Why corporate responsibility is a survivor

Michael Skapinker of the Financial Times said it was easy to predict that the recession would end talk of corporate social responsibility (CSR). It could’ve been assumed that faced with the fear or reality of losing their jobs or homes, consumers would rush past the Fairtrade shelves and pick up something the family could afford. Companies would concentrate on saving themselves rather than the planet. But, he said, that easy prediction has turned out to be wrong …

... the key to companies’ stubborn adherence to corporate social responsibility ... (is that) They have worked out how to make it pay. Many of their initiatives help to cut costs or sustain supplies. They allow customers to continue to regard themselves as ethical during difficult times. They also help the companies to improve their public reputations at a time when business is widely held to be responsible for the downturn.

… Indeed Business in the Community has always said that in a recession, corporate responsibility has never been more important. We believe that it’s important to balance short-term decision making against long-term value, with responsible business practices strengthening trusting relationships.

Our research has already shown a strong correlation between responsible business practice and an improvement in financial performance.

Skapinker, writing in The Financial Times, pointed to the work of several Business in the Community members to illustrate that corporate responsibility is a survivor.

Sustainable production

Recently Mars, the world’s biggest confectionery company, has announced that its entire cocoa supply will be “produced in a sustainable manner” by 2020. Mars will work largely with the Rainforest Alliance, which encourages farmers to preserve their environment.

Mars’s move follows the announcement last month by Cadbury, the UK confectionery group, that all the cocoa in Dairy Milk, Britain’s biggest-selling chocolate, would be certified by Fairtrade, the organisation that works to ensure a minimum price for farmers. This move by Cadbury's was welcomed by Business in the Community.

The two chocolate makers were preceded by Wal-Mart, the world’s biggest retailer, which told a meeting of 1,000 Chinese suppliers last year that it would hold them to strict environmental and social standards, the downturn notwithstanding.

'Substantial business reasons'

Why are these companies acting in a way few expected? First, there are substantial business reasons. When Mars and Cadbury talk about their cocoa supplies being sustainable, they mean it. Chocolate manufacturers are worried about how much cocoa will be available a decade from now.
 
Worldwide cocoa production fell in 2008 for the fourth successive year. Cadbury says it is worried about how few cocoa farmers’ children intend to go into the business. It is hoping the investment in farms that Fairtrade encourages will persuade them cocoa farming is a worthwhile occupation.

Wal-Mart also has commercial reasons for its stance. The company has been encouraging companies to cut down on packaging. This enables it to fit more goods into each delivery truck, not only reducing its emissions, but also cutting the amount it spends on petrol.

Its insistence that manufacturers produce concentrated laundry detergent has allowed it to save on both packaging and shelf space. Cost-cutting is vital to beating the downturn and if companies can boost their green credentials at the same time, why not?

Tesco has also encouraged its customers in a recent regional trial to discard unwanted and excessive packaging near the tills for recycling. The supermarket chain has already cut back on "wasteful" packaging, and their latest trial took this further by trying to find out which kinds of packaging their customers are prepared to do without.

Consumers 'committed' to Fairtrade

There is also little sign of committed consumers abandoning Fairtrade products. A recent report by Mintel, the research organisation, says: “Although a third of shoppers have cut down on the number of premium foods they buy, only one in 10 has cut back on ethical produce.” Justin King, chief executive of J Sainsbury, the UK retailer, said in February that its Fairtrade sales were holding up well.

However, consumer attitudes are complex. Mike Barry, head of corporate social responsibility at rival retailer Marks and Spencer, says consumers are happy to continue to buy what they see as ethically sourced goods – provided they do not have to pay more.

M&S’s research says the number of “green crusaders” – those who buy ethical goods no matter what – is about 9 per cent of the total, slightly down from the proportion at the start of the recession.

About a fifth of consumers are uninterested in such issues and about a third cannot see what difference their purchasing makes. But the biggest group, about 40 per cent, are those who are prepared to buy ethical goods if companies make it easy, which generally means not making it expensive.

As Fairtrade involves paying producers more, how can retailers keep the prices competitive? Mr Barry says that when, in 2007, M&S laid out its “Plan A” on sustainable sourcing and fair trading, it expected the changes to cost the company £200m ($290m, €225m) over five years. But because, like Wal-Mart, M&S is saving money through its initiatives, it is finding its changes are cost-neutral.

CSR 'pays'

This is the key to companies’ stubborn adherence to corporate social responsibility. They have worked out how to make it pay. Many of their initiatives help to cut costs or sustain supplies. They allow customers to continue to regard themselves as ethical during difficult times.

They also help the companies to improve their public reputations at a time when business is widely held to be responsible for the downturn. A pre-recession argument for corporate responsibility was that it gave companies a moral “licence to operate”. Some sceptics regarded this as a bit of a joke. Few do now.