Recession puts pressure on business ethics

During the good years – up to 2008 – firms were making more and more of their ethical stance. Corporate Social Responsibility (CSR) got taken more seriously, but there were always doubts: businesses were keen to be seen as well behaved, but would this last when times got tougher?

Now, deep into a worldwide recession, it’s been a good time to revisit an old blog and see if firms are shedding some of their goodness in these chillier times.

A nice example of the times (taken from this Economist article) is Gap who will hold a strategy meeting for its corporate social responsibility team. In previous years that meant flying in people from 20 countries around the world, but this time the company plans to bring them together virtually, via online meetings. The main reason for the switch is not to help save the planet by reducing Gap’s carbon footprint, but to help save money.

Is cutting back on CSR a quick and relatively painless way to save money? There have been cuts to CSR budgets. A survey conducted late last year showed that almost a third of firms expected their spending on CSR to fall as a result of the current economic crisis.

Yet so far the recession has not produced a complete retreat from corporate do-gooding. Most cuts have come where big institutions like banks have a fund for good causes. Given the woes of some troubled financial institutions, taxpayers might question why banks are still forking out any cash to good causes rather than using it to repay government loans anyway. Carmakers are also cutting back. Ford expects its charity arm to shell out 40% less this year,

The downturn has dented other aspects of CSR, too. While businesses were minting money, there was much talk of “green” travel and offsetting carbon footprints. Yet a recent survey found that only 17% of them now ranked environmental sustainability as a high priority, compared with 29% a year ago.

Chaos in the global financial system has created problems for some big, environmentally friendly projects. American Electric Power (AEP) chose to delay its plans to build a wind farm when the heavily indebted utility found its cost of capital had soared because of turmoil in the corporate-bond market.

Most firms’ commitment to greenery is not driven by kindly goodness: they expect demand for clean power and eco products to increase. Other firms are sticking with green-energy projects because they can boost efficiency or cut costs. Intel, the world’s largest chipmaker, says it plans to increase investment in energy efficiency this year because the $23m it has poured into green energy since 2001 cut its fuel bills by $50m over the same period.

Self-interest also explains why many companies are intent on creating greener supply chains, in spite of the costs. Mars and Cadbury have separately announced plans to increase the amount of cocoa they source from sustainable sources because both are concerned about future shortages if production practices do not change. IKEA is also fretting about one of its most important raw materials. The Swedish furniture giant has agreed a plan to increase the amount of wood in its products that comes from responsibly managed forests between 2010 and 2012.

So the initial results of the impact of the recession on CSR are quite encouraging. Many firms really do seem to have found ways of making the world better while making money at the same time. And consumer interest in companies’ sustainability credentials remains strong in spite of the recession.