Until relatively recently, the very term corporate social responsibility (CSR) would have been regarded as something of an oxymoron. The point of being in business was to make money, with little regard to the social and environmental cost. But over the last decade, the issue has steadily climbed up the corporate agenda, acquiring growing urgency as the global community becomes increasingly disillusioned with the effects industry and commerce have on the world we live in.

Yet the concept is not an entirely new one, points out Jane Fiona Cumming of Article 13, a consultancy specialising in advising clients on business ethics and CSR. It's just that the whole idea got sidelined somewhere in the mid-20th century.

'Think of the Quakers and old family firms like Cadbury's,' says Cumming. 'They had a very paternalistic relationship with their workforce. What in fact they were doing was their own form of CSR.' But, she adds, their motives were not purely philanthropic. The philosophy made good business sense. It may have been the right thing to do from a moral standpoint, but it also ensured that such companies would have workers who were in good health and who would therefore help their employers deliver their products to market. 'These were hardnosed business people,' she adds.

A parallel can be drawn with today's businesses, which can expect to see a well-defined policy of social and environmental awareness being truly reflected on the bottom line, Cumming maintains.

But it appears that not everyone is convinced. According to PricewaterhouseCoopers' recent annual global CEO survey, 68% of respondents felt that CSR was important to profitability, which still leaves a large contingent who either disagree or who don't know.

However, Neil Sherlock, partner, public affairs, at KPMG, is adamant: 'There are two reasons why we are engaged in the CSR agenda,' he says. 'One is a moral values-led position that says we are very fortunate, as people who are doing well even in a difficult economic climate, and we regard it as one of the things we should do to put something back into the community.

'It so happens that we are in locations where we help generate a lot of wealth, but you don't have to go very far to find people in poverty and gravely disadvantaged. Just half a mile down the road from our Blackfriars office, for example, you will find some of the poorest people in western Europe.

'But the second reason is that it is good for business. People want to do it. They get a lot out of it and are better business people as a result. They have a wider sense of the community, and good business flows through the impact of the individuals within it.'

Sherlock believes that a company's values are moving higher and higher up the list of criteria when potential recruits are looking for an employer, and are therefore an important factor in helping attract the cream of the crop. 'This is certainly the experience of our graduate recruitment division,' he says.

A considerable part of KPMG's involvement with the community is with Business Action on Homelessness, and as a direct result of a training programme for homeless people, a young man who was previously homeless is now on their permanent staff. 'It transpired that he had always really wanted to be an accountant. He came here on a temporary basis but he progressedso well that the view was taken that we should employ him.'

Sherlock says that such initiatives are very much a two-way street. 'The overwhelming finding is that, working with these people, they assume that the doors of an organisation like ours are closed to them. Part of the reason for doing this is to show that this is not the case. But we benefit too, because there are people out there who would be very good, loyal, long-term employees who we wouldn't otherwise get to.

'It adds to the diversity of our workforce. One of the issues we are trying to deal with is diversity in the broadest sense - not just around gender and race, but also to do with mindset and the experiences employees bring, and clearly fishing in different labour markets is one way to try and diversify the organisation.'

Peter Lambert is director of regeneration and community impact at Business in the Community (BITC), which was set up 20 years ago to promote the concept of CSR. He believes that businesses are now recognising that they have a whole host of stakeholders and that they will increase their competitive position and their long-term business sustainability if they act in a corporately responsible way.

The 700-strong membership of BITC is a true reflection of the cross-sectoral significance of CSR, and Lambert points out that it is not only large companies that are involved. 'We did some research that showed that 60% of small and medium-sized enterprises said they had some form of active involvement.'

Indeed, to recognise the work of smaller companies, BITC has recently launched the CommunityMark, which provides a model enabling businesses to maximise their impact on the community, while drawing out the commercial benefits of their community involvement. It aims to encourage all businesses, even those without an established community programme, to get involved.

