Four crucial capabilities for ethical business management

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New research has revealed how organisations across Australia and New Zealand are performing when it comes to corporate social responsibility (CSR) – a business strategy often cited as a vital strategy in modern business.

The State of CSR in Australia and New Zealand Annual Review is the largest ongoing research study of CSR capabilities and practices in Australia and New Zealand, identifying and analysing key trends in the ethical business space.

“New Zealand’s CSR agenda seems to place less emphasis on global sustainability issues and focuses more strongly on reducing environmental impacts and building internal understanding and support for CSR activities,” the report said.

Identifying your organisation

According to the report, organisations engaging a sustainability initiative can affiliate themselves with one of three categories.

Initiators – Initiators tend to be more focused on compliance and managing the negative environmental impacts of their organisations. They are less likely to have a chief sustainability officer (CSO), and are less inclined to use CSR as an innovation driver.

The research showed that just 18% of Kiwi businesses identified themselves as initiators.

Integrators – Integrators’ focus is geared towards establishing internal systems and processes to build the business case for CSR. They prioritise internal issues, such as promoting diversity and waste reduction initiatives. These organisations are much less likely than innovators to employ a CSO, and are likely to locate their CSR staff within a corporate affairs team.

According to the report, 28% of companies in New Zealand identified themselves as integrators.

Innovators – These organisations tend to incorporate social and environmental attributes into their products and services, develop new markets by addressing social and environmental needs and focus on global sustainability issues. Innovators are the most likely companies to have employed a CSO, who is situated within the organisational strategy team.

The majority (54%) of organisations in New Zealand identified themselves as innovators.

Priorities for the year ahead

For organisations in New Zealand, building stronger relationships with stakeholders was the highest priority for their CSR strategies.

According to the report, stakeholder engagement was the biggest priority among the entire participant group.

“Productive stakeholder relationships are essential to success at all stages of CSR development,” the report said. “Organisations continue to recognise that good stakeholder management ensures greater access to vital resources, value creation opportunities, and prudent risk management.”

For companies in the earlier stages of CSR development, managing regulatory impact was the primary focus, while organisations with a more developed initiative were more focused on global sustainability issues.

It was found that Innovators were “significantly more likely” to prioritise global sustainability issues, such as addressing poverty, economic inequality and human rights issues within their sphere of influence.

“Innovators have a greater appetite to deal with complex social problems,” the report read. “They are part of a trend towards taking a global view on using sustainability challenges to create value and positive socio-economic outcomes for both organisations and their stakeholders.”

CSR management capabilities

Researchers identified four key capabilities in CSR management:

1. Stakeholder engagement

This capability was present where organisations identified themselves as having an understanding of the links between the company and its stakeholders that “contribute to long-term prosperity”. These companies routinely considered stakeholders’ needs in business decisions.

Eighty-three per cent of organisations said that their workforce had this capability.

2. Stakeholder dialogue

Three quarters of those surveyed identified themselves as having high stakeholder dialogue capability, meaning that they approached stakeholders with “empathy, honesty and no manipulative intent” while encouraging equal control over the organisation’s sustainable business practices.

3. Integrating stakeholder values

This capability involved companies having the ability to effectively detect and share relevant information about stakeholders with all parts of the organisation to assist the decision making process. Almost 75% of companies said that their workforce had this capability.

4. Social accountability

Two thirds of participants said that their people believed the organisation was accountable to stakeholders for the company’s social impacts. These companies also effectively reported their social performance – even in times of downturn.

Researchers found that organisations in New Zealand scored an average of 70% in overall CSR management capabilities, with two thirds of companies using CSR schemes to drive innovation.

Kiwi respondents faced greater challenges than their Australian counterparts when it came to keeping up with changing stakeholder and market values. They were also struggling more in terms of securing funding for CSR programs, managing uncertainty and engaging external stakeholders in the strategy.

“We have seen a significant shift for New Zealand businesses over the past year. Increasingly, leaders are bringing sustainability into the heart of their organisation’s strategies,” said Penny Nelson, executive director of the Sustainable Business Council. 

“A growing number of businesses are looking beyond sustainability as compliance or risk management and are seeing growing opportunities from embedding good business practice. The State of CSR report suggests that business innovators are tackling social and environmental issues because it creates both financial and non-financial value for them. 

“It was interesting to see that overall, New Zealand businesses are more focused on environmental goals than Australian companies, yet less concerned with social issues. I think there’s growing awareness among New Zealand businesses of the important role they have to play in areas like youth unemployment and poverty. This will be an area to watch.”
 
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