Corporate Social Responsibility (CSR)

Corporate social responsibility (CSR) is the responsibility of a business for the effects of its decisions and activities on society and the environment. In practice it covers how a company treats workers, customers, suppliers and communities, how it manages its environmental footprint, how it behaves on issues such as bribery and tax, and what it contributes through donations or volunteering. The European Commission's short definition, adopted in 2011, is "the responsibility of enterprises for their impacts on society". One visible form of CSR in supply chains is buying products certified under fair trade schemes, which set minimum prices and labour standards for producers in poorer countries.

CSR is a company-side concept. Investors look at much of the same ground from the outside through ESG integration and sustainable investing, judging how well a company manages environmental, social and governance risks. In most countries CSR is voluntary, though disclosure about it is increasingly required; India is the best-known exception, with a legal obligation for large companies to spend on CSR.

Think of a large household in a small village. It obeys the law, pays its bills and keeps to itself. A good neighbour does more: it keeps its noise down, does not dump rubbish in the stream, pays the people who help it fairly and lends a hand when the village needs a new well.

CSR asks companies to be good neighbours. Part of it is about avoiding harm in daily operations, and part is about giving back. Most experts treat the first part, running the business responsibly, as more important than the second.

The modern concept is often traced to Howard Bowen's 1953 book Social Responsibilities of the Businessman. Milton Friedman's 1970 essay in The New York Times Magazine, "The Social Responsibility of Business Is to Increase Its Profits", set out the opposing view that managers should serve shareholders within the law and leave social spending to owners. Archie Carroll's 1991 "pyramid" described four layers of responsibility: economic, legal, ethical and philanthropic. A broader alternative, stakeholder capitalism, holds that companies should be run for employees, customers, suppliers and communities as well as for shareholders.

International frameworks followed:

• OECD Guidelines for Multinational Enterprises. First adopted in 1976 and last updated in 2023, they set government-backed expectations for responsible business conduct.
• UN Global Compact. Launched in 2000, it asks companies to commit to ten principles on human rights, labour, environment and anti-corruption.
• ISO 26000. Published in 2010, this guidance standard is not certifiable and sets out seven core subjects: organisational governance, human rights, labour practices, the environment, fair operating practices, consumer issues, and community involvement and development.
• UN Guiding Principles on Business and Human Rights. Endorsed in 2011, they established the "protect, respect and remedy" framework.

Since 2015 many companies also map their CSR activities to the UN Sustainable Development Goals (SDGs), and climate commitments are often framed around the Paris Agreement.

Section 135 of India's Companies Act 2013, in force since 1 April 2014, applies to companies with a net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more in the preceding financial year. They must form a CSR committee, adopt a policy and spend at least 2% of their average net profit of the three preceding financial years on activities listed in Schedule VII of the Act, such as education, health, rural development and environmental protection. Amendments in force since January 2021 require unspent amounts to be transferred to a designated fund or an unspent CSR account, with penalties for failure. Other countries, including Mauritius, have also legislated CSR levies.

For banks, payment companies and asset managers, CSR covers both conduct and products. Strong anti-bribery and corruption controls, effective anti-money laundering programmes and protection for whistleblowing are part of responsible conduct and overlap with regulatory compliance. On the product side, firms point to financial inclusion programmes, financial literacy education and lending to small businesses. Responsible tax behaviour is also increasingly treated as a CSR issue, with debate focused on aggressive planning that sits close to the line between tax avoidance and tax evasion.

CSR reporting began as voluntary "sustainability reports" published alongside the annual report. It has gradually moved towards regulated disclosure: the EU's Corporate Sustainability Reporting Directive requires large companies to report under European standards, and the ISSB's IFRS S1 and S2 standards focus on the sustainability matters that are financially material to investors, building on the industry standards of the SASB.

Critics on one side follow Friedman in arguing that CSR spends shareholders' money on managers' preferences. Critics on the other side argue that much CSR is public relations, highlighting donations while core business practices stay unchanged, a form of greenwashing. Researchers have also debated whether CSR improves financial performance, with mixed results. Investors increasingly test CSR claims through corporate engagement and by comparing them with measurable outcomes, while impact investing looks for businesses whose core products, not side programmes, create the social benefit. The first criticism is an example of the principal-agent problem, in which managers acting for owners may pursue interests of their own.

• United Nations Global Compact