Despite the growing prevalence of CSR, many Small Medium Enterprises (SMEs), particularly from the developing world, seem to misunderstand the value of such efforts. Although such community engagement does not result in an immediate panacea for all organizational ills, it is clear that addressing social and environmental issues is paramount to the impact of a business’s triple bottom line. Companies at the forefront of these issues in developing countries can utilize their proximity to social and environmental problems to have greater impact and harness economic opportunities.
To date, approximately 80% of the world population lives on less than USD 10 dollars a day. Over a billion of these people survive on less than USD 1.25 daily. This population is often referred to as ‘The Bottom of The Pyramid’ (BoP). They often have a lack of access to basic resources such as clean, potable water. With climate change coming to the forefront of the world’s economic agenda, organisations have started to reappraise their role in society by giving back. Today, with globalization - social connectedness and technology have created well-informed consumers and shareholders and companies can no longer ignore the call for action. CSR programs are rapidly being introduced into business agendas to reduce costs, create sustainable growth, address key stakeholder concerns, retain employees and also to attract investors.
A Business Case for CSR: The Why
CSR can include a diverse range of activities such as improving standards for business ethics, improving labour standards, and even conducting stakeholder dialogues. Although some countries mandate CSR spending (e.g. India), in many cases it is done for public relations purposes. However, for CSR to have real impact, it should not be seen merely as a cost centre to gain publicity but rather as a broader and more strategic concern that aligns with business interests. Real change takes effect only when business owners and shareholders see the real value of CSR. However, many organisations maintain the view that CSR has no strategic business value. I argue, however, that CSR should be viewed as a business necessity. Here’s why:
1. Businesses from developed countries have seen a shift in focusing investment efforts to emerging markets
This simply means that the places where CSR is likely to have the greatest impact (i.e., emerging markets) are the same places where many companies are looking to grow their business. Thus, building rapport with these communities through CSR is essential for success.
2. Many financial institutions consider social and environmental metrics before issuing loans.
To date, more than 80 banks use the Equator Principles Financial Institutions (EPFIs), a framework that the banking industry has developed for measuring sustainability standards to improve environmental and social risk. Furthermore, there has been an increase in the number of financial institutions implementing the ESG (environmental, social governance) framework on borrowers. This shift results in a greater focus on the importance of reporting standards imposed by regulators and exchanges on corporations.
3. Companies with a bigger social mission are also attractive to young millennial consumers and workers.
Corporations deeply rooted in CSR generally have a better impact and influence with consumer attitudes; this is especially true with regard to purchasing decisions of millennials today. In 2013, Achieve found that 87 percent of American Millenials reported donating to a non-profit organisation. Not only is a socially responsible organization appealing to consumers, it is appealing for potential talent. Running an organization that gives back to the community gives employees a sense of purpose and this is particularly important for attracting top talent in communities where this purpose is needed most.
An Integral Part of Business Strategy: The How
It is clear that many companies need to shift their CSR paradigm from cost centre and PR to a legitimate business function. There are tangible changes that business leaders can make to address these needs. I suggest the following:
1. Partner with NGOS and Governments
Businesses can face quite a few challenges when making the case for CSR. Major obstacles faced, especially by smaller companies include the lack of information and perceived costs of implementing a CSR strategy. Partnering with NGOs and Government fills up the knowledge gap in terms of where there is the most need. They are often equipped with a macro understanding of the context in which the business operates and are often very willing to help solve major environmental and social problems.
2. Inculcate a company-wide culture of social responsibility (not just at the C-suite level)
Many businesses pursue CSR activities on an ad-hoc basis as they reflect personal interests of ‘doing good’ via one-off philanthropic projects. This happens too often when the real value of CSR has not been understood to create significant shared value creation in a company’s business strategy. Top management would do well to make sure the entire workforce understands how CSR initiatives fit into the company’s values and what they can do on a day-to-day basis to contribute to that initiative. In doing this, a culture of sustainability and social responsibility will emerge which will have a positive economic impact on the company and will sustain CSR initiatives for the long haul.
3. Innovation
Companies would do well to keep abreast of technological developments that can contribute to their CSR agenda. Being socially responsible means using every possible tool to sustain the communities in which the company operates. One idea would be to appoint an executive committee to advise leadership on ways they can be socially responsible in innovative and cost-effective ways.
Conclusion
It is no longer the responsibility of NGOs, governments, or banking entities who initiate impact funds or poverty programs to tackle these issues. Thinking of CSR as a business necessity is imperative in an age of increased scrutiny of the social impact of businesses.