prioritize ethical and philanthropic goals.
• Companies must satisfy economic, social, and environmental criteria to be considered good corporate citizens.
• ESG is a broader framework that includes the goals of CSR.
• Reputation is crucial for business success, and ethical behavior often leads to a virtuous circle of positive outcomes.