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Corporate Social Responsibility refers to strategies Organizations conduct their business in a way that is ethical, society friendly and beneficial to the community in terms of development. This report is based on the roles and obligations firms and organizations have towards the development of the community since the very logic of CSR is towards seeing its impact on community socially, environmentally and economically.
This report will be covering how, some of the well-known organizations are working towards CSR and what are the benefits they have gained from those, and what are the benefits gained by the society because of their actions. And also this report will be covering CSR practices of Sri Lankan private sector.
Within the world of business, the main responsibility or duty has historically been to make money and increase shareholder value. In other words, corporate financial responsibility has been the bottom corporate driving force. In recent years firms are not only considering the immediate profit and gain could have, but they are much concerned about the sustainable development. As a result which lead to them a movement defining broader corporate responsibilities for the environment, local community and for working conditions and for ethical practices has gathered and taken hold. Recent years CSR has become a major focus of interest for development practitioner and gradually becoming a mainstream activity. It is also becoming increasingly clear that firms can contribute to their own wealth and overall societal wealth by considering the effect they have on the local society and the world at large when making decisions. (Visser 2010)
Corporate Social Responsibility
As The Institute of Directors, UK, has defined, CSR is about businesses and other organizations going beyond the legal obligations to manage the impact on the environment and the society. In particular, this could include how organizations interact with their employees, suppliers, customers investors and the communities in which they operate, as well as the extend they attempt to protect the environment.
Meanwhile CSR refers to organizations considering and managing their impact on a variety of stakeholders, they should have a thorough understanding of the requirements and expectations of their stakeholders. As a corporation or an organization is considered as an artificial person in law, it has the same rights and responsibilities as human beings.
Since CSR is considered as a positive contribution to the organization and to the society, it can be a long term investment in a safer, better educated and more equitable community creating a more stable environment in which they operate. It is also becoming increasingly clear that firms can contribute to their own wealth and to overall societal wealth by considering the effect they have on the world at large when making decisions. (Hohnen 2007)
Figure 1.1 Corporate Social Responsibility of Private Sector Organizations
As figure 1.1 shows, organizatios have environmental, social and economical responsibilities towards their stakeholders when considering to achieve the main objectives and goals of the organization. Organizations have great potential to change people's or stakeholdres' lives and to improve poverty through generating economic growth. Business opinion polls and corporate behavior both show increased levels of understanding of the link between responsible business and good business. Also, investors and financial markets are beginning to see that CSR activities that integrate broader societal concerns into business strategy and performance are evidence of good management. In addition to building trust with the community and giving firms an edge in attracting good customers and employees, acting responsibly towards workers and others in society can help build value for firms and their shareholders.(Hohnen 2007)
Following are the environmental responsibilities organizations have when considering corporate social responsibility.
First, business has economic responsibilities since those are the responsibilities which are connected with why the organization was established. The economical responsibilities must be achieved in order to attain higher level responsibilities.
Figure 1.2 Economical Stakeholders of an organization
Economical stakeholders can be categorized into 6 categories as shown in figure 1.2, and organizations which have economic responsibilities towards these stakeholders must be satisfied by organizations. The economical stakeholders of an organization are:
Organizations have economical responsibilities towards the government, since government plays a vital role in development of the society. One of the government's tools to get income for the government is impose taxation. So it is an organization's responsibility to pay tax promptly without fraud. (International Institute for Sustainable Development 2004)
Organizations have economical responsibilities towards their employees. The employer needs to provide job security, a safe place to work, a reasonable pay in order to fulfill the economical responsibilities that they have towards their employees. (IISD 2004)
Investors or shareholders invest their money to businesses in order to gain and benefit from their investment. So shareholders demand reasonable return from the profit that organization had made, and it is a responsibility of the organization to give them their return from the profit. (IISD 2004)
It is an organization's responsibility to facilitate and provide quality goods and services with fair price. Even though the main objective of the organization is to make maximum profit, it does not mean that they have to charge higher prices from the customers. So when considering CSR, organizations should provide products at fair and reasonable prices. (IISD 2004)
Organizations have economic responsibilities towards their suppliers. Since organization's size gives a considerable power as a buyer, they should not use their power to force the supplier to lower his prices under threat of withdrawing business. Suppliers might rely on getting prompt payment in accordance with the terms of trade negotiated with its customers. So the organization should not delay payments to suppliers beyond the agreed credit period. (IISD 2004)
