Corporate Social Responsibility: recession proof

With the recession battering the pocketbooks of Canadians across the country, charitable donations took a nosedive. In fact, many charities are running out of cash just when they need it most. According to a survey by Imagine Canada, an umbrella organization representing charities and non-profit groups, 45 per cent of the 1,500 charity leaders polled between November 2009 and January 2010 said the economic downturn had led to an increase in demand for their services, but 48 per cent say they’re having difficulty fulfilling their mission and 22 per cent claim they could have to shut down operations altogether if their financial situation doesn’t improve. And the future doesn’t look any brighter: 51 per cent expect to have a hard time covering their expenses between now and next year.

When the going got tough, Canadians looked out for No. 1. But what of their employers—many of which spent the better part of the past decade touting their new economy bona fides and aligning themselves with causes like climate change and AIDS awareness? While some suspected corporate social responsibility (CSR) initiatives would be the first items to disappear from corporate budgets amid all the slashing, for the most part, companies stuck to their principles. “We didn’t see any let-up in sustainability programs at companies that already had them,” says Heather Lang, director of research products for Jantzi-Sustainalytics, which compiles the list of Canada’s Top 50 Socially Responsible Corporations. “If anything, there was likely an increase in programs.”

That’s exactly what happened at the Bank of Montreal, which pushed ahead with an aggressive emissions reduction program despite the economic slump. The bank is now on track to meet its targets of a five per cent cut in greenhouse gas emissions from 2007 levels and to be carbon neutral by the end of 2010, according to Jim Johnston, the bank’s director of environmental sustainability. It didn’t hurt that cutting emissions at the bank dovetailed nicely with cost-cutting. Though some measures, like energy retrofits at branches and a $2-million annual investment in the Greening Canada Fund in exchange for carbon offset credits, cost money upfront, Johnston figures a lighter environmental footprint means more money in the bank’s pocket in the long run. “We saw a 25 per cent reduction in both the cost and the resultant emissions from air travel alone in 2009,” he says. “While I’m a happy guy that the emissions have been reduced, the corporation is saving on the cost side as well.”

For others, the recession provided an opportunity to expand their green credentials at cut-rate prices. Don Wharton, vice-president of sustainable development for TransAlta Corp., says Canadian Hydro Developers, a Calgary-based clean energy supplier, was “one of the companies we’d been looking at for some time” to expand TransAlta’s renewable energy supply. Last October, the Calgary-based power company snapped up Canadian Hydro Developers at a relative discount in a deal worth $1.6 billion. Overall, the company’s corporate responsibility budget declined by 10 to 15 per cent—“absolutely consistent with the trimming we did elsewhere”—but TransAlta emerged from the downturn with a renewable energy operation that now makes up 22 per cent of the company’s total production capacity.

Heading into the recession, John Quelch, a marketing professor at Harvard Business School, wrote extensively about the risks involved with taking an axe to CSR budgets. Many consumers, he says, have come to differentiate between brands based on the social initiatives they undertake. Moreover, once companies lose their trustworthiness on social responsibility matters, it can be very hard to get it back, warns B.C.-based corporate sustainability consultant Coro Strandberg. “You’ll lose your credibility with your own employees,” she says. “They’ll perceive it as a fad and they won’t be as engaged next time around. Your suppliers won’t believe that you’re committed and neither will your customers. Once you’re in the game, you have to stay in the game.”

After all, burnishing your company’s reputation is an important motivator behind many corporate sustainability projects and companies can hardly afford to trade in their credibility for few bucks. A Business for Social Responsibility/Globescan poll of corporate responsibility professionals taken last October found 86 per cent of respondents said the reputational benefits of sustainability projects had become increasingly important in recent years. And given the number of companies whose reputations were battered by the recession, it’s no surprise now to find a few looking to social responsibility initiatives to do just that.

As far as credibility goes, one way to communicate a company’s commitment to social responsibility is to link its top earners’ pay with their sustainability achievements. At Netherlands-based ING Group, for instance, the company has introduced dramatic changes to the way its most senior executives are paid by introducing non-financial benchmarks when grading their performance. Starting this year, about 200 of ING’s top executives will see their compensation depend on the company’s success at advancing its sustainability agenda, with yardsticks such as workforce diversity, employee engagement, and community investment.

The importance of managing non-financial goals, says Jantzi-Sustainalytics’ Lang, is likely to emerge as one of the lasting lessons from the recession. “It highlights the need for more long-term thinking and also broadens our definition of risk,” she says. “If we think about things strictly in short-term financial terms, then we really see ourselves looking to solutions like the subprime loans that got us into all that trouble.”

Unlike their counterparts in the charity sector, corporate sustainability professionals are a particularly optimistic bunch coming out of the recession. In fact, the BSR/Globescan study found that 89 per cent expect their budgets to either increase or stay the same as a result of the downturn. For Rod Lohin, executive director of the Michael Lee-Chin Institute for Corporate Citizenship at the University of Toronto’s Rotman School of Management, the recession exposed a significant breach in the government’s ability to solve complex social problems. And while that burden may have once been the domain of the charitable sector, the recession has led consumers to expect companies to share it. “One of the big trends I think we’ll see in the next 10 years is how much businesses are going to play nice with government and be engaged in developing solutions to broader societal problems,” he says. “Whereas they might previously have been focusing on what’s best for them, I suspect they’re going to start looking at what’s best for all of us.”

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