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Apr. 16

CSR in 2020: less rhetoric, more strategic

Even before the COVID-19 outbreak, CSR was set to be one to the most important business topics of the new decade. And in light of the huge economic and social impact COVID-19 is having, CSR’s significance has never been greater. We caught up with Prof. Christelle Bitouzet, affiliate professor on sustainable development in HEC Paris, after she had delivered the first of two seminars to our EMBA class on CSR. Our wide-ranging discussion covered everything from the evolution of CSR as a concept, through to the many facets that make up CSR, the metrics used for measuring CSR performance, and much more.

 How do you introduce CSR to EMBA participants? What description of the concept do you use?

I introduce the approach that we have towards CSR today. CSR is not new, it’s a concept that has been in existence for years, and many companies have been working with social responsibility for decades. What’s really new today is that CSR is a lever that companies can use to reinvent strategy and to position innovation in a way that creates additional value. This added value can benefit various stakeholders, from your employees to your customers. So, what’s really new is that through the lens of environmental concern, social concern, and societal concern, you’re going to create new opportunities for your business. And on the other hand, you’re also going to reduce the risk of not being able to operate in the long-run because you won’t be accepted any more. 

CSR is not a new concept. How long have its obligations been circulating in social and business environments? 

It’s never been an obligation in fact, and even today it’s still not an obligation. At least, it’s not an obligation by law. But it is becoming a requirement for all stakeholders that a company is sustainable in the long-run. These stakeholders include local communities, your customers, administration, your own employees, contributors to your supply chain like small and medium-sized companies, sub-contractors, suppliers, etc. 

So, I wouldn’t say it’s a legal obligation, but it is a moral obligation. It is also a business obligation. Companies have to plug what they’re doing into the existing expectations and potential expectations in order to better address environmental concerns, society concerns, and to follow the evolution of the world. One point that is very important behind this is building on the fact that the boundaries of the planet are not infinite. And we see this also with COVID-19. Companies today should absolutely be rethinking the way they do things in order to better protect a non-renewable resource (the earth) and ensure we are able to develop human beings in the right way.

Has CSR changed or improved over time?  

Yes, I think over time there has been a very big move. If you look at the last 20 years there was a very big move in the concept of CSR itself.

20 years ago, CSR was seen as an obligation in order to have a licence to operate. I’ll give you an example. If you’re in industry and you’re going to operate in a remote community in Europe, in Africa, in Asia, you need to be accepted by that community. And if you’re going to be accepted by that community, you need to do things for the community. So, in previous decades CSR was seen as a requirement to get a license to operate. 

Today, CSR is still this (how to maintain good relationships and get a license to operate), but on the other hand it’s more and more becoming something different. Through an analysis of environmental challenges, of society changes, CSR is used to open new opportunities to better sustain your business and to create an innovation niche on which you can build your new business model.

One example of this trend is all the companies today who are trying to change the way they manage work in order to attract millennials. If you want to continue to recruit millennials, to create loyalty in your millennial employees, you need to change the relationship they are having with the company. That’s one example, that’s part of CSR. 

Another example that we could give is all the companies that are creating specific units whose job is to develop a product or service which is specifically designed for markets which are more deprived. These are markets where people have no access to classical products or services - we call them bottom of the pyramid markets. These companies go through an analysis of the value chain of what a potential customer could expect, then they’re going to develop a product or service which is acceptable to these customers, which is designed for them and is affordable for them. 

These are two examples of when you build on an analysis of the evolution of the world. You can end up with different types of relationship, like the example of the millennials, or with different types of products and services that better serve a market that deserves to have products and services but cannot afford them. This is inclusiveness. 

So CSR addresses not only environmental problems, but societal and economic ones as well?

Absolutely, yes. If you’re looking at CSR and you want to have a strict definition, you can take the EU’s 2011 definition -  “the responsibility of enterprises for their impacts on society”. This definition states that “enterprises should have in place a process to integrate social, environmental, ethical, human rights and consumer concerns into their business operations and core strategy in close collaboration with their stakeholders.”