Organizations have economical responsibilities towards the community, since the community includes organizations employees, the community will be affected if the organization does not pay fairly and if there is job security available, the unemployment of the society will increase leading to different problems to occur. This may lead pressure groups to increase their pressure to the organization. So it will be difficult for the organization to achieve their goals and objectives. (IISD 2004)
It is obvious that any action which an organization undertakes will have an effect not only just upon itself, but also upon the external environment within which that organization exist. In considering the effect of the organization upon its external environment it must be recognised that the environment includes both the business environment in which the organization is operating and the wider global environment. When considering the environmental responsibilities, organizations have to take into consideration the following issues related to environment in order to perform their responsibilities in a accepted way.(Carrol & Buchholtz 2009)
Chemicals, Toxics, and Heavy Metals,
A major environmental issue is energy inefficiency, or the wasting of precious nonrenewable sources of energy. Nonrenewable energy sources, such as coal, oil, and natural gas, were formed millions of years ago under unique conditions of temperature, pressure, and biological phenomena (hence the term fossil fuels).Once these are depleted, they will be gone forever. In addition, because these fuels are not equally distributed around the world, they are the cause of significant power imbalances worldwide, with associated conflicts that are typically disastrous for both human and the natural environment in general. (Carrol & Buchholtz 2009)
No environmental issue has been more argumentative than the subject of climate change, which is also known as global warming. The debate about its existence has lessened dramatically due to a combination of factors, including Hurricane Katrina, a European heat wave, starving polar bears, and stronger scientific predictions. Climatologists now say with some certainty that human activities are warming the earth at a dangerous level. (Carrol & Buchholtz 2009)
Figure 1.3 Global Carbon Dioxide Emissions from 1902 to 2004
As shown in figure 1.3, global carbon dioxide emissions has been increasing vastly from year 1935, the main reason for this is the development of countries leading to increase number of factories and businesses resulting higher carbon dioxide emissions. In 2007, the International Panel on Climate Change placed the probability that human activities are creating climate change at greater than90 percent. Just six years earlier, the probability was determined to be 60 percent. The increased confidence in their estimation stems from a longer period of data collected and a greater understanding of the climate system; those two factors have led to more reliable climate models. Unpredictable weather along with an increase in temperature, threatens a range of industries from agriculture to airlines. (Carrol & Buchholtz 2009)
Water presents problems in both qaulity and quantity. The developed world has made significant progress in the quality of water, however, municipal sewage, industrial wastes, urban runoffs, agricultural runoffs, atmospheic fallout and overharvesting all continue to contribute to the degration of the world's ocean and waterways. (Carrol & Buchholtz 2009)
Chemicals, Toxics, and Heavy Metals
The production of toxic substances, whether as elements of intended end products or as unwanted by-products, is an important issue because of its potential for harm. Toxic substances can be defined as chemicals or compounds that may present an unreasonable threat to harm health and the environment. Human exposure to toxic substances can cause a variety of health issues including damage to the nervous system, reproductive and development problems, cancer, and genetic disorders. (Carrol & Buchholtz 2009)
Air pollution leads to acid rain, global warming, depletion of ozone layer and other serious conditions. It also causes serious respiratory and other illnesses, so organizations have to be concerned about this and try to minimise air pollution. (Carrol & Buchholtz 2009)
When considering waste management, organizations need to reduce, reuse, and recycle. The first goal of waste management is to reduce the amount of waste discarded, this is the best form of waste management because in this case the waste is never generated in the first place. The next best option is reuse products either by repairing or fixing them. Recycling is the third option but it can be very useful since recycling transforms what once might have been waste into a valuable resource.
Figure 1.4 Waste trends in the United States from 1960 to 2005
Special consideration must be given to waste that is hazardous. Hazardous waste has properties that make it harmful to human health or the environment. Exposure to these wastes in the environment, whether in air, water, food, or soil can cause cancer, birth defects, and start of other health problems. So in recent years due to the awareness of problems, organizations started finding new ways of waste management in order to avoid these problems. As shown in figure 1.4, In United States, per capita waste has been decreasing from 1990 and the recycling rate has been increasing dramatically from 1980. (Carrol & Buchholtz 2009)
Although individuals and organizations depend on forests for building materials, fuel, medicines, chemicals, food, employment and recreation, the world's forests can be quickly depleted by a variety of human factors. Deforestation adds to soil erosion problems and is a major cause of the greenhouse effect. (Carrol & Buchholtz 2009)
Organization's Environmental Stakeholders
Organizations have a variety of environmental stakeholders who are interested or affected by the activities of the organization.
Figure 1.5 Environmental Stakeholders of an organization
As figure 1.5 shows, an organization has 5 environmental stakeholders, those stakeholders are:
When considering organization's environmental responsibilities, government plays a major role in identifying environmental issues and taking necessary actions to protect the environment. Since pubic is concerned with environment pollution and other issues, government has to take several actions by introducing laws and regulations to solve those issues. So in order to emit lower levels of carbon dioxide, for example UK government gives tax incentives by encouraging the use of lead-free petrol by imposing a lower tax than leaded petrol. Vehicles that emit lower levels of carbon dioxide are charged less road vehicle tax and also proposed taxation on waste. The UK government had implemented two acts, The Environmental Protection Act 1997 (EPA) and the Water Resource Act (2007) which aims to:
Prevent pollution happening, rather than to clear it up afterwards,
Ensure that business activities are conducted at minimal risk to human health and the environment,
Encourage the adoption of most advanced technical solutions, offering the best practicable option for the environment as a whole,
Assess how much pollution the environment can sustain without damage,
Ensure that pollutor pay.
As a result of the above reasons, UK organizations are now much concerned about the environment issues and their responsibilities towards the environment.
Employees play a major role in promoting environmentalism at work. In addition to general employee environmental concerns with plant, warehose and office health and safety, empoyees in many organizations have assisted management in going beyond thses traditional concerns into areas such as pollution prevention, recycling, energy and environmental audits and community environmental projects. A 2007 survey of workers in the UK found that 69% welcomed green benefits from the environmentally responsible employers. 14% would change jobs for greener benefits package and 35% believe that this would make them more loyal to the firm. So in order to retain organizations employees, they need to fulfill the environmental requirements of their employees. (Carrol & Buchholtz 2009)
Another important business stakeholder involved in environmental issues is investors. Similar to investors interested in advancing social causes, individuals and organizations sometimes want to put their money where their environmental values are by identifying and utilizing financial instruments that are associated with environmentally oriented companies. A growing number of mutual funds, stock and bond offerings, money market funds, and other financial instruments have included environmental components in recent years. Shareholder address concerns that range from toxic emissions to recycling and waste to nuclear power plants and climate change. Since investors are concerned about the environmental issues, organizations need to accomplish their environmental responsibilities. (Carrol & Buchholtz 2009)
Individuals referred to as consumers are actual and potential customers of retail firms, usually in the industrialized countries, who express preferences for products, services, and companies that are supposed to be more environment friendly than other competitive products, services, and firms. Since customers are looking forward for the environment friendly products, organizations need to provide products as which are required by the customers in order to retain and attract more customers to achieve ultimate goals and objectives of the organization. (Carrol & Buchholtz 2009)
When considering environmental responsibilities organizations have, community plays an important role, to make sure the organization is fulfilling the responsibilities. Since community involves pressure groups, the main interests which they have may be pressuring the organization to use environment friendly ways of production and reducing pollution. So the organization has to fulfill these requirements because they are operating in that community. (Riley 2011)
Each and every organizations have social responsibilities towards their stakeholders.
Figure 1.6 Economical Stakeholders of an organization
As figure 1.6 shows, organization's economic stakeholders are as follws:
Organizations have social responsibilities towards the government since government's one of the main aim is the social welfare of the general public. As government is concerned about the equal opportunities, human rights and other societal factors, organizations have to fulfill their social responsibilities towards the government. (Riley 2011)
An organization has many social responsibilities towards their employees. Organizations should provide equal opportunities to their employees and they have to provide training and development programs equally to their employees. Employees who are about to retire, after years of service to organization, the organization should provide a good pension scheme. When dealing redundancies, organizations should try to redeploy as many staff as possible without making them redundant. If there is necessity to improve skills to do a new job, organizations should provide retraining to employees. And also organizations have to take into consideration human rights of their employees when fulfilling the social responsibilities. (Riley 2011)
There are social responsibilities towards the competitors like fair trading, monopolies, mergers, anti-competitive practices, abuse of a dominant market position. Some organizations try to influence the competitor's customers and market share by using anti-competitive practices like dumping. (Riley 2011)
Social responsibilities towards the customers are mainly those of providing a good or a service of a quality that customers expect and of dealing honestly and fairly with customers. And also providing after sale services and other customer satisfactory services are considered as social responsibilities towards customers. (Riley 2011)
All suppliers of the organization should be treated fairly and should give opportunities to potential new suppliers to win some businesses and also maintaining long standing relationships that have been built over the years with some suppliers. Long established suppliers should not be replaced unless there is a significant commercial advantage for the organization from such a move. (Riley 2011)
An organization is a part of the community that it serves, and it should responsible for the upholding the social, cultural and ethical values of the community. Organizations are socially responsible for contributing towards the well-being of the community like sponsoring local events and charities or providing facilities for the community to use and responding constructively to complaints from local residents. (Riley 2011)
The principles of Corporate Social Responsibility
Because of the uncertainty surrounding the nature of CSR activity it is difficult to define CSR and to be certain about such activity. So the principles of CSR gives a basis for the measurements and evaluation of performance while also giving flexibility for organizations to consider its own socially, economically and environmentally significant factors and plans accordingly without being compared favourably or unfavourable with organizations with different priorities. (Crowther & Aras 2008)
Figure 1.7 Principles of CSR
As figure 1.7 shows, principles of CSR are:
This is concerned with an organization recognizing that its actions affect the external environment, and therefore assuming responsibility for the effects of its actions. This concept implies for the actions taken both internal and external to the environment. This implies a reporting to the external stakeholders of the effects of actions taken by the organization and how they are affecting those stakeholders. (Crowther & Aras 2008)
This transparency of CSR means that the external impact of the actions of the organization can be determined from that organization's reporting and relevant facts are not disguised within that reporting. Therefore, all the effects of the actions of the organization, including external impacts should be apparent to all from using the information provided by the organization's reporting mechanism. Transparency is of particular importance to external users of such information as these users lack the background details and knowledge available to internal users of such information. (Crowther & Aras 2008)
This is concerned with the effect which action taken in the present has upon the options available in the future. If resources are utilized in the present then they are no longer available for use in the future, and this is of particular concern if the resources are limited in quantity. Therefore, raw material of an extractive nature, such as coal, iron, oil, are limited in quantity and once used are not available for future use. At some point in the future therefore alternatives will be needed to fulfill the functions currently provided by these resources. Sustainability therefore implies that society must use no more of a resource than can be renewed. (Crowther & Aras 2008)
Some of the well-known organizations' efforts towards CSR
Anglo American is one of the world's leading multinational mining companies, employing 105,000 permanent employees worldwide. Most of its operations are in the primary sector like, for example, extracting materials through mining. Anglo American tries to operate in a way that promotes sustainable development through CSR activities. As a major supplier of raw materials, Anglo American tries to balance its use of natural resources. To help, it has created a set of principles to meet targets of sustainable development.
When Anglo American carries out its mining operations, it tries to have positive on these 3 areas:
In the area where the mine is located, it carries out operations with care and tries to improve the life chances of local people.
In area immediately surrounding the mine, it is active in preservation and improvement.
In the wider region around the mine, it contributes financially to local community and helps to generate new businesses and other economic opportunities.
Anglo American has spent $6 m over three years to global fund to fifth AIDS, TB, and Malaria and for vaccines. In 2011, Anglo American has spent $128.6 m on corporate social investments and amounting $5 bn tax had been paid. Since Anglo American gives importance on developing employees, they have invested $79 m in training and development of employees.
Anglo American involves in variety of activities such as AIDS testing and creating awareness and they provide other services like schools and clinics to the community. Anglo American has created a tool (the Socio-Economic Assessment Toolbox or SEAT) to ensure that it consults widely and regularly with local people and measures the impacts of its activities in the areas where it operate. This tool can be used to improve the performance.
Dominos is one of the world's successful multinational companies. The founder of Domino's pizza, Tom Monaghan commenced his business and opened the first Dominos store in Ypsilanti in 1960. Dominos has more than 9,000 stores and from which 8,000 stores are located in more than 60 countries around the world. This makes Domino's pizza as well-recognized world leader in pizza delivery and number one pizza delivering company in USA. Even today the company is still growing because of the enthusiastic and hardworking employees of the company. (Dominos n.d., Dominosbiz n.d.)
Dominos not only gives importance to the organization and customers but also gives importance to CSR. Dominos always try to make necessary changes according to satisfy customers as well as the society. Likewise to do so, a dedicated dominos team has been studying Environmental Impact, Community Involvement, Team Member Relations and Food Safety and Supply.
