How has corporate responsibility evolved?

What is the future of corporate responsibility? First, we need to figure out what it is.

There is little doubt that over the past decade we’ve seen an increase in the amount of discussion about what it means to be a responsible business. For a long time the conversation centered around corporate social responsibility, or CSR, and typically involved highlighting actions that furthered some social goal that was both beyond the interests of the firm and what is required by law. More and more, however, managers find themselves faced with challenges that often require them to take an integrated approach that balances legal, economic, ethical, environmental and societal concerns across a variety of stakeholders. Responsibility is no longer about discrete actions but rather a set of long-standing efforts to create value and adhere to purpose.

At the same time, managers exist in a society where certain fundamental problems, such as worsening environmental degradation and social inequality, have been central factors driving increased corporate engagement. And some believe there is a corresponding responsibility on the part of corporations to do something about these problems. Historically, we’ve been better able to tell when a company is irresponsible, for example by using the practice of greenwashing or causing other types of harm. It’s worth noting that these harms vary by degree. But what we mean by responsible behavior (and what label we use) has somehow become a focus in and of itself.

Many businesses use the term sustainability to cover all their responsible business practices. Others use environmental, social and governance, or ESG, instead. Not surprisingly questions have emerged about how and whether these terms relate. Some believe that while CSR aims to make a business accountable, ESG criteria make such business’ efforts measurable. ESG is tied to various sustainability reporting frameworks whereas CSR can consist of brand and culture building statements. And yet, according to news from the January 2024 World Economic Forum in Davos, executives and boards of directors are seeking new ways to tout corporate responsibility while omitting the term ESG to avoid alienating investors, customers, and employees. One factor is the wave of anti-ESG legislation in the U.S. during 2023 and similar anti-ESG sentiment brewing in Europe.

And while ESG has generally been aimed at capital and growth building, ESG investing has faced challenges, too. The use of ‘ESG’ in corporate earnings calls, whose content is an indicator of company goals, is at its lowest since 2020 according to FactSet. Rolling the three ESG pillars into a single rating has allowed carbon intensive companies to log positive ESG scores, and some mutual funds and ETFs have been accused of greenwashing, using ESG in their fund names with no corresponding change in their investment holdings.

And yet it’s hard to argue that when a business is a good citizen in the communities where it is located, pays taxes on the profits it makes and compensates employees fairly, these things are in line with being a responsible business. Partly because of this recognition, some have recently argued that the term responsible business should be used instead of both CSR or ESG.

But amid these concerns, sustainability and accountability still matter to many consumers and investors, as well as to employees. GenZ and Millennials show a preference for purpose-driven companies. Many would leave their current job for one that has a more positive impact — even if it impacts their pay – according to the latest Business in Society Report by Bentley University and Gallup. A full 71% of workers under age 30 took that stance. And 40% of them said they would even accept a 10% pay cut to do this more meaningful work.

As a result, the contemporary context of corporate responsibility involves both a deep and wide set of concepts and tasks. Fundamentally, it involves working with multiple stakeholders and a range of disciplines. Managers are then faced with decisions around how to take ownership of a wide range of company impacts throughout the value chain – including design, production, marketing, sales and communication. And because corporate responsibility is tethered to calls for greater accountability, managers need to consider how (and if) their corporate governance framework serves to encourage, restrict and ultimately shape the company’s relationship with society.

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