In most boardrooms across Canada corporate social responsibility (CSR) is on the agenda. But it is still fairly new and many directors are struggling to understand which CSR issues to put at the top of their lists. CSR is not solely the responsibility of company management, it also lies with the board to ensure the proper non-financial risk management mechanisms are in place. A board cannot wait until after disaster has struck to address the issues.
The purpose of CSR is to establish better practices, create new markets and improve society. Companies that demonstrate environmental and social leadership, and share with their stakeholders the principles and practices they adopt, will build public trust and strengthen their reputations and brands.
While these intangibles are sometimes hard to quantify, forward-thinking boards understand their value. They recognize that a company’s approach to sustainability and corporate responsibility mirrors its approach to business. Those that postpone dealing with the challenges of sustainable business practice, or minimize the attention they give to such issues, put themselves at risk and lose opportunities.
Many forces have brought about the era of CSR. According to the Hon. Sergio Marchi, a senior business advisor with Lang Michener LLP, “The world is getting smaller and flatter. The very nature of a global company intertwines it with the global economy and therefore must include global values in their mantra. As a company grows so do the expectations of their business practices — given their influence and reach.”
Mr. Marchi also cites that the failings of numerous corporate titans, the public’s exposure to the compensation of CEOs and the increased demand for transparency have all increased the public, government and other stakeholder CSR expectations.
Boards must understand and prioritize both the strategic and reputation risks that can arise as a consequence of their business practices and operations. The biggest question is how? Since each company is different, has different products, suppliers, locations and stakeholders there is no off-the-shelf approach. There is a methodology to CSR but it's based on an individual company basis. "CSR should be based on having a solid enterprise risk management framework in place and a clear understanding of all the company's stakeholders' needs," says Kathleen O’Neill, corporate director.
A key area of the methodology is stakeholder identification. Engagement and dialogue with these stakeholders is crucial to understanding what positive and negative feelings they may have about a company.
Stakeholders cover all aspects of a company. This includes employees. Research has shown that current and prospective employees want to align themselves with a responsible company and feel a stronger and warmer affiliation to a company who has similar values and ethics.
Furthermore, the investment community now looks look not only at financial performance but CSR activities as well. An effective CSR program is essential to establishing and sustaining shareholder value, and a direct correlation can be drawn between financial returns and CSR initiatives.
In addition, companies need to ask themselves what reporting methods are the right ones for them. Is it a printed or online document? Does it stand alone from their annual report? Leading companies now release non-financial performance information in report form to help facilitate communication with stakeholders and provide both quantitative and qualitative information on the organization’s social, environmental, health and safety, and economic performance. They also offer insights into the reporting organization’s programs, policies and values.
There is no Canadian requirement for CSR activities. They are driven by the marketplace or businesses themselves. But a company who does implement a CSR program will also need to determine the valid metrics and measurables that show their CSR initiatives are the right ones.
Ideally, the CSR process should be internalized throughout the company and lead to a set of corporate standards and values which would serve to define the culture and behaviour of the firm.
A diversified group of directors with different experiences and expertise can help as well as an annual report that speaks to and measures CSR; the designation of CSR officers; community outreach and co-sponsoring seminars with different constituencies.
CSR cannot remain a simple marketing initiative. Leading Canadian companies, especially those with international operations, now view their sustainability performance and reputation for CSR as a competitive advantage. Many companies refer to good sustainability performance as part of a 'Canadian brand.'
There are a few key questions directors need to ask themselves and their boards to get on the right CSR track:
“If done in a thoughtful, proactive manner, there are some very golden opportunities to take advantage of by putting CSR at the top of a boardroom agenda,” says Bernie Wilson, former PwC vice-chairman and corporate director.
Mr. Marchi adds, “The overriding belief in the corporate boardrooms should hopefully be that an active CSR will mean good business, good earnings, and a good reputation.”
PwC’s Sustainable Business Solutions practice assists clients and their stakeholders in the areas of corporate governance and business ethics, environmental health and safety management, social responsibility, responsible supply chain management, and assurance and reporting of non-financial information.
Our practice draws on the combined experience of more than 400 sustainability professionals in 30 countries.