Since Dominos give vital importance to the environment and the society they recycle up to 50% of the materials used in pizza boxes. Annually 424,000 miles saved with fewer supply chain center deliveries. Dominos recycle their dough trays, due to these 1.3 million trees are saved yearly.
Since Dominos give a special attention to environment when they do business, Dominos received both "International Green Apple Award" and Award for Excellence in Recycling and Waste Management" in 2007. In 2009 Dominos won an award of National recognition for their practices towards protecting the environment.
Dominos give funds to charities like cancer society to assist them. During the second annual "Thanks and Giving" campaign Dominos raised $1.2 million for St. Jude Children's Research Hospital. $220,000 has been raised by dominos to support the Southeast Asia tsunami relief efforts. (Dominos n.d., Dominosbiz n.d., domino-printing n.d.,)
Organizations are part of human society, and are subject to rule that govern their conduct towards others. Some of these rules are laws and enforces by legal sanction. Other rules fall into the category of ethics or CSR and are enforced only by the strength of society's approval or disapproval. CSR is comprised of to many aspects of the organization such social responsibilities, economical responsibilities and environmental responsibilities.
CSR helps organizations in sustainable development. Since sustainable development is an attempt to provide the best outcome for the human and natural environment both present and future with reference to the continuity of economic, social and environmental aspects. CSR assists organizations to gain a competitive advantage by fulfilling the responsibilities they have towards their stakeholders.
Coroprate Social Responsibility: Corporate Social Responsibility is concerned with treating the stakeholders of an organization ethically or in a responsible manner other than making profits.
Obligations: An act or course of action to which a person is morally or legally bound; a duty or commitment.
Sustainable development: The development that meets the needs of the present without compromising the ability of future generations to meet their own needs and goals.
Economic growth: An increase in the capacity of an economy to produce goods and services, compared from one period of time to another.
Environmental responsibilities: Responsibilities organizations have towards their surrounding environment.
Economical responsibilities: Responsibilities organizations have towads the economic benefits of the society.
Social responsibilities: Responsibilities organizations have towards the walfare of the society.
Climate change: changes in the earth's weather, including changes in temperature, wind patterns and rainfall, especially the increase in the temperature of the earth's atmosphere that is caused by the increase of particular gases, especially carbon dioxide.
Global warming: Global warming is an average increase in the temperature of the atmosphere near the Earth's surface and in the troposphere, which can contribute to changes in global climate patterns.
Climatologists: Person who is expert in climatology.
Nonrenewable sources: Natural resource such as coal, oil, or gas that once consumed cannot be replaced.
Urban runoffs: Storm water from city streets and adjacent domestic or commercial properties that carries pollutants of various kinds into the sewer systems and receiving waters.
Agricultural runoffs: A mixture consisting of the water runoff from agricultural sites.
Atmospheric fallout: Radioactive particles from a nuclear explosion.
Overharvesting: Harvesting a renewable resource to the point of diminishing returns. Geneticdisorder: An illness caused by abnormalities in genes or chromosomes, especially a condition that is present from before birth.
Acid rain: Rainfall made sufficiently acidic by atmospheric pollution that it causes environmental harm, typically to forests and lakes
Air pollution: Air pollution occurs when the air contains gases, dust, fumes or odor in harmful amounts.
Deforesting: cutting down trees in forests and rainforests so this is really a form of forest destruction that is usually done by logging and/or burning of trees.
Greenhouse effect: An atmospheric heating phenomenon, caused by shortwave solar radiation being readily transmitted inward through the earth's atmosphere.
Environmentalism: Work toward protecting the natural environment from destruction or pollution.
Job security: The probability that an individual will keep his or her job.
Redundancy: The state of being no longer needed or useful
Redeploy: Assign, Shift or move.
Monopoly: The exclusive possession or control of the supply or trade in a commodity or service
Merger: The combining of two or more entities into one, through a purchase acquisition or a pooling of interests.
Anti-competitive practices: practices that prevent or reduce competition in a market.
Dumping: Organization selling a product in a competitive market at a loss.
Transparency: Openness of decisions and actions.
Sustainability: Able to be maintained at a certain rate or level
Multinational: A company operating in several countries
Primary sector: The industries engaged in production or extraction of natural resources such as crops, oil, and ores.
Competitive Advantage: A strategic element that enables an organization compete more effectively than its rivals.