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Khairunnisa Rahinaningtyas Corporate Governance

Corporate Social Responsibility
International Institute for Sustainable Development

This guide is not specifically developed for use by public agencies and civil society organizations,
the principles of Corporate Social Responsibility may also be useful to them in their own sustainability
efforts. The guide is primarily intended to introduce to current tools and implementation method of CSR.
As such, it contains information on how to assess the effects of business activities on others, develop and
implement a corporate social responsibility strategy and commitments, and measure, evaluate and report
on performance and engage with stakeholders.

The guide distils ideas and processes from a variety of sources, and is intended to be suggestive,
not prescriptive. It has three parts:
- Part 1 is an overview of CSR—how it is defined, the business case for it and the relationship
between CSR and the law;
- Part 2 sets out a six-stage “plan, do, check and improve” implementation framework for a CSR
approach. This part also features information particular to small business, indicated by the
magnifying glass icon; and
- Part 3 looks at stakeholder engagement and the integral role stakeholders can play in
implementing an effective CSR approach.

It has been proven that there is an increased levels of understanding of the link between
responsible business and good business. Acting responsibility towards workers and others in society can
help build value for firms and their shareholders. Good executives know that their long-term success is
based on continued good relations with a wide range of individuals, groups and institutions. Even
companies which may have a good reputation can risk losing their hard-earned name when they fail to put
systematic approaches in place to ensure continued positive performance.

Corporate social responsibility (CSR) is also known by a number of other names, corporate
accountability, corporate ethics, corporate citizenship or stewardship, etc. A key point to note is that CSR
is an evolving concept that currently does not have a universally accepted definition. Generally, CSR is
understood to be the way firms integrate social, environmental and economic concerns into their values,
culture, decision making, strategy and operations in a transparent and accountable manner and thereby
establish better practices within the firm, create wealth and improve society.

It is also important to bear in mind that there are two separate drivers for CSR. One relates to
public policy. The second driver is the business driver. Here, CSR considerations can be seen as both costs
or benefits. Since businesses play a pivotal role both in job and wealth creation in society and in the
efficient use of natural capital, CSR is a central management concern. Above all, CSR is about sensitivity
to context—both societal and environmental—and related performance. It is about moving beyond
declared intentions to effective and observable actions and measurable societal impacts.

Many factors and influences have led to increasing attention being devoted to the role of
companies and CSR. These include:

1. Sustainable development, CSR is an entry point for understanding sustainable development issues
and responding to them in a firm’s business strategy
2. Globalization, it plays a vital role in detecting how business impacts communities and economies,
and what steps can be taken to ensure business helps to maintain and build the public good
3. Governance, CSR instruments often reflect internationally-agreed goals and laws regarding human
rights, the environment and anti-corruption
Khairunnisa Rahinaningtyas Corporate Governance
4. Corporate sector impact, it communicates how companies behave is becoming a matter of
increasing interest and importance
5. Communications, modern communications technology offers opportunities to improve dialogue
and partnerships.
6. Finance, it helps build share value, lower the cost of capital, and ensure better responsiveness
7. Ethics, consistency and community, leadership, and business tool.

Key potential benefits for firms implementing CSR include:

1. Better anticipation and management of an ever-expanding spectrum of risk

2. Improved reputation management
3. Enhanced ability to recruit, develop and retain staff
4. Improved innovation, competitiveness and market positioning
5. Enhanced operational efficiencies and cost savings
6. Improved ability to attract and build effective and efficient supply chain relationships
7. Enhanced ability to abiliity to address change
8. More robust “social licence” to operate in the community
9. Access to capital
10. Improved relations with regulators
11. A catalyst for responsible consumption

There is no “one-size-fits-all” method for pursuing a corporate social responsibility (CSR)

approach. That said, there is considerable value in proceeding with CSR implementation in a systematic
way—in harmony with the firm’s mission, and sensitive to its business culture, environment and risk
profile, and operating conditions. See Appendix 1 for implementation framework.

But what about small businesses? In most regions of the world, the great majority of businesses
are classified as “small and medium sized enterprises” (SMEs). The CSR implementation framework set
out in this guide is built around the “plan, do, check and improve” model, which is a sound approach for
firms of any size. However, many of the steps may be too elaborate for small businesses.

At its most basic, CSR is about seeing business as an integral part of society, the global
community and the environment that supports it. Stakeholder engagement comprises the formal and
informal ways of staying connected to the parties who have an actual or potential interest in or effect on
the business. Four key reasons for stakeholder engagement are building social capital; reducing risk;
driving innovation; and integrating these elements in corporate strategy.

A five-step stakeholder engagement process is set out below:

1. Identify stakeholders;
2. Understand the reasons for stakeholder engagement;
3. Plan the engagement process;
4. Start the dialogue; and
5. Maintain the dialogue and deliver on commitments
Khairunnisa Rahinaningtyas Corporate Governance
Appendix 1.