Toby Usnik and Daniel Korschun explain why companies who are not making corporate social responsibility an area of focus will be left behind.

Corporate social responsibility has increasingly become an important component for businesses. According to the Governance and Accountability Institute, 86% of the S&P 500 Index companies published sustainability or corporate responsibility reports in 2018. In fact, CSR is so important that is has become a business discipline integral to the corporate mission statement. But doing this also requires strategy, analysis and conviction because it is not a one-size-fits-all. What are the best practices of CSR to ensure success and make the biggest impact? Toby Usnik is author of  The Caring Economy: How to Win with Corporate Social Responsibility and founder of Philanthropic Impact Partners. Daniel Korschun is an associate marketing professor at Drexel University and the author of  We Are Market Basket. They joined the Knowledge at Wharton radio show on SiriusXM to talk about the expanding role of corporate social responsibility. (Listen to the podcast at the top of this page.)

An edited transcript of the conversation follows.

Knowledge at Wharton: It feels like more firms in the last decade have recognized the importance of corporate social responsibility and pulling it into their daily operations and structure. Would you agree?

Daniel Korschun: Yes, the idea has been around at least since the 1800s, and you can find it even farther back than that in the ancient Greeks. But it has really taken hold in the last maybe 20 years in that it has really shown some explosive growth. A lot of the reason is just because the general public now is much more aware of whom they’re buying from. They used to be more focused on individual products and would say, “I want a pair of sneakers. What’s the best quality sneaker?” And that was pretty much the end of it. Now, consumers, employees, even investors have been asking more and more, “Who is making that pair of sneakers, and what are they all about?”

Toby Usnik: In fact, I used a bull’s eye in my book, The Caring Economy, to showcase that in the center of the bull’s eye is the employee population, and in the outer ring from there is the consumer, and in the outer ring from there are all the other stakeholders. This is a consumer-driven evolution or revolution, depending on whom you ask. Certainly, the employees and the customers of today and tomorrow are more connected, more informed, and making more responsible decisions with where they spend their money, where they spend their careers and where they invest.

Knowledge at Wharton: Within that bull’s eye, do you put more importance on the employees because they don’t just work for the company, but they are also the consumers of other products?

Usnik: Absolutely. Great brands are built from the inside out. Your employees are your ambassadors as well as the consumers of other products. Whereas I was trained traditionally to be a brand policeman in corporate communications at The New York Times, American Express, Christie’s, we’re now in the era of the brand ambassador, where we need to have dialogues with those consumers, investors and employees. We can no longer be the custodians or the brand police. We need to be the ambassadors.

Korschun: Employees are with that brand for eight or more hours a day, so their identity becomes wrapped up in what their company is doing. Then they leave at night, go home to their family and talk about what they encountered at work, so this is a much bigger deal in those people’s lives than for most consumers. There are exceptions, obviously, if you have the super-fan consumer who becomes really wrapped up in the brand. But in general, I would absolutely agree that employees are the ones that become the most attached to what companies get involved in when it comes to social responsibility.

“Great brands are built from the inside out.” –Toby Usnik

Knowledge at Wharton: Do executives who thought in years past that CSR it was an investment without a return now understand that it can have a bottom-line benefit?

Korschun: Yes, and you say “bottom line” rather than top line. What you’re alluding to, I think, is that you’ve got the employees there. They might work harder and become more productive, help reduce costs of the company. Then you’ve got those top-line changes where you have customers who feel closer to the company. They’re drawn in. Their purchase can become almost symbolic of something greater. They’re purchasing that pair of sneakers or the umbrella or whatever it is, but they’re saying to themselves, “By purchasing this, I’m not just getting the umbrella, I’m contributing to someone else who’s not in the typical ‘me and the company’ relationship. There’s some third-party out there that I’m helping by doing this.” And it makes a big difference when people are choosing between like brands.

Knowledge at Wharton: Toby, you mentioned in your book a triple bottom line. What is that?

Usnik: The triple bottom line is basically looking at the social, environmental and financial results of the company. More and more, particularly with the publicly traded companies, you’re seeing this regularly being reported upon, measured, audited.

