A Current Look at CSR and Corporate Philanthropy
A Current Look at CSR and Corporate Philanthropy
Introduction
Increasingly, corporate social responsibility (CSR) is seen as a key attribute of well-managed companies, with philanthropy, and in particular strategic philanthropy, central to CSR. Corporate philanthropy has progressed in remarkable ways over the past century, evolving from CEOs simply writing checks for their favourite charities to a much more sophisticated practice. Companies are increasingly integrating philanthropy into their core business strategies. This type of giving is better understood as strategic corporate philanthropy: the giving of corporate resources to address nonbusiness community issues that also benefit the firm’s strategic position and, ultimately, its bottom line. Crucial to corporate philanthropy’s evolution, companies strive for social and economic returns that are measurable and identifiable within specific periods. Through strategic corporate philanthropy, companies have improved their brand reputations and increased the motivation and loyalty of their employees, all while benefiting the communities where they operate. In today’s strategic corporate philanthropy landscape, the line separating the needs of society and the needs of for-profit firms is becoming increasingly blurred.
While strategic philanthropy can significantly benefit recipients and benefactors, there are also deep-rooted tensions within the practice. For companies, the aspiration to generate positive social outcomes can conflict with the goal of maximizing the financial returns of philanthropy. Further, as companies refine their philanthropic practices, they increasingly give in ways that maximize the efficiency of their programs while neglecting society’s actual needs. Corporate philanthropy is also perceived as a hallmark of neoliberalism, especially as corporations become more invested in public service provision. Given the evolving role of companies in society, there is a need for effective leadership within the corporate philanthropy landscape.
When conducted properly, strategic corporate philanthropy balances community stakeholders’ needs with a company’s skills and competencies to create a mutually beneficial practice. Interestingly, authors tend to adopt extreme positions within the strategic philanthropy literature. While some authors believe that strategic philanthropy is the solution to all of the world’s problems, others argue that it marks the end of democracy as we know it. The dialectical tension between these positions reveals the need for a more balanced approach to strategic philanthropy. Strategic philanthropy can be a valuable tool for economic and social progress, but it must be better understood and used with caution to be effective. This form of philanthropy is a conflicted process that delicately balances the requirements of corporations with the needs of communities.
In its early days, corporate philanthropy’s benefits, both internally and externally, were unclear and unquantifiable. Yet, today’s corporate philanthropy strives to move beyond enlightened self-interest and toward a form of giving where social outcomes and impacts can be measured and evaluated within an identifiable period. More broadly, the integration of business motivations, use of scale, and search for efficiency into the realm of civil society has been termed “philanthro-capitalism”. In Philanthro-capitalism: How the Rich Can Save the World, Mathew Bishop and Michael Green exemplify the potential of blended value ventures, presenting the Bill &Melinda Gates Foundation as the hallmark of strategic philanthropy. The foundation has significantly improved global health standards by using large-scale, metrics-driven methods developed at Microsoft. Operating as the foundation’s sole trustees, Bill Gates, Melinda Gates, and Warren Buffet dedicate billions of dollars to their main priority areas: global health, global agriculture, and U.S. education policy. For Bishop and Green and many others, the Gates Foundation demonstrates that the maximization of individual wealth can be parlayed into immense social value, exemplifying that private capital and social benefit interact harmoniously.
However, enthusiastic support for strategic philanthropy has garnered equally vociferous opposition. With Just Another Emperor? The Myths and Realities of Philanthrocapitalism, Michael Edwards provides a foundational critique of both philanthrocapitalism and strategic philanthropy by calling attention to these practices’ problematic principles. Edwards contends that the beliefs underlying philanthrocapitalism are fundamentally flawed. Philanthrocapitalism’s tenets suggest that “methods drawn from business can solve social problems and are superior to the other methods in use in the public sector and in civil society” and “these methods can achieve the transformation of society, rather than increased access to socially beneficial goods and services”. For Edwards, philanthrocapitalism’s beliefs are misplaced and dangerous. He suggests that significant social change must come from civil society, not wealthy individuals or companies. He also finds an inherent conflict embedded within corporate philanthropy and, by extension, corporate accreditation systems: “Much that goes by the name of corporate social responsibility seems more public relations than social transformation, leaving the impression that business is using CSR as a screen to avoid more serious reform”. For many companies, philanthropy is a much more favourable social responsibility mechanism when compared to options like increasing employee wages or discontinuing offshore accounting. Strategic philanthropy is a convergence of for-profit and non-profit values that remains an inherently conflicted practice.
