Corporate governance strategies employed by firms that are ethical, societally friendly, and beneficial to its community
Corporate social responsibility (CSR) refers to strategies that companies put into action as part of corporate governance that are designed to ensure the company’s operations are ethical and beneficial for society.
Although corporate social responsibility is a very broad concept that is understood and implemented differently by each firm, the underlying idea of CSR is to operate in an economically, socially, and environmentally sustainable manner.
Generally, corporate social responsibility initiatives are categorized as follows:
Environmental responsibility initiatives aim to reduce pollution and greenhouse gas emissions and the sustainable use of natural resources.
Human rights responsibility initiatives involve providing fair labor practices (e.g., equal pay for equal work) and fair trade practices, and disavowing child labor.
Philanthropic responsibility can include things such as funding educational programs, supporting health initiatives, donating to causes, and supporting community beautification projects.
Economic responsibility initiatives involve improving the firm’s business operation while participating in sustainable practices – for example, using a new manufacturing process to minimize wastage.
In a way, corporate social responsibility can be seen as a public relations effort. However, it goes beyond that, as corporate social responsibility can also boost a firm’s competitiveness. The business benefits of corporate social responsibility include the following:
CSR adds value to firms by establishing and maintaining a good corporate reputation and/or brand equity.
Customers of a firm that practices CSR feel that they are helping the firm support good causes.
Investing in operational efficiencies results in operational cost savings as well as reduced environmental impact.
Employees often stay longer and are more committed to their firm knowing that they are working for a business that practices CSR.
Many investors are more willing to support a business that practices CSR.
Strong relationships with regulatory bodies can help to reduce a firm’s regulatory burden.
In Canada, mining companies often engage with Aboriginal communities and groups. Converting land sites into mines can cause a significant environmental impact on the Aboriginal communities living near the sites. Several Canadian mining companies engage in corporate social responsibility with local communities to ensure that the adverse effects are minimized.
For example:
Starbucks is a well-known firm that practices corporate social responsibility. As indicated by the company: “Starbucks’ social corporate responsibility and sustainability is about being responsible and doing things that are good for the planet and each other.”
Starbucks’ CSR initiatives include:
This has been CFI’s guide to return on Corporate Social Responsibility. To keep learning and advancing your career, the following CFI resources will be helpful: