The times are truly challenging. If on one hand, the World Bank has reported that the number of extremely poor people has fallen from 1.9 billion in 1990 to about 736 million in 2015[i], on the other, the Global Risks Report 2019[ii] puts several complex and interrelated risks including climate change, slow global growth, and social inequality in perspective to identify priority actions for nations. If on one hand, businesses are gearing up for Industry 4.0 and the Future of Work, on the other, there is an increased awareness among stakeholders- consumers, governments and societies about the role of business in achieving the Agenda 2030 for Sustainable Development[iii]. If on one hand, voluntary initiatives by businesses for the society and environment have increased[iv], on the other, regulations for pressing businesses to become more accountable are on the rise[v]. Thus, these challenging times are calling for radical ideas; and one such idea is the changing narrative of corporate responsibility! Instead of an approach where societal and environmental concerns are handled by a sidelined department, there is a need to move to an approach where this department integrates all functions of the organization including HR, finance, operations, and marketing. To put it simply, from a starter or a dessert role, business sustainability becomes main course!
There are a lot of terms we come across today including corporate social responsibility, corporate philanthropy, creating shared value, triple bottom line, 3Ps approach, business sustainability and so on. Are these synonymous? If not, how are these different? Which one is better? These are some questions that this article attempts to address.
Of all these terms, corporate social responsibility or CSR is the most used terminology. In the Indian context, section 135 of the Companies Act, 2013[vi] provides that every company having a net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a CSR Committee consisting of three or more directors, out of which at least one director shall be an independent director. This committee shall formulate, recommend and monitor the CSR policy of the organization by spending on a range of activities in Schedule VII of the Act including eradicating extreme hunger and poverty; promotion of education; promoting gender equality and empowering women; reducing child mortality and improving maternal health; combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases; ensuring environmental sustainability, and so on. CSR, according to the provisions of this Act, is more like corporate philanthropy. Most literature on CSR is a product of the twentieth century. It means one thing, but not the same thing to just about everyone. There are many definitions and perspectives. Milton Friedman[vii] wrote that the only social responsibility of business is to do business, but within the rules of the game, without deception or fraud, while Kotler and Lee[viii] advocated that CSR is the commitment of the business to contribute to community well-being through discretionary business practices. Taking these different perspectives into consideration and their practical applications, to put it simply, CSR can be looked at from an ethical perspective. These ethics, or judgements of right and wrong, could vary with organizations. For some organizations, CSR could be about philanthropy, for others, it could only be about legal issues like paying taxes. For some, it could be about paying living wages, for others, it could be about paying minimum wages; nothing more, nothing less!
Creating Shared Value[ix], conceptualized by Michael Porter and Mark Kramer in 2011, is about looking at social problems through a business lens. It is about exploring such opportunities through reconceiving new products and markets, redefining value chains, and enabling cluster development to create social as well as business value. So, in CSV, the companies create wealth and solve social problems at the same time. For example, if the company spends on improving quality of life of its employees, it considers it as an investment in improving their productivity that eventually translates into profits. Or if a company sells renewable energy technology, it makes sure that the initiative is profitable. Such opportunities exist, but not every problem can be solved through the CSV perspective. The triple bottom line[x] or 3Ps i.e. people, planet and profit, mean an approach to be adopted by business organizations wherein the focus of the organization is not only profit or economic gains, but also people and planet i.e. society and environment. However, this is easier said than done. The challenge is the transition, the shift, the process of integration!
Business Sustainability is an umbrella term that could involve creating shared value, corporate social responsibility, as well as the triple bottom line approach. The focus of business sustainability is on conceptualizing and actualizing a case where business organizations operate in a manner that all three aspects- social, economic, and environmental are given due consideration. Practically, it means optimal utilization of resources, creating value for stakeholders with contrasting interests and targeting an emerging market of green consumers. The concentration is on how the business is carried out, rather than spending some amount of profits on social or environmental concerns. But again, how to do it?
It’s about institutionalization of:
- long term thinking as opposed to short-term thinking
- switching from non-renewable to renewable sources of energy, and
- processes and practices for reducing, reusing, and recycling resources (known as circular economy)
This institutionalization requires capital, but that must be considered as an investment rather than an expense. It also requires stakeholder priority mapping and materiality analysis along with an emphasis on engaging employees for sustainability. Increasing body of research is documenting how businesses can do well by doing good[xi]. Thus, the business case for sustainability must be given an impetus, not from a moral point of view but from a logical point of view and must be communicated clearly to all the stakeholders.
Most importantly, the top management must commit to strategic planning for sustainable business to build a scenario where business and society are not pitted against each other, but instead, business serves as an enabler of sustainable development.
By Dr. Ritika Mahajan
Assistant Professor, TERI University