Developing and Prioritizing Proposals for CSR Actions

The assessment of the company’s current and potential corporate social responsibility (“CSR”) activities, combined with the survey of practices of other companies and guidelines included in CSR instruments, should allow the leadership team to start putting together a list of proposed CSR actions that can then be analyzed in light of the company’s immediate opportunities and threats and available resources.  One approach to identifying and prioritizing proposed CSR actions is to begin by collecting and placing ideas into an L-shaped matrix: one dimension would be the main categories of CSR activities (i.e., environmental, social (e.g., workers, communities) and economic (e.g., quality assurance, customer satisfaction)) and the other dimension would be the element of the company’s activities that would be the focal point of the action (i.e., processes, such as upgrading registration and certification status; products and services such as focusing on product labeling and performance characteristics; and impacts such as increasing stakeholder engagement).  Another important step is to hold brainstorming sessions with key internal and external stakeholders including members of the senior management team, employees and representatives from key business partners and the surrounding community to understand their expectations, intensity of interest and willingness and ability to contribute to strategy execution.

A different perspective can be gleaned from mapping the CSR landscape based on two dimensions–benefit to society and benefit to business—and then populating that map with suggested activities based on where they fall among four areas: “pet projects”, activities selected by individual executives based on their personal interests, are often supported by companies, yet typically have little benefit to either society or the business; philanthropy, which generally does well in terms of benefit to society but often provides little in the way of business benefit unless done strategically; “propaganda” activities that are primarily intended to enhance the company’s reputation but do not produce much in the way of social benefit and often put the company at risk for criticism if it appears that its actions are not as strong as it words; and “partnering” arrangements established to improve the company’s core value creation abilities, address long-term challenges to the company’s sustainability and make an impact on important social issues such as improving employment, overall quality of life and living standards.  Mapping of this type highlights shortcoming in prior actions and illustrates how companies can shift the balance of their activities toward strategic philanthropy and high value and impactful partnering initiatives

Regardless of the approach that is taken by a company, the leadership team needs to remain focused on materiality in order to manage what will typically be a long list of potential ideas that, taken together, would overwhelm the company’s available resources if all of them were executed simultaneously.  While many companies appears to have a wide range of programs that they proudly promote as indicators of their environmental and social responsibility–biking programs, recycling drives and small philanthropic initiatives selected based on the preferences of the CEO—they fail to achieve the level of success they might have if they limited their efforts to a handful of impactful projects around material business and sustainability issues that can be clearly measured and explained to stakeholders.  This does not mean that companies, particularly small businesses, should not bother with modest programs to get their feet wet; however, the long-term goal should be to undertake and realize dramatic and fundamental changes in business models, products, processes and stakeholder relationships to incorporate socially and environmentally responsible principles.

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The assessment of the company’s current and potential corporate social responsibility (“CSR”) activities, combined with the survey of practices of other companies and guidelines included in CSR instruments, should allow the leadership team to start putting together a list of proposed CSR actions that can then be analyzed in light of the company’s immediate opportunities and threats and available resources.  One approach to identifying and prioritizing proposed CSR actions is to begin by collecting and placing ideas into an L-shaped matrix: one dimension would be the main categories of CSR activities (i.e., environmental, social (e.g., workers, communities) and economic (e.g., quality assurance, customer satisfaction)) and the other dimension would be the element of the company’s activities that would be the focal point of the action (i.e., processes, such as upgrading registration and certification status; products and services such as focusing on product labeling and performance characteristics; and impacts such as increasing stakeholder engagement).  Another important step is to hold brainstorming sessions with key internal and external stakeholders including members of the senior management team, employees and representatives from key business partners and the surrounding community to understand their expectations, intensity of interest and willingness and ability to contribute to strategy execution.

