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What is corporate social responsibility?

Posted by
Swiss Finance Institute
on
Tuesday, September 27, 2016 - 09:00

When a company gets involved in activities that benefit society, over and beyond their own competitive interests, they are practicing corporate social responsibility (CSR). There are various ways that a corporation can impact society in a positive way, amongst others:

 

- minimising their impact on the environment,
- caring for the welfare of employees, or 
- engaging in philanthropic activities.

 

While traditional finance defends the view that a company’s sole goal should be to maximize profit, there are benefits to engaging in CSR, for example the company’s image and reputation are enhanced. Reporting on a study conducted by a global consulting firm, Forbes says “analysis shows that 41% of how people feel about a company is based on their perceptions of the firm’s corporate social responsibility practices.” Forbes has also created a gallery of the 10 companies with the best CSR reputations.

 

CSR also ensures sustainable development. There are many definitions of sustainable development, but put simply, it is development that seeks to safeguard the ability to meet future needs. Trying to ensure that resources are not depleted for short-term gains ensures sustainable and lasting development. This could take the form of environmental considerations, amongst other things. Related to this is sustainable finance, which considers long-term impact (sustainability) of, for example, an investment, as well as its relationship to and impact on environmental, social and governance issues. An investment in “green finance” is one example of a sustainable investment. Being socially responsible while still protecting profit margins is sustainable.

 

Governments may provide perks to companies who can show that they are being socially responsible. Some countries, like India, even require a certain level of CSR. The Guardian explains that, according to Indian law, companies that earn over 10 billion rupees annually must give 2% of their net profit to charity.

 

However, most CSR is done voluntarily, and reflects the values of the company and its shareholders, while also creating shareholder value. A survey by McKinsey shows that company CFOs believe that environmental, social, and governance programs do create shareholder value, but that the financial value is hard to quantify since CSR activities often create benefits that are difficult to measure tangibly.

 

The Swiss Federal Council has adopted a position paper (which includes an action plan) on corporate social responsibility. While there are no rules for the implementation of CSR, the Swiss Federal Council says that CSR should ideally become a part of a company’s corporate culture.

 

While companies should be the ones to implement CSR, the Swiss Confederation will provide support, for example by developing framework conditions and standards for CSR. A mixture of recommendations which are non-binding, complemented if necessary with statutory binding provisions will be used to promote CSR. Globally, the Swiss Confederation will also support partner countries in developing their frameworks for CSR. Dialogue with companies and stakeholders is a key tool in the promotion of CSR.

 

To find out more about CSR, Prof. Alex Edmans, London Business School, will be giving the keynote speech on “The Social Responsibility of Business” at the SFI Annual Meeting on October 4th in Zurich. Register here for the conference or to request a copy of the conference material.

 

Faculty expertise provided by: Prof. Jean-Charles Rochet