Corporate social responsibility breaks new ground

Corporate social responsibility (CSR) is not yet discussed as widely as it could be in Estonia. However, awareness of the phenomenon is slowly gaining ground and more systematic approaches to it are being introduced. Estonia’s entry into the European Union is expected to lead to the greater promotion of CSR in Estonia.

Background

Corporate social responsibility (CSR) can be defined as the voluntary integration of social and environment concerns in enterprises’ daily business operations and in the interaction with their stakeholders. In Estonia, conscious and conceptual approaches to CSR are only now gaining ground. However, understanding of the whole concept of CSR is relatively new and is only just now being introduced to businesses, the academic curriculum and the general public. Estonia’s entry to the European Union, where CSR is often in the public spotlight, is expected to have a positive impact in promoting CSR in the country.

The report [Corporate social responsibility: State of the art in Estonia 2004](http://www.cecoa.pt/destaques/STATE ART CSR ESTONIA 2004.pdf) states that the practice of CSR has a long history: during the Soviet era, large enterprises and collective production units (collective farms) often took an interest of the social dimension, investing in local communities and looking after their employees. Today, the role of companies in the development of society as a whole is highly valued. Cash and in-kind support is part of common business practice, with sport, culture, health and welfare being the main areas of support. When employees become more aware of their rights and opportunities, they tend to demand more from their working environment. However, in many cases these practices are still not integrated with the strategic management of the organisation and thus may be informal in nature.

Joining the EU will put a greater emphasis on CSR in Estonia and encourage its uptake. First, Estonian companies will have to adopt certain CSR practices due to external pressure from more knowledgeable customers and demanding business partners; second, as the EU officially commits itself to CSR, Estonia will be more involved in discussions and development of the CSR agenda at the EU level.

Current attitudes to CSR

At the beginning of 2005, the results of the World Bank-financed study Enabling a better environment for corporate social responsibility were launched. The aim of the survey was to determine how company managers perceive CSR and define their company’s role in society. Enterprises were selected from the 300 companies with the highest annual turnover, and face-to-face interviews with chief executive officers or other senior managers were carried out in 80 companies. The sample included companies from different economic sectors with different ownership structures and of different sizes.

Differences in understanding of term CSR

The survey analysed different aspects of CSR in Estonian enterprises. It seems that enterprises often interpret the concept quite differently. Most of the enterprises associate this term with social relationships between the enterprise and its stakeholders and with the environment. Most of the respondents also linked these activities to ethical conduct, and more than half of the companies surveyed associated it with environmentally friendly activities.

Understanding of the nature of CSR can differ substantially, depending upon the company’s sector and its size. Overall, financial services companies appear to be much more knowledgeable in their CSR. Small companies seem to associate socially responsible activities primarily with respecting the environment, while very large companies associate CSR with the cancelling out of social inequalities.

The company’s role in society

Estonian companies consider profit-making to be one of the most important tasks of a company. Job security issues appear to be a high priority for public and semi-public companies, whereas only 70% of private companies strongly agreed that ensuring job security is one of their main roles in society. Complying with the existing legal framework, paying taxes, listening to stakeholders and protecting employees’ healthcare and the environment were also considered to be important.

Codes of conduct are considered to be an important part of CSR, although it appears that written codes of conduct are not common in Estonia. Only 45% of the companies interviewed have a written code of conduct; 30% have a verbal code and 20% have no code at all. The majority of companies (85%) believes that having a code of conduct contributes to the survival of their business in the long term and gives them a competitive advantage; it also benefits their reputation, their employee relations, improves their compliance with legislation and enhances their risk management.

Current CSR practices

Type of social projects

Respondents were asked about the implementation of social projects relating to employees, such as core labour standards, explicit anti-discrimination policies, employee health protection plans and training. More than half of the companies surveyed implement the core labour standards adopted by the International Labour Organization (ILO); this includes all public and semi-public companies and all companies involved in financial services.