A different perspective can be gleaned from mapping the CSR landscape based on two dimensions–benefit to society and benefit to business—and then populating that map with suggested activities based on where they fall among four areas: “pet projects”, activities selected by individual executives based on their personal interests, are often supported by companies, yet typically have little benefit to either society or the business; philanthropy, which generally does well in terms of benefit to society but often provides little in the way of business benefit unless done strategically; “propaganda” activities that are primarily intended to enhance the company’s reputation but do not produce much in the way of social benefit and often put the company at risk for criticism if it appears that its actions are not as strong as it words; and “partnering” arrangements established to improve the company’s core value creation abilities, address long-term challenges to the company’s sustainability and make an impact on important social issues such as improving employment, overall quality of life and living standards.  Mapping of this type highlights shortcoming in prior actions and illustrates how companies can shift the balance of their activities toward strategic philanthropy and high value and impactful partnering initiatives

Regardless of the approach that is taken by a company, the leadership team needs to remain focused on materiality in order to manage what will typically be a long list of potential ideas that, taken together, would overwhelm the company’s available resources if all of them were executed simultaneously.  While many companies appears to have a wide range of programs that they proudly promote as indicators of their environmental and social responsibility–biking programs, recycling drives and small philanthropic initiatives selected based on the preferences of the CEO—they fail to achieve the level of success they might have if they limited their efforts to a handful of impactful projects around material business and sustainability issues that can be clearly measured and explained to stakeholders.  This does not mean that companies, particularly small businesses, should not bother with modest programs to get their feet wet; however, the long-term goal should be to undertake and realize dramatic and fundamental changes in business models, products, processes and stakeholder relationships to incorporate socially and environmentally responsible principles.

Preparing a Matrix of Proposed CSR Actions

Hohnen and Potts suggested that companies prepare an L-shaped matrix of proposed CSR actions: one dimension would be the main categories of CSR activities (i.e., environmental, social (e.g., workers, communities) and economic (e.g., quality assurance, customer satisfaction)) and the other dimension would be the element of the company’s activities that would be the focal point of the action (i.e., processes, products and services, impacts).[1]  The responsibility center for the activities would also be included on the matrix since the feasibility of implementation of the actions depends on having the appropriate resources and organizational structure in the group responsible for implementation and monitoring.  The interior of the matrix would be populated with a brief description of proposed CSR actions and comparable current activities of the company.  For example, in their illustration of a matrix Hohnen and Potts included the following proposed actions:

• Proposals relating to processes focused on upgrading registration and certification status and a proposed economic activity involved going beyond the company’s current ISO 9001 registration to implementation of integrated management systems
• Proposals relating to products and services focused on product labeling and performance characteristics and one of the environmental activities proposed going beyond labeling some products as “organic” using a known logo to having products certified to local energy standards
• Proposals relating to impacts typically focus on increasing engaging with stakeholders and would include proactive engagement with supply chain partners and/or community groups

The matrix should be used as a brainstorming tool and it is important to remember that most of the proposed CSR actions could be placed into more than one of the activity categories.  For example, product certification actions obviously can be characterized as a social activity and as an economic activity (i.e., product certification enhances customer satisfaction and provides customers with assurances regarding product quality).  The matrix is a good tool to both get ideas on the table and begin a discussion on how well a proposed action might fit with the company’s current activities and structure and what steps might need to be taken to effectively implement the proposed action.  In addition, even a simple matrix like the one illustrated by Hohnen and Potts quickly creates a list of alternatives that the leadership team will need to prioritize on the way toward developing the CSR strategy.

Stakeholder Brainstorming

Another approach the leadership team should use to develop options for new CSR actions is to hold brainstorming sessions with key internal and external stakeholders including members of the senior management team, employees and representatives from key business partners and the surrounding community.  The foundation for these sessions should have been established during the dialogue that began in the assessment stage.  While the agenda for the sessions might vary a good starting point would be to go through the following questions recommended by Hohnen and Potts[2]:

• What social and environmental activities and initiatives has the company undertaken already?
• What strengths, weaknesses, opportunities and threats do these present?
• What has the company learned from others that could be helpful?
• What are the company’s CSR goals?
• Where could the company be in terms of CSR activities and outcomes five and ten years down the road?
• What are the big social issues and how might the company help?
• If the company is to be a CSR leader, what changes to current practices and products would need to take place?
• Are there some CSR activities or initiatives the company could easily undertake now at no or low cost (i.e., is there any “low hanging fruit”)?
• Are there areas in which CSR changes would have a particularly big impact on the company and others? What are they and what are the likely impacts?
• Can the proposed CSR changes be organized into short-, medium- and long-term deliverables?
• What are the resource implications of these deliverables?
• Are there any changes to the company’s organizational structure that would need to occur to implement any of the deliverables?
• Are there any other obstacles or impediments (e.g., inadequate training or equipment or inappropriate incentive structures) that might stand in the way of taking a more systematic approach to implementing CSR? If so, what are they?
• Are there opportunities for cost reductions?
• What are the potential risks of failing to take into account the broader environmental, social and economic aspects of the company’s activities?
• What should be the priorities for action if the company decides to do more?

