Re-interpretating corporate social compliance
Corporate social responsibility (CSR) has nowadays become more of a legal requirement. It involves making sure that your business is following the latest relevant regulations and industry standards. There are many different actions to be taken to fulfil social compliance obligations, but they all have one common goal: to ensure your business is operating legally, ethically, and responsibly.
What is corporate social compliance?
The term ‘CSR’ was first coined in the 1960s and became more widely recognised in the 1990s. As the term CSR suggests, it is a blend of ‘corporate’ and ‘social responsibility’. ‘Corporate’ here states that the responsibility to business entities, while “social responsibility” highlights the part of having good wills in social and environmental aspects from business actions taken.
In other words, CSR is a business strategy that includes ethical, social, environmental, and economic considerations that go beyond the interests of shareholders. It looks at a balance between economic growth and positive impacts on society, which essentially covers a wide spectrum of subjects, such as the welfare of employees, human rights, communal benefits, and a clean environment.
Evolution of corporate social compliance
Initially, businesses approached CSR as an internal matter, as they recognised that this brought certain benefits: good brand image, employee loyalty and retention, positive perception among investors, strong reputation among consumers, and overall business success.
Aside from labour rights, which were already regulated bylaw in many regions, most CSR activities were conducted on a voluntary basis, with businesses choosing whether to act and how to present their CSR results publicly.
Things have changed over the past couple of decades, with more and more businesses looking beyond the company itself and at the supply chains in which they are involved. Here we are not only talking about tier 1 vendors or suppliers with which a company has business – be they the office stationery supplier or the agent supplying goods for a store’s shelf racks – but also about tier 2 and tier N players, which are a critical part of the business network. Essentially, businesses themselves and other external stakeholders now expect greater visibility of the supply chain, ensuring different stages of business activity are carried out properly and responsibly.
Another significant factor that is quickly gaining influence is regulatory-driven pressure. The California Transparency in Supply Chains Act of 2010 was one of the first acts to address human trafficking and modern slavery at state-level in the US. It was followed by the UK Modern Slavery Act five years later at country-level, and then in 2017 by the passing of the French Duty of Vigilance Law. Earlier this year, the first regional compliance regulation was adopted by the European Union. The EU Due Diligence Directive will have a far-reaching impact, as once it is accepted and implemented, the new law will be effective in all EU Member States. It covers the supply chains within and outside EU. In the meantime, several national compliance regulations are also coming into force in European countries, including the German Act on Corporate Due Diligence in Supply Chains (LkSG), the Norwegian Transparency Act, and the Swiss Code of Obligations.
Simply put, the conventional approach to CSR as value-adding initiatives no longer suffices. Businesses will be required to present facts that demonstrate that due diligence has been met and risks properly identified and mitigated.
Implementing CSR for regulatory compliance
To fulfil such ethical and moral obligations in accordance with new laws, businesses which have not yet engaged in CSR should plan substantial efforts. Even for companies that already consider CSR compliance in their activities, it is highly recommended that they reassess whether current policies and procedures suffice and what improvements can be made.
Generally speaking, businesses should follow the three high-level steps below to lay the foundation for CSR compliance:
- Identify risks
This requires an understanding of the supply chain and who fulfils which roles. Only by being familiar with this, can companies assess and evaluate risks. A lack of clarity about the supply chain presents a big risk in itself. - Define standards and expectations
Most importantly, companies should define the targets and commitments of their CSR compliance activities. Targets and commitments should be set in good faith and be relevant to the nature of the business. Next, in order to be able to measure performance, standards such as vendor agreements, purchasing codes of conduct and supplier compliance policies must be put in place. Other initiatives, such as charitable work, opting for more environmentally friendly materials or goods, and other large-scale projects can also be devised and implemented. - Measure and manage performance
There are different ways to measure your compliance against your CSR goals. Companies can set up internal taskforces or independent teams to drive and evaluate the effectiveness of any actions taken. Many companies also take part in industry collaborative social audit programmes, such as SMETA by Sedex and amfori BSCI, to obtain objective assessments. The benefit of such programmes is that companies can compare their performance to industry benchmarks and better understand their potential for improvement with the capacity building sets provided. Companies can also leverage risk assessment tools available in collaborative programmes to effectively map out potential social and environmental risks related to the businesses themselves and their supply chains. By adopting widely acknowledged social compliance programmes, companies can avoid the additional stress of participating in different programmes and duplicating manpower and running costs.
Measuring CSR compliance is now more important than ever, as regulations could mean that businesses are required to present fact-based evidence of such compliance. A violation could lead to financial penalties and liability for both the company and its directors.
When businesses publish their CSR publicly, it makes sense that they also share their achievements, substantiated by actions and facts. Transparency is a key element of CSR compliance.
Numerous large- and small-scale businesses have given great examples of CSR success and demonstrated the benefit of companies connecting with communities. Even without regulatory pressure, CSR commitments are something that businesses should incorporate into their strategies for long-term growth.
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