The holy grail of CSR – turning a social problem into a business opportunity

The way we do business, and the impact we make as we do it, defines our identity, just as much as the bottom line on our companies’ balance sheets.

Plenty of CEOs talk the language of Corporate Social Responsibility but how many embed it in their businesses? A Harvard Business School study found that the CSR function is typically housed at least two levels below the CEO – too often, it exists in a silo and a company’s CSR programme is neither integrated with its broader business strategy or aligned to its purpose and values. Run by internal managers, often without the involvement of the CEO, the danger is that they become a set of uncoordinated initiatives rather than a coherent plan of action.

When companies start hiring a vice-president responsible for CSR and reporting directly to the CEO that would indicate progress – but you could argue that the day they start firing them is a better sign because it means they are being held accountable and the issue is being taken seriously.

Social responsibility should be at the heart of every decision a company takes, not bolted on as an after-thought. Commerce and justice need to be intrinsically linked, not treated as separate entities.

I recently attended a three-day conference led by Professor Kasturi Rangan and Professor Dutch Leonard, who run the Social Enterprise Initiative at Harvard Business School. They are leading experts in this field and set out a roadmap for successfully formulating and developing CSR strategies.

Measuring and evaluation is crucial if a CSR programme is to become more than a woolly set of good intentions. It’s a discipline that exists in every other aspect of the business and CSR should be no exception. That doesn’t mean every initiative must deliver business results, but it should be aligned to a company’s primary purpose.

Professor Rangan divides CSR activities into three different ‘theatres’:

1: Philanthropy – this consists of cash donations, donating equipment, supporting employee volunteering or matching donations made by employees. If it is strategic and aligned to the company’s values it can have a ‘soft benefit’ to the company’s reputation and brand value, even though the outcomes are hard to measure and not designed to improve business performance.

2. Value chain – programmes which function within existing business models to deliver social or environmental benefits, supporting operations across the value chain. They are measurable and produce hard benefits by improving efficiency even if they don’t always increase revenue. An example is a programme launched 15 years ago by Starbucks and the charity Conservation International in Chiapas, Mexico, to source shade-grown coffee, which has ultimately changed the company’s business model for sourcing coffee.

3. Operational effectiveness – programmes which create new forms of business to address social or environmental challenges and will produce measurable social or environmental results. This is the ‘holy grail’ of CSR – initiatives which have a real-world impact and transform a company’s model. An example is Hindustan Unilever’s Project Shakti’; tens of thousands of women were recruited in remote Indian villages and given access to microfinance loans, becoming ‘micro entrepreneurs’ who sold the company’s hygiene products. It was transformative because it replaced Unilver’s wholesaler-to-retailer distribution model, but it also gave the company access to hard-to-reach communities while, at the same time, doubling the household incomes of the ‘micro entrepreneurs’ and giving their villages access to useful products.

I invest in many emerging markets, especially India, and the link between economic development and societal change is very apparent. The conference was attended by senior leadership teams from companies in which we invest across a range of sectors, ranging from hospitality and healthcare to aviation and real estate; from utilities to banking and financial services. They shared inspiring examples of successful CSR programmes from across all sectors and all markets.

Some programmes are in developing societies: for example, a scheme run by a real estate company in India, which has established creches for construction workers to ensure their children are looked after, properly fed and educated; or a hotel chain which takes left-over food from banquets, refrigerates and stores it overnight and distributes it to street families the following morning. 

But one that really caught my imagination was being run by Bank Mobile in the United States, which is the country’s fastest-growing bank for millennials and low-income customers. It’s a virtual bank, with no bricks and mortar branches. Banks in the US charge $33bn in overdraft fees to subsidise their branch networks; Bank Mobile has turned the business model on its head by using the efficiency savings from not having branches to help customers cut adrift by their competitors. It doesn’t charge their 1.8 million customers any fees and have given the excluded access to the banking system, some of them for the first time.

Bank Mobile has taken a social problem and turned it into a business opportunity. It provides financial planning advice and help customers with poor credit histories re-build their credit ratings. It’s a win, win – by helping customers manage their money better they are creating a new class of customers who will, ultimately, be more profitable to the bank. It’s a shared journey; customers are given a financial fitness score when they first open account and enhancing it becomes a joint enterprise, a KPI for both the bank and the customers themselves.

Many companies have CSR programmes; few have CSR strategies. Embedding a strategy at the heart of your business and making it fundamental to your business model ensures your CSR becomes more than just chequebook philanthropy.

By Bhanu Choudhrie (pictured)

Bhanu Choudhrie is founder of C & C Alpha Group, a private equity business headquartered in London.