Imagine a company founded by a surfing-obsessed mountain climber who pledged to give away a good chunk of his profits every year. A company that gave its $10 million tax cut to charity and ran an ad campaign featuring its apparel that said “Don’t Buy This Jacket.”
Sound like a recipe for disaster?
Not if you’re Patagonia, which is one of the most beloved brands in the world. A big part of Patagonia’s success, in addition to making great products, is prioritizing corporate social responsibility, or CSR.
Patagonia adheres to a set of values and principles that are baked into its mission statement: “Make the best product, cause no unnecessary harm, and use business to inspire and implement solutions to the environmental crisis.” It has grown from a humble blacksmith shop in the early 1970s to a billion-dollar company that inspires fierce loyalty among its customers. During the 2008-09 recession, when businesses in nearly every sector saw sales plummet, Patagonia posted a 30% increase in revenue.
Businesses, by definition, focus most of their efforts on producing and selling goods or services for a profit. Profit motive is one of the most fundamental aspects of economics, and it drives ambition, innovation and hard work. Starting in the 1960s, however, as more multinational companies came into existence and had global reach, business leaders and scholars expanded the definition of company performance beyond just financial profit.
Corporate social responsibility (CSR) includes not only the financial bottom line but also the social and environmental impacts of business. CSR takes into account the “triple bottom line,” striking a balance between profit, people and the planet, with an overarching goal of sustainability.
Sustainability is a buzz word that sounds great, but it’s hard to pin down and difficult to measure. What we want to know is:
- What are the benefits of CSR?
- Is CSR good for the bottom line (profit)?
- What CSR initiatives should we engage in?
- What are the pitfalls of CSR?
- How do we “do” CSR?
What Are the Benefits of CSR?
Some aspects of CSR, such as certain labor practices, health and safety standards and environmental regulations, are mandated by local, state or federal governments. They are the normal requirements for legally operating a business. But much of CSR is voluntary. If you’re not required to engage in corporate social responsibility, why bother?
Forbes interviewed with dozens of executives at businesses large and small about CSR, and they said it sets a good example, improves their company’s reputation and makes them more attractive to customers and clients. Furthermore, 86% believe that they have happier employees and 76% believe they end up with better employees, while others said that CSR improves morale and builds capability among teams when they work on projects together. In the words of one executive, “Employees and customers want to work with a company that they respect.”
Benefits of CSR include a more positive company image and a more attractive brand. In today’s socially conscious world, many consumers, employees and stakeholders place a high priority on CSR when choosing a brand or company. According to research by Cone Communications:
- 87% of Americans will purchase a product because a company supports an issue they care about
- 78% want companies to address important social justice issues
- 76% will refuse to purchase a company’s products if it supports an issue they disagree with
- 63% want businesses to take the lead to drive social and environmental change moving forward, in the absence of government regulation
In other words, CSR not only provides many benefits, companies that do not engage in CSR may be at a competitive disadvantage compared to companies that do.
Is CSR Good for the Bottom Line (Profit)?
The triple bottom line is all well and good, but for businesses to succeed they need to make money. Otherwise all bets are off. Can businesses be socially and environmentally conscious and still make a profit? Absolutely. Just ask Patagonia.
Not only can companies that engage in CSR make a profit, CSR initiatives can actually boost profitability. Executives interviewed by Forbes said they have saved money by operating more efficiently while others have seen higher revenue. As one executive put it: “Our sales have actually increased through our good works. This unexpected benefit came about because people were impressed with our work and wanted to use the same company who had produced such positive gains.”
In very real terms, CSR offers excellent ROI. A review of more than 200 studies about CSR found that it improves the bottom line in many ways:
- CSR can increase a company’s market value by up to 6% over a 15- year period.
- Responsible companies can reduce their credit spread, avoid market losses from crises, increase the probability of receiving investment grade ratings, reduce share price volatility and reduce systematic or market risk.
- CSR can add a price premium as much as 20%, and up to 60% of consumers will strengthen their affinity to a brand if they perceive it as being highly responsible and sustainable.
