It used to be the case that organizations were only responsible to their owners and shareholders. The primary goal was to make a profit, and as long as the business met that objective, it was deemed a success. Now all that has changed: Consumer insight is now a crucial driving force in corporate decision-making. Today, consumers increasingly seek to support organizations that align with their own moral and ethical views. That is particularly true of younger consumers, with Millennials and Gen Z leading the charge.
According to one study, 91% of Millennials would switch brands to one associated with a cause they believed in, while 94% of Gen Z consumers expect companies to address social and environmental issues.
And it’s not just consumers who care. Employees from the same age demographics want to work for organizations that care about more than just money. A report shows that a strong corporate social responsibility (CSR) program can help organizations attract and retain top talent, with 86% of Millennials saying they would take a pay cut to work for an organization with values that match their own. Additionally, 89% of employees say they’re more motivated to work for a company with a strong purpose, with 85% admitting to being more productive, too.
What is corporate social responsibility?
Before we delve too deeply into the social responsibility of organizations to customers, it’s worth outlining what corporate social responsibility, or CSR, really means.
Corporate social responsibility is the degree to which an organization considers and integrates social, environmental, and community concerns into its business operations. Some businesses take a broad view of their purpose and are committed to having a positive impact on society. Others might be solely concerned with profit. However, these days, most organizations exist somewhere between these extremes and have some component of their business that tries to become a force for good.
Organizations can choose to focus on a wide range of CSR issues, but they often take their cues from their customers and what matters to them. Climate change and environmental preservation are two of the main focus areas of CSR efforts. Child protection, job creation, poverty and hunger, LGBTQ+ rights, racial equality, and health and education are some examples of others.
The role of ESG metrics in assessing CSR
Consumers speak loudest with their money, and they increasingly want to see organizations actively working to improve society and the environment, or at the very least, mitigate their impact. But consumers don’t buy into organizations that only talk a good game. They want to buy into businesses that are transparent and support causes in a measurable way. That’s where environmental, social, and governance (ESG) comes into play.
ESG has become an essential metric for investors, but it’s also increasingly important for consumers and employees. As you walk down the aisle of the average store, you’ll see products labeled as ‘eco-friendly’, ‘fair-trade’, ‘100% recyclable’, ‘ethically sourced’, and ‘environmentally sustainable’, but what do these claims mean in terms of their contribution to achieving an organization’s CSR goals? That’s where ESG metrics can help. They give consumers an objective way to assess a company’s performance in relation to its sustainable and responsible practices.
Integrating ESG initiatives and social benefits
One of the key concerns for organizations is finding the right balance between keeping their customers happy through social and environmental initiatives and generating profits that satisfy investors. We already know that consumers want to buy ethical and sustainable products, but are they willing to pay more for them?
According to a 2020 study, between 60 and 70 percent of consumers across different sectors are willing to pay more for sustainable packaging. However, that goes against anecdotal evidence from some executives, who say they struggle to generate demand for products that incorporate ESG-related initiatives, with sales often falling flat.
This contradiction begs the question, do consumers follow through and buy products with ESG claims? A 2023 McKinsey study found that products with ESG-related claims averaged 28% cumulative growth over five years, compared with 20% for products making no social or environmental claims. As well as a moral choice, this evidence suggests that creating products with social benefits also represents a solid business decision.
The same rules apply to the hospitality and tourism sectors, where environmentally-focused initiatives have proven financial benefits. For example, EHL’s research suggests that the introduction of different management innovations provides financial benefits in terms of cost savings, cost avoidance, and revenue growth for businesses. Additionally, 11 global hospitality companies with sustainable business practices have shown that CSR made them more likely to have a better reputation, improve their brand image, enhance their guests’ experience, and boost both their revenues and customer loyalty.
Key strategies appealing to consumers: what organizations need to know
If you want to demonstrate your social commitment to your customers, here are some key insights from the McKinsey study into consumer behavior and the type of ESR initiatives that are most successful.
Consumer spending is shifting towards socially responsible products
The overall trend is that consumers want to choose more responsible products that reflect their own morals and ideals. This type of behavior was more common among certain demographic groups, including high-income households, households with children, and urban and suburban residents. However, there was still a preference for ESG-related products across all demographics, suggesting a widespread move to more socially conscious buying.
All ESG claims lead to growth
The study found that all ESG claims lead to growth, but within that, consumers appear to prefer some claims over others. Products making the most common claims, such as ‘sustainable packaging’ and ‘plant-based’, enjoyed around 2% higher growth than products that didn’t make any claims at all. However, less common claims, such as ‘carbon neutral’ or ‘vegan’, tended to lead to a greater increase in growth of up to 8.5%.
Multiple ESG claims convey more authenticity
Products that display more than one ESG-related claim are typically a bigger hit with consumers. The study found that products making multiple claims grew at nearly twice the rate of products with just one claim. That doesn’t mean you can simply make more claims and expect to be rewarded. Every claim must have a genuine ESG impact or organizations risk straying into the potentially damaging area of greenwashing. However, it does suggest that consumers associate multiple claims with more authentic ESG behavior.
Avoid ‘greenwashing’ at all costs
Organizations must avoid the temptation to meet consumer demand for socially responsible products by making thin or misleading ESG claims. Any claims you make about the environmental or social benefits of your products or services must be backed by genuine actions that have a meaningful impact. If you are found to be engaged in greenwashing, it can be extremely damaging to an organization’s reputation and the trust consumers have in you. It will also make consumers skeptical of genuine social responsibility measures you may implement in the future.
The consumers’ position has evolved
While it used to be the case that consumers were simply a target for an organization’s goods and services, their role in dictating the social responsibility measures they expect to see has transformed them into important stakeholders.
Consumers now have a significant role in deciding which social and environmental initiatives organizations should implement to build trust and gain acceptance. If they find that the sole purpose of an organization is the pursuit of profit, then many consumers will look elsewhere for the same product or service from a provider with a more socially responsible approach.
CSR education and training for managers and executives
At EHL, providing education for a more sustainable and socially equitable future is at the heart of the school’s CSR mission, known as Contributing Beyond Education. The school aims to integrate sustainability into the classroom and virtual curriculum, as well as throughout the campus experience. By giving students opportunities to learn about sustainability, both in and outside the classroom, EHL is preparing the next generation of conscious sustainability leaders.
EHL’s Graduate School takes a human-centric approach and currently offers several courses related to CSR topics in the master’s and MBA degrees, in addition to short courses such as this Sustainability Management course.