A company that pollutes a river, underpays its workers or squeezes its small suppliers can still report a healthy profit this year. Sooner or later the bill arrives: a fine, a boycott, a lost licence, staff who leave. Corporate social responsibility (CSR) is the idea that a company answers to everyone its activities touch, not only to shareholders, and that it should be open about how it behaves.
This topic covers what CSR means and how it differs from obeying the law, its scope, the three ways companies respond to it, the reporting rules around the world, what environmental and social reports contain, the United Nations (UN) Global Compact principles, the financial consequences of a poor CSR record, and how environmental costs reach the financial statements. The previous topic covered the other information in annual reports. The next topics cover sustainability reporting and integrated reporting.
In 30 seconds
CSR is a company’s responsibility to society and the environment. It goes beyond legal compliance and involves voluntary action and better relations with all stakeholders. It covers business ethics, treatment of employees, human rights, relations with society and environmental protection. A company can ignore CSR, comply with the minimum law, or promote active CSR.
There are no international accounting standards on social and environmental reporting, so most reports are voluntary, unaudited and chosen by management, which makes them useful but open to “good news only”. A poor CSR record can damage the brand, lose customers and good staff, and attract pressure from institutional investors. Environmental costs still matter to the accounts: provisions, impairments and fines follow the normal standards.
Key terms in plain English
| Term | What it means |
|---|---|
| Stakeholder | Anyone affected by, or with an interest in, the company: employees, customers, suppliers, communities, government, shareholders |
| Corporate social responsibility (CSR) | A company’s responsibility to society and the environment, beyond the legal minimum |
| Transparency | Letting stakeholders see what the company is doing |
| Accountability | Accepting responsibility for actions and putting faults right |
| Environmental, social and governance (ESG) | Three groups of issues that investors and reporters now track together |
| Sustainable development | Growing in a way that can continue without using up resources or causing lasting damage |
Syllabus check
CSR belongs to Syllabus Area E, on sustainability and integrated reporting. This topic covers:
- E1(a) the progress from environmental, social and governance accounting to sustainability reporting;
- E1(c) the factors behind the increasing demand for this reporting, at home and abroad;
- E1(d) the problems and limitations of this reporting;
- the effect of social, environmental and ethical factors on how performance is measured (Area D2(a)).
The next topic completes Area E with the reporting frameworks.
CAMA 2020 and CSR
The Companies and Allied Matters Act 2020 (CAMA 2020) does not require a CSR report as such. It does set the directors’ duties and the content of the directors’ report, where social and environmental matters often appear.
| Section | What it says | Link to CSR |
|---|---|---|
| s. 385 | The directors’ report covers business performance, governance, and risk management and compliance | Social and environmental risks and policies can be reported here |
| s. 377(1) | The directors prepare the annual financial statements | Environmental provisions and fines in the statements are the directors’ responsibility |
| s. 404(7)(a) | The audit committee checks that accounting and reporting policies follow legal requirements and agreed ethical practices | Compliance with environmental and social law is a legal requirement the committee can review |
| s. 374(6) | A public company keeps its audited accounts on its website | CSR reports are often published beside the annual report on the same site |
What CSR means
Historically a company felt responsible only to its shareholders: dividends and growth. Critics said this led to profit at the expense of people and the planet, for example underpaying staff or forcing small suppliers to accept poor terms. The wider view is that a company is answerable to all its stakeholders: employees, the government, the local community and society. Many large companies accept this partly for commercial reasons.
CSR has been defined as a concept where companies integrate social and environmental concerns into their business and into their dealings with stakeholders on a voluntary basis, and as business decision-making linked to ethical values, compliance with legal requirements and respect for people, communities and the environment. The key point is that CSR goes beyond legal compliance. Practising it raises transparency and accountability.
If a community believes a company is dumping waste, they want to know what is really happening. The company, for its part, accepts that stakeholders have a right to know whether it acts in the best interests of society and the environment.
The scope of CSR
- Ethical behaviour by the company and its employees (business ethics).
- How the company treats its employees.
- How people are treated generally, such as respecting human rights and refusing suppliers who use forced or child labour.
- The company’s relationship with society and the communities where it operates.
- Environmental issues, such as protecting and sustaining the natural environment.
Three possible approaches
- Ignore the issues, whatever the bad publicity.
- Comply with the law but do very little voluntarily.
- Promote active CSR initiatives and tell shareholders and the public about them.
Reporting on CSR
There are no international accounting standards on social and environmental reporting. The rules differ by country:
- United States: the Securities and Exchange Commission (SEC) requires listed companies to quantify environmental spending, discuss the effect of compliance on profits and disclose related lawsuits.
- European Union: Denmark and the Netherlands require environmental reporting. Quoted companies must include a business review in the directors’ report with the main trends and factors likely to affect the business, including environmental matters, employees and social and community issues, and analysis using financial and, where appropriate, other key performance indicators.
