The Importance of CSR

Noémi Csigéné Nagypál

10. Corporate Social Responsibility and

While apart from ensuring their own welfare, contributing to the prosperity of future generations (children, grandchildren) also ranks high among an in-dividual’s objectives—sometimes it is even regarded as more important than their own personal interests—, many people think that today’s ‘frantic’ de-velopment, paradoxically, jeopardizes the possibilities of future genera-tions. While, traditionally, having more resources or having the possibility of consuming them used to reduce risks and increase the chances of prosper-ity and survival, this is not necessarily the case today. (A prosaic example is obesity and overweight, which constitute a disease of civilization that re-duces the quality of life and the chances of survival of many people.)

The responsibility of companies in addressing sustainability challenges is an extremely complex issue for several reasons.

It is difficult to identify the role that companies can play in addressing the different challenges. (For example, in the fight against famine, food dona-tions appear to be a logical step on the part of food companies. However, due to its negative effects on local farmers and food industry companies, for ex-ample, this is not always recommended.) Partly for this reason—i.e. the fact that companies do not necessarily know how to respond to environmental and social challenges—, cooperation between businesses and non-govern-mental organisations has become popular since the 2010s, in which com-panies cooperate with civil society organisations that are highly familiar with the nature of the environmental and social problem in question. (For relevant experience in Hungary, see e.g. Harangozó and Zilahy, 2015²²⁷.)

The operation of companies is complex, and so are their internal processes as well as their impact on their operating environment, which are also diffi-cult to measure and analyse. This is one of the reasons for the great variety of approaches to and interpretations of corporate responsibility and sustain-ability, as well as the large number of tools developed to improve corporate environmental and social performance.²²⁸

Companies are diverse in terms of size, sector, ownership, among others.

Accordingly, considerable research is carried out into the sustainability or CSR efforts of companies operating in different sectors. Within a given sec-tor, the areas and instruments of responsibility can be better defined. For

227 Harangozó, G. and Gy. Zilahy (2015), ‘Cooperation between business and non-governmental organisations to promote sustainable development’, Journal of Cleaner Production, vol. 89, 2015, pp. 18–31.

228 Kósi, K and L. Valkó (eds.) (2008): Környezetmenedzsment [Environmental Management], Typotex Kiadó, Budapest, 2008, p. 308.

example, the sector-specific guidelines of the Global Reporting Initiative (GRI), which analyses companies’ sustainability reports, are useful tools for the companies of the sectors concerned. At the same time, cooperation within the sectors is often stigmatized and regarded as a concerted action of compa-nies for the purpose of exerting pressure on regulators and also for ‘softening regulation’ in order to improve their own possibilities of operation. Another area, which is popular because of the diversity of companies, is the analysis of the corporate social responsibility or sustainability practices of small and medium-sized enterprises (SMEs)²²⁹²³⁰, which is more similar in character to individual responsibility than the traditional social responsibility typical of large companies.

In relation to CSR, the issue of consumer responsibility—i.e. whether, in certain cases, consumers are able to make decisions beyond their own self-interest—also emerges. There is extensive literature on sustainable and re-sponsible consumption²³¹²³² as well. However, in a globalizing world, whose population is still growing and where the consumer base of traditional market products is dynamically expanding, it is unfortunately unlikely that environ-mentally conscious consumers in developed countries can achieve a signifi-cant change in production patterns. Furthermore, the ‘gap’ between the envi-ronmentally conscious approach and the truly conscious consumer behaviour (e.g. product choice) is also a popular area of research, with good reason.

This is one of the reasons for which the responsibility of companies is beyond question, as it is unlikely that consumer expectations can make companies switch to sustainable operation and production on a large scale in the near future.

A large number of definitions of CSR include a reference to its voluntary nature. This is partly due to the fact that companies can be expected to take

229 Málovics, Gy. (2011): A vállalati fenntarthatóság értelmezéséről [The Interpretation of Corpo-rate Sustainability], JATEPress, 233.

230 Csigéné Nagypál, N. (2014): Corporate social responsibility of Hungarian SMEs with good en-vironmental practices, Journal For East European Management Studies, vol. 19, no. 3, 2014, pp. 327–347.