Going back to the previous question — this is no longer a fringe activity when you have Larry Fink at BlackRock — a $17 trillion asset manager — not once, but in two annual letters to stakeholders saying, “We are now expecting you, our stakeholders, to report regularly on environmental, social and governance (ESG) because we have a fiduciary responsibility.” I think also you look at another businessperson like Mike Bloomberg, who is an early supporter of something called SASB — Sustainability Accounting Standards Board. This is really allowing the huge publicly traded companies to do the apples-to-apples comparisons for their investors, their employees and the larger public. This is mainstream now.

Korschun: We seem very much in sync here in that social responsibility has become not something that is, “Should I get involved? Should I not get involved?” The risk is greater to not get involved in any way, so it’s really just a matter of how you do it. How do you configure it for your company?

Knowledge at Wharton: We had the statistic that 86% of the S&P 500 Index published either a sustainability report or a corporate responsibility report. That still leaves 14% that did not. If social responsibility has become imperative, why are there still holdouts?

Usnik: As I write in The Caring Economy, it’s just a matter of time. The bad news for those folks is that the upside to doing the right thing — or moving to a more responsible, more transparent set of business practices — is decreasing because the consumers, the employees and the investors now expect this of brands. If you walk down Locust Walk on campus here and ask 10 random students what are their top three concerns when they graduate from Penn, I promise you that sustainability, ESG, CSR, some variation of that, is going to be on their top three list.

Korschun: Those 14%, probably almost all of them are involved in some way. It’s just that they’ve changed the way that they’re reporting. The way that some companies are reporting this has become a little bit less formal. It’s more dialogues with consumers and employees at the company and less on these very static reports that many companies find they don’t get a lot of readers. If you’re speaking to consumers, it’s not going to be through one of those reports in that statistic. Those reports are more for people within the social responsibility industry, for some investors that want to rank and see how the company is performing over time. Like, “Are they reducing their waste as they said they are?”

It’s an important document in many respects. But when it comes to managing relationships with employees, speaking with consumers, I think we have to be careful not to put too much attention on those reports and to really focus on the psychology. What’s going on in the heads of the consumers? Because that’s where the action is.

“There is an awareness amongst younger people that things are not as glossy as they were for their parents’ generation, and they want to do something about it.” –Toby Usnik

Knowledge at Wharton: Is this a generational topic as well? Baby boomers may feel differently about this than Gen X, millennials and Gen Z.

Korschun: Every study that I’ve seen shows a pretty substantial uptick with the youngest generation. Millennials and this new Generation Z that’s coming in and that I’m seeing in my classrooms now — they all care a lot about this. There is some debate, and there’s still skepticism about how sincere some of it is, because there’s real tension about how much of it is real, how much of it is a show. That is really a lot at the heart of what I study in my research, trying to pick apart when this is happening.

Usnik: I can give you a generational example. Yvon Chouinard, the founder of Patagonia, is someone I’ve written about. He was old-school in a sense, but he is at the top of the list for a lot of the millennials and the Gen Zs who are aspiring to careers in sustainability.

But more recently, I’m seeing reports that, in the next 10 years, fast fashion will be eclipsed by second-hand clothing. I see that even in China, where I travel each quarter. There is a knowledge and expectation and awareness amongst younger people that things are not as glossy as they were for their parents’ generation, and they want to do something about it. And they realize that they do have power, both through social media and in their buying dollars. This is a generation that wants access, not ownership. They don’t want the burden of cars and things that their parents had.

Knowledge at Wharton: We’ve talked about this primarily within the United States. What is the CSR push on a global perspective?

Usnik: It’s huge and it’s growing. I’d made the decision to start going to China three years ago when I launched my firm. It’s a gross generalization, but I would say that it’s expected there that the children do well, but also that they reflect well on their families, their communities and on their nation. So, as this new wealth is being created, there is an incredible amount of expectation that something be done with it more than just taking a company public. When I’m there, I’m finding with the young, new wealth and those who are inheriting it, that they do have more of an awareness.