Furthermore, many suggest that the growing popularity of strategic philanthropy is a hallmark of neoliberalism. Through public–private partnerships, contracting out, co-production, or cutting back altogether, the state has increasingly looked to voluntary and nongovernmental efforts as the means for addressing all types of collective problems in society. In recent years, Canada’s non-profit sector has felt a shift toward a neoliberal operating environment with increased social responsibility being placed upon private entities. Many researchers contend that this shift presents a significant danger to Canadian civil society. Increasing the amount of influence that companies have on social funding threatens the democratic values of Canadian society. Some assert that such responsibility cannot be turned over to an unelected class of corporate chieftains (even well-intentioned ones) no matter how grateful we may be for their generosity. If there is less democratic input into the distribution of social services, then social services will not effectively mirror public needs.
Some authors and academics go so far as to claim that within a neoliberal governmental structure, a state-regulated non-profit sector can never be a force of true change for historically marginalized communities. Studying the history of the non-profit sector, Munshi and Willse (2017) identify that, “The cumulative effects of decades of neoliberal reform have been a massive exacerbation of the inequalities of racial capitalism and its gendered division of labour”. Ultimately, many authors opposing strategic philanthropy take issue with the role of government in equitable public service provision. For these authors, there must be significant policy reforms to ensure that the need for corporate philanthropy and non-profit work is minimized in the first place. After all, companies and non-profits can only do so much to uplift communities neglected by their governments.
Given the significant inconsistencies within the practice of strategic philanthropy, should we toss it aside? Although strategic philanthropy is inherently conflicted, this conflict is a condition of creating shared value. Shared value is foundational to modern economics. As far back as Adam Smith, academics have claimed that self-interest naturally brings about social benefits. Within a capitalist structure, the pursuit of private capital also generates wealth for various other associated individuals and institutions. Philanthropy naturally yields personal returns for the philanthropist. Gift exchanges are often rooted in diverse social and economic objectives, such as bolstering the reputation of community leaders or expanding territorial jurisdiction. Thus, the tensions in corporate philanthropy already exist within other forms of gift giving and within the fundamental interaction between economic and societal structures. However, this point also reinforces the importance of ensuring a balance in corporate philanthropy. Within a given corporate and non-profit partnership, the non-profit can face challenges due to an uneven power dynamic dominated by the corporate partner. Often within a blended value relationship, the needs of the businesses can take precedence over the needs of society.
While strategic philanthropy can yield significant returns for society and business, there are limitations and threats embedded within the practice. Therefore, effective monitoring is needed to ensure that strategic philanthropy evolves in a way that continues to benefit business while also maintaining the health of the non-profit sector and Canadian society.
Additional Challenges with CSR
The problem with an approach that lets business define corporate responsibility is that it is not grounded in a set of principles about what it means to be a responsible business. Corporate social responsibility is whatever companies want it to be, and often, what is most convenient. Despite being more recognizable, there is no consensus about what CSR is. A common element in most explanations is the design of new business practices that respond to civil society expectations of good corporate citizenship. Rather than fixing the law, CSR proponents seek to reform the corporation from within and thereby raise the standards of corporate conduct beyond what is legally required.
Corporate social responsibility is an old idea, with American roots in the writings of the steel magnate Andrew Carnegie. Carnegie believed that the goal of businessmen should be ‘to do well in order to do good’. He maintained that it was up to the more fortunate members of society to aid the less fortunate – that the wealthy ought to be stewards of their property, holding their money ‘in trust’ for the rest of society. As trustees they are entitled to do with it only what society deemed legitimate.
Today, CSR proponents emphasize that virtuous companies will be rewarded in the marketplace and thus can ‘do well by doing good’ – an argument widely referred to as ‘the business case’. Despite the human rights risks of not ‘doing good’ today when more business is being done directly or through surrogates (suppliers and subsidiaries) in politically and socially fragile settings throughout the world, CSR remains stubbornly rooted in Carnegie’s vision of the benevolent businessman.