Another spur to businesses looking more closely at their CSR policies is the growth in the importance of ethical investment. Indices such as FTSE4Good and the Dow Jones Sustainability Group Index have provided investors with benchmarks to judge companies by. Cumming says that this has wide implications: 'The view is increasingly that a company with a well-managed CSR policy will be wellmanaged in other areas.'

She stresses that such policies should not be merely prescriptive or consigned to a separate part of the company. They should be fully integrated within the business process. She quotes the example of a global pharmaceutical company that wanted to develop an ethics policy for drugs testing on humans. 'What they have ended up with is a motto and a series of workshops to raise awareness of the issues, rather than saying prescriptively, this is what we do. So it has actually given them support in a decision and thought-making process.'

Ultimately, though, how do you measure the success of such initiatives? Cumming believes this is key, and points out that Article 13 has developed Abacus, a participative process that enables client organisations to identify business strategy measures that help not just measure, but manage, interlinked dimensions of performance.

'The Abacus product recognises that it is people that make up business, and people that form society, supply chains and customers,' she says. 'Abacus overlays the perhaps traditional process perspectives embedded in financial focus with a future-looking, challenging vision that integrates the people perspective and makes for dynamic strategy making.'

With pressure mounting on business on an ongoing basis, be it from government in the form of legislation or from consumers, investors or other stakeholders, the time is fast disappearing when CSR could be seen as an optional addon. Corporate leaders should recognise that the very role of business within the overall scheme of things is changing, and that to regard it merely as a means to hefty profits is to be out of touch with the demands of modern society.

Being an old family business, Bulmers, the cider manufacturer, has a long history of involvement with the community. Towards the end of 2000, that was formalised with the launch of the Bulmers Employee Community Involvement Initiative, through which staff help out with a wide variety of good causes, ranging from reading in schools to sending Christmas gifts to the eastern bloc. The company donated £100,000 to get the scheme off the ground.

One organisation to benefit is The Holme Lacey Centre for Riding for the Disabled, and Bulmers secretary Christine Field, who co-ordinates the programmes, explains how it works. 'Five of us started helping out there, and we now have eight volunteers, working in two groups of four. Each person goes out on alternate Wednesdays, helping out for about an hour. We look after the same group each time, so we really get to know the children and build up a relationship.

'Bulmers allows 50 people-days a month for people going out on such schemes, and it is wonderful that they give us this opportunity. It's something I have always wanted to do, but when you are working full time it is very difficult to be able to help otherwise.'

Heather Wathen is the administrator at Holme Lacey. She says: 'Some of the ladies lead the horses or ponies and others side-walk, which involves helping the riders with their balance or with the tasks they are asked to do by the instructor. Apart from the therapy, there is enormous enjoyment and a sense of achievement on the part of the children.'

The City's growing concern with socially responsible investment was addressed in the 6th Index of Corporate Environmental Engagement, published in February by Business in the Environment (BiE). For the first time, participating companies were asked to report on the most significant areas of environmental impact to their operations and sector, enabling investors and analysts to compare environmental performance between companies within the different sectors.

The lack of indicators specific to individual sectors was revealed in last year's BiE report Investing in the Future, as a key factor in preventing the City from giving environmental performance higher priority when selecting companies. That report indicated that City analysts and fund managers seek integrated, comparable evaluation of companies' corporate responsibility and quality of management to reduce risks.

Nevertheless, the report pin-pointed the gap between the thinking of analysts on these issues and that of their institutional investor clients and other City audiences. Just 9% of analysts identified environmental and social factors as the most important non-financial indicators, compared with 20% of investors, 23% of journalists and 30% of companies' own investor relations managers.

Earlier research conducted for BiE by City University Business School suggested that a high placing in the BiE Index could be related to less volatile share price and hence lower cost of capital.

• Business for Social Responsibility - www.bsr.org
• Business in the Community - www.bitc.org.uk
• Business in the Environment - www.business-in-environment.org.uk
• Business and Sustainable Development - www.bsdglobal.com
• Article13 - www.article13.com
• AccountAbility - www.accountability.org.uk
• World Business Council for Sustainable Development - www.wbcsd.org