Ethical Performance
inside intelligence for responsible business


is corporate social responsibility in danger of losing its way?

June 2007

Companies are enjoying record profits and corporate social responsibility is enjoying unprecedented support. In the US, non-financial reporting seems to be at a tipping point, with 49 of the largest 100 companies now producing a CSR or sustainability report and the Administration making positive noises. In the UK, no political party now questions the importance of CSR and civil society seems quiescent.

If something sounds too good to be true, it probably is. In the rush to respectability, CSR is at risk of losing its way. One consequence of its success to date is that investment managers are taking a much greater interest in social and environmental issues than before. But their overriding need to deliver good financial returns has led them to focus on how social and environmental issues may affect company valuations, and not on how the activities of companies affect society and the environment. This is understandable: after all, they are paid by their investment clients to make money, not to save the planet. In a perfect world, materiality for a company would have everything to do with the sustainability of its actions. But at present it does not, and where investors lead, companies must follow. This value-free approach is shaping corporate attitudes.

One example is the current interest in the fortune said to lie at the ‘bottom’ of the pyramid. Clearly it is a good thing if companies can make money while lifting the world’s poor out of poverty. But what of the billion or so for whom this market-led approach will apparently not work (see page six). Are they not an appropriate focus for CSR activity?

Another is the continuing search for the business case. Predicating CSR on its ability to show a return misses the point, which is that companies do not exist solely to make money, but also have wider social obligations. A third is the conflation of stakeholder dialogue with CSR. Talking to interested parties is sensible, but a process is hardly an outcome. As for non-financial reporting, in many cases this is starting to feel uncomfortably like advertising. A report is no substitute for action and some are poor substitutes for communication.

Companies need to get back to basics. Without values to underpin it, CSR is as meaningless as a sustainability report produced because everyone else is doing one. And without concrete examples of what has been achieved, CSR adds to the risk burden instead of reducing it. CSR is not a bonus to be paid out in good times and withdrawn when the economic cycle turns. At present the balance feels wrong. Philanthropy may have its limitations, but it can win hearts in a way management processes never will, as the US understands better than Europe.


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