Employee health protection plans are the norm in Estonia, but explicit anti-discrimination policies in personnel recruitment is not. Only 39% of respondents have such a policy, generally the larger companies. Almost all companies provide some form of training for their employees: 38% of companies provide training only when a specific need arises and only 16% provide continuous training.

During the past three years, almost half of the respondents were engaged in social projects not directly related to employment, such as education, technical training and health, community development, housing, childcare, sports, and culture. The main beneficiaries of such social projects are children and young people, although in some cases the society or the community was mentioned. The main factors motivating Estonian companies to engage in social projects are: improved image; better long-term business survival; better local community relations; and building of their global corporate brand. Opinions were divided on a number of other reasons, such as better employee relations; increased competitive advantage; access to new markets; and pressure from business partners. The majority of companies believe that the following factors do not play a role in the decision of companies to engage in social projects: improved management of risk; costs savings; and alignment with industry trends.

Benefits and obstacles

Respondents were asked to rank the internal and external benefits of adopting CSR practices. Companies saw the greatest internal benefits as being: business sustainability; competitive advantage; easier compliance with legislation. Benefits mentioned less often were the attraction and retention of qualified employees and employee loyalty; increased productivity, quality and sales; and financial improvement and access to capital. Some 9% of respondents stated that companies derive no internal benefit from CSR practices. Regarding the external benefits to companies, 44% of respondents mentioned a better image and reputation. Other benefits mentioned were increased visibility, preservation of the environment and intangible benefits.

Respondents believe that there are three types of obstacle preventing adoption of CSR practices. The biggest is financial in nature: the overall cost of CSR projects; the lack of a direct impact on financial success; the lack of visible results; and an excessive focus on short-term gains. Governmental and institutional barriers form the second biggest barrier: lack of government involvement; current government policy; lack of an appropriate legal framework; lack of appropriate institutions; and concerns about a change in government policy. The third type of obstacle relates to human resources, such as management resistance, cultural differences and employee resistance. Respondents mentioned other obstacles such as lack of time, lack of information and tax incentives.

Support and improvement

Most companies stated that the government does not provide assistance regarding CSR. This is confirmed by data, which indicates the impact of government policies upon investment in CSR. The majority of companies think that the Estonian government’s policies do not encourage companies to invest in socially responsible activities. Employees and owners are felt to play the biggest role in helping companies meet their social responsibilities.

Financial issues are perceived to represent the main risk in, and barrier to, implementing CSR practices; however, a range of actions – both financial and non-financial – were cited as necessary for boosting CSR practice in Estonian companies. On the financial front, companies believe that tax incentives are paramount in improving CSR practices; to a lesser extent, the empowering local governments to decide on tax exemptions is also deemed important. On the non-financial front, the companies surveyed indicated the need for recognition, guidelines, government intervention and dialogue. The majority of companies believe that sharing information, discussing, collaborating and negotiating with different stakeholders would make their CSR practices more relevant.

Commentary

The majority of Estonian companies are micro-enterprises and do not have long-term strategic plans; and their mission, values and vision are not documented. In the case of larger firms, such documents sometimes exist, but even then values are usually formulated taking into account only the needs of clients, employees and shareholders; society as a whole is seldom mentioned.

Even where an understanding of CSR exists, and organisations are – to an extent – implementing it, there is still minimal discussion or reporting of the topic. The reporting to date has mainly focused on sponsorship activities, not on an integrated approach to CSR. CSR reports, ethical funds and social indexes have not yet been introduced in Estonia. However, one positive sign is that supporters of CSR are increasingly active in society. The Responsible Business Forum in Estonia (ჸVastutustundliku Ettevõtluse Foorum) aims both to raise awareness of CSR in Estonian society and to facilitate a multi-stakeholder dialogue. The forum is organising conferences and planning future research in order to introduce the concept of CSR to the general public. In addition, several other institutions are engaged in promoting the topic, such as the Charities Foundation and the Estonian NGO Roundtable. A positive shift towards greater awareness of CSR is already discernible in Estonian society. (Raul Eamets, University of Tartu)