231 Valkó L. (2003): Fenntartható/környezetbarát fogyasztás és a magyar lakosság környezeti tudata [Sustainable/Environmentally Friendly Consumption and the Environmental Awareness of the Hungarian Population], Working Paper, Budapest University of Economic Sciences and Public Ad-ministration, Institute of Environmental Science, Budapest, 2003, p. 55.

232 Csigéné Nagypál, N. and G. Görög (2015): A társadalmilag felelős fogyasztás egyes jellemzőinek vizsgálata egyetemi hallgatók körében [Analysis of Certain Features of Socially Re-sponsible Consumption among University Students]’, Marketing és Menedzsment, vol. 49, no. 2, 2015, pp. 3–18.

a proactive approach, as they are most aware of their own capabilities and possibilities. Another reason for the importance of voluntary nature is that regulations are not always able to keep pace with technological or even social development processes. In addition, regulations are not everywhere equally stringent; for example, companies operating in several countries and loca-tions around the world can be expected to follow the best practice even in an environment where the requirements of environmental protection or work safety are less stringent and sophisticated. However, voluntary practices en-tail the risk of focusing on areas that fit in well with a company’s scope of activities or offer market advantages, instead of the most important sustain-ability issues. In the case of corporate social responsibility, voluntary nature brings benefits in several respects, but companies must be aware of the risks that it entails and try to reduce them.

Is it a problem if a company’s responsibility is motivated by self-interest?

Probably, it is not a problem; in fact, in this case, the company’s real com-mitment is less questionable. Nevertheless, the truth about companies is re-vealed in the market. This is what Milton Friedman expressed with the fol-lowing and still often quoted sentence in the 1970s: ‘the business of business is business’.²³³ A sad example demonstrating that responsible operation does not necessarily contribute to long-term success is Nokia, which had won sev-eral CSR awards in Hungary, but in the end, it was forced to reduce its pro-duction capacity and relocate it to Asia gradually. (In this respect, CSR awards are like fair play awards or prizes for the best-dressed competitors at sporting events, where the real result is still the best possible ranking.) Companies are able to maintain their operation in the long run; they of-ten ‘survive’ different systems. (It is disputable, of course, whether a com-pany can be considered to be the same comcom-pany after changes in its scope of activities, ownership structure or places of business.) It is undeniable, how-ever, that the decades-long history and, frequently, the charismatic and crea-tive personality of the founder(s) are integral parts of the identity of many large companies. Often, the objective of the founding engineer or inventor is to solve a current problem or improve people’s quality of life with a product that is innovative at that moment. From this perspective, long-standing or even recently founded innovative companies have more competences and possibilities to address sustainability challenges than leaders at different lev-els, elected for short periods of time.

233 Friedman, M. (1970): The Social Responsibility of Business Is to Increase Its Profits”, New York Times Magazine, 13 September 1970.

In addition to approaches focusing on the responsibility of ‘conventional companies’, new trends that redefine the basic corporate objectives have also emerged. The main goal of ‘entrepreneurs with a different objective’ or

‘social enterprises’ is not to generate profits but to address a social or a com-bined social and environmental problem. The concept of social enterprise has become so widely accepted in the European Union that, in 2011, the Euro-pean Commission issued a communication entitled ‘Social Business Initia-tive. Creating a favourable climate for social enterprises, key stakeholders in the social economy and innovation’²³⁴. The concept of really responsible companies, created by Gergely Tóth, can also be mentioned here: it means that a really responsible company aspires to achieve fairness (e.g. fair trade and working conditions), reduce transport distances and the associated envi-ronmental externalities, and to achieve an optimal size, instead of becoming as large as possible. For such a company, profitability is important but is not the main objective. Furthermore, it pursues activities or manufactures prod-ucts that are actually needed and whose ‘existence is justified in a sustainable world’²³⁵. Unfortunately, in the context of today’s complex supply networks and products, these requirements are extremely difficult to measure and to meet. The concept of ‘sustainable business models’²³⁶ is also a promising new approach.

Nevertheless, the responsibility of companies following the traditional model remains an important issue. The next section gives a brief summary of the history of CSR and the related concepts.