Where is CSR headed in the coming decade?
A half-decade ago, we asked this question at a BSR workshop of member companies to explore the future of business-society relations. We framed the response in the form of three scenarios:
- Fade—a future of marginalization in which CSR falls victim to neglect and stagnation within companies and is uninspiring in its capacity to galvanize innovation and disruptive change in business as a whole.
- Integrate—a future of steady progress in which CSR makes significant inroads across sectors and functions, helping to shape everything from governance and strategy to product design and supply chain management.
- Transform—a future in which CSR morphs into a powerful force of disruptive change leading to a new vision of corporate purpose and design.
Now, with both the benefit of hindsight and a sense of new urgency and opportunities facing global business, it is a moment to reflect on the last five years and, once again, peer into the future. More than ever, the response should be framed not only in terms of how CSR may evolve, but, more importantly, how it should evolve to meet the great sustainability challenges of the 21st century.
Economic and business historians will look back at the first decade of the new millennium as one of the most tumultuous on record. First, there was a boom and bust in the U.S. technology sector. Next, there was a housing bubble and crash. Then, a global financial crisis occurred that brought the world economy to the brink of breakdown. And, finally, the Great Recession challenged much of the conventional wisdom regarding the functioning of global finance, even on the part of the most ardent advocates of self-regulating markets. The notion that capital markets self-correct and operate most efficiently (though not necessarily fairly) if left to their own devices has come under intense scrutiny. This occurred not only in countries in the global North, but equally in the global South, which, by and large, avoided the most deleterious effects of the economic downturn.
All of these developments have profound implications for the future of CSR and corporate sustainability. Amid the sea changes that are reshaping business-society relations are ample opportunities for companies to seize the moment and proactively shape their future.
Back to the Futures
With the benefit of hindsight and with an eye on CSR’s next chapter, it is timely to assess to what extent each original scenario—fade, integrate, and transform—in fact is materializing. What we find is a picture that is, at once, encouraging and disappointing—encouraging because CSR has more than survived amid the worst global economic downturn in the post-WWII era; and disappointing because truly disruptive changes in mission, strategy, and practice have been limited to relatively few leading companies. The vast majority of companies have fallen short in embracing CSR and sustainability at a deep and enduring level.
At one end of the spectrum, the fade scenario has not materialized to the degree one might anticipate during times of economic downturn and retrenchment. To be sure, the financial meltdown and economic dislocation continues to realign North-South and East-West relations. Many Western-based companies have made sweeping changes, most notably in reducing or freezing staff levels and continuing to outsource jobs and facilities to both lower-cost countries for low-end production and assembly and to emerging China, India, Brazil, Taiwan, and others for more complex research, design, and manufacturing activities.
As these trends continue unabated, the challenge of building and sustaining strong CSR programs throughout global supply chains becomes increasingly complex and costly. While these realities may well dilute commitments to responsible practices, leading companies–especially those that are consumer-facing–are becoming increasingly sensitive to the risks of substandard practices within their supply chains. The formation of the Global Social Compliance Programme is one manifestation, reflected in its efforts to upgrade, harmonize, and enhance the efficacy of labor and environmental practices within global retailer and brand operations.
Amid the economic downturn and global economic realignment, many companies reported an enduring commitment to CSR. Seventy percent of 1500 businesses surveyed by the Sloan Management Review reported that they maintained or increased their commitments to sustainability during the economic downturn. “Improved company or brand image” was by far the most frequently identified benefit of addressing sustainability within the organization, suggesting that, paradoxically, CSR is often viewed as even more critical to company competitiveness during periods of economic stress.
Juxtaposing these findings, one may conclude that CSR is surviving recessionary times, but doing so in a way that falls short of creating deep impacts in the organization beyond bolstering its brand and reputation. Evidence is scant that firms view CSR through this more strategic lens in terms of their capacity for strengthening company performance by: elevating employee satisfaction and talent retention, aligning rewards and incentives with sustainability metrics, innovating breakthrough products and services, training boards on sustainability opportunities and risks, and creating new forms of stakeholder governance.
In short, CSR has defied the pessimists who anticipated the dilution and stagnation during stressful economic times. But avoiding dilution and stagnation is an unacceptably low bar for a field that, some 25 years after its onset, should be demonstrating measurable signs of success in advancing societal prosperity. This, at minimum, requires fulfillment of the integrate scenario.
