Originally developed in the 1940s and 1950s as a way for companies to contribute to society and the environment, Corporate Social Responsibility (CSR) is a concept that has been around for quite some time. CSR has played a growing role in corporate governance and most executives already view it as a key strategic component in managing a company’s brand. In today’s business landscape, a company that doesn’t have sustainability initiatives embedded into its corporate strategy is nearly unthinkable.
“Purpose” emerged in a recent Gartner survey as a key issue for the C-suite in 2023 reflecting a radical shift in priorities not seen in 15 years, yet likely to represent an enduring change in the mindset of CEOs.
How the rise of ESG impacts Corporate Social Responsibility
As a result of the rise of ESG (Environment Social Governance), which offers a more holistic framework for a company’s sustainability efforts, corporate social responsibility is being seen more and more merely as a company’s charitable giving or philanthropy effort.
The awareness of the broader general public towards societal and environmental issues has proven to be a big driver in the adoption of ESG frameworks and initiatives. And now that a company’s CSR efforts are looked at through the lens of the overarching framework of ESG, more focus is placed on the integrity of a company’s CSR efforts.
Traditional one-off CSR initiatives, as a result, are increasingly viewed as a means to generate positive buzz, promote a company’s image, and lower corporate tax, while the sustainable impact appears to be the second priority in the public’s eye. Companies that encapsulate corporate social responsibility within a marketing- or customer-acquisition context, or have delegated their CSR function to HR- or Marketing teams should tread carefully to avoid genuine CSR efforts being viewed as greenwashing or a cheap attempt to buy customers’ conscience.
While the ESG framework does offer a more holistic approach to a company’s overall sustainability strategy, this does not mean that companies cannot continue to create impact in a socially responsible way through charitable giving and grant-making. Corporate social responsibility initiatives such as corporate grants, philanthropy, and charitable donations are invaluable and should certainly not be underestimated or downplayed, as they play a critical role in the livelihoods of nonprofit organizations and their beneficiaries, provide critical funding for environmental initiatives, support developing markets, and so on. Instead, like any other strategic corporate instrument CSR initiatives should be assessed against ESG objectives so they can be better leveraged to serve the company’s vision and mission within a sustainability context.
4 things your company can do to better leverage its evolving CSR function
1. Consider giving to NON-tax-exempt organizations
An effective incentive often provided through a government’s tax-levying agencies is the tax exemption of corporate donations. While this helps make corporate grant-making attractive to shareholders and helps a company’s core business by reducing expenses and therefore taxes, it also limits the utility of the CSR function by restricting fund disbursement to tax-exempted organizations only – potentially overlooking society’s much-needed grassroots initiatives that cannot provide said tax-exemption.
While funding to tax-exempt and therefore government-approved nonprofit bodies is helpful and often well-intentioned, from the vantage point of the general public it may be viewed as a mere means to reduce taxes with questionable underlying intentions. This may diminish the moral authority of such initiatives as they can be seen as ‘putting the cart before the horse’, putting more focus on the company’s ability to benefit from the CSR initiative rather than on the impact the initiative has on society or the environment.
An additional risk of funding only tax-exempt charities is that it forces a company’s CSR function to align with the agenda of the government. This may not necessarily be productive as the interests of society may be at odds with those of the government. For example, many governments do not provide tax exemptions for certain refugee groups, anti-corruption groups, LGBTQ initiatives, or otherwise controversial societal issues. In the case where the company opts to only provide grants to tax-exempt organizations, nonprofit groups that do not receive government support may be left unattended.
We recommend adopting a diversified CSR approach that does not prohibit corporate giving to those organizations that do not provide tax exemption benefits.
2. Replace one-off grants with strategies that provide sustained support
One-off CSR initiatives can be interpreted by the public as a tool to generate positive publicity and visibility for the company, rather than a sustainable long-term investment in support of society or the environment. Too often companies that opt for one-off CSR projects place a strong emphasis on media and marketing which consumers can take offense to. Companies should carefully consider the long-term impact of branding/marketing-infused CSR efforts.
In addition, large one-off grants can actually harm the charity’s livelihood. Yes, a lack of funding threatens the livelihood of a nonprofit, but too much funding or erratic influxes of donation revenue can also pose a threat to a nonprofit’s continuity. This is particularly true for small nonprofits that do not have the capacity or know-how to scale up and down. Predictability is key for any organization, nonprofit or for-profit. We, therefore, advise complementing any one-off grant-making with initiatives that help ensure a sustained source of funding for the charity.
