Corporate Social Responsibility or CSR is meant to function as a self-regulating mechanism of companies that ensures their compliance with the spirit of ethical standards and, not to a lesser degree, endears them to their customers; but is really that simple and how do we measure its effect on what people are buying?
CSR sounds straightforward enough on paper: a business approach that employs a long-term green strategy aimed towards the natural environment, taking into consideration every dimension of how a business operates in the social, cultural, and economic sense.
In reality however, the idea is a bit more complex.
Not only is the definition of Corporate Social Responsibility in practice an elusive one (Is it fair labour practices? Is it sustainability? Not investing in countries breaching human rights? All this and more?), so is agreement on where it fits in company strategy and operation. In whichever way it ends up applied to practice, though, CSR is criticised by some for (among other perceived ‘flaws’) distracting from the basic, economic role of doing business.
Corporate Social Responsibility – responsible vs profitable
The back-and-forth of whether the relationship between social and financial responsibility is negative or positive cannot be settled easily, and the question of how and if CSR brings in money is still a very pertinent one. A widely-cited article by Allison McWilliams and Donald Siegel from the 2000 Strategic Management Journal suggest that the answer is somewhere in between, and that the impact of doing responsible business on company finance is a neutral one – neither bringing in bucket loads, nor bleeding money.
While this ‘status quo’ relationship between social and monetary may hold true at present, another important fact cannot be overlooked: that the future may very well prove the link between responsible and profitable to be somewhat different.
While the benefits of CSR implementation may at the moment be somewhat fuzzy or may be seen by some as a mere ‘window-dressing’ ploy by powerful corporations, the idea that customers will in future increasingly link business responsibility with the purchases they choose to make is a reality that cannot be ignored.
One proof of this is a recent study by The Nielsen Company that has shown consumers are already willing to support socially responsible companies by spending more money with those companies. The trend is unlikely to reverse: the study shows that “most likely to say they would spend more for goods and services from companies that give back” are in fact respondents under the age of 30, or, in other words, the future of the economic force.
Similarly, when Aphaia was drafting its study on the sustainability premium in chocolate and coffee, we found that a representative sample of London consumers would on average offer a total premium of around 30% for a coffee or chocolate product they regularly buy if they knew that the product way definitely sustainably sourced.
Mapping out Corporate Social Responsibility
But while CSR – or in any case some form of ethical business, be it motivated by the desire to give back, by the need to have a competitive edge, or forced by outside powers that be – is looking to become a fixed component of the corporate world, it at this point still hard to clearly map out the correlation between a company’s sustainability practices to its customers’ willingness to pay for a particular product.
We know that Corporate Social Responsibility practices work; we know that people would pay extra for them, yet there we are still at a loss as to how to effectively reap the benefits of socially responsible operations by measuring the cost-benefit relationship between doing ‘right’ and charging for what we produce in this ‘right’ manner.
In the hopes of tackling this problem, we have at Aphaia recently developed a CSR model that links company sustainability activities to consumer willingness to pay (WTP) research findings.
According to Aphaia’s founder Boštjan Makarovič, retail sustainability premium should be considered the primary source of financing for sustainable sourcing and similar Corporate Social Responsibility measures, which one should expect to be incremental and strategically designed.
In his view, however, this does not in any way undermine their collateral internalised benefits of sustainability such as cost savings and brand building, which should all be included in the cost-benefit analysis the company should perform.
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