You’ll remember a decade ago, we had the Sichuan earthquake in China. That was really quite an inflection point, where people expected more of their government and of their businesses. There’s more and more of that kind of connectedness within China. But also the Gen Zs and the millennials in China are connected to social media, to the larger world, and they are taking action. It’s quite a global group.

Knowledge at Wharton: Because so much of this is driven by employees, there probably isn’t a whole lot of difference between what you may see at a publicly traded company versus a private company. Is that correct?

Usnik: That’s absolutely correct. The most important message for me out of all this is leadership. You know great leadership, whether it’s at Wharton or at a corporation, and that’s the leader that you want to follow. The great leaders are now literally stepping into the battle with these brands. You look at Nike and the Colin Kaepernick social justice. You look at Levi’s and gun violence, you look at Starbucks and straws. The list goes on and on.

“When you dig deep enough on these things, you hit this political nerve. And this is one of the big challenges for social responsibility managers now.” –Daniel Korschun

You’ve seen the reinvention of VW following the emission scandals. I’d written about it in my book, but they’ve just launched their new electric vehicle. The businesses are pivoting real time, and those that don’t are going to fail, I believe.

Korschun: That Colin Kaepernick ad from a little while back hits a real chord with me because my research has taken a bit of a swerve towards these companies that take political stands. I’ve spoken on the brand matters on this show here and many other places.

What a lot of social responsibility people are finding now is that you take any issue, if you scratch at the surface, no big deal. Everybody is going to be in favor of it. Who doesn’t want to improve public safety, for example? But you keep digging and digging, and eventually you find that maybe on one side of that issue, they think that you have to have more gun control. And then on the other side, more gun rights. Almost any issue, when you dig deep enough on these things, you hit this political nerve. And this is one of the big, big challenges for social responsibility managers now.

Knowledge at Wharton: What do you think has changed in society in the last 20 years that has encouraged companies to embrace CSR?

Korschun: If I look at it purely from a marketing professor standpoint, one contributor is that there’s just a lot more parity now than there ever has been before. People need to look deeper at the company to make these choices, so that’s one pressure that’s going on. That has started to snowball. We’re seeing that as people looked at one company, now they’re looking at other companies, and now people have a much different perspective on what the purpose of business is in the first place. Maybe 20 years ago, people just go to the businesses, which try to make as much money as possible, and then I don’t really know what happens. Leave that to the economists, right?

More recently, as people have been looking more at companies, they’re asking themselves, “Why is this company even in business? Why not just have somebody else in business?” Those people working in the companies are asking themselves the same questions. We’ve reached a critical mass where we have this real pressure on companies to grapple with some of these issues.

“We’ve reached a critical mass where we have this real pressure on companies to grapple with some of these issues.” –Daniel Korschun

Usnik: I think when we get historic perspective, we’ll be able to say that in these past 10 or 20 years, we’ve really witnessed the great disruption. Every industry is being turned upside down in different ways, whether it’s philanthropy, auto manufacturing, even education. I think that the root of that is technology. Technology can be our friend, but for many people it has been a bit of a challenge. The technology has allowed us to be in the most connected time in history, and that’s going to continue this disruption.

On a more upbeat note, I will say it’s also creating the most creative time in history, so you have all these startups that are coming online. You’re seeing these young people going out with new ideas about what business should be. I actually think we’re going to find our way through it because we are living in the most creative and connected time in history. But for certain, it’s also going to speed up.

Knowledge at Wharton: Can CSR fundamentally change the way a company conducts business?

Usnik: Absolutely. I’ll give you a great example. I was at Davos this year, and that’s when I was first introduced to the Loop program that was produced by TerraCycle out of New Jersey. Over the past three years, they have been quietly working with all the big labels for consumer products – P&G, Coca-Cola, Pepsi, Gillette, and so forth — and now started to pilot a recycling program that up-cycles basically all of the packaging.

They realize, “Oh my gosh. The customer doesn’t want the packaging. They want what’s inside of it.” Now they’re investing in better quality materials for Haagen-Dazs ice cream and Coca-Cola, and they will take on full reclaiming and reusing those packagings. It’s a great story about aspiration and old-line companies getting the message and moving forward. There’s a lot of great innovation that’s happening across the spectrum.