Where does CSR begin? Where does it end?

Corporate social responsibility (CSR) has become firmly established in the business lexicon. Although some conversation partners still need to be reminded of what CSR really is and why it is important, most of them understand its value by now. Indeed, this leads to many different expectations for CSR, such that discussions around it today are shifting toward putting limits on the term and creating rules around it. Where does CSR begin? Where does it end?

Any discussion of the ethics and morality of day-to-day business – environmental protection, human rights, or labor laws – has to include the concepts of CSR and sustainability. Understandably, this tends to lead to exaggerations: Only recently, Robert Engelman rightly complained of inflationary use of the sustainability concept, calling it “sustainababble.” Well-known Harvard professor Michael Porter has also criticized how CSR has been thrown around as a term, since everyone has a different understanding of what it means. Engelman and Porter both have a point: We are experiencing the inflationary use of terms such as “sustainability” and “CSR” in the most varied – and sometimes ridiculous – contexts. But is this really a weakness?

When the “CSR movement” began – if we may label it so – this lack of precision was actually its greatest strength: Those pronouncing their expectations ranged from critical stakeholders, who viewed it as a lever to implement quasi legal conditions, to companies that simply wanted to rebrand their philanthropic commitments without giving the slightest thought to changing the management approach associated with them. CSR has thus become a flexible surface on which to project any number of interests. When put into practice, this can lead to arbitrariness – the aforementioned sustainababble – but it can also be a route to positive engagement with the subject.

Innovative models

For a long time, the main question has been: What is CSR really? I would like to highlight three definitions that remain just as valid today. One of these is Archie Carroll’s four-level pyramid, which was the first to differentiate corporate responsibility into four dimensions, opening the door for systematization and structure. Carroll distinguished between four areas of responsibility: economic, legal, ethical, and philanthropic.
The second substantial impetus for CSR comes from John Elkington’s “triple bottom line,” which puts the same emphasis on environmental and social responsibility goals as pure economic success and employs the Computable General Equilibrium model popular among economists. All three pillars are meant to be weighted equally. Prioritizing one area comes at the expense of the others: In the long term, pursuing the lopsided maximization of profit while disregarding environmental and labor standards will lead to failure. We see evidence of this in the media every day.

The third definition comes from Michael Porter, one of the most influential economists of our time; some even consider his “creating shared value” (CSV) approach to be a better label than CSR. Porter’s definitive contribution is the proof that the competitiveness of a corporation depends on its surroundings, and vice versa. “The fact is that no company can survive in a failing society,” says CSV expert and Nestlé consultant Marc Pfitzer. “If nothing else, a company’s selfish will to survive suggests that the enterprise will look after its environment.”

How mature is your CSR?

It is rarely necessary anymore to justify CSR for its own sake. Nowadays, the more important question is what CSR activities should look like. Daniel Zirnig has written that “management is less concerned today with whether CSR activities should take place than with how they should be carried out.” This begs the question of how we are to distinguish among the discernibly different levels of activities.

Andreas Schneider of Austria has made a well-considered contribution to this field with his “maturity model,” which outlines a series of incremental levels from CSR 0.0 to CSR 3.0 with varying amounts of corporate responsibility. Schneider’s model is a sensible way to differentiate the countless CSR activities, which range from modest to phenomenal.

The basic assumption is that the higher the quality and greater the extent of a company’s integration of CSR, the greater its benefit for the society, the environment, and the company itself. At the end of the day, then, this is about creating value for everyone, where “value” means more than just revenue, and “everyone” means more than just direct stakeholders. CSR is not the fine art of writing checks but of creating value.

What are the limits of CSR?

Much more interesting than evaluating CSR activities is the question of how far they go: What needs to happen for an activity to be upgraded to a higher level? And, by implication, what kind of CSR mistakes would trigger a downgrade? The first threshold is easy: The moment an accidental campaign becomes a concept or a plan that is being consciously driven and managed, we are talking about corporate social responsibility.

This supports the idea that corporate responsibility is always more than what is stipulated under the law. The boundary is clearly recognizable: It consists of voluntarily going beyond legal compliance. Most organizations – ISO 26000, the UN Global Compact, and the EU Commission, just to name a few – consider the decision to voluntarily go beyond the limits of what is necessary to be an essential feature of CSR. As Schneider says, “CSR is thus at the discretion of the entrepreneur or the corporation rather than the legislature, which would make a legal CSR requirement paradoxical.”

Yet it is exactly these sorts of requirements that we are now seeing in many areas. They come in various guises, whether it be an EU reporting obligation or a 2 percent tax in India. The measures may be correct and well-founded, but they are actually bringing us up against the limits of CSR. More specifically, when actions cease to be voluntary and are instead required – the moment we go from “beyond legal compliance” to “within legal compliance” – we reach the end of CSR and the beginning of compliance.

We can argue over the details of this distinction. At a conference in India not long ago, for example, Michael Porter stressed that voluntarism was “the only way to create impact. Meeting the needs and meeting those needs at a profit is crucial.” It is certainly true that legal obligations do not encourage creative and individual speculation beyond these boundaries. On the other hand, a legal regulation can be a sensible bottom line, above which CSR can be reinvented and reassessed. Forcing companies in India to spend 2 percent on CSR through legislation is not CSR. But if more than 2 percent is spent, however, CSR begins anew.

