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SUSTAINABLE INVESTING SOCIALLY RESPONSIBLE INVESTING

What Is CSR? Corporate Social

Responsibility Explained
By JASON FERNANDO Updated March 06, 2024
Reviewed by JEFREDA R. BROWN
Fact checked by KATRINA MUNICHIELLO

to the world around them.

What Is CSR?
Corporate social responsibility (CSR) is a self-regulating business model that
helps a company be socially accountable to itself, its stakeholders, and the
public.

By practicing corporate social responsibility, also called corporate citizenship,

companies are aware of how they impact aspects of society, including
economic, social, and environmental. Engaging in CSR means a company
operates in ways that enhance society and the environment instead of
contributing negatively to them.

KEY TAKEAWAYS
Corporate social responsibility is a business model by which
companies make a concerted effort to operate in ways that
enhance rather than degrade society and the environment.
CSR can help improve society and promote a positive brand image for
companies.
CSR includes four categories: environmental impacts, ethical
responsibility, philanthropic endeavors, and financial responsibilities.

Understanding Corporate Social Responsibility (CSR)

Through CSR programs, philanthropy, and volunteer efforts, businesses can
benefit society while boosting their brands. A socially responsible company is
accountable to itself and its shareholders. CSR is commonly a strategy
employed by large corporations. The more visible and successful a corporation
is, the more responsibility it has to set standards of ethical behavior for its
peers, competition, and industry.
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Small and midsize businesses also create social responsibility
programs, although their initiatives are rarely as well-publicized as
those of larger corporations.

Types of CSR
Environmental responsibility: Corporate social responsibility is rooted in
preserving the environment. A company can pursue environmental
stewardship by reducing pollution and emissions in manufacturing,
recycling materials, replenishing natural resources like trees, or creating
product lines consistent with CSR.
Ethical responsibility: Corporate social responsibility includes acting fairly
and ethically. Instances of ethical responsibility include fair treatment of all
customers regardless of age, race, culture, or sexual orientation, favorable
pay and benefits for employees, vendor use across demographics, full
disclosures, and transparency for investors.
Philanthropic responsibility: CSR requires a company to contribute to
society, whether a company donates profit to charities, enters into
transactions only with suppliers or vendors that align with the company
philanthropically, supports employee philanthropic endeavors, or sponsors
fundraising events.
Financial responsibility: A company might make plans to be more
environmentally, ethically, and philanthropically focused, however, it must
back these plans through financial investments in programs, donations, or
product research including research and development for products that
encourage sustainability, creating a diverse workforce, or implementing DEI,
social awareness, or environmental initiatives.

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Volunteering
Some corporate social responsibility models replace financial
responsibility with a sense of volunteerism. Otherwise, most
models still include environmental, ethical, and philanthropic as
types of CSR.

Benefits of CSR
According to a study published in the Journal of Consumer Psychology,
consumers are more likely to act favorably toward a company that has acted to
benefit its customers. [1] As a company engages in CSR, it is more likely to
receive favorable brand recognition. Additionally, workers are more likely to
stay with a company they believe in. This reduces employee turnover,
disgruntled workers, and the total cost of a new employee.

For companies looking to outperform the market, enacting CSR strategies may
improve how investors view the company's value. The Boston Consulting Group
found that companies considered leaders in environmental, social, or
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governance matters had an 11% valuation premium over their competitors. [2]

CSR practices help companies mitigate risk by avoiding troubling situations.

This includes preventing adverse activities such as discrimination against
employee groups, disregard for natural resources, unethical use of company
funds, and activity that leads to lawsuits, and litigation.

Important: CSR programs can raise morale in the workplace. [3]

Company Examples
In its 2022 Environmental and Social Impact Report, Starbucks (SBUX)
highlights taking care of its workforce and the planet among its CSR priorities
through stock grants and additional medical, family, and educational benefits.
The company's goals include achieving 50% reductions in greenhouse gas
emissions, water consumption, and waste by 2030. [4]

Home Depot (HD) has invested more than 1 million hours per year in training to
help front-line employees advance in their careers, aims to produce or procure
100% renewable energy to operate its facilities by 2030, and has plans to spend
$5 billion per year with diverse suppliers by 2025. [5]

General Motors won the Sustainability Leadership Award from the Business
Intelligence Group in 2022. The automaker provided $60 million in grants to
more than 400 U.S. nonprofits focusing on social issues, and it has agreements
in place to use 100% renewable electricity at its U.S. sites by 2025. [6]

Why Should a Company Implement CSR Strategies?

Many companies view CSR as an integral part of their brand image, believing
customers will be more likely to do business with brands they perceive to be
more ethical. In this sense, CSR activities can be an important component of
corporate public relations. At the same time, some company founders are also
motivated to engage in CSR due to their convictions.

What Is ISO 26000?

In 2010, the International Organization for Standardization (ISO) released ISO
26000, a set of voluntary standards to help companies implement corporate
social responsibility. Unlike other ISO standards, ISO 26000 provides guidance
rather than requirements because the nature of CSR is more qualitative than
quantitative, and its standards cannot be certified. ISO 26000 clarifies social
responsibility and helps organizations translate CSR principles into practical
actions. [7]

What Are the Benefits of CSR?

CRS initiatives strive to have a positive impact on the world through direct
benefits to society, nature and the community in which a business operations.
In addition, a company may experience internal benefits through the initiatives.
Knowing their company is promoting good causes, employee satisfaction may
increase and retention of staff may be strengthened. In addition, members of
society may be more likely to choose to transact with companies that are
attempting to make a more conscious positive impact beyond the scope of its
business.

What Companies Have the Best CSR?

 Since 1999, Corporate Responsibility Magazine has ranked the top 100 Best
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Corporate Citizens each year among the 1,000 largest U.S. public companies.
Rankings are based on employee relations, environmental impact, human
rights, governance, and financial decisions. In 2023, the top-ranked companies
include Hewlett-Packard Enterprise Company, Accenture, and Hasbro. [8]
The Bottom Line
Companies striving to measure success beyond bottom-line financial results
may adopt CSR strategies that target environmental, ethical, philanthropic, and
fiscal responsibility that extend beyond the products they sell.
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