Corporate Social Responsibility (CSR) is understandably perceived as something that companies can opt in to – an approach or mentality that is encouraged but not legally required. However, in recent years, CSR has been solidified and entrenched by the introduction of various laws that have converted it into a legal duty, in addition to an increase in public pressure. This now means that CSR no longer a voluntary approach, but an integral part of doing business in many places around the world.
But what does CSR really mean? And what does it look like on a day-to-day business level? This brief guide to CSR Compliance under Corporate Law looks at English and Welsh legislation and how it requires companies to integrate CSR into their business operations.
What is CSR (Corporate Social Responsibility)?
Before we take a look at what the law says about CSR Corporate Social Responsibility), let’s go back to the basics and look at what CSR actually is.
CSR refers to a framework through which businesses can keep themselves accountable for their social, community and environmental impact. At its base, CSR is about how businesses can ‘pursue achievable and good long-term goals for its people and the world at large.’ In other words, how it can be Sustainable over the long term.
CSR encourages businesses to ‘do the right thing’ and make an active commitment to bettering their community and alleviating their environmental impact, it’s also an important consideration in how a company is perceived. It is also increasingly a key indicator in how ‘future-proof’ and resilient the business actually is.
Indeed, notions of CSR relate closely to ESG (Environmental Social Governance), which is the successor terminology to CSR and are all part of a wider movement towards more impact-oriented business models that measure success and value (beyond merely profit or cash) using metrics which are wider and more inclusive than previous traditional metrics.
Why is CSR important for business?
You may be wondering what CSR has to do with business success or profitability. In fact, CSR is important for business from many different angles:
- Improves brand perception & builds positive reputation (a pioneering example is the Body Shop)
- Opens up more diverse financing and investment opportunities that are beyond traditional sources. Especially as finance and investment firms are also coming under pressure to prove their CSR credentials.
- Helps to maintain a competitive edge in a changing social culture and public awareness
- Future-proofs business operations in a more sustainability conscious world
- Appeals to impact-minded consumers and a workforce with a sense of purpose
- Better employee retention and higher chances of attracting top talent
Where does the UK stand on Corporate Social Responsibility?
The UK government defines Corporate Responsibility as the ‘voluntary action businesses take over and above legal requirements to manage and enhance economic, environmental and societal impacts.’ The Department for Business Innovation & Skills’ report from 2014 on CSR does however, concede that the exact approach that businesses take to implement ‘CSR’ in within the context of individual organisations can and does vary.
Interestingly, the stakeholders that took part in the survey were divided about whether they supported government legislating around CSR or not. Many of their respondents felt that ‘corporate responsibility was not something that could be driven or influenced by external agents’, and that the Government should assume a ‘light touch’ role.
However, in 2021, 30 organisations came together and called for the UK to introduce corporate accountability laws that would require businesses to audit and report on how they are protecting human rights and the environment throughout their supply chains.
The Companies Act and CSR
Under Section 135 of the the UK Companies Act 2006 directors are required to ‘consider the interests of employees, consumers, suppliers, the environment and the community when pursuing the interests of shareholders.’ This does not, however, equate to converting CSR into a legal responsibility or duty. Nor does the law really offer actionable strategies or tangible standards or benchmarks. Interestingly, this change to previous legislation was actually an attempt by Government to widen corporate responsibility beyond its previous limited scope of simply considering the financial needs of shareholders.
What does this mean for business?
CSR must be a cultural shift interwoven into the fabric of an organisation. The previous issue with CSR is that it was a marginal business approach often viewed as a disjointed concept referring to unlinked areas of an organisation’s governance and the immediate social atmosphere it operates within.
Since the environmental aspect within CSR it isn’t expressly stated, many business have been moving towards an ESG compliant way of doig things. The updated concept of ESG (Environmental Social Governance) addresses the environment much more explicitly and thus offers businesses a path and approach that leads to a more comprehensive type of ‘sustainability’.
Indeed, maximizing ‘financial value’ is no longer the order of the day. Profit-driven business has been replaced with a concept of overall ‘value’ relating to the environment (benefit to the planet) and society (benefit to wider society, being the local, national and worldwide community of people).
The existence of the climate emergency and profound social events, such as COVID, have demonstrated how both the Environmental and Social aspects are closely linked, interwoven and finely balanced. Governments have become aware that the previous approach for legislating against one element of ‘sustainability’ only goes so far. In order to address climate change and social injustice worldwide, a new approach is needed. That approach involves a principle and value-based implementation of the old notions of responsibility and accountability for fellow human beings and for the planet we all share. This is where ESG as a principle and cultural approach fits within these objectives. A return to the old ways and values but with a modern approach to implementation.