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Monday, December 5, 2022

Are corporations confused over CSR with philanthropy?

LIN Center Team

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The aftermaths of environmental catastrophes such as the sea pollution in four central provinces in Vietnam caused by Formosa, the pollution of the Thi Vai river by Vedan and the Rang Dong chemical plant fire discharging huge amounts of toxic substances into the air have led consumers to a common sentiment that corporate social and environmental responsibility must be given stricter attention to in business development strategies.

A recent study by the Ethical Corporation based in the UK has shown that 90% of corporations in Asia emphasized the importance of implementing CSR while conducting business. A similar survey by Nielsen also found that 86% of Vietnamese consumers are willing to pay higher for products and services that are committed to sustainable development. This is evident that CSR does bring an advantage to corporations, giving them some momentum in leading sustainable development activities.

However, in reality, corporate staff, when rolling up their sleeves to initiate a CSR campaign, only find themselves almost instantly discussing philanthropic initiatives (or corporate philanthropy). This is how CSR and corporate philanthropy have been made aligned over the years. But if we are to dissect the two concepts, are corporations, or at least their staff, understanding them right?

How CSR and corporate philanthropy are defined

According to the International Organization for Standardization (ISO), CSR is referred to as the decisions and activities done by an organization that reflect their responsibility toward society and the environment, demonstrated through ethical behaviors and transparency for sustainable development and the general well-being of society. It fundamentally aligns with current laws, resonating with international standards of behaviors, and is thoroughly incorporated in the practice and conducts of the organization internally and externally.

On the other hand, we are also aware of the term “philanthropy” – taking its origin from the Greek “Philanthropos”, translated as “the love of humanity”. In a sense, philanthropy overarches today’s corporate social responsibility. Simply put, philanthropy is a charitable act. Yet, its most striking characteristic that makes it stand out is its voluntary nature. And so, corporate philanthropy can be understood as corporations engaging in the promotion of community welfare through charitable donations of funds or time.

Corporate philanthropy may be a part of the CSR strategies of a business

The basis of our modern understanding of CSR is greatly influenced by Archie Carroll’s work and his creation of the CSR pyramid (1991). The set of four responsibilities (economic, legal, ethic, and philanthropic) creates an infrastructure that helps to delineate in some detail and to frame or characterize the nature of businesses’ responsibilities to the society of which it is a part. While economic, legal, and ethical responsibilities are required or expected of business by society, philanthropic responsibility is desired of business by society. As a consequence, philanthropic responsibility is more discretionary or voluntary on business’ part. Corporate philanthropy, then, may be deemed as part of CSR.

In Vietnam and other developing countries, the culture of philanthropy is so ingrained that philanthropy is the highest expected norm – it is considered the right thing to do by a business. When examining the social contract between business and society today, it is typically found that the citizenry expects businesses to be good corporate citizens just as individuals are. And corporate philanthropy is seen as the most direct way to become a “good citizen” and improve business’ prospects and reputations. This leads to the fact that businesses have preferred to emphasize their philanthropic responsibility among their CSR programs. Many companies are generally still at an early stage of maturity in CSR, sometimes even equating CSR and philanthropy rather than the more embedded approaches.

There is much more to CSR than simply philanthropic gestures

Corporate philanthropy is usually defined on an outcome basis by improving human welfare or the common good. At the same time, CSR usually refers to societal expectations on ESG (Environmental, Social, and Governance) aspects in a business’ managerial decisions and activities. As the concept of sustainable development encapsulates the societal expectations on ESG aspects, CSR becomes the contribution of business to sustainable development.

Corporate philanthropy has a narrower and more limited scope than CSR. Corporate philanthropic activities may go to specific non-profit organizations or charities. The general public, and even the company’s own customers, both internal and external, may not join in, or be directly affected by these efforts. Corporate philanthropy does not require changing business practice.

On the contrary, a CSR program might need to change certain important business practices in order to make it into a responsible business. CSR has a much broader scope as it addresses the overall attitude of a business toward its employees, customers, the environment, local community, and the society at large.

CSR is a business’ frequent and wide effort. Every department and every employee needs to understand the company’s CSR strategy, what their role is and how they should contribute to the CSR success. The CSR target audience is much wider than that of corporate philanthropy.

The normative pressure on CSR has increased. Nowadays, more and more companies point to their strong records on CSR and environment, social and governance (ESG), as many investors scrutinize corporate ESG performance, and even some mutual funds invest only in companies with strong ESG scores. In comparison, philanthropy remains voluntary, as there is not yet the same degree of pressure on a company’s philanthropic gesture.

The failure to understand the distinction between corporate philanthropy and social responsibility can leave businesses ill-prepared to respond to the demands of the stakeholders who are increasingly pushing companies to better manage the social and environmental impacts of their operations.

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