DE
06 May
2021

What is CSR and why do we need it?

Climate change has turned out to be perhaps the greatest threat to our planet. In addition to the earth's ecosystem, it also threatens all of humanity, its wealth, resources and existence. As an integral part of our society, companies are considered to play a significant role in global sustainability responsibilities (see Stibbe 2019, p.1). They are required to go beyond economic expectations and to engage socially and ecologically (see Schmitz 2021, p.1). If companies comply with this societal desire, the talk is of corporate social responsibility (CSR). This blog post attempts to introduce the construct of CSR and to demonstrate its irreplaceable role in the fight against the climate crisis.

CSR - simply complicated

The term CSR is not simple. This does not mean that there are no attempts at definitions, some of them very successful and contemporary, which reduce it to its essentials. On the contrary, there is a wide range of them. Lin-Hi and Blumberg, for example, explain the term as an attempt by companies to create positive effects for society and to reduce or avoid negative ones (see Genders 2020, p.3f). For Koren, the goal of CSR is to integrate social justice and ecological responsibility into economic practice (see Fischler & Sihn-Weber 2020, p.136).

The problem does not lie in the definition of the term, but rather in the complexity and scope for interpretation of CSR itself. Basically, CSR is always about quality and about goals within a company, as well as its effect on the outside (see Fischler & Sihn-Weber 2020, p.21). This is actually a simple and easy-to-understand definition. But if you look at its components individually, you quickly lose the bigger picture: Even the word "outside" leaves room for perspectives. "Effect on the outside" can mean public and societal perception. At the same time, it also describes a company's impact on the environment and climate. Accordingly, a company's CSR actions influence the climate. Conversely, economic success, i.e. the company's "goal," is dependent on environmental conditions - i.e. the climate - and reputation - i.e. public and societal perception. As if that wasn't complex enough, good reputation is in part directly attributable to a company's climate-friendly actions, and the climate benefits from the corporate pursuit of good reputation.

 

CSR is complex and holistic. It should not be understood as a clearly defined concept, but rather as a management philosophy (see Genders 2020, p.3). To function, it must therefore be deeply rooted in the core of the company and practiced in all areas. An idea that is difficult to reconcile with the pragmatic thinking of entrepreneurs. In practice, CSR is often interpreted in a simplified way and broken down to aspects that can quickly and easily be implemented and that have a direct, visible impact. In general understanding, CSR is therefore often limited to the moral level and finds its treatments only in strategic short-lived actions with strong media impact. However, inconsistency in sustainability strategy is often met with rejection in the public perception and leads to counterproductive effects, as well as to sometimes justified greenwashing accusations (see Genders 2020, p.8). In this context, the intention of companies can even be fundamentally good and benevolent. However, despite the fact that an increasing range of low-carbon products is an indication that companies are seriously addressing the issue of sustainability, many companies continue to refrain from holistic emission reductions and thus make themselves vulnerable to attack. What is often missing is the link between CSR management and operational corporate levels (see Schmitz 2021, p.71).

 

Do companies act in good conscience?

CSR is based on the principle of voluntariness. This is intended to ensure that companies are not restricted in their innovative approaches. However, CSR very quickly finds its limits on the corporate side where action in the sense of CSR creates competitive disadvantages or no competitive advantages. The fact that the prioritization of economic interests prevents a functioning implementation of CSR can be demonstrated using the three-pillar model of sustainability. According to this model, sustainability consists of three pillars - economic, ecological and social - which interact with each other and must be dealt with equally and jointly. Self-explanatorily, the ecological pillar should actually enjoy the highest priority, since social and economic sustainability are fundamentally based on a functioning ecosystem. If environmental and climate issues are not prioritized then all further efforts are useless. Unfortunately, this overall view of the problem is often ignored by companies, and social and ecological issues are always subordinated to economic ones.

 

Companies are part of the problem. Now they must be part of the solution.

 

For CSR to be implemented globally nonetheless, there must be good reasons for companies to do so. These can be public pressure, economic incentives or political regulations. As it became apparent in the first years of the new millennium that numerous companies were not fulfilling their social responsibility voluntarily or sufficiently, the pressure of the EU on its member states to implement binding measures increased (see Stibbe 2019, p.7). In 2015, an important step was taken at the climate conference in Paris, where a common goal was set to limit global warming to a maximum of 2°C compared to the pre-industrial era (see Fischler & Sihn-Weber 2020, p.2).  In the same year, all UN member states committed to contributing to 17 Sustainable Development Goals (SDGs), to the realization of which the business sector is essential. Businesses are seen as contributors to climate problems, but at the same time as influential actors in their solution. Thus, corporate action is indispensable in the fight against climate change and resource scarcity, as well as in the preservation of biodiversity and respect for human rights. (see Stibbe 2019, p.6). To achieve the SDGs, political measures such as CO2 taxes, etc. are therefore also enforced at the corporate level. The shortness of legislative periods compared to climate plans, which usually run in the long term until 2030 or even 2050 and are repeatedly put to the test by political and economic interests, often becomes the doom.