CSR 0.0 and 1.0 – The roots of engagement

Let us first look at Schneider’s maturity model to shed some light on the lower levels of CSR. CSR 0.0 describes the simplest level. Social activities are performed, but these are neither systematic, planned, nor otherwise premeditated. The laws are followed. Apart from that, the focus is on economic success. When social engagement occurs, if at all, it is impulsive and coincidental. It may consist of donations after a natural catastrophe or in response to requests from an association. We can also refer to CSR 0.0 as “cosmetic CSR.”

If such activities are better planned, for example in the form of long-term contributions to the aforementioned association, this becomes CSR 1.0, which involves actions such as philanthropic engagement through donations, sponsorships, or corporate citizenship. Common to all of these activities is that they have nothing to do with the core business, nor do they have any effect upon it: CSR 1.0 is a “nice to have.” From an operational point of view, this is purely a cost factor; action comes from the ethical motivation to give something back to society. Often enough, this happens because the company has caused damage and now has a bad reputation it wishes to improve. Michael Porter talks about “responsive CSR,” which is more of a retrospective understanding of corporate responsibility.

CSR 2.0 – Today’s best-in-class

CSR 2.0 goes one step further because it relates to the core business and is part of the business case. CSR influences corporate strategy, business products and portfolios, and the question of how money is earned. It ranges from production processes to product responsibility and supply chains. CSR 2.0 is part of the brand promise and is made possible through the systematic planning and management of corporate responsibility. Other priorities include a willingness to engage in dialogue and an emphasis on quality. The aim of CSR 2.0 is to deal with the company as a whole. Tools for this purpose frequently draw on Elkington’s triple bottom line and the equilibrium models associated with it. Schneider calls CSR 2.0 “active, reflective, and strategic CSR … If CSR is implanted in the ‘DNA’ of a company in this way, the company gains social relevance and acceptance, stability, and effectiveness. In short: It becomes more competitive.”
What separates CSR 2.0 from the lower levels is an underlying system of management that is complex and ambitious. As for what is involved, the specific structure of sustainability management always depends on the individual company, but some of the inevitable building blocks are stakeholder management, supply chain management, environmental protection, and worker protection, as well as compliance and sustainability reporting.

So that no actor involved can make proprietary rules, and in order to avoid repetition, actors tend to create their own standards at the CSR 2.0 level and above. Such initiatives – be they industry-wide mergers or cross-sector partnerships – create quasi national self-regulation, or so-called soft laws. The most well-known example of this is the UN Global Compact, with its voluntary but binding commitment to follow the Ten Principles.

At the same time, however, management and regulation procedures of this type lead to higher bureaucratic hurdles. There is a perception that every day brings more guidelines, surveys, audits, certificates, and assessments that those in charge of CSR must respond to. CSR management becomes a bureaucracy machine. Michael Porter gave the Guardian an apt quote on this: “In the CSR formulation, there’s a ‘check the box.’ You have to have a recycling program, you have to do carbon inventory, you have to save water, you have to save packaging. There’s a … generic set of sustainability [checkboxes] that everybody has to do. When companies are dealing with those, that’s not where the excitement comes. That’s not where they really ‘get it.’”

CSR 3.0 – A controversial idea

If CSR 1.0 is the past, and 2.0 is the present, then 3.0 is the future. CSR 3.0 describes one possible – and desirable – future: a sustainable change in the underlying conditions, a new understanding of economy, and value creation. It also represents a new understanding of social responsibility and participation. CSR 3.0 would require a redefinition and rethinking of the relationship of the state, the economic system, and civil society.

More specifically, this means that when companies take on social responsibility, they will not only have obligations but also the right to carry them out. Instead of companies simply being subject to regulations, they will be creating the regulations themselves. In Schneider’s words, firms will be proactively framing policy: “CSR 3.0 is concerned with themes in society that influence business activities in a broader and indirect sense, such as human rights and education inside and outside the company.”

The underlying idea of CSR 3.0 has academic heft: Instead of social development being the sole domain of politicians, it is steered by a group of actors who share responsibility. The day-to-day meaning of such an approach, however, is incredible fodder for conflict. If companies begin to have an influence on tasks of the state such as education policy, health policy, and immigration – even if this happens in tandem with other stakeholders – it is easy to imagine the kinds of debate this would set off. In sum, CSR 3.0 deals with subjects that are highly topical, complex, and often controversial.

Great challenges call for great efforts

The political explosiveness of a debate over changes in society and new stewardship of social issues is obvious. Here is why this discussion needs to happen. First, the 19th-century model of the nation-state as enforcer of societal governance has neither the power to assert itself politically nor the financial means to overcome challenges – with multilateralism obviously in crisis, it is irresponsible to wait for global political agreements on climate change.

Second, we need a sustainable change of course; anything else is self-destructive. Politics alone cannot solve the problem, nor can money. The solution lies in globally conceived, locally networked CSR, where companies create forward-looking, binding rules for economic activity through candid dialogues with their stakeholders, with each stakeholder allocated specific tasks for the implementation of these rules and the mandate to carry them out.

They should do this because Marc Pfitzer is right: Over the long term, no company can focus on reaping profits in a failed society. Corporate responsibility is the sensible thing to do for survival. The subjects at stake are: climate protection and energy-policy transformation; food security and consumer policy; species conservation; environmental protection in all its forms; demographic change; and the Millennium Development Goals. The limited resources and biodiversity of this planet leave us no time for delay: We need a debate on CSR 3.0. Now.