For all its success at prodding companies operating in today’s high risk environment to pay attention to their social and environmental roles, the CSR movement suffers from two fundamental problems. One relates to a lack of standards defining what counts as corporate responsibility, leaving it up to business managers to decide. The second relates to the over-reliance on citizen oversight – sometimes referred to as ‘civil regulation’ – to make CSR work. These two problems are closely linked: because there are no clear standards for corporate responsibility, civil regulation cannot function well.
CSR gets defined by business managers who cherry-pick the areas of social benefit the company will address. Typically, CSR managers, where they exist, struggle mightily to score the financial backing and human resources they need to address the problem. Often the first CSR initiatives adopted by companies are environmental programmes – for example, the reduction of greenhouse gas emissions or packaging. Through these programmes, companies can create efficiencies, help their bottom line, and improve brand image all at the same time. These are welcome initiatives. But the problem with an approach that lets business define corporate responsibility is that it is not grounded in a set of principles about what it means to be a responsible business. Ultimately, CSR is whatever companies want it to be.
This definitional ambiguity presents problems not only for stakeholders seeking to hold companies accountable, but also for businesses themselves. John Ruggie, the author of the UN Guiding Principles for Business and Human Rights, noted that those companies that do not adopt a rights-based corporate responsibility programme “typically approach the recognition of rights as they would other social expectations, risks, and opportunities, determining which are most relevant to their business operations and devising their policies accordingly”. A discretionary approach leaves companies open to considerable risk, as evident in the numerous corporate lawsuits, protests, and strong international criticism directed at companies that do not pay adequate attention to all human rights.
All too often, companies use CSR programs to deflect attention from socially irresponsible practices in their core operations. In a 2008 article, Conrad MacKerron of the shareholder advocacy group As You Sow, identified the problems of discretionary CSR in the practices of the American retail giant Walmart. He argued that Walmart’s environmental initiatives to reduce waste and improve energy efficiency among its vast network of Chinese suppliers not only ignored, but also came at a cost to workplace health and safety in those factories.
These initiatives are expensive: to pressure suppliers to ‘go solar’ or clean up wastewater discharge, all while making low-priced goods for US consumers, is not possible without cutting corners on worker pay and safety. MacKerron also noted an overlooked aspect of Walmart’s green agenda: Chinese makers of those very solar panels were reportedly dumping silicon tetrachloride, a highly toxic byproduct of polysilicon manufacturing, directly onto fields in Henan Province.
CSR advocates agree that a ‘business decides’ approach to corporate responsibility is problematic. But, they counter, companies that practice CSR do operate under constraints, since they must do what the public expects of them. The concept of CSR rests on the idea that businesses operate with a social contract granted by society. Fulfilling that contract requires businesses to respond not only to their shareholders, but also more generally to civil society. Companies that do not behave responsibly in relation to civil society demands risk losing their ‘social licence to operate’.
Civil regulation, however, often takes place haphazardly in ways that favour consumers with purchasing power at the expense of politically and economically marginalized members of society. Even in a reasonably well-functioning participatory democracy with a strong civil rights tradition and the capacity to protest safely, citizen regulation is hard to achieve. Apathy or indifference can lead to vocal minorities dominating the decision-making process, while others may find that they do not have the time or means to participate.
Too often, the inequities within society are replicated so that the results of civil regulation will skew away from the interests of those affected. And not unlike the case of Walmart in China, when it comes to CSR and the environment, too often companies are pushed to respond to a particular form of environmentalism reflecting middle class interests. If CSR for many companies is about building brand value, then absent government regulation and legal standards, consumers with purchasing power are the ones who often end up defining corporate responsibility.
In his 2008 book, Supercapitalism, former U.S. Labor Secretary Robert Reich similarly expressed concern about the ability of citizens to regulate business behaviour. Consumers derive benefits from inexpensive products made with cheap labour or cost-cutting initiatives that can result in harm to the environment and communities besides one’s own, Reich argues. Hence, citizen-consumer interests are too conflicted to be counted upon to act as neutral arbiters of what constitutes responsible business. Instead, Reich calls for more government regulation as the only means to ensure that corporations behave responsibly.
In other words, absent adequate domestic legal protections, CSR is dependent upon oversight of business by society. Yet society alone is not capable of articulating the full range of protections its members need; hence, business is free to decide whether or not to devote resources to prevent harm and, to take it a step further, exercise its influence and capabilities to protect the rights of workers and communities. There is little incentive to do so if business finds it too difficult or if there is little payoff in the marketplace. For these reasons, human rights advocates have found that CSR is not up to the task of preventing harm to people.
