Beyond the bottom line: an integrated approach to CSR

Reporting on corporate social responsibility (CSR) is a powerful tool for doing good effectively and for keeping business sustainable over the long-term, argue Taufiq Rahim and Verity Outram

In 1970, American economist Milton Friedman was famously quoted as saying, “The one and only social responsibility of business is to increase profits for shareholders.”

Today you would be hard-pressed to find a company that could afford to think this way. Companies, including in the Middle East, increasingly find themselves in the spotlight whether related to political turmoil, an oil spill, or a factory collapse. In all sectors, the onus now is on business to be mindful of their social and environmental footprint and put in place a framework to guard against such risks.

Globally, then, the private sector is thinking about more than just its bottom line. Moreover, an integrated approach to CSR is not just about overcoming challenges but also about navigating the world effectively to seize opportunities.

Still, one of the key challenges remains how best to integrate this approach in the core strategy of a business. With 86 of the top 100 listed companies in the Arab World, the GCC is the predominant driver of the region’s economic output. The UAE, in particular, is a key hub for business, which comes with its own expectations from the wider region and society.

Although they are major contributors to progress, corporates in the UAE continue to lag behind their international competitors on CSR standards. CSR in the UAE is still too frequently being treated as a 'nice-to-have' and not a 'need-to-have.' In 2012, the Dubai Chamber of Commerce found that 56 per cent of companies approach CSR as an image building exercise.

Establishing a comprehensive reporting system that supports the ongoing monitoring, evaluation and communication of responsibility indicators is critical to achieving a truly integrated approach to CSR – to track what you are doing and judge whether it is effective or not.

A reporting system serves as a tool to integrate environmental, social and governance (ESG) standards into the corporate decision-making process, as well as to communicate findings internally and externally and thus embed CSR into the backbone of all corporate activity. There are a number of existing standards; some companies define their own, others use well-respected frameworks such as Social Return on Investment or the Global Reporting Initiative.

As it stands, firms in the UAE have some of the lowest CSR reporting levels in the world. Whereas 98 per cent of the 100 largest firms in Brazil and Malaysia produce CSR reports, in the UAE it is only 22 per cent.

Awareness appears to be the greatest barrier to more strategic CSR: Dubai Chamber found that almost 70 per cent of firms said that lack of knowledge around CSR was the main cause of inactivity.

CSR reporting isn’t just about a ‘feel good’ factor. It’s a powerful tool for all companies who want to ensure that their business is sustainable over the long-term. Increasingly, investors are using ESG indicators as a driver in their investment decisions. Bloomberg has seen an annual growth of 41 per cent in users of ESG data since 2009.

And that’s not all. We are seeing more and more national-level regulation on CSR. In 2014, India was the first country to legislate for CSR, requiring companies of a certain size to have a CSR board and designate 2 per cent of net profits for CSR activities. This year, China will require CSR reporting by listed companies operating in specific sectors.

Smart firms who operate globally would be well served to be ahead of the curve on the trend of growing corporate reporting requirements and greater stakeholder scrutiny.

There is a growing conversation around the relevance of strategic CSR in the GCC, and in the UAE in particular, despite the low reporting levels. And certain business leaders and companies are leading the way, trailblazing a path for a locally attuned approach that can have global impact.

Corporate social responsibility, or whatever terminology may supersede that, is here to stay. Defining a CSR strategy and integrating ESG with traditional business reporting processes will take CSR beyond the press release and into the boardroom, where it rightly belongs.

About the writers

Taufiq Rahim is executive director and founder of Globesight, a Dubai-based think-tank focused on social impact and philanthropy in the Middle East and North Africa. Verity Outram is an associate with Globesight and currently leads its CSR advisory practice.