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What Is Corporate Social Responsibility?
Publicly held corporations don’t operate in a social or environmental vacuum. Their policies and practices affect employees, investors and customers, as well as the environment. The growing realization that a corporation’s conduct will have either a positive or negative effect on stakeholders and the environment has made corporate social responsibility (CSR) an important aspect of modern-day business operations. It also has become an important consideration for retail investors.
Corporate Social Responsibility: The Basics
CSR is a voluntary, self-regulating business model that entails incorporating environmental and social concerns into a company’s policies and practices. In the United States, as well as other developed nations, CSR has become increasingly common.
There are four main types of corporate responsibility: environmental initiatives, philanthropy, volunteerism and ethical labor practices. Examples of CSR include working to ensure that a business’s environmental impact is neutral or beneficent, creating time for employees to volunteer, donating funds to a charitable cause and ensuring that labor practices within the supply chain are ethical, that is, don’t exploit workers, breach applicable laws or abuse the environment.
Why It Matters
Aside from just being the “right” thing to do for both the environment and for championing important social issues, CSR matters for a few key reasons.
CSR boosts employee morale. In recent years, it has become important for employees to have not just standard benefits, such as a good salary and health benefits, but also philanthropic support, such as time off for volunteering or a company-wide philanthropic cause or event. In fact, one study found that employees who had the opportunity to donate funds via their employer were happier than those who did not have such an opportunity. CSR also boosts employees’ ties to their community. From an investor’s perspective, knowing that a corporation is taking initiatives that lift worker morale in these two ways will enhance the performance of that corporation and, thus, its attractiveness as an investment.
Secondly, CSR appeals to shareholders because it indicates that shareholders have made a good investment: their company is reaching levels of profitability that enable it to bear the costs of CSR initiatives.
Third, these initiatives attract customers. Companies pursuing CSR give their customers the satisfaction of knowing that they are not just getting a needed product or service but are also contributing positively to the betterment of society and the environment.
Benefits of CSR
There are several notable public relations benefits that socially responsible corporations will enjoy. Not only does CSR boost brand recognition and help improve a company’s reputation, but it also helps improve a company’s portrayal in the media and can help boost customer loyalty. After all, nearly 80% of consumers said they expected businesses to continue improving their corporate social responsibility efforts, while 63% said they thought businesses should take the lead to improve social and environmental change.
CSR can be beneficial to the environment. That’s because it motivates companies to lower greenhouse gas emissions, decrease waste and use natural resources responsibly throughout their manufacturing processes and across their supply chains. Other CSR practices, such as using local or responsibly sourced materials, can also make a big impact on the environment.
Examples of companies that practice corporate social responsibility include Starbucks (ethical sourcing and reducing environmental impact), Apple (safe and ethical working conditions and environmentally ethical manufacturing processes), TOMs (gifting one pair of shoes to someone in need for every pair purchased) and Google (a leading provider of renewable energy and philanthropic giving).
How to Incorporate CSR into Your Business
While incorporating corporate social responsibility into your business may seem overwhelming at first, there are a few actionable steps you can take. First, determine what social or economic challenges best fit with your company’s objectives and mission statement. Then determine what you have the bandwidth to take on.
In terms of actually incorporating CSR, start small. Earmark a percentage of your company’s earnings toward a specific cause or schedule a company-wide volunteering day. Or perhaps organize a philanthropic event around the holiday season, such as a feast for the less fortunate or a toy drive. You could even organize a company-wide plastic water bottle ban or work to boost plastic recycling in your workplace. If your company is more agile and able to move quickly in terms of giving back, organize a disaster relief effort.
But there are a few pitfalls to avoid when incorporating a CSR policy within your business. First, avoid doing so simply for “good press.” This effort will be seen by both clients and shareholders alike as being too transparent. Additionally, don’t announce a policy, then fail to implement it. This can be disastrous for your public image.
For investors, finding a socially-responsible company to invest in is multi-faceted. First, you’ll need to determine the causes that are important to you. Then you can seek out companies that support these causes are invest there. For example, if you’re passionate about climate change and renewable energy, you may choose to invest in Google. If you’re more passionate about ethical and local sourcing, Starbucks may be a better bet.
Or, if you’d like to take a more generalized approach to socially-responsible investing, there are various ETFs and mutual funds that focus on companies that meet these guidelines. Your financial advisor can help steer you in the right direction.
Once you’ve decided which companies fit the bill of socially-responsible investing, you’ll want to go the extra step and monitor the conduct of these companies. Read annual reports and news regarding the companies you’re investing in; keeping tabs on their operations, sourcing standards, and working conditions will help give you a better idea of whether they’re living up to their socially responsible reputation. Financial reports, which are publicly available for publicly traded companies, are another great way to see how a company’s spending — and giving — stacks up.
How to Find CSR Funds
Investors can find CSR funds that hold either equities and bonds. Check big brokerage firms. For example, Fidelity’s ESG funds (Environmental issues, social issues, governance issues) and Vanguard’s FTSE Social Index Fund Investor Shares offer stock-based CSR options. The TIAA-CREF Social Choice Bond Fund offers a bond fund approach to socially responsible investing. Other options include the SPDR SSGA Gender Diversity Index, the iShares MSCI ACWI Low Carbon Target ETF, the VanEck Vectors Green Bond ETF and the Global X Conscious Companies ETF.
Bottom Line
Businesses that practice CSR voluntarily self-regulate to enhance the environment and society. They do this in four ways: environmental initiatives, philanthropy, volunteerism and ethical labor practices. CSR helps business by offsetting potential negative impacts on the environment, bringing awareness to important social issues, even bolstering the relationship between employers and its employees. It also appeals to shareholders since it shows a company is reaching levels of profitability at which it can afford to “give back,” and to consumers since it shows that a company cares about something other than the bottom line. Perhaps most importantly, it reflects the broad acceptance of the idea that simultaneously pursing CSR and profits are not mutually exclusive. Indeed, one supports the other.
Tips
- If you’re not sure how to find a fund or ETF that focuses on CSR, a financial advisor may be able to help. Finding the right financial advisor who fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors who will help you achieve your financial goals, get started now.
- If you’re interested in investing in CSR-oriented companies, move gradually. Decide which of the four buckets you’re interested in and how much of your assets you want to allocate initially to a CSR investment. Be sure to monitor your choice, and as you move up the proverbial learning curve other opportunities will present themselves.
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