CSR 2.0: encouraging companies to serve society

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CSR 2.0: encouraging companies to serve society

Patrick Odier - Senior Managing Partner

Patrick Odier

Senior Managing Partner

Article published in Le Temps, July 9, 2018

The term corporate social responsibility (CSR) was coined more than 65 years ago. For a long time, companies thought of it in terms of their image and reputation, or at best as an issue of operational efficiency. But at its heart, CSR poses a much more fundamental question for companies: that of their role in society and their underlying raison d’être. 

Since the work of Milton Friedman, economists have had a simple – often crude – answer to this question, which is that the role of companies is to make a profit. They have been discouraged from meddling in the public interest at the risk of losing sight of their priorities, and instead expected to focus solely on their economic performance while letting governments and NGOs act on behalf of the community.

But times have changed. Under pressure from civil society, consumers and often even employees, companies are being called on to better define and embody the basic role they want to play in society. The beginning of the millennial generation, who are particularly sensitive to such issues, has only reinforced this movement, while investors, too, are increasingly taking up the fight. Larry Fink, the CEO of BlackRock, the largest money management firm on the planet with over USD 5 trillion in assets under management, warned leaders of the world’s top companies at the start of the year that they must demonstrate their positive contribution to society or risk losing BlackRock as an investor. Not only was this a bombshell announcement from the very heart of Wall Street and a strong signal that the perception of company roles has changed dramatically in recent years, it showed that it is in financial market players’ best interests to follow suit. This convergence of views has made sustainable development one of the most exciting opportunities around.

The French government is even considering amending the country’s civil code established under Napoleon, which gives primacy to sole shareholders: “every firm must […] be formed in the common interest of the shareholders.” This wording could soon be revised to more directly incorporate environmental and social interests, thereby significantly expanding the number of legitimate stakeholders in a company.

The magnitude of this evolution is huge. It will allow companies to serve society by replacing a rationale based on sole ownership with a much broader approach of “shared value”, to borrow Michael Porter’s pet term – an approach that combines the interests of all company ecosystems in the long run, including shareholders, clients, employees, subcontractors, partners, communities, civil society and the environment.

This philosophical revolution is accompanied by a redefinition of the CSR concept. The days when CSR consisted of a company describing in its annual report what activities it had implemented, often in peripheral terms to its core business, are well and truly over. CSR 2.0 is here. The focus now is on radically transforming the company in all its forms on the basis of its mission, and ensuring that this mission consistently permeates all of the company’s activities and its core business.

In the case of financial companies and those in the Geneva financial centre in particular, defining their mission is relatively straightforward: the fundamental role and primary social benefit of investors is to allocate capital in the most efficient and useful way possible. It’s an essential role, as it determines which economic models are capable of thriving and those which – for want of sufficient capital – are destined to fail.

It is precisely for that reason that asset managers are obliged to allocate their clients’ capital responsibly and sustainably. In doing so, they not only fulfil their mission and their CSR, but protect the interests of their clients and help develop more efficient, more effective and more sustainable economic models that are made for the future.

I firmly believe that beyond its financial strength, the social responsibility of a company and the sustainability of its business model are powerful drivers of economic growth in the long term. Excellence in CSR is often rewarded by greater consumer loyalty, enhanced appeal among future talents and an improvement in operational efficiency – factors which can have a positive effect on the long-term profitability of an investment.

Ultimately, however, you have to practise what you preach. CSR should not be limited solely to asset managers’ investment processes – we also need to apply it to all of our business practices. Even if the Geneva financial centre has nothing to be ashamed of when compared with its international peers, it still has room for improvement. One example of international leadership that should be harnessed is the ability to raise capital in order to achieve the UN’s Sustainable Development Goals (SDGs). The imminent establishment of the global headquarters of FC4S (Financial Centres for Sustainability) in Geneva is a further illustration of the location’s assets. It is an opportunity as well as a responsibility for all players in the Geneva financial centre that we must grasp with both hands.  

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