The Current and Future State of CSR

Rangan et al. pointed out that CSR had been subject to criticism from both sides of the ideological spectrum.[1]  On the left advocates from civil society have often questioned the fundamental motivations of corporations’ actions under the umbrella of CSR, arguing that in most cases corporate support for environmental and social programs were nothing more than public relations campaigns designed primarily, if not solely, to boost brand reputations as another means for achieving the primary corporate objective of maximizing profits.  At the other end of the spectrum CSR has been denounced as inappropriate and unnecessary in a capitalist society where the responsibility of business is to create financial returns for its shareholders and the larger economy and environmental and social issues should be left to the government and civil society.  Both sides have also complained about the lack of metrics to evaluate the efficacy of CSR programs, a situation that is all the more problematic given that businesses are generally driven and managed through precise tools designed to track and analyze the performance of every investment decision. [2]

Rangan et al. noted that efforts to bridge the ideological gap regarding CSR and develop a new paradigm that would be widely accepted had become centered on the idea of creating “shared value”, meaning that the role of business in society should be re-imagined as continuing to create private value for its shareholders but doing so in a way that the corporation also creates public value for society.[3]  Rangan et al. used Cisco’s establishment of educational and training programs for networking personnel, so-called “Cisco Academies”, to ensure that there was a sufficient pool of skilled labor in each of the communities where the company operated as just one highly publicized example of shared value in action.  However, they were skeptical that shared value would complete resolve the tensions between economic and social/environmental goals that businesses and their leaders must confront.  For example, given that creating substantive public value requires investing corporate resources for a payoff that is both distant and uncertain, the decision to take that path can only be taken at the top of the organizational hierarchy (i.e., the CEO and the members of the board of directors).  Businesses typically staff their CSR activities with specialist managers, few of whom are willing or able to make “bet the company” decisions.  As for the CEO’s, only a few are inclined to ignore the pressures to meet their “numbers” and champion long-term environmental and social investing; however, new expectations from institutional investors looking for companies and CEOs to embrace sustainability are beginning to change the thought processes in the boardroom and corner offices.[4]

Another practical barrier to the large-scale impact of shared value promised by its proponents is that it appears to only make sense for a small group of firms that already have a dominant position in their sectors.  These companies already have a relatively large treasury of financial resources, meaning that a large bet on a relatively risky environmental or social project is not as problematic, and their size makes it likely that they will harvest a disproportionate share of the benefits that ultimately come out of a project and thus further strengthen their competitive position.  Smaller companies not only have resource constraints but also are unlikely to make substantial public investments only to see their competitors “free-ride” on those investments and appropriate much of the private value that might be created.  As such, it can be expected that most companies will invest in environmental or social projects that are narrower and more self-directed and that the public value of those projects, while noticeable and appreciated, will be limited to third parties in the company’s proprietary networks such as supply chain and distribution partners.[5]

If “shared value” is not the complete answer to the search for a definitive paradigm to justify CSR does that mean that CSR will ultimately fade away as just another fad?  Rangan et al. were among many who have responded to this question with a resounding “no”.  Among large global companies the percentage professing to practice some form of CSR has been steadily increasing for over a decade and sustainability reporting has become the norm.  Businesses of all sizes are subject to CSR drivers such as the philanthropic motivations of their employees, the personal commitments of more and more corporate leaders to contribute to their communities and society in general and the role that CSR plays in generating goodwill in the communities in which the business operates.  As such, Rangan et al. argued that “CSR is here to stay” and that the challenge for companies is to find a way to forge a coherent strategy that is can accommodate the broad range of CSR activities including corporate funding of community activities, grants for nonprofits/NGOs, environmental sustainability programs to reduce energy and resource use, “cause” marketing and comprehensive system-level efforts to remake a business’s entire value chain.[6]