 

Parallel to political developments, sustainability is also becoming more omnipresent in society. Opinion leaders like Gore back then or Thunberg today create awareness and mobilize especially young people to demonstrate for the good of the world. The growing interest makes it impossible for companies to completely dispense with CSR. In addition, general knowledge about corporate processes is increasing along with interest. Companies are no longer held responsible solely for their own operations, but for everything that happens in the value chain. If, for example, social or ecological grievances are uncovered in outsource factories on the other side of the world, fatal damage to a company's image can still result, as several cases in the recent past have shown (see Fischler & Sihn-Weber 2020, p.197). Costly restructuring now awaits many companies, because on average a company's supply chain still produces four times the greenhouse gas emissions of its internal corporate operations. In some industries, such as automobile manufacturers, the figure is even seven times higher (see Fischler & Sihn-Weber 2020, p.197). Almost every industry is affected due to the global interdependence of various business areas. If not directly, then through customers or supply chains.

 

Integration of CSR in the company

Pressure from the public, politics and NGOs lead to the implementation of CSR actions. Individual forced projects to react. To be effective in the long term, however, CSR must be integrated into all areas of the company. Starting with the sustainable adaptation of the company's own core business, all areas of the value chain must also be gradually reviewed and renewed. This must not be limited to management; the focus must also be on the micro level. While the CSR efforts of many companies are reduced exclusively to the appearance, values and actions of the entire organization, individuals are completely neglected. But sustainable training of employees is just as important (see Ahmad et.al. 2021, p.1139). CSR measures at this individual level are difficult to measure, but have an enormous impact on climate goals. The company's sustainability values are not the only benefit; in addition, sustainable behavior patterns among employees also have a positive impact on the environment. For example, one study showed that sustainable thinking at the core of the company also encourages employees to rethink (see Ahmad et.al. 2021, p.1145).

 

The integration of CSR into the company is a lengthy process that cannot take place overnight nor completely smoothly. Stakeholders know this, and companies must also realize it themselves. In general, it has therefore proved advisable for companies to deal openly and transparently with the issue of sustainability, to frankly communicate deficits and backlogs, to admit to possible mistakes and to strive for continuous improvement (see Genders 2020, p.10).

 

Turning risks into opportunities

For companies, climate change brings risks and challenges. But it also brings opportunities. With the right climate strategy, companies can benefit economically at all levels. Positive effects of CSR are reflected, for example, in a shift in purchasing intentions. Charitable involvement by companies, for example through fundraising campaigns and community projects, can demonstrably lead to a positive change in consumer behavior. In addition, CSR done well results in increased sales, an improved corporate image and improved employee morale (see Su et.al. 2021, p.470). Good CSR also makes companies interesting for talent (see Schmitz 2021, p.8). This is because contemporary CSR management is increasingly not only expected by customers, but is also important for employees and an exclusion criterion for job seekers.

 

Another important advantage that good CSR can bring is cost efficiency, especially in the area of resources. Resource efficiency perfectly draws the connection between environmental protection and private economic interest. Social responsibility overlaps with profit here. From an economic point of view, the aim is to achieve higher added value from lower resource consumption, while at the same time reducing environmental pollution and exploitation. This can be achieved by replacing non-renewable materials with renewable ones, or by a high degree of reuse of non-renewable materials. Avoiding and reducing waste as much as possible also saves resources and prevents emissions at the same time. In this way, the ecosystem is not overloaded and, in addition, economic savings are achieved. (see Fischler & Sihn-Weber 2020, p.43).

Leading by example

Sustainability development needs corporate action, and it needs it now. This is not an overreacting warning, but a sober analysis of the research. The world's population is growing exponentially. It obviously has a direct impact on resource availability and man-made pollution. In addition, there is the growing purchasing power of the middle class in emerging countries and the lifestyle associated with increasing prosperity (see Fischler & Sihn-Weber 2020, p.23). The global environmental challenges are thus continuously increasing. Science warns of this, but the economy suppresses. Up to a not too distant point, where damages of the climate crisis could become irreversible.

 

Today, it is not enough to look at past mistakes in order to take action. External conditions are evolving too quickly for that. Combating climate change requires foresight at the corporate level. The energy sector serves as an example of how CSR can work across markets. A positive trend can be seen here in the fact that the cost of renewable energy has now fallen below that of coal, oil and gas. This trend has been brought about by the market, i.e. the economy. The origin was the sustainable awareness of companies. Not only in developed industrial countries, but also in emerging and developing countries, where now just as much is invested in renewable energy. (see Fischler & Sihn-Weber 2020, p.35).

 

Other sectors are also showing changes in the right direction. Local markets are booming, fruit and leftover exchanges are emerging, bike rental systems and shared space solutions are making a breakthrough, and the solidarity economy and the common good economy are slowly but surely gaining a foothold. The fact that sustainability can be implemented in so many different aspects and sectors also visualizes the complexity of the issue and makes people understand that individual actions and circumstances cannot be viewed separately, but rather in interaction with one another.

Where do we go from here?

As a result of public pressure, climate protection has made its way to the highest levels of management in most companies in recent years, and this is particularly true in the DACH region (see Fischler & Sihn-Weber 2020, p.192). Austrian companies in particular recognize the risks of climate change for the economy and also the economic opportunities that arise. In the coming years, both public pressure will continue to increase and legal conditions will become stricter, as shown, among other examples, by the new EU supply chain law that has already been defined. CSR is currently experiencing a turnaround, a rethink, and in a few years it will be unavoidable for large companies as well as for small and medium-sized enterprises. It is to be hoped that this change of perspective will not already come too late.