By Wayne Visser

Continued from Part 1

Irrespective of its causes, it is likely that the financial crisis will have a substantial impact on CSR. The question is, how will this impact play out? Who will win and who will lose? According to a poll run on the CSR International blog during October, 44% of CSR professionals believe that CSR will increase as a result of the crisis. A further 26% believe it will change, while 22% think it will weaken. This is a slightly surprising result and perhaps masks a more complex answer. In my opinion, the impact on CSR will vary depending on the type of CSR being practiced.

Philanthropic CSR will be worst hit - I have little doubt that those who have adopted an immature version of CSR, in which CSR is primarily about philanthropy (sponsorship, donations, charity and employee volunteering), will suffer substantial cut backs during the coming recession. Irrespective of the fact that those most in need of charity will be worst hit by the crisis, companies around the world will be forced into cost-cutting and philanthropy budgets will be among the first to be trimmed.

Strategic CSR will be less affected - It is likely that Michael Porter and Mark Kramer’s concept of strategic CSR will pay dividends for its followers in the aftermath of the financial crisis. They argue that “the more closely tied a social issue is to a company’s business, the greater the opportunity to leverage the firm’s resources—and benefit society.” Hence, companies that have aligned their philanthropic and broader CSR efforts with their core business are more likely to protect these initiatives, even during the recession.

For example, the commitment Coca-Cola has made to become a water neutral company is so closely tied to its core business (which is, after all, mostly about selling huge volumes of sugar water), that they cannot afford to abandon this as a superfluous CSR programme. They know that if they are not perceived to be responsibly managing the scarce water resources of the communities in which they operate, their business will ultimately fail (as they have already found to their detriment in India).

Embedded CSR will be largely unaffected - CSR can only be resilient if it is part of the DNA of an organisation. In other words, CSR will only survive the vagaries of fickle markets, fluctuating profits, financial crises and leadership whims if it is totally embedded in the corporate culture, strategy and governance systems. The impending recession will be the ultimate DNA-test for companies. A year from now, we will have a much better idea of who has driven CSR deep into the heart of their business and who has simply been wearing it as a mask.

One example may be the UK’s Co-operative Bank. Although it will not emerge from the financial crisis completely unscathed, its deeply ingrained ethical approach to banking – introduced in 1992 – is unlikely to change and may even have contributed to its robustness over the past 12 months. As Jonathan Porritt, Chairman of the UK’s Sustainable Development Commission says, “at the very least, the relative resilience of this business model should prompt both Treasury and the sector’s regulators to think again about alternative ownership and governance structures in the financial services sector.”

CSR 2.0 will continue to strengthen - For those companies that are alive to the opportunities of the CSR 2.0 revolution, even the recession will present large opportunities for business growth and financial profits. This is because CSR 2.0 is all about the creation of scalable solutions to the world’s most urgent and intractable problems, such as water stress and climate change. Unlike the defensive, incremental, risk-based CSR of the past (CSR 1.0), CSR 2.0 rides the wave of emerging responsible and sustainable markets.

For example, the demand for renewable energy and low-carbon technologies now far exceeds the supply. And given the escalating costs of climate change, the high oil price and ambitious political targets (of up to an 80% reduction in greenhouse gas emissions by 2050), companies that have strategically positioned themselves as clean technology solutions providers will continue to benefit from this $284 billion market, which is expected to grow to over $1.3 trillion by 2017.

Conclusion

Hence, the answer to the question, “What is the relationship between the financial crisis and CSR?” is that it depends. It depends on your beliefs about how deep the irresponsibility behind the economic meltdown runs – is it banks simply overextending themselves, or a far more systemic failure in the corporate, financial and capitalist models?

Similarly, the answer to “How will CSR be affected by the financial crisis?” depends on how deep CSR runs within the organisation – is it superficial philanthropic CSR, something more strategic or embedded, or even the more revolutionary CSR 2.0 version? Either way, the recession ahead will not only be an acid test for companies’ CSR commitment, but for CSR itself. It may very well be that the time has come for CSR to adapt or die.

Tags: csr, financial crisis, wayne visser