If CSR has not fallen victim to the marginalization posited in the fade scenario, to what degree has it penetrated the organization in the way depicted in the integrate scenario? Is the language of sustainability supplanting the language of CSR, thereby portending a deeper shift in how a company sees its societal role over the long term? Do, for example, the research and development, capital allocation, finance and accounting, board committee structure, marketing, operations, and investor relations reflect an enduring, irreversible commitment to the principles of sustainability? To what extent have companies moved into the domain of what has been termed “shared-value” creation—the concurrent achievement of business competitiveness and advancement of economic and social well-being?
The evidence is, at best, uneven. The aforementioned MIT/Sloan study paints a mixed picture, indicating that concrete actions generally lag behind laudable intentions. Various impediments to the pursuit of sustainability were reported across business sectors. In automotive firms, the lack of resources is prominent. In construction, the value proposition is unproven. In health care, “outdated mental models” impair the integration of sustainability across the organization.
Overall, the gap between intent and action stubbornly endures. Sixty percent of business Sloan/MIT respondents believe they are building awareness of sustainability in their organizations, but most lack an effective execution plan for translating awareness into measurable achievements. For many, sustainability remains a high priority aspiration, but on the ground, efforts are most often defensive, tactical, and disconnected rather than proactive, holistic, and systemic.
Further evidence of an aspiration-performance gap is reported in a UN Global Compact/Accenture study of Compact companies. Among respondents, 96 percent of CEOs believe sustainability should be fully integrated into strategy and operations, up from 72 percent reported in an earlier survey. However, 49 percent cite the complexity of implementation across business functions as the most formidable obstacle to achieving such integration. Some 88 percent believe integration should reach beyond the parent to the supply chain, but only 54 percent report achieving such success.
The integration of sustainability strategy, policies, and practices is gradually emerging as a norm among some companies. Unilever exemplifies a company where such integration is well underway. Its Sustainability Living Plan commits to halving the company’s environmental footprint while doubling revenues during the next decade, helping one billion people improve their health and well-being, and sourcing 100 percent of its agricultural raw materials sustainably.
Dramatic reductions in environmental footprints, commitments to poverty reduction, long-term value creation, and equity and shared prosperity—these are the markings of a company that is walking the talk toward deep integration of CSR and sustainability and, beyond that, moving into the outskirts of the transform scenario described below.
But substantial impediments remain, even in firms that are most seriously committed to full-bodied integration. Many companies most often cited as sustainability leaders are making partial progress. They are focused, for example, on their environmental dimension, while falling short on the social and governance dimensions. In this sense, progress is discernible but uneven, leaving untapped the rich opportunities for positive synergies that occur when environmental, social, and governance innovations occur simultaneously rather than sequentially.
For some, sustainability is taking root most decisively and in the most integrated forms in firms that are redefining their core business purpose and/or business model. Doing so sets the stage for moving toward transformational change through a redefinition of corporate mission. An example of this is the phenomenon of “servicizing,” for example: vehicle manufacturers moving to mobility services; chemical companies to chemical management services; beverage companies to hydration; fossil-based electric utilities to energy service companies; sports apparel companies to sports performance organizations; and IT hardware to information services and solutions.
In sum, signs of the integrate scenario are visible, though more often in the form of awareness and aspiration rather than action and concrete outcomes. These indisputably are positive signs. But are they enough to meet societal needs and expectations in the perilous decades that lie ahead wherein the world’s ecological, social, and economic systems face immense threats to their integrity and stability?
The transform scenario depicts a future in which business—both through its own devices and through shifts in the external environment in which it operates—dramatically accelerates progress toward realizing its full potential as a contributor to the world’s sustainability agenda. To what extent is this scenario taking root?
Glimpses of such transformational change are discernible, even if they collectively fall short of the sweeping changes embodied in the transform scenario. In the United States, states such as Maryland, Vermont, and California are creating new forms of corporate charters that provide a framework for decoupling governance and performance from a strictly shareholder orientation to a stakeholder model. At the corporate level, Intel has voluntarily decided (after persistent pressure from shareholders) to revise its charter to require its Board’s Governance and Nominating committees “…to report to the Board with regards to matters of corporate responsibility and sustainability performance.” Such an action, which only a few years ago would be viewed with skepticism by the corporate and legal communities, has now achieved legitimacy thanks, in part, to research and advocacy by the UN Principles of Responsible Investment and the “Freshfields” reports it co-sponsored.