In 2017, the MIT Sloan Management Review, in collaboration with The Boston Consulting Group, published a report compiling their observations on the then-current state of corporate sustainability based on extensive surveys and interviews conducted over the previous eight years with managers, executives and thought leaders in order to increase knowledge about business adoption of sustainable practices and to support the integration of sustainability into business strategy.[7] The report included an acknowledgement that proactive action from the private sector and tapping into its ability to innovate had become recognized as fundamental to realization of a sustainable future and that significant progress had been made relating to the levels of commitment to corporate sustainability and that a handful of standout companies were demonstrating that sustainability could be driver of innovation, efficiency and lasting business value[8]; however, the report also raised concerns about the continuing path forward, noting that corporate leaders in sustainability remained a minority (and were unevenly distributed across geographies and industries) and that populist political movements around the world threatened to set back global diplomatic progress on issues like climate change and reverse recent regulatory trends.  As such, the authors of the report felt that corporate sustainability had reached a critical “crossroads”.[9]

Specific issues raised by the authors of the report included a reluctance of most companies to undertake the substantial organizational changes necessary to embed sustainability in the business model (e.g., looking at the business in different ways, erecting new organizational structures, developing new expertise and processes and shifting mindsets); a lingering belief among some business leaders that major sustainability issues, such as reducing climate change, wealth inequality and poverty levels, should be addressed by governments and not private sector actors such as businesses; the reluctance of business leaders to refocus their planning efforts around long-term goals that often will take decades to achieve; and the rise of elected officials in the US and elsewhere who are pushing for deregulation, thus creating new temptations for CEOs to seek short-term profits in areas where rules have lapsed as opposed to staying the course with environmental and social practices that would ultimately contribute to a more sustainable future.[10]

For more information on the topic of this article, see the author’s book Responsible Business: A Guide to Corporate Social Responsibility for Sustainable Entrepreneurs, which is available here , and materials distributed through the Sustainable Entrepreneurship Project. 

[1] K. Rangan, L. Chase and S. Karim, Why Every Company Needs a CSR Strategy and How to Build It (Cambridge MA: Harvard Business School Working Paper 12-088, April 5, 2012), 1.

[2] On the ideological debate over CSR, see A. Karnani, “Doing Well By Doing Good: The Grand Illusion”, California Management Review (Winter 2011), 53; and D Windsor, “Corporate Social Responsibility: Cases For and Against,” in M. Epstein and K. Hanson (Eds.) The Accountable Corporation: Corporate Social Responsibility (Volume 3) (Westport, CT: Praeger Publishers, 2006), 41-43.

[3] K. Rangan, L. Chase and S. Karim, Why Every Company Needs a CSR Strategy and How to Build It (Cambridge MA: Harvard Business School Working Paper 12-088, April 5, 2012), 2.

[4] Id..  For more on “shared value”, see M. Porter and M. Kramer, “Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility” Harvard Business Review (December 2006), 81; and M. Porter and M. Kramer, “Creating Shared Value”, Harvard Business Review (January-February 2011), 64.

[5] Id.

[6] Id. at 3.

[7] D. Kiron, G. Unruh, N. Kruschwitz, M. Reeves, H. Rubel, and A.M. zum Felde, “Corporate Sustainability at a Crossroads: Progress Toward Our Common Future in Uncertain Times,” MIT Sloan Management Review (May 2017), 1.

[8] Id. at 3.  Indicators of progress relating to corporate sustainability included broad commitments to sustainability principles such as the UN Global Compact; more and more companies reporting on their sustainability performance; emergence of a vast network of tool makers (e.g., investors, consumer groups, organizations, coalitions, certifiers and platforms) to spur and aid sustainable business practices; increased transparency about sustainability-related activities (including activities by value chain partners); development of social media and other technology platforms leading to heightened awareness of crises and corporate misbehavior; recognition of the importance of sustainability to institutional investors and launch of environmental, social and governance reporting platforms such as the Principles for Responsible Investment, the Sustainability Accounting Standards Board and the Sustainable Stock Exchange Initiative; and the launch of new initiatives among groups of companies and nations to forge new standards and goals for sustainable business practices.  Id.

[9] Id. at 1.

[10] Id. at 19-20.