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What Is CSR

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As far back as I can remember, when I heard anything about Corporate Social Responsibility (CSR) also referred to as Economic, Social and Governance Responsibility (ESG), I likened it to Corporate Organizations carrying philanthropic gestures to the community and society as a whole. For me CSR was all about donations to school, charities, hospitals etc.

However, in recent times, having attended seminars, read books, articles and carried out researches, it has become clearer that CSR today is much more than Corporate Organizations philanthropic gesture, rather CSR/ESG (which ever acronym is used) should be viewed as a major risk of business sustainability in both the near and the distant future. Below is a diagram showing the multi-dimensional scope of CSR/ESG for businesses today and in the future;

Corporate Social Responsibility (CSR) refers to the accountability of companies, to both share-holders and stakeholders, for their utilization of resources, for their means of production, for their treatment of workers and consumers, for their impact on the social and ecological environment in which they operate and for the way in which they exercise their legislative and fiduciary duties”

“Corporate Social Investments (CSI) refers to the way in which companies care for the well-being of the social and ecological environment of the communities in which they operate. To this end they invest, in a variety of ways, in the advancement of certain socially and/or environmentally defined needs, projects or causes extraneous to their regular business activities”

As business in Africa continue to grow and become more globally inclined, it has become necessary for them to understand the fact that their businesses are surrounded by concerns relating to the social responsibilities of its business operations and that they would only be sustainable when they start to understand how organizations integrate all these facets of CSR/ESG to building a sustainable business.

The reason for the above is hinged on the fact that all over the world, CSR/ESG has become a major business driver for long term sustainability.

In view of this, a new development has emerged in very recent years with organizations thinking about how to sustain their businesses into the distant future.

There is a growing belief that “companies have economic, social and governance responsibilities” and that it is not just the responsibilities of Governments.

This view has been emphasized by many of the company’s stakeholders – by investors, by consumers, by NGO’s, by the media, by Government and even by international and regional organizations such as the UN, AU, ECOWAS etc.

There has been a considerable change in business thinking, especially on the part of large Western multinationals, about the importance of areas such as improved labour rights, corruption and environmental performance.

To a large extent, this change in thinking has been forced on companies by the changing attitudes of their stakeholders, especially investors, consumers, the media and NGOs.

With the increased need for development in Africa and perceived opportunities for growth and development, many institutional investors are looking towards investing in Africa and African businesses, thereby making even more important for African business to start now in the development of sustainable business practices.

Large investors, especially some of the world’s largest pension funds, have been emphasizing to companies that their investment decisions will depend to a large extent on the company’s CSR performance.

For example in 2001, 8 large European pension funds, with over $600 billion under investment, announced that companies doing business in Burma risked losing investment unless they were mindful of CSR considerations.

This is also the case with Africa, especially with the fact that African Governments and Businesses are continually seeking foreign investments in the development of major infrastructures.

With the clamor for investment in Africa, more institutional investors who are willing to invest are been mindful of their investments in countries where CSR/ESG performance is non-existent.

As such, “companies operating in unstable political climates are and can be exposed to loss of shareholder confidence, negative press and publicity campaigns, safety risks and corruption”.

Therefore companies must justify their continued presence in these countries in the light of the risk that such activities impose on them and their shareholders.

It is on this basis that in 2007, PGGM the Dutch pension fund catering for health care and social work sector with over $130 billion under its investment, decided to place “CSR at the heart of its investment decisions in companies operating in developing countries”, making it the first large pension fund to make such a decision.

As such, it is time for African businesses, to start to conform more to CSR/ESG as a risk management tool towards creating the enabling environment for investments in Africa.

This is because about 1000 institutional investors all over the world with over $34 trillion under investment, have signed up to the Principles of Responsible Investments (PRI), promising that they will integrate CSR/ESG thinking into their investment decisions. Below are the principles of PRI

The Six PRI Principles

  • We will incorporate ESG issues into investment analysis and decision-making processes
  • We will be active owners and incorporate ESG issues into our ownership policies and practices
  • We will seek appropriate disclosure on ESG issues by the entities in which we invest
  • We will promote acceptance and implementation of the Principles within the investment industry
  • We will work together to enhance our effectiveness in implementing the Principles
  • We will each report on our activities and progress towards implementing the Principles

The Business Benefits to businesses adopting CSR/ESG as a risk management tool are enormous and they include some of the following;

  • Investor Relations and access to capital
  • Competitiveness and market positioning
  • Employee recruitment, retention and productivity
  • Avoiding litigation
  • The “license” to operate

It is important to note that the business benefits of good CSR performance can be quite diverse and could be short, medium and long term.

Research evidence which is now being published has started to show clearly that these benefits are real.

It is also important to note that major financial institutions are also implementing sustainability frameworks for their lending through such principles as the Equator Principles for lending and as such access to funding for African businesses are getting thinner and thinner by the day where there is no evidence of good CSR/ESG performance

In conclusion, the earlier African Businesses start the adoption of CSR/ESG performance risk management, the more sustainable their businesses will be into the very distant future.

It is important to note that these benefits will fall into two categories which could be classified as present and future – indirect value protection and direct value creation. The table below highlights benefits from both categories

Finally as a business, this is your time to make hay while the sun shines and use the theory of “FIRST MOVER” advantage to create a sustainable economic future for your organization.

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