If you look at what CSR is now covering, it’s covering exactly the same scope as the definition of sustainable development given by Brundtland in 1987 - "development that meets the needs of the present without compromising the ability of future generations to meet their own needs." So, you have in these definitions environmental concerns, society concerns (which we’re going to call societal), social concerns (which are the relationships with your internal stakeholders), and economic concerns, because there can be no social responsibility if you’re not profitable in the end. And attached to all this there’s also a very big button which is the governance issue. This includes your values, ethics, competition rules, the way you pay your taxes etc. All of this is part of CSR.

Is it safe to say that the goal of CSR is to become a part - perhaps even an essential part - of global business strategy?

Absolutely. It’s a way to screen all the contributions that you could or should have to enhance your own business but also to meet some environmental, societal or social requirements. You need a good screening of how the environment for global companies and organisations is evolving, with a good understanding of what’s going to happen in the years to come (and when I say years, I mean 10 years, 20 years ahead). 

One concern, for example, which is very attached to COVID-19 today, is supply chain. When you look at companies, many are structured with a very big supply chain that is totally globalised across the world, and some of them have been doing this for many years. COVID-19 is showing very clearly the limits of this approach. In contrast, some companies had participated in introducing re-localisation, short loops, and a closer ecosystem. You can be certain that, through a screening of the COVID-19 crisis plus a very strong CSR belief, you’re going to have companies in the future which are totally rethinking their supply chain management.

Could you share some examples of actual companies that have adopted CSR into their business strategy and have become more successful as a result?

Well, there are a lot. But if we’re thinking about very big groups, there has been one, Unilever, which stands out maybe because of its leader, Paul Polman - although he recently retired as CEO. Unilever developed a plan which was called the Sustainable Living 2020 Plan. This plan is embedding absolutely all the aspects that you can imagine of social responsibility across all of Unilever’s brands. And what’s interesting is when you look at the evolution of Unilever, all the portfolios which are attached to sustainable products, or to products which have been rethinking both supply chain but also the origin of products with respect of farmers etc., these products are performing much better than the other products in the same group. So that’s one example. 

Take another group, Phillips, the high tech and lighting company. They have created a company today which is 100% built on concept of the circular economy. Everything is designed in a way that it can be circularised. This is a very big group which is now built on the strong principle that natural resources should be preserved, that we should consume less, that we should fight against planned obsolescence, that there should be a second life for the materials used, that there should be a second hand market for these products, and more. And Phillips was not like this 10 years ago, they have totally changed their strategy, so that’s another example.

But you can also take a company in the fashion and clothing industry, like Patagonia. We know that clothing is very clearly one of the most negatively impacting industries in the world.

Isn’t it the second most polluting industry in the world after oil and gas?

Yes, but it’s difficult to compare extracting oil and gas with fashion. I think clothing is the industry with the least amount of recycled material – less than 1%  of the clothes are recycled or are having a 2nd life.

So, it’s extremely polluting overall, in terms of everything – water, toxics, carbon footprint …

And even human exploitation …

Absolutely. But then you take companies like Patagonia, or there is a very interesting startup in France called 1083. They produce jeans which are infinite. The philosophy behind it is to make sure that you produce clothes not far from where they are sold, with local employees as much as possible (it’s not possible for everything, but to try to bring back as much works as possible). And, like Patagonia, you produce something which is stronger, more expensive, but which you would like to keep for a long time. And if you don’t want to keep it for a long time, there is a market (as with Patagonia) that is already organised for second hand sales or repairs. All so you don’t throw it away. And all of this goes with consumer education, because of course the brand can do nothing if the consumer at the end doesn’t change his or her own behaviour. 

There is Unilever in FMCG, Phillips in electronics, Patagonia and 1083 in clothing, you can find examples in almost every industry.

Let’s come back to very heavy industries like mining, cement, steel or glass, because I had a question about this during the class this week. In these sectors you’re going to find an approach to CSR which may be a bit more classical. This is going to be a fight to save natural resources and reduce energy and water consumption, and a focus on the development of local communities, on local employment, and on the development of sub-contractors through capacity building. So, you’re going to find something which is less “sexy” but which is important both for license to operate and for the saving of resources. 

