Demands for Corporate Social Responsibility

There are several drivers pushing businesses toward corporate social responsibility, including:

• Increased pressure from consumers
• Pressure from shareholders and investors
• Supply chain pressure

Let’s take a deeper look at each of these.

Increased Pressure from Consumers

Consumers are demanding more from the businesses that get their hard-earned money. Businesses that are perceived as caring about more than profits are gaining favor with the buying public. Consumers are often more likely to vote with their wallets against companies whose social and environmental performance is poor. Fifty-five percent of North American consumers reported that they would pay more for companies that behave more responsibly.^[1]

Pressure from Shareholders and Investors

Although not a new concept, Socially Responsible Investing (SRI) has seen increased attention over the last several decades. In fact, investors have become more active in their demands of corporations in which they have holdings. Investor activities to move these organizations to a more responsible position have had fairly good results.

In a 2017 study, Barko, Cremers, and Renneboog measured the effect of investor activism on corporate performance. A total of 660 companies were profiled in the study and performance indicators such as market share and stock returns were tracked. Each company was given an Environmental, Social, and Governance (ESG) rating as a sign of how ethical their business practices were. Over the ten-year study, the ESG rating of the companies targeted by activist investors showed improvement in those ratings after the engagement with those investors, versus similar businesses that were not targeted.^[2]

Supply Chain Pressure

 

As consumers pay closer attention to the social responsibility of retailers and service providers, visibility into their supply chains has also become a priority. For example, Apple was criticized because its suppliers used forced labor in China.^[3] Even confronted by journalists and activists who documented that Apple’s supply chain is linked to forced labor, Apple refused to acknowledge the problem. However, the implementation of The Uyghur Forced Labor Prevention Act in June 2022 made it a legal requirement that Apple prove that goods originating in China’s Xinjiang region are not made with forced labor before they may be imported into the U.S.^[4]

Other companies, such as the Swedish international retailer of furniture and household goods, IKEA, are taking a proactive approach to CSR both internally and within the supply chain. A visit to the IKEA website allows consumers and interested parties to view the company’s sustainability reports. IKEA’s “Planet & People Positive” sustainability strategy aligns their corporate goals with United Nations Sustainable Development Goals and they document steps they have already taken such as eliminating the use of harmful chemicals before they are required to by law and phasing out the use of new, non-recycled plastic.^[5]

Regardless of where the pressure originates, companies are finding that ignoring their social and environmental responsibility and impact is ultimately bad for business.

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