Why CSR is moving to the core of corporate strategy

It still strikes me that people look surprised when I talk to them about CSR (Corporate Social Responsibility). To many, CSR is just a fashionable word for ‘greenwashing’, a handy way to disguise activities that are far from ‘responsible’ at all. Others see CSR as an argument to attract a new breed of clients, or a way to attract Generation Y employees who –according to plenty of surveys- would prefer to work for a socially responsible employer.

To counter this skepticism I often explain that CSR is increasingly getting to the core of corporate strategy. Even better: in many industries CSR has become an imperative. To show why, let us take a look at this graph:

The vertical axis shows the source of motivation for CSR: is this imposed by society, or is it a company’s own initiative? The horizontal axis shows the impact of CSR on a company: does it involve its core business, or does it only impact the ‘business periphery’ (the context) of a company?

We now obtain 4 segments, each reflecting a different behavior to CSR:

The lower left segment (‘must do’s’), where CSR is imposed by society but touches the business’ context, is where we find activities that companies must comply with. A fair treatment of employees, honest communication, compliance with the law, etc. Nothing too exciting here.

In the upper left segment (‘good to do’) we find the numerous corporate foundations that each company from a certain size feels obliged to possess. This space is pretty crowded, and hence offers little room for competitive differentiation. In a certain way this segment is responsible for the skepticism I talked about earlier: what good can we expect from the foundation of an oil company when, due to bad practices, the mother company causes a natural disaster?

But it starts to get really interesting once the CSR activities touch the core business of corporations. The lower-right segment (‘major threat’) is clearly a danger zone companies would want to avoid. Think of how BP had to review its activities after the disaster in the Gulf of Mexico. Or think of Coca Cola, whose products were boycotted for years throughout India because of its bad management of water in a plant in the Southern State of Kerala. This factory was located in a region that is increasingly suffering from water shortage, hence the anger of the local farmers for Coca Cola’s water spoilage, and ultimately the boycott throughout India. To be fair with Coca Cola: they since reviewed the water usage  of their factories, and even win sustainability awards with it. In each threat lies an opportunity…

Now to my point: in order to still gain competitive advantage from the overpopulated ‘corporate foundation’ activities, and to avoid the threat of society imposing changes on companies, more and more companies move to the upper right segment (‘major opportunity’), where the core activities of a company are used to do social good. Google.org is a good example of this, since it uses plenty of Google’s tools at the disposal of aid organizations after a natural disaster. Some would call this a clever way to position its products favorably (‘cause marketing’), but I just wonder how many day-to-day users of Google know about this initiative…

Other examples include the many traditional energy providers who increasingly put sustainable energy at the core of their long-term strategy. Or take technology company Siemens, that recently completed a reorganization where each business unit now focuses on resolving one specific societal challenge (ageing population, mobility, sustainability, etc). But the most impressive example is probably Umicore, who transitioned from a (dirty) mining and natural resources company into a world-class recycling company, and now consistently appears in the lists of most sustainable companies worldwide.  

This movement becomes inevitable in many industries. The two ‘forces’ we discussed are driving companies to put their core products at the service of their CSR activities. But there is a third force at play: in this segment companies face an increasing competition from social entrepreneurs, who very often threaten the overall business model of the industry, and at any rate are eating market share from traditional players. Pure providers of green energy are a good example of this, but also the multiple initiatives that have to do with the ‘sharing economy’, which are forcing traditional players to at least ask themselves the (vital) question whether they should join or fight this movement.

Admittedly, these three forces will play with different intensity dependent on the industry you’re in, but from the multiple examples I have seen in recent times, I can only conclude that virtually no industry will remain unaffected by them.