As noted above, the brainstorming sessions can and should contribute to strengthening stakeholder relationships, engagement and collaboration.  In addition, the opportunity to participate in discussing what are often difficult issues builds commitment and excitement among those involved and makes it easier for participants to “take ownership” of the ideas and champion them throughout the organization once the time comes for implementation.  Some companies use outside facilitators for these sessions in order to take advantage of their expertise in group dynamics and eliciting comments and provide a neutrality that ensures that the “agenda” of any one person or business unit does not skew the process and ignore other good ideas.  Outside sources may be used to gather information necessary to answer some of the questions posed above.  For example, while participants may have their own views about what are the most pressing social and environmental issues reference should also be made to publicly available surveys on the subject in order to get a better idea of stakeholder expectations and the likelihood of changes in regulatory and market attitudes.

Companies should re-arrange their list of ideas into categories that are based on each of their key stakeholder groups.  For example, companies should normally find that they can create idea lists for employees, customers, supply chain partners, local community members, investors and the global community.  When creating these lists an assessment should be made about what the company is already doing from a CSR perspectives with each of the stakeholder groups and the gaps in attentiveness that the company would like to address.  For example, creating the lists may shed a spotlight on the company’s need to more in its local communities and the leadership team may make this a priority when deciding among competing alternatives in developing its CSR strategy.  In and of itself, re-arranging a long list into categories does not reduce the number of ideas and this is generally a good time to make the whole process more manageable by choosing two to four initiatives for each category as qualifiers for the next step in the process (i.e., building a business case).

Mapping the CSR Landscape

According to Keys et al., CSR encompasses dual objectives: pursuing benefits for the business and for society.[3]  They used these two objectives to create a map of the CSR landscape using two dimensions: benefit to society and benefit to business and then populated that map with four popular activities that have generally been included under the umbrella of CSR.  For example, “pet projects”, activities selected by individual executives based on their personal interests, are often supported by companies, yet generally have little benefit to either society or the business.  Philanthropy is another common CSR approach and generally does well in terms of benefit to society; however, unless philanthropy is done strategically it can be subject to criticism as providing little in the way of benefit to the business of the company.  Some companies engage in what have been derogatively termed “propaganda” activities that are primarily intended to enhance the company’s reputation but do not produce much in the way of social benefit and often put the company at risk for criticism if it appears that its actions are not as strong as it words.  Finally, partnering appears on the map as providing significant benefits on both the societal and business dimensions.  Keys et al. explained that with partnering the focus of the business moved beyond avoiding risks or enhancing reputation and toward improving the company’s core value creation abilities and addressing long-term challenges to the company’s sustainability.  As for society, the focus of partnering extends beyond maintenance of minimum standards or seeking funding to make an impact on important social issues such as improving employment, overall quality of life and living standards.

Keys et al. urged company leaders to map all of the current and proposed CSR initiatives and activities based on the two dimensions described above.  Mapping allows leaders to get a better idea of where the company’s CSR activities have been focused in the past and where they should be focused in the future.  When completing the mapping exercise, leaders should pay particular attention to identifying the objectives of each activity; the benefits that are being created by each activity, including who is actually realizing those benefits; and how relevant the activity is to addressing key strategic challenges and opportunities of the company.  Answering these questions is important because every company, regardless of its size, has resources limitations that will apply to CSR initiatives.  In addition, a “deep dive” mapping exercise will force the company to develop and use rigorous measurement and assessment tools in order to develop a clear picture of the impact of its CSR activities, tools that can be put to good use when the company establishes the framework for partnering activities.

Once the mapping process is completed, the information should be used to generate ideas for maximizing both the business and social benefits of the company’s CSR activities.  Keys et al. argued that this meant moving away from the relatively easy CSR activities that companies generally embrace because they are easier to execute—pet projects, philanthropy and propaganda—toward partnering.  Companies were advised to concentrate their CSR efforts, making sure that limited time and resources were focused on high business and social impact projects; build a deep understanding of both the business and social objectives and benefits of prospective projects; and find the right partners, partners who offer complementary strengths and have the motivation, and provide the requisite chemistry, to forge long-term sustainable relationships.  Partnering activities, much like potential CSR topics, are abundant and each company needs to be smart in their selection process and ask additional questions such as what are the one or two criteria areas in its business where it interfaces and has an impact on society and also has significant opportunities for enhancing the value of the business; what are the core long-term needs for the company and society that can be addressed through a particular partnership; and what resources or capabilities are needed in order for the partnership to be successful and which of these can the company offer through its existing core competencies and innovation capabilities.