A Case in Point: Canadian Banks Face Greenwashing Claims
In the past two years, Canadian banks have increased the amount of sustainability-linked financing (SLF) they extend to oil and gas clients. SLF refers to financing whose cost changes when certain environmental, social and governance (ESG) requirements are met at the company level but does not require the funds themselves to be used for climate-friendly purposes. This has led to accusations of "greenwashing," with some environmental groups and investors claiming banks are using SLF merely to pretend to lower their carbon footprint rather than take meaningful steps in that direction.
If the use of financing instruments that do not require a reduction in overall carbon emissions keeps growing, it could delay banks' readiness for Canada's transition to a low-carbon economy, leading to higher risk and increased capital requirements to offset these. The central bank and financial regulators have already warned that a lack of preparedness by the banks could expose them and investors to sudden and large losses.
The issue is especially pertinent in Canada, where SLF accounts for a bigger proportion of all sustainable financing than globally, as it offers a green option for the country’s extractive industries that typically cannot use more specific tools like so-called green bonds.
Sustainable financing is mostly made up of two kinds of products: SLF, and use-of-proceeds tools like green bonds, which must be utilized for environmentally friendly activities flexibility of the former means the financing terms can even allow for increases to emissions, which many critics say enables heavy emitters to lay a false veneer of sustainability over business as usual.
Many of the banks – including Royal Bank of Canada, Toronto-Dominion Bank, and Bank of Montreal – have said that an orderly transition to a net-zero economy could take years and that the oil and gas industry needs ongoing support to meet continued demand as energy alternatives such as wind and solar are developed.
With increased focus on the transition to net-zero emissions, the use globally of sustainability-linked instruments (SLIs) more than quadrupled in 2021, according to Refinitiv data. In Canada's nascent market, their use grew nearly 20 times from 2020. Sustainability-linked bonds (SLBs) have made up 11.2% of all sustainable bonds in Canada since the start of 2021, versus 9.8% globally, according to Refinitiv. Energy companies issued a third of this.
Canadian companies' nearly $31 billion of sustainability-linked loans (SLLs) accounted for 90% of all sustainable loans in the same period, compared with 85% globally. Traditional energy companies made up 10% of these in Canada, from none in 2020. Although Canadian banks do not currently face charges for funding high emitters, authorities have said climate disclosures will be required from 2024 and have hinted at future capital requirements.
Canadian banks, among the biggest financiers of fossil fuels globally, are treading a fine line between their net-zero commitments and their pledges to continue supporting oil and gas clients. The banks are incentivized to boost sustainable financing numbers because the government's $9.1 billion emissions reduction plan and the growing popularity of green financing have created a "gold rush" mentality.
Recent SLB issuances by pipeline operator Enbridge and oil producer Tamarack Valley Energy have shone a spotlight on the issue. Their SLBs had two features that often draw criticism: a focus on cuts to emissions per unit of production, called intensity targets, rather than total emissions, and the absence of reduction targets for the biggest source of emissions, indirect ones from the company's value chain, called Scope 3 emissions. Tamarack's issuance, as well as a previous SLL facility, funded acquisitions that would increase its oil production. Scope 3 emissions are omitted from many companies' reduction goals because of a lack of data accuracy, methodology differences, and little control over end demand.
If an oil company commits only to reducing the emissions intensity of its operations, which would exclude Scope 3 emissions, "we would not consider that to be a credible sustainability-linked instrument," said Kevin Ranney, senior vice president of corporate solutions at Sustainalytics. “A credible SLB needs to include at least one requirement that points to the transition of the company's business model”. There is no current guidance on what constitutes Scope 3 emissions for the midstream sector.
To be sure, most bank investors do not oppose the provision of sustainable financing to traditional energy companies. A shareholder proposal brought by IPC at Royal Bank's April shareholder meeting calling for an end to the practice received only 9% of votes in favor. “Canada has an oil and gas industry that needs significant injection of capital in order to reduce its emissions," said Jamie Bonham, NEI Investments' director of corporate engagement. “Nevertheless, I don't think it should all be ... included in the same sustainable financing bucket. The current blurring of the lines ... is what is leading to claims of greenwashing."
