Understanding Business Ethics and Corporate Social Responsibility

Most businesses do not fully understand business ethics and corporate social responsibility (CSR). Two main factors have driven the issue to the top board agendas. The first is the growing pressure on businesses. The second is the companies’ goals to “always do better” on business ethics and CSR.

This article explores the connection between business ethics and corporate social responsibility. It focuses on how to approach these concepts. And then the crucial steps in implementing your business ethics and CSR strategy.

Table of Contents

What is Business Ethics?

Business Ethics has come to mean different things to different people. In general terms, it is knowing what is right and wrong at the workplace and doing the right thing. This is with respect to relationships with stakeholders and also to products/services.

Businesses should act ethically not just because it’s a moral duty, but also with an aim for the highest levels of corporate ethics.

In recent years, the impact of CSR on a business’s image is evident. It reflects in a company’s employment practices, environmental performance, and supply chain. The elements have the potential to deviate from its reputation.

Good ethics also drive good decisions. Diversity and Inclusion is one aspect of CSR that businesses focus on and vocalize. This particular aspect delivers real results regarding decision-making in a company.

When your board and leadership team consist of similar people, it is likely that you make several poor decisions. This will be due to similarities in assumptions and thought processes leading to groupthink among the parties involved. To help improve your business performance, the right thing to do is to improve your board’s diversity.

What is Corporate Social Responsibility (CSR)?

This concept refers to the strategies or initiatives that companies put in place to make them more socially accountable. The practice of CSR enables a business to be more aware of its effect on society.

Oftentimes, CSR is used interchangeably with ESG (environmental, social and governance). ESG refers to a more defined set of criteria that organizations build their ethical strategies around. Although CSR and ESG are connected, they are not the same.

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Types of corporate social responsibility

Traditionally, corporate social responsibility is divided into four sections. They are ethical, economic, philanthropic, and environmental responsibility.

Ethical Responsibility

This is more concerned with making sure a company operates in a fair and ethical approach. Companies that accept ethical responsibility aim for fair treatment for all stakeholders. Stakeholders here include investors, employees, leadership, customers, and suppliers.

Economic Responsibility

This is achieved when the end goal of a company is in two folds. That is, to increase profits, and positively impact the society, environment, and people.

Philanthropic Responsibility

This can be defined as an organization’s goal to actively make the society and the world a better place.

Companies driven by philanthropic responsibilities usually donate a part of their earnings. Some companies donate to nonprofits and charities relating to their missions and values. Others contribute to worthy causes that do not relate to their business directly.

Environmental Responsibility

This is a belief that organizations should act in an environmentally friendly manner as possible.

Organizations that embraces environmental responsibility do so in several ways:

Increasing reliance on sustainable resources, recycled or partially recycled materials, and renewable energy
Reducing greenhouse gas emissions and pollutions. Investing in single-use plastics, and general waste and water management
Offsetting negative environmental effect. For instance, funding research, planting trees, and contributing to other related causes.

The difference between Business Ethics and Corporate Social Responsibility

It is generally accepted that the CSR is just a facet of business ethics. They are closely intertwined, but CSR is more focused on the duties of an organization to society. Business ethics is a broader concept. It involves obligations to shareholders, employees, customers, stakeholders and suppliers.

Although CSR and ESG are used interchangeably, ESG does not exist without CSR. The latter aims to make an organization accountable. And the former makes its efforts measurable.

In some cases, companies’ CSR initiatives have failed to achieve their potential. This is mostly due to the lack of tangible ways to measure CSR efforts. With the potential breadth of issues covered under CSR, it can be difficult to quantify or manage as regards value. That’s why ESG is implored as it offers a more defined and measurable focus for organization’s ethical activity.

Now, we have three concepts with subtle differences that boards should bear in mind and understand when making decisions. Especially decisions about their environmental and social activities.

The Principles of Business Ethics and Corporate Social Responsibility

When we look at the principles of business ethics and corporate social responsibility, the two terms are clearly intertwined.

The principles of business ethics and corporate social responsibility are clearly intertwined.

There are seven principles of the ISO quality standard for socially responsible behavior. ISO refers to the International Organization for Standardization. These principles are:

Transparency
Respect for human rights
Respect for the rule of law
Ethical behaviour
Respect for stakeholder interests
Accountability
Respect for international norms of behaviour

There is an obvious consensus on business ethics and corporate social responsibility. Also, there’s a similarity in the two concepts’ underlying principles.

The advantages of business ethics and CSR

With the analysis above, it is clear that business ethics and social responsibility has several advantages. There’s the direct upgrade of the company’s reputation as a socially conscious business. Other advantages to the organization will have a tangible effect on the bottom line.

The advantages of business ethics and corporate social responsibility includes:

Differentiation from competitors
Enhanced corporate reputation
More rounded strategic decision-making
Better relationships with investors and other stakeholders
Easier access to investment
Improved ESG ratings from third-party rating and reporting organizations
Lower costs due to more sustainable approaches
Easier access to investment
Easy compliance with reporting requirements
Closer alignment with customer and employee priorities
Builds public trust
It enhances positive relationships with consumers
It increases profits
Encourage professional and personal growth

ESG: The New Normal for Business Ethics and CSR

Organizations are looking to establish ethical leadership and management. This is necessary to see beyond business ethics and corporate social responsibility.

This is because the defined concept of ESG compared to CSR can address trends in ethical behaviour. The corporate strategy and leadership approaches that support this claim rely heavily on two things. The ability to set goals and measure progress. ESG is far more able to deliver that data.

ESG obviously has an advantage over CSR here. It has finite list of issues that fall under its umbrella, so, it is easier to define. ESG is clear and measurable while CSR has a broader concept with profits difficult to pin down.

To achieve their goals, organization leaders need to implement their ESG and CSR strategies. They need to put theory and written plans into practice. For the best result and success with CSR, they should consult with stakeholders and create a clear roadmap.

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About Author

Jummai Bello

Jummai Bello is a Content Strategist, Copywriter, Business Coach and Author. She has worked with various brands and businesses ranging from entrepreneurship, beauty, lifestyle and many more to create high-quality, valuable content to connect with prospects, educate and drive sales. You can check out more of her work on LinkedIn