Prioritization: Focusing on Materiality

Brainstorming sessions and other processes such as the mapping exercise described above will and should generate a long list of potential ideas and the next step is to prioritize those ideas and decide how many of them the company is willing and able to execute.  Researchers on corporate sustainability from the MIT Sloan Management Review and The Boston Consulting Group (“BCG”) reported that companies achieved the most success with sustainability when they identified and prioritized the material sustainability issues on which to focus their resources.  Specifically, companies that focused on material issues when formulating and executing their sustainability strategies reported up to 50% added profit from sustainability, but those that did not focus on their material issues struggled to add value from their sustainability activities.[4]  For example, many companies proudly announce sustainability strategies that are based primarily, if not exclusively, on biking programs, recycling drives and small philanthropic initiatives selected based on the preferences of the CEO.  There is nothing wrong with this; however, this approach generally does not lead to a significant impact on the business or on the broader sustainability issues that matter most to the company and society in general over the long term.  Moreover, investors generally do not care that much whether a company has launched an energy savings program; however, they do pay attention to what the company is doing to identify and manage environmental and social risks in its value chain since those types of activities are material to the value and stability of the investors’ stake in the business.[5]

The report prepared by MIT and BCG provided three examples of companies that had done a good job of connecting sustainability strategy with material business issues.[6]  Patagonia Inc., a leading textile manufacturer and retailer, recycled plastic waste into its innovative fabrics and contributed 1% of annual revenues to nonprofit organizations that promoted conservation of the natural environment, a cause that the company knew was very important to its primary market of outdoor customers.  Greif Inc., a supplier of industrial packaging products, provided an example of how external stakeholders can serve as a catalyst for causing companies to build a stronger connection with sustainability. Grief noticed that many of its customers were seeking a sustainable “shipping solution” and asking Grief to provide more environmental information about its operations, such as data on greenhouse gas emissions.  Grief’s response was to undertake an extensive lifecycle analysis of its core products of steel, plastic and fiber containers, a process that eventually led to ideas about how to improve the environmental performance of its containers and triggered a strategic shift toward integration of additional sustainability services into its business model.  BASF SE, the large German chemicals company, took a proactive approach by launching an assessment of the company’s entire business model through a sustainability lens that included ranking all of the company’s products on a sustainability scale based on whether a product was exceeding, meeting or noncompliant with certain sustainability standards.  Top performers were designated as “accelerator” products (i.e., products making a significant contribution to the market and exceeding environmental and social standards for the product category) and the company made a commitment to shift its focus toward turning all its products into highly-sophisticated sustainability-centered products and solutions that fulfill the criterion for “accelerator” status.[7]

Business Model Innovation

For many companies, CSR is implemented in an incremental manner due to limited resources and concerns about introducing too many changes into the workplace and the company’s products and processes at one time.  For example, a good first step is adopting a set of general principles that reflects the company’s recognition of the need to incorporate social responsibility into its strategies and decisions.  Of course, simply adopting guiding principles is not sufficient unless the company begins to proactively incorporate them into its day-to-day activities.  Once that begins, the company can take additional small but meaningful steps such as adopting detailed CSR commitments, pursuing and attaining certifications for its products and processes, formally engaging with stakeholders and reporting on its CSR outcomes.

Most small businesses prefer the incremental approach because a large CSR initiative seems well beyond their resources and the scope of what is generally a limited business strategy.  Small businesses can select one or two areas to focus their initial CSR actions and set reasonably achievable goals that nonetheless will be meaningful when and if they are attained.  For example, CSR for a small company may begin with implementing a recycling program and/or installing equipment that will reduce energy usage and costs.  Whatever is done, a record should be created and maintained and CSR should be added to the list of factors or questions that senior managers and owners consider each year when it is time to set strategic goals for the next year.  Eventually the small business will have several CSR successes to refer to and the organizational climate will change to the point where many people in the workplace will have new ideas as to how the company can advance socially and environmentally responsible causes.

