A concept which has been barely registering on the boardroom radar screens of most companies in Pakistan is coming into sharper focus. Corporate social responsibility (CSR) has long been the anthem of an ethically minded minority in the business world. It now looks set to enter the corporate mainstream. CSR is all about how companies manage their business processes to produce an overall positive impact on society.
Those companies operating in global markets are increasingly finding it necessary to consider the social and environmental aspects of their business while pleasing their shareholders.
In the past year, CSR has escalated up the boardroom agenda of the global corporation to the point where it is now bedded into the mission of most blue chips. In addition, projecting a company's CSR through the media can lend it strategic advantage.
Research has shown that CSR is perceived as a top-table issue that can deliver real business benefits while simultaneously giving something back to society. One survey by Echo Research covering four developed and two developing countries, found that 80% of corporate CSR decision-makers believe good CSR practices will both enhance the corporate brand and improve employee satisfaction.
Other benefits cited by survey participants included more contented shareholders and less criticism from pressure groups.
Many other studies back up Echo's findings. A recent Ernst & Young study of 147 Global 1000 companies in Europe, North America and Australasia found that company CSR programmes influence 70 per cent of all consumer-purchasing decisions.
Similarly, in a recent survey of 1000 British adults, Market & Opinion Research International (Mori) found that 41% said it was important that the product or service they chose came from a company with a high degree of social responsibility. In 1998, it was just 28%. These studies indicate that CSR is now a key determining factor in consumer and client choice in a number of developed economies.
What are the implications of these trends for companies? Given that Pakistan is increasingly an integral part of the global economy, local companies will find it hard to ignore CSR.
This is especially true of those companies that seek finance from foreign investors or export their goods and services to North America and Europe. As global investors become more discerning about CSR, they are likely to spurn those companies which make no attempt to adopt good CSR practices.
How do companies communicate their CSR practices to the wider public? Most seem to use either their annual reports or a separate corporate responsibility report to highlight what they do. A study by KPMG found that, in 2001, 45% of the 250 largest global companies published corporate responsibility reports.
The highest incidence of CSR reporting is to be found amongst companies in the mining, forestry, chemicals, oil and gas, vehicle manufacturing and transportation companies.
Ironically, finance and insurance companies, which often demand sustainability information from the companies they lend to and invest in, are the laggards when it comes to CSR reporting. An Ernst & Young study reveals that, out of the 67 largest finance and insurance companies, fewer than 20 produce responsibility reports.
There is a growing body of evidence to suggest that international investors are increasingly concerned about a company's CSR. This concern is starting to manifest itself in the queries of institutional investors at investor roadshows hosted by local companies in Europe and the US.
Investor relations managers are beginning to note that their companies are increasingly being asked about CSR, which has prompted many to think seriously about introducing CSR reporting.
The message is clear. Overseas investors, especially the institutions, are no longer just interested in the financial performance of companies as shown by bottom line profit. They are increasingly interested in their social and environmental performance as well. What accountants term the 'triple bottom line'.
The increased emphasis on all aspects of a company's performance in many developed economies is fuelled by the exponential growth in these economies of Ethical or Socially Responsible Investment (SRI). SRI funds are homing in on companies providing social or environmental benefits like the Body Shop.
Increasingly, even the more general funds are introducing CSR criteria.
Today, the Dow Jones Sustainability and the FTSE4Good indices use CSR criteria in the selection of the constituent stocks. To be admitted, companies must meet social and environmental performance criteria as well as financial ones. Constituent companies benefit since funds which track these indices must buy some of their shares.
As a result, more companies are making the grade and getting included in the indices. In the last year, 82 more companies became eligible for inclusion in the FTSE4Good.
All signs point to CSR having an increased impact on business and investment practice in North America and Europe. Pakistan companies with high exposure to overseas markets which choose to ignore these developments may risk losing investors and sales.
So what should Pakistan's global companies do to leverage maximum benefit from the trend towards CSR? If it is for CSR to deliver real and lasting benefits to companies, it needs to become a part of a company's mission, an integral part of the way the company is run.
Furthermore, CSR cannot be conceived in a vacuum. In formulating its CSR policy, the company should hold a dialogue with its stakeholders and then regularly make public its CSR performance in an independently verified 'warts and all' report. 'Just do it' and then 'tell it as it is'.