Corporate Social Responsibility: An Organization’s Corporate Value

One may think that the main objective of a business is unequivocally about the “bottom line” (i.e., profits). However, this is often a mistake that may cause a business a lot of trouble and ultimately, negatively impact profitability. While we can all agree that the bottom line is extremely important to an organization’s success, several other aspects are intertwined with the overall value of the entity. This value extends far beyond mere economic factors to include social and environmental factors mending together as “the company”.

How do the economic, social, and environmental factors fit together? The answer is based on a company’s Corporate Social Responsibility (“CSR”). CSR is a voluntary initiative to practice and transparently report on an organization’s efforts toward positive corporate citizenship among its employees, and within the community.¹ John Elkington, a British management consultant, coined the term “triple bottom line,” referring to a company’s economic, social, and environmental factors, with the finality of considering all three factors equally as important to the company’s success.

Economic success is attributed to a company’s profit, which is revenues reduced by expenses. When developed successfully, CSR initiatives can reduce expenses in a variety of ways, such as a reduction in energy consumption, safety incidents, and waste, amongst others. While a company may be very successful in generating revenues from sales, the overall profit can be higher when expenses are reduced through CSR initiatives. For instance, a company may implement an initiative to reduce carbon emissions by limiting energy use, eliminate single-use plastics, or utilize virtual technology instead of corporate travel, amongst other behaviours. By reducing a company’s expenditures through CSR initiatives, the net impact on the bottom line will be positive.

On the other hand, failure to operate in a proper social and environmental manner may lead to hefty fines that will undoubtedly impact a company’s overall economic success. A company that does not comply with environmental laws and regulations may risk financial, as well as reputational damage, while negatively impacting the planet and surrounding communities. In 2010, British Petroleum (BP) was responsible for a massive explosion in the Deepwater Horizon oil rig in the Gulf of Mexico, which resulted in the loss of human lives, as well as devastation to marine life. A judge attributed BP’s actions to negligent behaviour: “BP’s negligent acts that caused the blowout, explosion and oil spill…were profit-driven decisions.”² Further, according to the New York Times, “The British oil giant BP said on Tuesday that it lost $5.8 billion in the second quarter, reflecting a huge settlement over the 2010 Gulf of Mexico oil spill.”³ BP was fined billions of dollars, heavily impacting the company’s profits and causing major reputational damage.

While turning a profit is vital to a company’s success, it is important to allocate sufficient resources to develop and maintain CSR functions. This can be achieved through periodic risk assessments within all significant operational areas, in conjunction with an independent consultation. As part of the risk assessment, key concerns will be identified, and controls will be reviewed, for subsequent identification of gaps within existing controls and processes. The main objective of the risk assessment is to mitigate any risks by ensuring that proper controls are in place or identifying where further controls need to be implemented. Once the proper controls are in place, an annual assessment should take place to ensure operating effectiveness, and further mitigate risk to assist in avoiding any negative impacts to the organization. While businesses strive to earn profits, management must consider other key factors to ensure a positive impact on society and the environment, in order to maintain a strong reputation.

GG Observations

Whether your company is privately-owned or a public entity, conducting a risk assessment is greatly encouraged to ensure that potential risk areas are identified, and controls are improved or implemented to address those risks. Our team of professionals have vast experience in conducting risk assessments throughout various industries, please reach out if you would like to schedule a consultation.

[1] Association of Certified Internal Auditors

[2] Judge: Gross Negligence Caused Deadly BP Explosion, Oil Spill. U.S. News. September 4, 2014. Alan Neuhauser

[3] BP Posts Loss as Oil Spill Settlement and Sagging Demand Take Toll. The New York Times. July 28, 2015. Stanley Reed and Clifford Krauss.