At the other end of spectrum, there are companies that have made dramatic and fundamental changes in their business models, products, processes and stakeholder relationships to incorporate socially and environmentally responsible principles.  For example, a number of companies have focused their attention on monitoring their supply chains and pushing their supply chain partners to conform to internationally-recognized best practices with respect to environmental matters, wages and workplace conditions.  Other companies have overhauled their production methods and sales practices and introduced eco-friendly practices such as relying on re-usable and recyclable materials for their products and shifting to renewable energy sources.[8]

Researchers on corporate sustainability from the MIT Sloan Management Review and The Boston Consulting Group (“BCG”) argued that companies pursuing impactful improvements in their sustainability needed to innovate on multiple dimensions of their business model and reported that nearly 50% of companies had changed their business models as a result of sustainability opportunities.[9]  MIT and BCG created a framework that companies in their surveys were asked to use in order to analyze their business models in order to identify which parts of those models were changing as they responded to sustainability factors.  The framework focused on a company’s value proposition, asking what the company was offering and to whom (i.e., target segments, product or service offerings and revenue model), and its operating model, asking what the company was doing to profitably deliver its offering (i.e., value chain, cost model and organizational change).  The researchers found that 59% of the companies achieved significant improvements in their profitability from sustainability-related activities by doing more than just develop game-changing products and services, although that certainly didn’t hurt, and actually making changes in three or four business model elements including both target segments and value chain processes.  Successful companies focused on creating opportunities relating to sustainability, most often with respect to developing supply chain efficiencies.  Sustainable sourcing in the value chain was also an important business model shift; however, companies performed even better when they went beyond “greening” a product to build new businesses in target segments based on developing innovative products that appealed to new groups of customers and reduced production and distribution costs.[10]

Companies did even better with respect to sustainability-related profitability when they combined business model innovation with a compelling business case, customer collaboration and focus and top management attention.  While the value of business model was compelling, the researchers cautioned that companies also need to pay attention to developing a proper strategy, strong and effective leadership and organizational change in order to shift the organizational culture toward sustainability.  Among other things, organizational leaders need to establish key performance indicators (“KPIs”) tied to important tangible goals, with clear assignment of responsibilities, and pay particular attention to educating middle managers about sustainability goals and incentivizing them to participate in the often difficult actions that must be taken in order to make material business model changes.

Other sustainable business practices that should be implemented include sustainability reporting, personal KPIs related to sustainability, appointing one person in each business unit to be responsible for sustainability, creating a separate sustainability function to focus exclusively on sustainability KPIs and collecting data to access progress and report and creation of a chief sustainability officer position so that sustainability has a seat in the C-suite.[11]  Implementing comprehensive changes is risky business that will require a significant investment of financial and human capital and heavy doses of patience; however, companies that have been successful in this approach have enjoyed positive impacts on their reputations in the eyes of customers and business partners and have also set new standards that competitors are compelled to pursue in order to keep pace.

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] P. Hohnen (Author) and J. Potts (Editor), Corporate Social Responsibility: An Implementation Guide for Business (Winnipeg CAN: International Institute for Sustainable Development, 2007), 36.

[2] Id. at 38.

[3] T. Keys, T. Malnight and K. van der Graaf, “Making the most of corporate social responsibility”, McKinsey Quarterly (December 2009).

[4] 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), 10.  The report noted that evidence gathered in 2013 indicated that while 52% of companies that mostly or completely addressed their material sustainability issues also profited from their sustainability practices, just 16% of the companies that paid little or no attention to material issues reported that they profited from sustainability.  The drafters of the report encouraged companies to use tools such as the Sustainability Accounting Standards Board’s Materiality Map to identify relevant material issues common to their industries.  Id. at 11.

[5] Id. at 9.

[6] Id. at 9-11.

[7] Accelerator products accounted for almost 18% of the company’s total annual relevant product sales.  Id. at 10.

[8] Project ROI: Defining the Competitive and Financial Advantages of Corporate Responsibility and Sustainability (IO Sustainability, 2015), 37 (describing examples of companies such as Wal-Mart, Tesco and Philips that have attempted comprehensive and fundamental changes with regard to the social and environmental effects of their activities).

[9] 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), 12.

[10] Id.

[11] Id. at 11-13.