Strategy

Corporate social responsibility: the triple bottom line

making CSR practical is to think about your ‘triple bottom line’ – making money for your shareholders, while also measuring the contribution you make to the communities you operate in, and to the sustainability of the planet’s scarce resources

Corporate social responsibility (CSR) is a form of self-regulation that many businesses have adopted in order to monitor and ensure active compliance with the spirit of the law, ethical standards, and international norms. One well-known approach to making CSR practical is to consider your "triple bottom line" – making money for your shareholders while also measuring your contribution to the communities in which you operate and the sustainability of the planet's scarce resources.

When to use it

● To address your company's broad responsibilities to all of its stakeholders.

● To consider the costs of using natural resources and to account for these costs in an efficient manner.
● Identifying opportunities for creating'shared value' between your company and specific stakeholders.

Origins

For centuries, economists have been concerned with the relationship between business and society. Profiteering by businesses, according to Karl Marx, is inherently unfair because it involves shareholders profiting at the expense of workers. In a very different way, Thomas Malthus was concerned about industrialisation and growth because he believed the planet's finite resources would be unable to keep up with demand.

In the postwar years, debates about the role of business in society gained traction. Nobel laureate Milton Friedman argued in a famous contribution to the debate that businesses would be best served if they sought to make as much money as possible while adhering to the law. Many others argued that businesses should be more proactive, adhering to the spirit of the law and attempting to assist all stakeholders in their activities. The term "corporate social responsibility" was first used in the 1960s, and it became an important part of most large firms' strategic debates in the 1980s and 1990s. Over the years, a number of related terms have emerged, including 'corporate citizenship,"sustainability,"stakeholder management,"responsible business,' and'shared value.' Specific tools, such as the 'triple bottom line' proposed by John Elkington in 1994, have also been introduced.

Today, every large corporation considers the CSR agenda, partly on their own initiative and partly as a result of pressure from local community groups and non-governmental organizations such as Greenpeace or Friends of the Earth.

What it is

Corporate social responsibility (CSR) is a broad term that encompasses a variety of different ways of behaving. At its core, it is a form of self-regulation, which entails adhering to a set of behaviors and standards that go above and beyond what is currently required by law. Larger companies, on average, are more active in CSR initiatives due to the amount of resources they consume, the number of people whose lives they touch, and the extent to which they are in the public eye. There are also significant differences between countries: for example, some commentators have identified a distinction between the Continental European and Anglo-Saxon approaches to CSR.

A variety of approaches have been identified. One is CSR as a type of 'corporate philanthropy,' which includes making donations and providing assistance to non-profit organizations and communities. While such donations are appreciated by the communities in question, they have little operational or strategic impact, and they frequently indicate that the firm in question does not engage in the real challenges of sustainability.

A second perspective regards CSR as 'risk management,' which entails investing in local communities or partner organizations in such a way that their needs are directly addressed. For example, many resource companies (oil and gas, mining) invest heavily in training and supporting the communities in which they operate. It has a significant operational and strategic impact, but critics argue that such firms only invest until they obtain their "license to operate."

A third approach is to think of CSR as 'creating shared value,' which is based on the idea that corporate success and social welfare are inextricably linked. To compete effectively, business requires a healthy, educated workforce, sustainable resources, and adept government, so it is argued that there is no trade-off between what is good for society as a whole and what is good for business in the long run.

While conceptually distinct, these three approaches are not always distinct in practice. Many firms argue that they are pursuing the creation of shared value, for example, while their detractors argue that they are taking a risk-management approach, doing just enough to get their operating license.

How to use it

One way to make these discussions about corporate social responsibility a reality is to create effective methods of measuring business investments and their consequences for various stakeholders. The term'social accounting' refers to the various ways in which accounting systems can be modified to incorporate CSR principles.

The concept of a triple bottom line, which is an accounting framework with three dimensions: social, environmental (or ecological), and financial, is one specific example. (The three dimensions are also referred to colloquially as the three Ps: people, planet, and profit.) Over the years, interest in triple-bottom-line accounting has grown, and many organizations have adopted some version of this framework to evaluate their performance.

In practice, the triple bottom line combines the traditional financial bottom line with the social and environmental bottom lines. Standard approaches to accounting for social and environmental costs are beginning to emerge, making it possible to quantify all three bottom lines simultaneously. In addition to traditional financial metrics, a further education college may keep track of the number of disadvantaged citizens it employs and its carbon footprint.

Top practical tip

If you work for a company that wants to improve its social responsibility, you should spend some time keeping up with the latest thinking, because this is a rapidly changing field. The triple bottom line is a useful framework, but there are many alternatives, and you must ensure that the approach you take is one that your company's stakeholders recognize and support.

You should also take stock of existing initiatives, because today every company (even small ones) has some activities aimed at, say, reducing its carbon footprint, recycling trash, or supporting local community interests.

Once you understand what your company is currently doing, you can begin to consider your actual CSR strategy. This entails identifying a few initiatives where you have the greatest chance of making a difference – ideally in terms of creating shared value, as this is the approach with the most long-term potential.

Top pitfall

In the business press, there is a lot of talk about 'greenwashing.' This refers to large corporations launching initiatives that give the impression of caring about CSR while their underlying activities remain unchanged. If your company is concerned about sustainability, it is critical that you provide ample evidence of how much money you are investing in them and in what ways, so that outside observers will take your efforts seriously.