Incitement offers cost-free services to corporate clients that offer an easy and effective way to achieve this, for example through its embedded donation platform. Through this service, which can be installed simply by placing one line of script into any app or website or integrated via API or SDK, any company can launch a charity marketplace directly within its own apps and offer a comprehensive donation feature to its audience.
Customers and users can get involved and play an instrumental part in the company’s charitable giving strategy via a channel that is fully integrated and therefore feels more organic and genuine to donors. This helps the company engage and at the same time educate its customers while providing a consistent and stable flow of donation revenue to selected charities.
3. Safeguard the long-term feasibility of your CSR strategy
It is the nature of a for-profit organization to increase shareholder value. This is its core responsibility. Without this nature of business, we wouldn’t have free markets. It’s important to consider this when formulating CSR policies. When CSR becomes a burden on a company’s P&L, the CSR function is put under pressure, which will ultimately impact the longevity of the CSR strategy and the selected charities that benefit from that. It is important to set up CSR programs in such a way so that they are not a mere cost or liability. If they are, inevitably the CSR function becomes first in line when there are budget cuts.
I believe that, regardless of whether funding is provided directly to a beneficiary or reaches the beneficiary via an agent such as a charity organization, it is essential to get an active contribution from the recipient. Without it, projects are doomed to fail. It’s kind of like the IKEA effect, if you will, which is a cognitive bias that leads to placing a disproportionately high value on things they created. The same concept applies to beneficiaries who are actively involved in the charitable work versus beneficiaries that aren’t. By making charities an inherent part of the CSR process, they have an active stake in the success of the CSR strategy which tends to help secure the long-term feasibility of the CSR initiative.
On Incitement’s charity platform, we offer exclusive marketing features to charities that allow them to reward fundraisers with a commission for referring donations. For every donation raised, the charity will pay a 10% fee to the referrer. Charities can enable these features entirely voluntarily. We can see a significant increase in participation among the fundraising community when a charity gives them a small reimbursement for their efforts, generating significantly more donation revenue.
Charities are typically glad to give up just 10% of the donation. Their usual fundraising costs are far higher than this shows a 2015 study by World Disaster Report indicating that only 2% of funding for iNGOs reaches the beneficiary, and a large chunk disappears in overhead and fundraising.
We believe that the for-profit and nonprofit sectors should both make compromises to more effectively work together and to create mutual value add. We cannot expect for-profit organizations to transform their business models and increase their expenses to jump to the aid of the nonprofit sector. This is against the nature of business, which is the opposite; to cut expenses and maximize profit. Yes, this nature of business is slowly transforming as consumers grow more aware and demand responsible business practices from the brands they buy. But if we can create models where both the beneficiary, the charity, and the donor win, then why not? This paradigm shift can be built on financial incentives. This will make the CSR strategy more robust and resilient, create more consistency and predictability in the charity’s donation revenue, and ultimately help more beneficiaries.
4. Assign the CSR function to a committee
Is the CSR function operational across the entire company, or are all departments involved in the initiative, e.g. the marketing, comms, HR, and procurement department? In many companies we work with, surprisingly the CSR function is assigned to the marketing team or the HR team. This, I believe, sets poor precedence.
Bringing the CSR function under the roof of the marketing team will inevitably lead to the utilization of CSR initiatives to achieve marketing targets. Similarly, making corporate social responsibility initiatives the responsibility of the HR team will inevitably lead to the CSR initiatives being utilized to achieve HR objectives. To keep the CSR function focused and aligned with the strategic goals of the company, the responsibility of CSR should be assigned to a committee. Ideally a committee with expertise on the specific subject of CSR. But if this is not feasible, then a committee with cross-functional members, so that the objective of CSR isn’t clouded by other objectives.
5. Involve your customers in your charitable giving
Involving customers in the CSR process is fundamental to gaining their trust and loyalty. Not only do you want them to believe that your company is making a positive difference in the world, but you also want them to feel that you understand their needs and requirements.
This means that they can be actively involved in making decisions about the causes your organization supports, how they should be managed, and how they can contribute towards your cause. This will not only improve the effectiveness of your CSR program but also increase the overall level of engagement of your customers.
In partnership with a large financial institution, the bank offers its customers an easy way to donate cashback rewards to a charity of their choice. By giving the customer a sense of involvement in the CSR direction of the bank, customers are not only more inclined to support charitable causes, but also show increased loyalty with the bank.
Think out of the box for when it comes to your CSR strategy. But most importantly, think long-term. It isn’t just about doing good for society and environment, it has to make business sense, too, in order for a CSR strategy to be robust and future-proof.
The most important element of your company’s sustainability strategy is its own sustainability 😉