Corporate Social Responsibility and Business Ethics

The role of organizations and the impact they cause on society and the environment in which they operate is one of the most discussed current topics on the business agenda. We are often faced with news published by the media about environmental damage caused by corporate misconduct or, on the other hand, about a positive contribution, such as the discovery of a new vaccine or an invention that will change the way people work and interact with each other, to name a few examples.

Given the repercussion of this news on public opinion, companies realized that acting correctly, ethically and transparently is the only way to grow and prosper in a sustainable and continuous way. Currently, there is not a single sector or company that has not experienced pressure to legitimate its actions before society, demonstrating that it operates in a responsible manner, not only in relation to the environment, but also in relation to its employees and other stakeholders¹. Organizations, therefore, began to respond to this demand with a corporate responsibility agenda.

But what does Corporate Responsibility (CR) or Corporate Social Responsibility (CSR) mean?

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What is corporate social responsibility?

CSR corresponds to the way in which companies relate to the society in which they operate and understands the policies and practices employed by them, allowing the achievement of social and environmental objectives also desired by their stakeholders.

The concept of CSR involves economic, legal, moral and even philanthropic aspects of corporate action that must be articulated and interrelated with each other. This means that a responsible company must act with the primary objective of producing goods and generating profit, operating, not only within the law, but also according to moral parameters defined by the expectations of the society in which they operate. There is also an expanded dimension of ethical action that goes beyond society's expectations about how they should act. This action corresponds to the individual choices that each company makes, voluntarily, to pursue social ends, which are contributions to philanthropic causes, such as the promotion of education, cultural curatorships, among others.

Although the concept of CSR was coined in the 70s, long before that time, the issue was already being debated in the corporate world. To give you an idea, Frank Adams, former executive of Standard Oil Company As early as 1951, he argued that companies should think not only about profits, but also about their employees, customers, and the general public². In India, Tata, a century-old automotive company, claims more than 100 years of responsible practices, from philanthropic initiatives to social projects in the communities where it operates.

Over time, more and more companies, public or private, of various sizes and located in different countries have implemented their CSR initiatives.

Elements of corporate responsibility

But how to be a socially responsible company?

There are 6 essential elements that characterize Corporate Responsibility.

Corporate responsibility is voluntary

A responsible company acts based on rules that go beyond complying with the cold letter of the law. Responsible companies consider society's expectations about how they should act to voluntarily establish higher behavioral standards to guide their activities. In this sense, they draw up their codes of ethics and conduct and a set of policies to establish behavior standards expected of all stakeholders to guide and guide your actions on behalf of the company.

Internalization and/or management of externalities

Externalities are the positive or negative side effects produced by the company's actions in society and that are borne by third parties and are not considered in the formation of the price of the goods and services offered. A classic example is the pollution generated to produce a certain product, and the local community is affected by this externality. CSR represents a voluntary approach to address these externalities, such as investing in clean production technologies or carbon credits.

Consideration of the interests of various stakeholders

CSR seeks to consider the interests of various stakeholders, such as employees, customers, consumers, suppliers and/or any other person affected by the company's activities and not just of shareholders to define the parameters of its activities. An example are the initiatives used in the quest to reduce gender asymmetries in their staff, such as the extension of paternity leave for their employees or training programs to include more women in leadership positions.

Balance between economic and social responsibilities

It is important to stress that CSR practices must not be incompatible with expected revenue generation. CSR initiatives must be sustainable and generate value for the company. Several corporate investments are directed at training and training programs for young people for a particular sector, such as programmers, doctors and nurses, for example, in order to train professionals for their fields of activity.

Practices and values

The activities of responsible companies include a moral dimension that goes beyond merely complying with the law to generate their financial results. The company is also expected to do the right thing because it is right, positively impacting society, mitigating the negative externalities caused by its actions. CSR, therefore, comprises a set of values, policies, and practices that guide and guide the operation of companies, establishing rules that may impose obligations not yet provided for by law. These standards are generally formalized in Codes of Ethics and Conduct and other specific policies.

