For most of the 20th century, business’s contract with society was fairly straightforward: Employ people, pay taxes, obey the law, and support communities through philanthropy. Today the contract is being rewritten as the forces of globalization accelerate the growth and influence of business in society. In an environment where almost half of the world’s top economies are now businesses, and just 200 global firms alone account for more than one-quarter of the world’s economic activity, public expectations of business have changed dramatically, specifically regarding business’s license to operate. As the graph below shows, business is now expected to take much greater responsibility for managing its impact on society. These expectations are in turn redefining the range of variables business must consider and actively manage to minimize risk and realize the opportunities of this new operating environment.
To respond to these challenges, many larger firms have integrated new approaches and practices to take greater responsibility for managing their impact on society and the environment. Stakeholder engagement and social reporting have become standard for many global firms as they work to ensure their business practices meet the expectations of their key stakeholders and customers. Most now have senior executives responsible for the firm’s overall corporate responsibility strategy, which depending on the industry may carry the moniker of sustainability, corporate social responsibility, corporate citizenship or more recently environmental, social and governance, or ESG. We have also seen the rapid growth of “voluntary” or “soft” law initiatives where companies either through industry associations (e.g. Responsible Care American Chemistry Council) or in multistakeholder coalitions (e.g. Forestry Stewardship Council) voluntarily agree to manage to standards that go well beyond legal requirements.
Measurement and Integration with the Value Chain – The Challenge Ahead
While significant progress has been made by some companies, most experts and the public agree the response by business and the financial sector in particular is insufficient. Many mid-tier and smaller firms have not started or are only beginning to integrate corporate responsibility into their management systems. There are still no widely agreed upon standards for measuring and reporting on corporate responsibility/sustainability performance as an integrated part of performance management. The focus for most firms still remains rooted in the frame of risk management and stakeholder management and not a strategic approach to driving innovation and value creation for the business as well as society. More importantly, despite the rise of the socially responsible investment movement, the mainstream investment community still remains largely unengaged.
Working with our partners, the High Meadows Institute is currently engaging with public and private companies and the financial sector to explore how we can more effectively link corporate responsibility management to organizational and financial performance.
For further information on our work in this area and links to related resources please click here.