What Is CSR? Corporate Social Responsibility Explained(Jason Fernando)

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What Is CSR? CorporateSocial Responsibility Explained




ByJason Fernando Updated March 06, 2024
Reviewedby JeFreda R. Brown
Factchecked by Katrina Munichiello
Partof the Series


Guideto Socially Responsible Investing


WhatIs CSR?
Corporatesocial responsibility (CSR) is a self-regulating business model that helps acompany be socially accountable to itself, its stakeholders, and the public.

Bypracticing 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 waysthat enhance society and the environment instead of contributing negatively tothem.


Key Takeaways
Corporatesocial responsibility is a business model by which companies make a concertedeffort to operate in ways that enhance rather than degrade society and theenvironment.
CSRcan help improve society and promote a positive brand image for companies.
CSRincludes four categories: environmental impacts, ethical responsibility,philanthropic endeavors, and financial responsibilities.
CorporateSocial Responsibility
Investopedia/ Zoe Hansen



Understanding CorporateSocial Responsibility (CSR)
Throughcorporate social responsibility programs, philanthropy, and volunteer efforts,businesses can benefit society while boosting their brands. A sociallyresponsible company is accountable to itself and its shareholders. CSR iscommonly a strategy employed by large corporations. The more visible andsuccessful a corporation is, the more responsibility it has to set standards ofethical behavior for its peers, competition, and industry.

FastFact
Smalland midsize businesses also create social responsibility programs, althoughtheir initiatives are rarely as well-publicized as those of largercorporations.



Types of CSR
Environmentalresponsibility: Corporate social responsibility is rooted in preserving theenvironment. A company can pursue environmental stewardship by reducingpollution and emissions in manufacturing, recycling materials, replenishingnatural resources like trees, or creating product lines consistent with CSR.

Ethicalresponsibility: Corporate social responsibility includes acting fairly andethically. Instances of ethical responsibility include fair treatment of allcustomers regardless of age, race, culture, or sexual orientation, favorablepay and benefits for employees, vendor use across demographics, fulldisclosures, and transparency for investors.

Philanthropicresponsibility: CSR requires a company to contribute to society, whether acompany donates profit to charities, enters into transactions only withsuppliers or vendors that align with the company philanthropically, supportsemployee philanthropic endeavors, or sponsors fundraising events.
Financialresponsibility: A company might make plans to be more environmentally,ethically, and philanthropically focused, however, it must back these plansthrough financial investments in programs, donations, or product researchincluding research and development for products that encourage sustainability,creating a diverse workforce, or implementing DEI, social awareness, orenvironmental initiatives.



Volunteering
Somecorporate social responsibility models replace financial responsibility with asense of volunteerism. Otherwise, most models still include environmental,ethical, and philanthropic as types of CSR.



Benefits of CSR
Accordingto a study published in the Journal of Consumer Psychology, consumers are morelikely to act favorably toward a company that has acted to benefit itscustomers.
Asa company engages in CSR, it is more likely to receive favorable brandrecognition. Additionally, workers are more likely to stay with a company theybelieve in. This reduces employee turnover, disgruntled workers, and the totalcost of a new employee.
Forcompanies looking to outperform the market, enacting CSR strategies may improvehow investors view the company's value. The Boston Consulting Group found thatcompanies considered leaders in environmental, social, or governance mattershad an 11% valuation premium over their competitors.

CSRpractices help companies mitigate risk by avoiding troubling situations. Thisincludes preventing adverse activities such as discrimination against employeegroups, disregard for natural resources, unethical use of company funds, andactivity that leads to lawsuits, and litigation.

Important




CSR programs can raisemorale in the workplace.



Company Examples
Inits 2022 Environmental and Social Impact Report, Starbucks (SBUX) highlightstaking care of its workforce and the planet among its CSR priorities throughstock grants and additional medical, family, and educational benefits. Thecompany's goals include achieving 50% reductions in greenhouse gas emissions,water consumption, and waste by 2030.

HomeDepot (HD) has invested more than 1 million hours per year in training to helpfront-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 $5billion per year with diverse suppliers by 2025.

GeneralMotors won the Sustainability Leadership Award from the Business IntelligenceGroup in 2022. The automaker provided $60 million in grants to more than 400U.S. nonprofits focusing on social issues, and it has agreements in place touse 100% renewable electricity at its U.S. sites by 2025.


Why Should a CompanyImplement CSR Strategies?
Manycompanies view CSR as an integral part of their brand image, believingcustomers will be more likely to do business with brands they perceive to bemore ethical. In this sense, CSR activities can be an important component ofcorporate public relations. At the same time, some company founders are alsomotivated to engage in CSR due to their convictions.


What Is ISO 26000?


In2010, the International Organization for Standardization (ISO) released ISO26000, a set of voluntary standards to help companies implement corporatesocial responsibility. Unlike other ISO standards, ISO 26000 provides guidancerather than requirements because the nature of CSR is more qualitative thanquantitative, and its standards cannot be certified. ISO 26000 clarifies socialresponsibility and helps organizations translate CSR principles into practicalactions.


What Are the Benefits ofCSR?
CSRinitiatives strive to have a positive impact on the world through directbenefits to society, nature and the community in which a business operations.In addition, a company may experience internal benefits through theinitiatives. Knowing their company is promoting good causes, employeesatisfaction may increase and retention of staff may be strengthened. Inaddition, members of society may be more likely to choose to transact withcompanies that are attempting to make a more conscious positive impact beyondthe scope of its business.

What Companies Have the BestCSR?
Since1999, Corporate Responsibility Magazine has ranked the top 100 Best CorporateCitizens each year among the 1,000 largest U.S. public companies. Rankings arebased on employee relations, environmental impact, human rights, governance,and financial decisions. In 2023, the top-ranked companies includeHewlett-Packard Enterprise Company, Accenture, and Hasbro.
3BLMedia. "100 Best Corporate Citizens of 2023."

The Bottom Line
Companiesstriving to measure success beyond bottom-line financial results may adopt CSRstrategies that target environmental, ethical, philanthropic, and fiscalresponsibility that extend beyond the products they sell.



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