One of CSR’s main directions is towards carbon neutrality, which you already touched on a bit. It is expected that companies will move quickly towards zero waste in the nearest future. What areas of industry will succeed in this? And what obstacles will others face? Is it even doable? 

You already have companies in the food industry that have reached carbon neutrality.  

With zero waste, it depends on the sector, and you cannot compare one sector to another because base zero is so different. What’s going to be interesting is to look not only at zero waste, but to look at the trend that a company has on this issue - how much are they really reducing? 

Let’s take an example. Very big companies in catering and restaurant delivery services are going to fight against food waste. And this is going to be translated, for example, into HR process. Top managers will have part of their individual bonus associated with waste reduction. So you have a very strong strategy on this point not only to do good, but also because you’re going to reduce your costs if you fight against waste.  

It’s very difficult to only give one example on this because it won’t be relevant to other sectors. In the beverage industry, in the automotive industry, you’re going to find examples of companies that have reached not zero waste exactly, but carbon neutrality for one factory either now or in the next 3-5 years. It’s going to be a very different situation across industries, and often when you look at a group overall it won’t be relevant, you need to look per site and per plant.

So, where is CSR heading in this new decade? What are the dominant trends and what will the focus be?

There are two immediate topics that will impact the big family of subjects which are covered by CSR. And actually, we can start to talk about social engagement, because the term CSR itself can sometimes be seen as a bit old fashioned. If we call it social responsibility or societal engagement or something like this, these terms may more accurately reflect what’s going to happen in the coming years. 

Firstly, if you look at the COVID-19 crisis, obviously it’s going to change the way you manage your supply chain, and these will probably be very big changes. It’s also probably going to have a big impact on the topic of wellbeing and remote working, and all this family of topics - the relationship between the employee and the company. So I would say these changes will be accelerated by the crisis that we’re living in right now.

And overall, of course the main issue is CO2, climate change. In terms of the environment, there’s a huge topic around plastic. All the companies that are aware should be fighting and are fighting against plastics. So, on the environment, probably these two.

More generally, depending on your activity it’s going to be any of the 17 objectives defined in the UN’s Sustainable Development Goals (SDG). These goals are becoming a sort of very big business plan for major international companies. It helps them focus on key questions: Why do I exist? What should I contribute towards? What is my purpose? And how do I align my strategy to make a contribution to some of the SDGs? 

So of course, if I’m in the food industry I’m going to refer to the goal to end hunger, probably to water, probably to waste, probably to responsible consumption. But if I’m in cement, I’m going to refer to CO2, I’m going to look at life on earth, to forestry & biodiversity. The SDG are going to be a sort of grid which people can reflect upon to identify the main purpose of their company and the main contribution they can make. It’s going to be a structuring element for social responsibility plans. It is slowly becoming a sort of very big 'business plan" for many industries, extremely structuring. 

To answer your question briefly, I think there will be one big topic in the environment which is CO2, and plastics will also be important.

If you take the social area, diversity is a performance challenge, not a "nice to have" element. Global diversity, cultural mix, gender equality, disability Integration: these are key elements. Wellbeing and new ways of working will also be important. 

And if you take society, the way you better share value with your stakeholders, whether they are suppliers, sub-contractors, or the local community, this is going to be very important. You co-develop with the players of your environment.  

What about this one specific industry. In the media business is CSR something like fake news or is there some truth to CSR in this sector?

Of course, this is attached to ethics. There is that big button that I referred to earlier which is governance. I would relate this to ethics on the one hand. And on the other hand, most probably, to the way you contribute (or not) to consumer education. 

So, if you’re in the media today, where do you position your business between simply having an audience versus having a good audience, and audience that is virtuous, that is contributing to the development of people’s mindset. 

Yesterday I had a question in the EMBA class about law, because there are a lot of people from law firms in the class. And they were asking: “what can we do on CSR if we’re a law firm?” I said you can do huge things, like any consulting business. How do you educate people? How do you raise awareness? How do you orient your contracts? How do you structure things in a way that means your clients are going to be more and more sensitive, or are able to behave in a responsible manner?

