Why is the economic or socioeconomic model of social responsibility the best for business?

Until fairly recently, most large businesses were driven almost exclusively with a single goal in mind: profit. Maximizing profits was at the heart of every action taken or initiative pursued.

In the past few decades, however, more business leaders have recognized that they have a responsibility to do more than simply maximize profits for shareholders and executives. Rather, they have a social responsibility to do what’s best not just for their companies, but people, the planet, and society at large.

This realization has led to the emergence of companies that identify as socially responsible. Some even carry designations or seals, such as B Corporations (B Corps), social purpose corporations (SPCs), and low-profit limited liability companies (L3Cs).

But what is corporate social responsibility, and what are the different forms it can take?

What Is Corporate Social Responsibility (CSR)?

Corporate social responsibility (CSR) is the idea that a business has a responsibility to the society that exists around it, according to the online course Sustainable Business Strategy.

Firms that embrace corporate social responsibility are typically organized in a manner that empowers them to be and act in a socially responsible way to have a positive impact on the world. It’s a form of self-regulation that can be expressed in initiatives or strategies, depending on an organization’s goals. Many organizations communicate these efforts to external and internal stakeholders through corporate social responsibility reports.

There are various examples of what “socially responsible” means from organization to organization. Firms are often guided by a concept known as the triple bottom line, which dictates that a business should be committed to measuring its social and environmental impact, sustainability efforts, and profits. The adage “profit, people, planet” is often used to summarize the driving force behind the triple bottom line.

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Types of Corporate Social Responsibility

Corporate social responsibility is traditionally broken into four categories: environmental, philanthropic, ethical, and economic responsibility.

1. Environmental Responsibility

Environmental responsibility refers to the belief that organizations should behave in as environmentally friendly a way as possible. It’s one of the most common forms of corporate social responsibility. Some companies use the term “environmental stewardship” to refer to such initiatives.

Companies that seek to embrace environmental responsibility can do so in several ways:

• Reducing pollution, greenhouse gas emissions, the use of single-use plastics, water consumption, and general waste
• Regulating energy consumption by increasing reliance on renewables, sustainable resources, and recycled or partially recycled materials
• Offsetting negative environmental impact; for example, by planting trees, funding research, and donating to related causes

2. Ethical Responsibility

Ethical responsibility is concerned with ensuring an organization is operating in a fair and ethical manner. Organizations that embrace ethical responsibility aim to practice ethical behavior through fair treatment of all stakeholders, including leadership, investors, employees, suppliers, and customers.

Firms can embrace ethical responsibility in different ways. For example, a business might set its own, higher minimum wage if the one mandated by the state or federal government doesn’t constitute a “livable wage.” Likewise, a business might require that products, ingredients, materials, or components be sourced according to free trade standards. In this regard, many firms have processes to ensure they’re not purchasing products resulting from slavery or child labor.

3. Philanthropic Responsibility

Philanthropic responsibility refers to a business’s aim to actively make the world and society a better place.

In addition to acting as ethically and environmentally friendly as possible, organizations driven by philanthropic responsibility often dedicate a portion of their earnings. While many firms donate to charities and nonprofits that align with their guiding missions, others donate to worthy causes that don’t directly relate to their business. Others go so far as to create their own charitable trust or organization to give back and have a positive impact on society.

4. Economic Responsibility

Economic responsibility is the practice of a firm backing all of its financial decisions in its commitment to do good in the areas listed above. The end goal is not to simply maximize profits, but make sure the business operations positively impact the environment, people, and society.

What Are the Benefits of Corporate Social Responsibility?

Most firms are driven to embrace corporate social responsibility due to moral convictions, and doing so can bring several benefits and important social change.

Corporate social responsibility initiatives can, for example, be a powerful marketing tool, helping a company position itself favorably in the eyes of consumers, investors, and regulators. CSR initiatives can also improve employee engagement and satisfaction—key measures that drive retention. Such initiatives can even attract potential employees who carry strong personal convictions that match those of the organization.

Finally, corporate social responsibility initiatives, by their nature, force business leaders to examine practices related to how they hire and manage employees, source products or components, and deliver value to customers.

This reflection can often lead to innovative and groundbreaking solutions that help a company act in a more socially responsible way and increase profits. Reconceptualizing the manufacturing process so that a company consumes less energy and produces less waste, for example, allows it to become more environmentally friendly while reducing its energy and materials costs—value that can be reclaimed and shared with both suppliers and customers.

Are you interested in learning how to lead your organization toward positive change? Explore Sustainable Business Strategy—one of our online courses related to business in society—and discover how you can become a purpose-driven leader. Not sure which course is the right fit? Download our free course flowchart to determine which best aligns with your goals.

This post was updated on October 12, 2022. It was originally published on April 8, 2021.

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