Doing business in a post-CSR world

Corporations need to get serious about turning the social and environmental burden they contribute to creating into economic opportunity, writes Soushiant Zanganehpour

In a ranking of the world’s 100 largest economies, 51 are corporations and 49 are countries. This statistic, from the Institute of Policy Studies, is a stark indication of just how much power corporations command.

The world today includes more than 60,000 multinational corporations, along with more than 800,000 subsidiaries and millions of suppliers. These firms are the driving force of global economic activity and major contributors to positive and negative externalities.

Whether we accept it or not, science warns us that the scale of global economic activity has pushed planetary limits beyond safe replenishment thresholds. Social systems are also under immense strain. Global wealth inequality sits at record peaks; the top 10 per cent of the globe’s richest hold 86 per cent of its wealth, while the bottom half of the world’s population own just 1 per cent of this pie.

Our economic growth of the last two centuries has relied on the neglect or the undervaluation of natural assets. We cannot sustain this approach long-term without attracting serious social and environmental consequences.

At the crux of this lies the changing role of corporations and business in society. Traditionally, corporations have preferred that their role be contained to job creation, tax contribution, skill development, and risk-taking for private and public benefit. Contributing to natural resource management and upward social mobility are concerns for government and lawmakers, not companies.

Unfortunately, governments that were fragile before the 2008 global financial crisis have, by and large, become even more so. Public officials simply do not have the tools and capabilities to steward natural resources, while also ensuring upward social mobility for the majority. Corporations need to fill the void themselves.

The role of business in society is undergoing a significant rethink, and so should the concept of CSR This isn’t merely a moral imperative. Given how closely corporations’ economic activities contribute to global social and environmental challenges, many are demanding that business assume greater social responsibility. The response to date has been to launch or augment Corporate Social Responsibility (CSR) activities. CSR produces limited benefits for the corporation and stakeholders alike and merely offsets a negligible proportion of the negative impact corporations produce. It simply will not cut it.

A small minority of forward-thinking corporations, however, are taking a different approach. Leaders within these organisations realise how undeniable the critical connections are between climate change, social inequality and unrest, the functioning of the biosphere and the health of the economy. They are also compelled to action by how significant the risks associated with these phenomena are to their business activities. As a result, they are identifying economic opportunities that align with their imperative to be more sustainable, instead of just redistributing a proportion of the wealth they generate.

Adidas, an apparel company, responded to this challenge by creating a corporate venturing arm, Hydra Ventures. Its investment criteria are mainly financial, but also give consideration to the environmental sustainability and social performance record of investees. The aim is to help Adidas cut its operational risk exposure and allow it to compete for market share using sustainable raw materials such as hemp, bamboo and organic cotton in fabrics.

IKEA has also followed suit. By 2020, the Swedish retailer is planning to nearly double revenues to €45-50bn ($63-$70bn), while achieving the stretch commitment of producing all home furnishing materials, including packaging, from renewable, recyclable, or recycled material, as well as making all cotton compliant with the Better Cotton Initiative. How? By making strategic investments into new companies.

IKEA and Adidas have signalled to the market that investing in sustainability will protect their future market shares, not harm their commercial interests. Nowhere is CSR even mentioned.

Naturally, not all things can be achieved through market forces. CSR has many benefits, the most important of which is redistributing wealth to those that are less fortunate. It also encourages decision-makers within a corporation to consider the implications of their wider economic activities for all stakeholders. CSR, when done right, is a tool of advocacy and awareness that helps make the case for more enlightened corporate strategy.

It has a number of other benefits, including enhancing the firm’s reputation, extending its social licence to operate and helping retain key talent. But we must accept its limitations. To usher in a new era of value creation, we need to develop a cadre of professionals who are driven both by moral and commercial imperatives, and have a skillset that integrates the two. In a world where social and economic value creation is converging, communications and branding skills alone will not cut it.

A fusion of these two is beginning to emerge.  As the links between economic growth and the world’s ecological limits become more apparent, investors and other stakeholders will exert greater pressure for change to the way business is done. Emerging leaders will begin acting on their realisation that our future survival and economic growth will depend on creating value in a way that does not leave either our social, or environmental systems, worse off. The role of business in society is undergoing a significant rethink, and so should the concept of CSR.

CSR professionals can help leaders accelerate action, but only once they acknowledge the concept’s limitations. Only then can they begin planning for its evolution and re-invention. In this fast moving world, predicting the future is not key, but adapting to it will be.

About the writer

Soushiant Zanganehpour is a senior member of the Skoll Centre for Social Entrepreneurship, managing the Skoll Social Venture Fund, which invests in social business start-ups, and consulting on strategic initiatives. He advises organisations on strategy, growth and impact optimisation.