Amateur Management Review: Corporate Social Responsibility (CSR) Gaining Ground

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ACKNOWLEDGEMENT

This article was published in the New Straits Times on December 18, 2004
as a CIMA Business Talk article.

Reproduced here with permission from
The Chartered Institute of Management Accountants (CIMA Malaysia).
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As the driving force behind UK's Associate Parliamentary Sustainable Waste Group, Mark Dempsey's background as an environmental management specialist has made him acutely aware of the series of directives, laws and regulations that are threatening to overwhelm businesses with green tape. With careful waste management alone, he argues, companies can make savings equivalent to one per cent of their annual turnover.

One of the most persuasive ways of encouraging companies to become greener is to show them that it makes financial sense. On a wider scale, this formula of being green, being seen to be green and increasing profits at the same time is now being used to urge firms of all sizes to bite the ethical bullet and accept the more daunting challenges of corporate social responsibility (CSR) reporting.

The business case for CSR is looking increasingly persuasive. According to CSR Europe, one of the leading authorities on the subject, successive studies have shown that a committed CSR strategy improves a company's overall performance in the long term, as well as its attractiveness in the marketplace. For instance, research last year by the Institute of Business Ethics found that firms with a public commitment to ethics made 18 per cent more profits on average than those without one.

Along with the notable growth in socially responsible investment funds in recent years – there are now almost 300 in Europe – investors and consumers are really starting to flex their ethical muscles. Research by McKinsey & Co has found that institutional investors.are prepared to pay a premium of more than 20 per cent for shares of companies that demonstrate good corporate governance.

And CSR Europe's research has shown that 20 per cent of European consumers are willing to pay more for products that they believe to be socially and environmentally responsible.

According to Geoff Lane, head of the CSR advisory team at PricewaterhouseCoopers, interest in CSR from big business has now reached boiling point. The problem lies not in converting companies to the merits of CSR, but in getting them to put into practice. “A lot of it is about changing the culture of the ways companies are run, and that can be quite a daunting prospect,” he says.

The main barrier, Lane feels, is the fear factor linked to transparent reporting. “There is a feeling that companies don't want to rush into it and make mistakes that could put them in the firing line.”

But experience has shown Lane and his team that, once a company appreciates the fundamentals of CSR, these fears diminish.

Whether companies choose to adopt a full CSR strategy or not, they cannot ignore the growing pressure for greater accountability from institutional shareholders, insurance companies, pressure groups, the Government and the media. One of the consequences of this pressure is that risk has become one of the key facets of modern reporting.

“Risk management now extends a long way beyond the financial because so much hinges on reputation,” Lane says. “There's an acceptance that risk has to be approached in a much broader way, using a much more subtle process to capture possible liabilities. It's rather like a radar screen where you can see what's coming at you.”

The effect of enhanced risk management and the greater emphasis on ethical profit-making has led to a situation where, whether they like the idea of becoming eco-warriors or not, financial managers are finding themselves playing a central role in developing CSR strategies.

Lane believes that in the future one of the key roles of the finance director will be to ensure that CSR is part of a company's core strategy. “To get investors and analysts to understand why CSR issues are important, finance directors need to communicate how these issues generate both risk and opportunity for their business in the short and long term,” he says. “This means positioning CSR in the context of the company's core strategy for creating value.”

At the other end of the spectrum, Deborah Doane, chair of the Corporate Responsibility Coalition, urges financial managers to ensure that their CSR strategy documents are supported by measurable indicators.

Doane also believes it's important for those driving CSR to ensure that there is an open and balanced dialogue with all stakeholders and, in particular, those involved in the company supply chain.

Written by Camilla Berens. This article first appeared in Financial Management, a monthly magazine published by the Chartered Institute of Management Accountants (CIMA), United Kingdom, for its members. For more information, please contact The Chartered Institute of Management Accountants (CIMA) Malaysia at Tel: +603 – 7723 0230 or e-mail: kualalumpur@cimaglobal.com Website: http://www.cimaglobal.com