Challenges to Incorporating CSR into Strategy

Becoming a sustainable business, or improving a company’s current performance with respect to acting in an environmentally and socially responsible manner, requires the same sort of strategic approach as any other major corporate initiative.  However, while strategic planning for sustainability has become a recognized discipline, companies and their directors and senior executives must acknowledge and seek to overcome various specific challenges the fluidity of the concepts of CSR and sustainable development, ongoing debate about the allocation of responsibilities for sustainable development between governments and business, understanding and adopting new performance measures that go beyond financial results to include environmental and social dimensions, reconciling the difficult tradeoffs that often must be resolved when implementing sustainable business practices, effectively communicating with stakeholders to explain the long-term approach that is necessary for implementing CSR and the need to adopt new processes for decision making in the boardroom and implement internal controls that track sustainability and facilitate CSR reporting.

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While there appears to be convergence on the steps that companies should take to develop and implement CSR and sustainability strategies, the reality is that businesses will still need to overcome a number of practical challenges to implementation, such as the following[1]:

• Both CSR and sustainable development are concepts that are not amenable to simple and universal definitions, rather they are fluid and subject to changes over time in response to increased information and society’s evolving priorities. There are so many issues that can reasonably be placed under the umbrellas of environmental and social responsibility and the apparent importance of any one of those issues can change almost overnight in light of political events and acts of nature.  The challenge for any single business is to select an issue or cause that will resonate over a long period of time, which is one reason why it is frequently recommended that the mission or purpose of a sustainability-focused business be broadly defined, as opposed to a niche.
• While there is a growing consensus that businesses need to be involved in sustainable development and embrace CSR in order for the entire movement to have an impact, the precise role of business in contributing to sustainable development remains indefinite. Moreover, the form and size of contribution that a particular business can make will vary depending on the sector in which the organization is operating and the size of the organization.  Each business needs to assess its own core competencies and determine how they can best be deployed through CSR initiatives in order to make an impact on a sustainable development problem.
• While most business leaders know how to steer a business when profitability is the sole objective, there is no consensus among those leaders as to best balance between narrow self-interest (i.e., increasing shareholder value, regardless of the impact on other stakeholders) and acting in ways that are for the good of society as a whole. Being a sustainable business and a socially responsible enterprise does not mean abandoning the profit motive, since profits are needed in order for the business itself to survive and provide the goods and job opportunities expected from its customers and workers, but it does mean that the leaders of the business will need to adopt different approaches to financial profitability and accept and measure additional “bottom line” objectives (i.e., the environmental and social dimensions of the so-called “triple bottom line” used to measure sustainability).
• Businesses must confront and overcome difficult tradeoffs as they implement CSR and sustainable business practices. For example, an existing business may decide that it wants to invest in manufacturing technologies and processes that will ultimately result in drastic improvements in energy use efficiency and significant reductions in pollution; however, since it may take several years for a new plant using these technologies and processes to be built the question for the company is whether to shut down its existing plant immediately, and risk losing market share and displacing hundreds of workers, or continue to operate the plant using technology and processes that cause substantial harm to the environment.
• One of the advantages of focusing on the financial performance of a business is that there are a wide array of quantitative and objective measures that can be used to determine if the business in the right track; however, when it comes to environmental and social issues business leaders are often confronted with a dizzying and technically ambiguous array of terms that make it difficult to settle on the approach course of action. For example, while “sustainable forest management” sounds like a worthy objective, many critics argue that simply replacing trees that have been used for commerce is not sufficient since it does not make up for the harm to the biodiversity of the forest caused by the original harvesting.  Additional research on these issues is necessary and the result will influence how businesses act in the future; however, businesses seeking to engage in CSR can take advantage of a number of tools for measuring and reporting performance.
• The path toward become sustainable development is a long one and businesses need to set reasonable expectations for any given point in time along the journey. For example, improving environmental performance is generally a reasonable way to start the process as opposed to ambitious and costly investments to achieve full sustainability development within a short period of time.  In order to fend off criticism about the speed of the process, businesses need to be transparent about their CSR plans and communicate regularly with stakeholders regarding the impact of current initiatives and planning for new projects that will be implemented in the future.  Stakeholder engagement of this type is also a good opportunity to proactively explain the tradeoffs that the company is making, such as a decision on the issue described above to keep an older and less eco-efficient plant open to maintain employment in the community while at the same time working on the new facility that will be operated with advanced technology that drastically reduces damage to the environment and the community surrounding the facility and enhances the wellbeing of the company’s employees.

Strategy planning for CSR and sustainability is also complicated by the need to integrate the values and expectations of external and internal stakeholders into the overall strategic management process.  Digman et al. pointed that strategic management is “inseparable from the strategic management of relationships” and Masuku advised: “A strategy should be in place for each stakeholder group their key issues and willingness to expend resources helping or hurting the organization on those issues must be understood.  For each major stakeholder, managers responsible for that stakeholder relationship must identify the strategic issues that affect the stakeholder and must understand how to formulate, implement and monitor strategies for dealing with that group.”[2]  All of this places new demands on the time and skill sets of a company’s directors and senior executives.  For example, board members can no longer limit the criteria used in their decision making to what is best for enhancing shareholder value, but must now wrestle with emerging and yet to be fully defined duties to multiple stakeholders.

In the report described above, the researchers from MIT and BCG explained their view that corporate sustainability had reached a critical “crossroads” by arguing that they had found 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.[3]

Alan S. Gutterman is the Founding Director of the Sustainable Entrepreneurship Project.  This article is an excerpt from Alan’s book Strategic Planning for Sustainability.  For more information and tools on the subject, see here.

Notes

[1] Business Strategy for Sustainable Development: Leadership and Accountability for the 90s (Winnipeg, CN: International Institute for Sustainable Development, 1992).

[2] C. Masuku, Corporate Social Responsibility Literature Review and Theoretical Framework (citing L. Digman, Strategic management: concepts, decisions, cases (Homewood IL: BPI/Irwin, 1990).

[3] 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, 19-20.