Two of the main drivers for CSR are the moral or ‘normative’ argument and the strategic or ‘instrumentalist’ argument. A normative approach sees companies utilise CSR to benefit society and because it is the ‘right thing to do’. Companies that utilise the normative approach strive to be good corporate citizens and to ‘achieve commercial success in ways that honour ethical values and respect people, communities, and the natural environment’ (BSR, 2010, p.6). The instrumentalist approach views CSR as a tool in the pursuit of profit and where the social performance correlates with enlightened shareholder value. The motivation for contemporary CSR might reflect a mixture of these approaches but regardless of motivation, the bottom line benefits of an effective CSR strategy cannot be ignored. CSR can have a positive effect on operational efficiency and in turn financial performance through a range of initiatives such as the following.
2.13.1 The Environment
Theoretical environmental CSR literature focuses on two questions; what drives environmental CSR and what are the welfare effects of environmental CSR? (Lyon and Maxwell, 2008). The answer to this in its broadest sense is a reduction in pollution, which in turn can lead to a reduction in production inefficiencies and cost reduction (ibid). Environmental good practice can also contribute to business by managing risk and enhancing the corporate image (Baker, 2012). Environmental CSR initiatives play a key role in CSR programmes for many companies. Environmental policy, performance and disclosure practices can demonstrate progress and transparency whist also a commitment to CSR as a whole (Melton 2009). Stakeholder expectation and in particular, customer expectation of ‘green initiatives’ is currently the dominant motivator for environmental CSR (IBM Global CEO Study, 2010).
2.13.2 The Workforce
A perceived strong commitment to CSR can play a valuable role for Human Resources in both the recruitment and retention of staff (Turban and Greening 1997). The application of CSR policies to employees, such as work life programs where employees can avail of benefits such as flexible working hours or job sharing can help retain staff and reduce the costs of hiring and training whilst increasing productivity (Konrad and Mangel, 2000).
2.13.3 The Community
A key feature of CSR involves a company’s relationship with the community it operates in. Kotler and Lee (2004, p.3) define CSR as ‘a commitment to improve community well-being through discretionary business practices and contributions of corporate resources’. A successful relationship between businesses and the community can depend on such factors as the extent of open dialogue, transparent reporting of business practices and contribution of corporate resources. A credible and trustworthy relationship with the local community can be viewed as an important factor in enhancing long term sustainability and improving future business prospects.
2.13.4 Investor Relations
A credible CSR program can improve the perception of a company amongst the investment community and in turn provide easier access to capital. Social performance indices such as the FTS4 Good, the Dow Jones Group Sustainability Index and the Jantzi Social Index provide evidence the companies that embrace (or appear to embrace) CSR generally out-perform their counterparts. Such is the level of interest in CSR in investment circles that it has led to the creation of socially responsible investment funds, such as ABF Green Planet Fund and Domini Social Equity Fund. Socially responsible investment (SRI) recognises that corporate responsibility and societal concerns are valid parts of investment decisions and is experiencing rapid growth, now encompassing an estimated $3.07 trillion out of $25.2 trillion in the U.S. investment marketplace today (SocialInvest, 2010). A similar trend appears in the European investment community as the 10th edition of Vigeo's report "Green, Social and Ethical Funds in Europe" confirms sustained growth in SRI has been well-evidenced since 1999, even though 2008 was marked by a pause linked to the financial crisis. This growth is particularly evident between June 2009 and June 2010 both in terms of number of funds (879 mutual funds, +29%) and assets under management (€75 billion, +41%).
2.13.5 Corporate Reputation and Risk Management
Given that CSR extends beyond the boundaries of the shareholder, it is conceivable that all companies implementing CSR practices will be doing so to manage risk. Failure to do so can result in the risk of reputational damage so in the light of this, ‘socially responsible decision making should take centre stage as part of the company’s main strategic business planning exercises’ (Diffey, 2007, p.2). Corporate reputation refers to the way a company is perceived by its stakeholders and is formed on the basis of information and experience (Caruana, 1997). In the sphere of strategic management studies ‘reputation is viewed as a key source of distinctiveness that differentiates the company from its rivals’ (Balboni, 2008, p.2) whilst also potentially providing
for competitive advantage (Fombrun, 1996). How a company approaches CSR can have a major impact on its reputation both internally and externally. Such is the realisation of the benefit of CSR to corporate reputation that nearly all FTSE 100 companies have a CSR section in their annual report.
2.13.6 Competitive Advantage
A motivational factor for CSR that no management team can ignore is its potential to create corporate competitive advantage. Evidence of belief in the value of CSR by senior management was presented in a recent global CSR survey conducted by IBM In 2009. IBM surveyed 224 business leaders on their approach to CSR. Nearly all of these said they remain committed to incorporating CSR principles into their business strategies, despite the global recession, to improve business performance, societal contribution and reputation. 60% believed that CSR has increased in importance between 2008 and 2009. 87% say they are focusing CSR activities on improving efficiency and 69% say they are using CSR to help create new revenue opportunities.