Other signs of the transform scenario are visible in new ownership and governance structures that are challenging conventional practices and introducing new definitions of corporate purpose. Well-known examples of social enterprise such as the Grameen Bank/Groupe Danone (France) joint venture in Bangladesh exemplifies a new generation of blended business models that have at their core a social purpose, e.g. poverty alleviation, information technology literacy, and microfinance. These blended enterprises come in a variety of forms, including: stakeholder-owned corporations (e.g. cooperatives, employee-owned); mission-controlled organizations such as the New York Times (“inform the electorate”) and Novo Nordisk (“defeat diabetes”); and nonprofit trust-controlled ownership such as Bertelsmann (Germany), GrupoNueva (Chile), Tata Industries (India), and Novo Nordisk (Denmark). In the case of Tata, 90 enterprises are controlled by family trusts and bound by the 140-year-old legacy of its founder to advance social capital.
All of these examples indicate the various avenues through which transformation may occur: emergent hybrid models characterized by blended value creation, scaling up of existing business models rooted in a social mission, and a redefinition of corporate purpose that balances shareholder and stakeholder interests. The collective impact of these trends points to a period of diversity and experimentation in shaping 21st century enterprise. No company is immune to these changes. All will feel the scrutiny of a citizenry, empowered by the “radical transparency” enabled by modern technology, that expects business to adhere to increasingly higher standards of social responsibility. This will occur even in authoritarian settings such as China where environmental and labor unrest, once suppressed by government, is gradually more tolerated—though still contained—as a safety valve for citizens and workers to vet their frustration amid a volatile mix of income disparities, regional inequalities, and stressful working conditions.
While the coalition of progressive business leaders, NGOs, and enlightened state and national governments initially envisioned in the transform scenario has not fully materialized as a coherent force for transformational change, disparate components of such change are discernible. Such a force awaits the confluence of leadership, shared public grievance, and the right timing to catalyze a shift from latency to reality. This, in essence, is the future envisioned by BSR President and CEO Aron Cramer and Senior Advisor Zachary Karabell in their depiction of the 2020 Shanghai “First Global Business Summit on Sustainability” in their book Sustainable Excellence (Rodale Books 2010).
Musings on the Future
Imagining the future is not new to the business community. Shell’s pioneering work in scenario planning some three decades ago heralded the beginning of a period in which such planning has become common practice among many large firms. Shell’s approach, like that of virtually all practitioners of scenario planning, is to forecast possible futures and to proceed to design strategies to adapt to such futures. The idea of backcasting, that is, designing preferred futures and asking how to move from the present to such a preferred future, has recently emerged as a practice only among a select number of large companies. Yet, if real transformation is to occur, depicting a preferred future is essential for providing a touchstone and compass for a new kind of corporation.
The notion that the future is a matter of choice, not chance, is only recently permeating the business world, with a few companies at the vanguard. While observers hold widely different views on the long-term societal benefits of transnational corporations as agents of positive social change, few would question the power of such firms as Google, Facebook, Walmart, IBM, and ICICI to transform personal and organizational behavior, business-to-business and business-to-consumer relationships, and even the course of globalization itself.
Individual companies and business associations, as well as NGOs, are intensifying efforts to rethink corporate purpose and design, as well as the relationship between business and the global ecosystem upon which companies ultimately rely for their sustenance and prosperity. BSR’s recent report on sustainable consumption is one such example. The report challenges companies to rethink the meaning of value in ways that deliver well-being to society while dramatically reducing adverse environmental and social footprints. The prospect of a global economy in 2100 that is 80 times the size it was half a century before is a future fraught with potentially catastrophic environmental and social consequences. Indeed, decoupling growth in well-being from growth in consumption of physical goods is arguably the most urgent sustainability challenge of the 21st century.
Whether the vision embodied in the transform scenario comes to life in time to avoid an ecological debacle is unpredictable. Undeniable, however, is the historical moment facing companies acting both individually and collectively. It is a moment of immense opportunity and imperative to demonstrate sustainability leadership in the turbulent decades that lie ahead.
A new social contract is waiting to happen. Are companies ready to help reshape it as an instrument of true transformational change?
For more information on this topic, please refer to the full report, "Back to the Future of CSR: A Retrospective on 'Fade, Integrate, or Transform'."