CSR is more than mere philanthropy

Some time ago, there were those who argued that CSR would be mere philanthropy and that the initiatives implemented, because they were voluntary, would be within the sphere of discretion and could be canceled at any time, according to the company's interest. However, the current and modern concept of CSR means more than altruism. CSR represents an ethical operation with social and environmental practices integrated into the company's ordinary activities. Although the obligations and commitments assumed are not provided for by law, they are now enforceable by society, through instruments such as Naming and Shaming³.

Why become a socially responsible company?

Several studies have been conducted to demonstrate the self-sustainability of CSR.

This issue proves to be of paramount importance, not only to the directors of a company, who must act to generate value for shareholders, but also for shareholders, who wish to see a return on their investments.

The sustainability of CSR is also important for social activists, as companies must be able to conduct their activities within what such activists advocate. At the same time, government authorities are also interested in the sustainability of CSR, since the results achieved through these voluntary initiatives may be more rational from a cost-benefit point of view, when compared to regulatory initiatives imposed by law.

There is also pressure from consumers themselves for products produced by responsible companies. Although large corporations have considerable power to influence the taste and consumption preferences of their target audience through activities of marketing and innovation, it is currently perceived that society also shapes the behavior of companies.

Not infrequently, some companies were boycotted by their clients because of scandals caused by violations of labor laws and the use of slave labor in their production processes in some countries, for example.

At the same time, certain choices today consider buying products manufactured by local producers, organic, or made with biodegradable products, despite the fact that their prices are higher.

Currently, the discussion about the advantages of adhering to corporate responsibility standards is pacified. It is common knowledge that there are several reasons to engage in CSR, in addition to the potential financial returns that such initiatives can generate. These reasons include:

• risk reduction of stakeholders oppose the interests of companies;
• acquisition of competitive advantages by meeting the wishes and expectations of stakeholders;
• the development of good reputation and legitimacy, such as a “license to operate” on the part of society; and,
• the search for win-win results, through the creation of synergistic values, by connecting with the values of stakeholders. 

Corporate Responsibility Regulation

In view of society's demand for ethical and transparent corporate action, the issue of corporate responsibility is no longer restricted to large multinationals, but to all companies that seek sustainable growth and the acceptance of their stakeholders.

In recent decades, discussions about CSR, which were previously restricted to the scope of domestic business, drew the attention of both national and international civil society organizations, as well as States to promote new models of corporate governance that were more comprehensive in relation to the responsibilities assumed by companies.

In this sense, the governments of different countries have implemented measures to promote corporate action that is more in line with society's expectations. In Brazil, for example, law 14,457 of 2022 was enacted to support the integration and retention of women in the labor market. Another prominent initiative was the establishment of the Pro-Ethics seal, which aims to encourage the voluntary adoption of integrity measures by companies, as an instrument for the prevention, detection, and remediation of acts of corruption and fraud.

In parallel with the current regulatory agenda of the States to promote responsible practices by companies, civil society has also implemented its initiatives to collaborate with the advancement of CSR. An example is the Business Sustainability Index (“ISE”) created in 2005 by the BM&FBovespa, now B3, with funding from the World Bank. ISE aims to be an indicator of the performance of listed companies related to their sustainability practices, supporting investors in decision-making regarding the selection of socially responsible investments. It should be noted that the historical performance of the companies included in the ISE B3 portfolio is above the indices of other portfolios, demonstrating that responsible practices in fact generate value not only for shareholders, but for society as a whole.

Conclusion

In this context, as well as responsible consumption, responsible investment has sought to reward good and responsible corporate practices. The consideration of social and environmental criteria in the actions of companies has contributed to a significant institutionalization of corporate responsibility. This means that CSR is becoming a common practice and an expected aspect of corporate governance and no longer a set of discretionary activities of companies, amplifying their positive impact on society and allowing them to be catalytic instruments for social well-being.