Defining sustainable development, CSR, CSI and LED

by Jonathon Hanks

A client recently asked me for my views on the following phrases and concepts that typically crop up — and that are frequently misunderstood! — in the work that we do with South African companies: sustainable development; corporate social responsibility (CSR); corporate social investment (CSI); local economic development (LED); and socio-economic development”.
Sustainable development and related corporate terms

As someone who is currently convening an international drafting team that is seeking to provide global guidance on “social responsibility”, I am perhaps particularly sensitive to how frequently these concepts are confused.

I would distinguish them as follows:

  • Sustainable development –- simply put, it’s a chosen development path (in a particular economy and society, but ultimately informed by the global development path) that we can continue to maintain indefinitely. This chosen socio-economic development path is a political decision.In South Africa at present (very crudely put!), “sustainable development” is about maintaining a particular level of GDP growth as outlined in ASGISA. But is ASGISA truly sustainable? For a development path to be genuinely “sustainable”, we need to ensure that it doesn’t undermine the stocks of capital assets upon which it depends, including especially natural, human and social capital. Apartheid was unsustainable (with or without sanctions) as it was consistently destroying human and social capital. Similarly, in current SA, we can’t sustain 6% GDP growth if it is jobless growth, fails to address inequality, and/or continues to undermine our water resources.

    Ultimately, if we are to ensure sustainable development, we need to maintain a critical stock of natural capital upon which all other capital stocks eventually depend — after all, we cant defend social justice on a dead planet. It is becoming increasingly evident that at a global level we are significantly undermining natural capital stocks, primarily because business and government fail to assign sufficient value to these stocks, seeing it as income and not capital. By this definition, it is alarmingly clear that very few companies or countries are contributing effectively to sustainable development, with our fossil fuel-based economy and high consumption lifestyles being the greatest threat to the resources upon which we depend.

    Our work at Incite is informed by the belief that we are going to see increasing turbulence (both globally and nationally) arising from depleting stocks of natural and social capital.  Understanding and anticipating this turbulence, and understanding the collective need to build human, social and natural capital (and not just financial capital), should inform business strategy.

  • Corporate social responsibility (CSR) — frankly this is a horrible misnomer for at least two reasons: i) it suggests a focus on social issues (to the exclusion of the environment) and ii) it is easily confused with CSI (see below). More correctly, CSR refers to an organisation’s contribution to sustainable development. Crucially (and as distinct from CSI) it focuses on how the organisation contributes to building human, social and natural capital through its core business activities, namely: how it manages its employees, its production processes, marketing activities, suppliers, communities, its relationship with policy makers etc etc. At Incite, we frame an organisation’s response to the challenges of sustainable development by assessing its resilience, namely its ability to survive and prosper. This requires competencies that are often insufficiently developed (or completely lacking) in most corporations.
  • Corporate social investment (CSI) — while CSR refers to how an organization makes its money, CSI is about how it spends some of its money. CSI is primarily about an organization’s philanthropic activities and (at best) is a very small component of CSR. Unfortunately, most corporates in South Africa equate CSI with sustainability / CSR, which can be a very misleading smokescreen for an organisation’s real social or environmental impacts.We could for example have a company that sells designer clothes that runs a wonderful CSI programme aimed at looking after HIV orphans or funding panda programmes, while most of its clothes are made by underpaid children (or illegal underpaid immigrants) in textile factories using and polluting water unsustainably and fostering corruption.

    Another criticism of CSI is that frequently a company’s CSI programme is not an “investment”, but is simply “expenditure” that fails to generate long-term returns for either the community or the company. At Incite we typically haven’t focused on CSI issues, but rather on building corporate resilience to global turbulence. There are some valuable opportunities to assist companies in ensuring that CSI initiatives are more strategic and contribute meaningfully to sustainable development. But we find it difficult to do this when companies are not prepared to engage in a frank assessment of its overall contribution to sustainable development.

  • Local economic development (LED) — defined by the World Bank as “the process by which public, business and non-governmental sector partners work collectively to create better conditions for economic growth and employment generation. The aim is to improve quality of life for all.”  This clearly has synergies with “sustainable development”, though with an explicit focus on the economic and social elements, which can be compromised if insufficient attention is given to the environmental aspects.While companies can contribute to LED through CSI initiatives, the impact is far more significant if this is in integrated into its core business, like its procurement and employment practices. And often there are significant opportunities for innovation that allows a company to use its core business to promote LED and sustainable development (such as cell phone companies and micro-finance opportunities –- far more meaningful both to the company and the community than a local CSI programme).

We have a very real concern that many corporates are failing to understand the strategic significance of the challenges associated with sustainable development, and that they continue to frame their response through CSI programmes (that are often wholly inadequate and at times deliberately misleading). At least some of the responsibility for this must rest with those of us involved in the sustainability community and with how we have  communicated this.

Do my definitions agree with yours? What different ideas do you have about these concepts?

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