- The reputational value of CSR can account for 7% to 11% of a firm’s overall value, and it can provide risk protection of 4% to 7% of sales.
- Staff turnover rates are 25% to 50% lower in responsible companies, and they also have 8% higher employee engagement and 13% higher productivity than other companies.
Clearly, engaging in CSR is a sound business decision. But how do we get started?
What CSR Initiatives Should We Engage In?
Corporate social responsibility isn’t free. It costs time, money and resources. Therefore, as with any endeavor, companies need to be smart about how they make their CSR investments. First and foremost, companies should engage in CSR initiatives that align with their values. Second, involving employees in the decision-making process will ensure transparency and lay the foundation for many of the benefits described above.
4 Types of CSR Initiatives
1. Environmental Initiatives
In recent years, consumers and companies have become more involved in environmental causes. Regardless of size, every business has a carbon footprint and impacts the environment in various ways. Taking steps to reduce a company’s harmful effects on the environment is considered a best practice and will be positively received by customers, employees and the community.
Example: Patagonia
We highlighted Patagonia above, and when it comes to environmental practices, the company is in a class of its own. Although the company admits that it can’t entirely eliminate its carbon footprint, it endeavors to minimize it as much as possible. It only uses organic cotton in its apparel, it recycles and remakes used apparel (see video above), one of its corporate office buildings is made of 95% recycled materials and most of its retail stores are refurbished existing buildings that use repurposed and recycled materials. And over the years it has donated tens of millions of dollars in cash and in-kind donations to grassroots conservation activists and other organizations.
2. Philanthropy
Businesses can donate part of their financial profits to nonprofits, charities and other organizations in their community. The bigger the company, the greater the resources available to support causes that align with a company’s values or mission.
Example: Gilead Sciences
According to The Chronicle of Philanthropy, biotech firm Gilead Sciences is one of the world’s most generous companies in terms of philanthropy. It has donated more than $338 million in cash and more than $1.2 billion in product to charity. Much of Gilead’s philanthropy is in the form of grants that support health-related programs, such as the $100 million it committed to addressing HIV/AIDS and $22 million it committed to COVID-19 relief, which aligns with the company’s mission and values.
3. Ethical Labor Practices
Engaging in ethical labor practices, both domestically and overseas, is not only the right thing to do, it can galvanize employee and customer loyalty. Companies that take care of their employees through fair and equitable hiring practices, good wages/salaries and benefits, and safe workplace conditions will be able to attract and retain the best talent. And happier employees will mean happier customers.
Example: Salesforce
When it comes to putting employees first, Salesforce leads the way. Using a data-driven approach to fighting discrimination and inequality in the workplace, Salesforce is one of the few companies that publicly releases information about its workforce’s demographics, ensuring full transparency. Salesforce also provides employees with 56 hours of paid time each year to volunteer for the charity of their choice, paid time off for new parents and adoption services.
4. Volunteering
Actions speak louder than words. By attending a volunteer event in a coordinated effort, companies demonstrate their sincerity for certain causes. Doing good deeds without expecting anything in return puts values into action and provides tangible benefits for charities as well as participating leaders and employees.
Example: Timberland
For more than 26 years, Timberland has hosted the Path of Service community service program. When it launched, employees were given 16 hours of paid time for community service, which has since increased to 40 hours. Timberland employees are also offered a chance to participate in a sabbatical program that allows them to take paid leave for up to six months to “provide transformational capacity building service to nonprofit organizations.”
CSR During the COVID-19 Pandemic
In recent months, many companies have found themselves scrambling to respond to the economic, social and psychological impacts of the COVID-19 pandemic. Billions of people around the world were isolated under quarantine conditions, millions of people lost their jobs and millions of people became sick or died as a result of the coronavirus. Around the world, businesses large and small stepped up to the plate, providing donations, services, PPE and other types of support.
