Recession is excuse for companies to ignore community conscience

Going green is fast becoming a corporate luxury now cash-flows are being squeezed. Whether businesses are cutting staff, pay or cancelling dividends, companies are finding it tough to justify financing good causes, whether it is on alternative energy, environmental projects, aid abroad or charities at home or even community programmes.

By far the most dramatic shift in policy is that by BP, the oil giant, which caused ripples recently by reducing its commitment to investing in renewable energy, leading to the departure of Vivienne Cox, the chief executive of BP Alternative Energy division.

BP and Shell have made great play of their green credentials in recent years. But Paul Monaghan, the head of sustainability at the Co-operative Group, believes the recession is sorting out those that have been playing at corporate social responsibility (CSR) from the genuinely committed.

"For a while, Shell looked like it had turned the corner and was doing good things," concedes the Co-op critic. "But you cannot be pursuing fossil fuels and say you're interested in climate change. Shell and BP do not even pretend they're anything but fossil-fuel organisations: they were going through the motions."

He accuses some companies of treating CSR as a fad but at Business in the Community (BitC), Vicky Gashe believes it will recover when the economy does. "The will is not diminishing for companies to give," she says. "But the means have."

Prince Charles had another go at pricking corporate consciences last week when he invited the senior executives of a hundred big companies to a meeting of BitC, one of his charities, which promotes responsible enterprise. Top of the Prince's agenda was how CSR can continue in this new, harsher environment. Many of the executives expressed their continued support for CSR but the talk was of value to the business as much as of gain to the community.

At Tomorrow's Company, a think-tank studying the links between business and society, founder Mark Goyder admits there is a freeze on new CSR spending. "We're noticing that it's harder to get companies to invest in something new. There is a freeze."

He claims the slowdown in funding is less dramatic that the charity's trustees expected but this year's income will be below last year's. "There has had to be a pulling back," he admits. "Additional supporters are coming on board but it's much slower. New projects are harder to fund: it's really really hard to get companies to commit to something new."

Goyder launched a blistering attack at Thursday's BitC conference on companies who regard CSR as part of their image building. "The majority have come in because they had to be seen to come in," he said. "When one or two big boys go for it, they all do: it's a herd mentality. There's a faction for which CSR is a management fad."

The Co-op is one of the few organisations which have made a virtue of social responsibility for decades, a virtue which has brought strong support from customers who appreciate its ethical practices across its retail, wholesale, farming and financial services divisions. Monaghan had few good words for those who jumped on the bandwagon and are now jumping off.

"Anybody who calls for a bonfire of red-tape is not interested in sustainability," he said, claiming such legislation makes companies do what they fail to do voluntarily. Yet when the conference chairman invited his colleagues to respond there was silence.

A survey commissioned by Business for Social Responsibility in America found a third of firms expecting to cut their CSR budgets this year. Ford is reducing its spending by 40 per cent and Citicorp has slashed its budget by $27m to $63m.

There are exceptions – supermarket Tesco has donated a record sum to charity this year – but few believe Lloyds Banking Group would have pledged £80m in Olympic sponsorship if the deal had been signed after the credit crunch.

Deals like Lloyds' illustrate the overlap between marketing and community support and to avoid appearing to reduce their CSR spending, some companies are switching money from promotional budgets to more socially acceptable purposes. Banks that have committed funds to sports clubs, for instance, now divert that money to support youth projects – and thus the CSR budget – rather than provide hospitality at main-team events.

Other groups are maintaining their socially responsible involvement by encouraging staff to do voluntary work instead of the company giving cash. For firms working at below capacity, such offers are cheap as well as motivating for employees.

Gashe at BitC says: "Companies are cash poor. However they are time rich and those that are innovators in community investment are engaging their staff in volunteering and have established links to skills matrices that support professional development through difficult times."

Firms are increasingly demanding financial return from green and ethical spending and bans on flying now owe more to saving money than saving the planet. Marks & Spencer has raised its developing world suppliers' wages by making them more efficient rather than by increasing its payments.

Goyder reports firms cutting their specialist CSR staff. Companies have long complained about requests for information from ethical investment funds but he claims: "There is now a rigorous focus on filling in forms for CSR investors".

One bank is said to have maintained its charity donations but insisted on anonymity rather than risk looking extravagant while cutting jobs but others have taken the axe to their CSR staff as well as to budgets.

Monaghan sees that as symptomatic of those who do not treat social responsibility seriously and said so at least week's conference. "There were a number of people making a virtue of necessity," says the Co-op executive. "They were boasting about who had the smallest CSR spend and the smallest CSR team. I told them that is not right. In financial services, entire teams have been dispensed with. We're not growing our team," he admitted. "But we are maintaining our presence. It's a core part of our offering."

Mark Line chairs the sustainability consultancy Two Tomorrows and has seen companies cancel or reduce their commitment to community issues. He audits ethical programmes for companies including electricity group EDF and transport operator FirstGroup and says that demand is undiminished. "It is voluntary but leading companies see it as essential," he says. "A large proportion of FTSE 100 companies produce reports and have them independently assured."

However, fewer companies are seeking advice from his firm. "People are reining back on discretionary spend," he admits. "Our market has been flat this year and last year." Recession-hit clients in the steel and car industries have decided they have higher priorities than CSR.

In particular, he reports cuts at companies that saw CSR only as part of their public relations activity. "We broadly differentiate between clients who are interested in moving their programmes on, and those interested in moving their communications programme on," says Line. "The PR spend has diminished."

But for some companies, the involvement in socially responsible projects was not marginal spending but major capital expenditure, and recession has made them rethink expensive commitments to green projects that please politicians but make little or no financial sense.

Shell saw involvement in wind farms as a way of reducing carbon emissions but recession has returned it to reality and it pulled out of the £2bn project to put turbines in the Thames estuary. It is not alone in deciding expensive wind power – even when subsidised by taxpayers – does not meet today's social and economic criteria.