With the media it’s the same thing, just with a general audience.  

Some CSR concepts may seem too academic to the average consumer or employee. What ways of promoting its ideas do you advise? Maybe you have some inspiring examples of how to motivate people?

What I always say is if you need to communicate, it means that you failed. So, your CSR should be seen through your DNA. 

And the only way to have it in your DNA is to start with your employees. By this, I mean that employees should be living in an environment where they breathe social responsibility. If they are in this environment, they will reflect it, they will behave accordingly, and you will be a socially responsible company. 

If your employees do not understand it or do not believe it, or they have to only read your excel document to understand what you’re doing on CSR, it means it’s fake. And if it’s fake then it means there’s no need to communicate it. 

The big danger is to talk too much without doing. My advice is to clearly decide what you want to do, move the practice, reinforce your values, clarify the purpose, and align the process on the different topics. Then the employees will be living it and will naturally become ambassadors to all stakeholders, and that’s the way it should be communicated.  

Having a CSR strategy in place with definable measurable outcomes is becoming a must-have for corporations. How can businesses measure CSR? What KPIs or value indicators need to be tracked and analysed? 

So, what we’re going to track is the impact. In fact, if you look at CSR you have two sets of elements. 

Firstly, you have KPIs. So, let’s say, for example, that you’re a male dominated company. In your CSR strategy you have a strong KPI on gender diversity. Or let’s imagine you’re having a lot of road accidents and at work accidents. You’re going to have a strong safety KPI. Or you are energy intensive, so then you’re going to have a strong KPI on energy saving or renewables. These are the KPIs you need in order to follow what you have decided to achieve in terms of objectives. 

And then you might have a KPI which is that you want to deliver to a part of the market that has no access to your products or services (so deprived people) with a new business model, and to grab a share of that marketing. You’re going to have a KPI on market share and on the level of inclusiveness that you are pursuing, notably though innovations.

These are the KPIs to make sure that things happen. And you might report on them (including for the financial markets), saying we have saved X on energy here, we have saved X on water here, and so on. 

But secondly, if you really want to measure CSR in the long-run, you need a second set of KPIs to measure impact. I’ll give you a very practical example. Let’s take diversity. You can have a KPI which says I want the same number of women as men in the executive committee. Is this in itself very interesting? No. But you need it because without it nothing will happen. But what is going to be interesting is the impact of having more women. Is the efficiency of the overall system improved? Do we sell better? Do we deliver better? Do we improve our performance overall? 

Of course, it’s going to be very difficult to relate these indicators specifically to the number of women. But overall, we know through studies that if you have equality in the top management, you get improved performance (there was a McKinsey study on this last year that’s very interesting) Why? Because women represent half the consumers on earth. 

To measure the impact, and draw a relationship from a very basic KPI, designed to achieve an objective, through to measuring the overall impact, this is very interesting. 

Let’s say you deliver products and services to very deprived people. For example, maybe you’re able to help people to buy more soap in a region like the north of India. Are you actually contributing or not to the reduction of disease in this area, attached to the fact that people cannot afford to buy soap? That’s the impact measurement. 

So you’re going to have two sets of indicators. On the one hand, very rational KPIs that are very practical and very easy to follow. And then on the other hand, you should have a more clever approach around the impact per action. And overall, it’s going to help you design and enrich your purpose.

So, with all the things I’m doing in terms of impact, the ultimate question is am I achieving my purpose? 

 

Christelle Bitouzet began her career specializing in team mobilization and multi- cultural management, before taking up operational positions in major international groups, primarily in the industry and construction sectors. Her fields of expertise encompass team mobilization, multi-cultural management, CSR & community relations as well as global sustainable development practices.

Christelle Bitouzet is an affiliate professor on sustainable development in HEC Paris, very involved in the custom programs and is the academic advisor of the English EMBA and One Day a week tracks. Professor teaches Stakeholder Engagement & NGO-Corporations partnerships in Sciences Po Paris (Masters). She also taught an online lecture on Sustainability & CSV, CSR at BMI.