Imagine Canada’s Caring Company Program
Imagine Canada is a national charitable organization that works to strengthen Canada’s non-profit sector. In 1988, Imagine Canada launched the Caring Company program to certify Canadian companies that donate at least one percent of their pre-tax profit to their employees’ communities. Currently, the program certifies 65 companies, including some of the largest companies (measured by annual profit) in Canada, including banks mentioned in the previous section.
Imagine Canada suggests that the program provides tangible benefits for partnering corporations and the non-profit sector. Findings indicate that strategic philanthropy provides companies with an opportunity to attract and retain employees, effectively cutting input costs related to employee turnover. A 2019 survey found that 54% of people who worked at Caring Companies reported that their current employer’s reputation for charitable work in the community influenced them ’a lot’ before accepting their current job, compared to only 13% of other respondents. Moreover, 66% of people who reported awareness of the program indicated they would take a pay decrease to work for a firm more involved in the community, compared to only 23% of those who did not. Thus, companies gain greater control over their external staffing costs through strategic philanthropy and reduce overall expenditures. Additionally, corporate philanthropy has the potential to enrich a company’s resources in the form of improved brand recognition, which may attract additional customers and increase customer loyalty.
But the program’s promise of broad social benefit appears to be muddied by its tendency to uphold corporate inclusivity over establishing higher standards. Imagine Canada’s recent publication, Profit, Purpose, and Talent: Trends and Motivations in Corporate Giving and Volunteering, contends that the Caring Company program provides social value for the direct recipients of corporate philanthropy and Canada’s non-profit sector at large. Further, this report suggests that corporations will play a significant role in reducing Canada’s looming social deficit. Imagine Canada’s Chief Economist, Brian Emmet, contends that the deficit will result in the non-profit sector’s inability to meet increasing service demands while revenue growth slows. Ultimately, by 2026, the sector could see a $25 billion shortfall in its ability to meet service demands.
The Imagine Canada report suggests that corporations will significantly reduce Canada’s social deficit for two main reasons. First, while individual donation rates are declining, corporate donation rates are increasing. As a result, corporations will become a greater revenue source for non-profits and charities. Second, the report suggests that workplaces will become increasingly influential in stimulating individual employee charitable giving. For example, as Canada’s demographics are rapidly changing, young people today are much less likely to attend religious services, which have historically been crucial for soliciting donations and spreading charitable information. Substantiating this claim, the report highlights employees of companies with various donation programs are more likely to donate to charities than employees of companies without such programs. With these points, the report articulates how workplaces could become increasingly effective sites to encourage charitable activity. However, though companies could be important sites for charitable activity, this does not necessarily reduce the social deficit. The case of Canadian banks discussed previously demonstrates the complexities of the issues at play and oversight, regulation, and vigorous accreditation policies remain undeveloped.
Conclusion
As demonstrated within the strategic corporate philanthropy literature, strategic philanthropy has the power to influence both society and business positively. However, due to the tensions embedded in strategic philanthropy, the financial needs of a company often dictate and eclipse the social objectives of its philanthropic efforts. Further, with the ever-increasing efficiency of corporate philanthropy, led by the popularization of measurement and evaluation techniques, companies can better prioritize their needs above their community partners. Moreover, many theorists contend that strategic philanthropy is an expression of neoliberalism: a shift toward private entities taking on increased responsibility for social needs, to the detriment of democratic social service provision.
In recent years, CSR has been viewed by some as the answer to the multiple failings of capitalism. Chief executives have responded to all sorts of problems – worsening climate change, widening inequality, soaring healthcare costs, and so on – by promising their corporations will lead the way to solutions because they’re committed to being “socially responsible”. But CEOs won’t do anything that hurts their bottom lines. They’re in the business of making as much money as possible, not solving social or climate problems.
Corporate compliance with human rights standards must be an end in itself rather than a path to making more profit. The late Milton Friedman’s famous 1970 New York Times editorial, “The Social Responsibility of Business is to Increase its Profits”, is best.
known for the articulation of the libertarian economist’s doctrine that “the business of business is business”. There is a lot to disagree with in the article. But one line still rings true: "...in practice the doctrine of social responsibility is frequently a cloak for actions that are justified on other grounds rather than a reason for those actions.” There is nothing wrong with making money, but there is when it harms people in the process and, worse, is camouflaged by the ‘cloak’ of CSR.