Some of the world’s largest companies have committed billions of dollars to fight COVID-19 and provide support to food banks, first responders, frontline workers and health and humanitarian organizations. On a more community-based scale, online auction site Bring A Trailer pledged 20% of its auction revenue during one week in April — totalling $28,500 — to Frontline Foods, which supports local restaurants impacted by shelter-in-place measures and feeds healthcare workers on the frontlines of the pandemic. Leading diesel exhaust fluid manufacturer BlueDEF launched its Small Business Stimulus Package to provide a year’s supply of BlueDEF commercial truck fleets in need.
Regardless of size, revenue or industry, every company can engage in CSR initiatives that align with their values and make an impact.
What Are the Pitfalls of CSR?
Even though the goal of CSR is to do good for people and the planet, there are some common mistakes companies make that ends up making CSR work against them instead of for them. When planning your CSR initiatives, avoid these pitfalls.
- Backing the Wrong Cause: It’s critical for businesses to remember their motivations and audience before jumping headfirst into a CSR initiative or campaign. Like it or not, in today’s world, everything is political. Make sure the charity, cause, campaign or program campaign you support aligns with your company values, is supported by your employees and customers, and will not backfire in the court of public opinion.
- Misguided Intentions: A major mistake companies make is attempting to use CSR initiatives for marketing purposes. While you should certainly promote your CSR activities, trying to use them as a ploy to drive sales will come off as dishonest and inauthentic, which does more harm than good. We recommend developing a CSR program that evolves slowly over time rather than launching a one-off event. This allows time to do research, to make adjustments as needed and act in a sincere, transparent manner. Consumers and employees are more likely to embrace a long-term effort because it shows commitment and dedication.
- Do Not “Greenwash” Your Company or Products: Greenwashing is a deceptive marketing or PR practice that presents your company or products as environmentally friendly or responsible when in fact they are not. This tactic can be all too tempting for certain companies that struggle with maintaining a positive brand image, but it almost always backfires. To fully leverage CSR, you should back up all claims with real data and be willing to share it.
- Bad Timing: Sometimes the best statement to make is no statement. Let your results speak for themselves, even if it takes time for them to be heard. When there is controversy surrounding an issue, or if communication would come across as tone deaf in the midst of a crisis, your CSR message can easily get lost or misinterpreted. Be patient and proceed when the time is right.
How Do We “Do” CSR?
We’ve covered the benefits of CSR, the types of CSR initiatives and the common pitfalls of CSR. Now it’s time to move forward. Follow these guidelines to get the most out of your CSR efforts.
5 Tips to Make an Impact with CSR
- Be Authentic: Today’s consumers are quick to sniff out self-serving commitments and false sincerity. Fully embracing CSR in an authentic and honest way that aligns with your company’s values is essential for success.
- Keep it Simple: Start with a scalable approach and keep it simple for consumers and employees to understand and engage with. Complicated programs can get bogged down in the details, which can cause fatigue and waste time, resources and opportunities.
- Engage Everyone: Interdisciplinary participation within an organization speaks volumes to the overall commitment of a company to a cause. Rather than just be a pet project of the executive team or marketing/PR department, CSR initiatives should actively engage all employees in the company.
- Be Consistent: Doing CSR right takes time, and the most effective CSR initiatives will last for years, not weeks. Companies must show consumers, employees and stakeholders a consistent commitment to a cause or mission in order to see long-term benefits. You get out of it what you are willing to put in.
- Focus on the Impact: While a captivating story is important to a good cause, remember that consumers are overloaded with information and demands for their attention. In your CSR messaging, focus on the impact of your initiatives rather than just your company’s commitment of time, money or resources. Consumers want to see more than just claims, they want to see results.
The Bottom Line
Corporate social responsibility is not something that’s done instead of making a profit. It’s a comprehensive approach that balances financial profit with support for people (customers, employees, the community) and the planet (minimizing environmental impact). Engaging in CSR can deliver a wide range of tangible benefits for companies, including more bottom line profit.
We know that developing and rolling out a sustainable CSR program isn’t easy. We’ve helped many clients launch and promote CSR initiatives. If you need help, send an email to Help@KahnMedia.com.