- Elsewhere: most companies report voluntarily. Large ones publish an environmental report or a social and environmental report, usually as a separate document at the same time as the annual report, so that it can reach all stakeholders and not only shareholders.
The International Accounting Standards Board (IASB) is happy for companies to present this information but does not prescribe its content or format, so reports differ widely in length and style. Nigerian listed companies now have their own rules, covered in the next topic.
What an environmental report contains
- the entity’s environmental policies;
- improvements since earlier years;
- the key risks and how the company plans to respond;
- environmental laws and how compliance is ensured;
- significant initiatives to improve the environment;
- key environmental performance indicators against industry targets; and
- financial information on environmental costs, with the accounting policy.
What a social report contains
- employee numbers and involvement;
- sick leave, health and safety, accidents and recruitment of minorities and disabled people;
- involvement with local charities and communities; and
- working groups for communicating with stakeholders.
These reports need not be audited, though many companies ask for some assurance to improve credibility. Because content is not regulated, the company can include the “good news” and leave out the bad, so readers treat voluntary reports with caution.
The UN Global Compact
Large institutional investors have asked companies for stronger social and environmental policies. The UN, with 32 major institutional investors, launched the Principles for Responsible Investment.
The Global Compact principles ask businesses to:
- (a) support and respect internationally proclaimed human rights
- (b) make sure they are not complicit in human rights abuses
- (c) uphold freedom of association and collective bargaining
- (d) uphold the elimination of forced and compulsory labour
- (e) uphold the abolition of child labour
- (f) eliminate discrimination in employment and occupation
- (g) support a precautionary approach to environmental challenges
- (h) undertake initiatives for greater environmental responsibility
- (i) encourage environmentally friendly technologies
- (j) work against all forms of corruption, including extortion and bribery
What a poor CSR record can cost
- Brand and reputation. Bad publicity damages the public image of the company and its brands.
- Stakeholder preferences. Some investors focus on social and environmental performance, and high-quality staff may prefer to work for ethical employers.
- Institutional investor pressure. Initiatives such as the UN Environment Programme Finance Initiative, with over 200 financial sector members, ask investors to treat sustainable development as an issue in their decisions. Investors can pressure companies through proxy voting.
- Direct costs. Fines, clean-up costs, lawsuits, lost contracts and falling sales. The 2010 Gulf of Mexico drilling rig explosion and the environmental damage that followed show how large they can be.
On the other side, CSR can bring cost savings, efficiency, staff loyalty and a lower cost of capital. The disadvantages are the initial cost of becoming “green”, the argument that managers should focus on shareholder return. The risk of “greenwashing”, which is claiming more than the company really does.
How environmental issues reach the accounts
CSR is voluntary, but environmental events create real accounting issues under standards such as International Accounting Standard (IAS) 37 on provisions and IAS 36 on impairment:
- A provision is needed only when there is a present obligation from a past event, an outflow is probable and a reliable estimate can be made. The mere existence of contamination is not enough if no law or other obligation requires clean-up.
- An obligation can be legal or constructive. If the company has publicly promised a higher standard of clean-up and the community expects it, a constructive obligation exists.
- Uncertainty about the exact amount is not a reason to leave out a liability. Make a prudent best estimate.
- Fines are an expense of the year they become payable. A fall in the value of an asset needs an impairment test.
The rules in more depth
Why “beyond compliance” matters
Following the law is the minimum. A company can obey every rule and still be seen as a poor citizen. CSR is about the space beyond the rules: fair prices to suppliers, safe conditions above the legal standard, community investment.
Why voluntary does not mean unimportant
Investors, customers and regulators watch these reports. The risk is that they are not comparable, because every company chooses its own content. That is one reason standard-setting has moved in, as the next topic shows.
Non-financial factors and the financial goal
Short term, ethical and environmental spending may reduce profit. Long term, companies that ignore these issues risk fines, boycotts and shortage of resources. Factors such as staff welfare, community welfare, quality, growth and survival can pull management away from pure shareholder wealth maximisation. Ethical dilemmas include rewarding directors for failure, paying bribes, paying below-subsistence wages, poor working conditions and cheaper-to-pay-fines-than-obey-the-law decisions.
Worked example: environmental clean-up decisions
Scenario. Delta Chemicals Ltd faces four sites. Site A: contamination would cost ₦20 million to clean, but no law requires it. Site B: law requires a clean-up costing ₦40 million, and the company has publicly promised the community an extra ₦10 million of work to a higher standard.
Site C: clean-up is required and the best estimate is ₦25 million, but the managing director says no provision is needed because the exact cost is unknown. Site D: a spill has cut the site’s value from ₦50 million to a recoverable amount of ₦20 million, and a fine of ₦6 million is now payable. The figures are illustrative. Decide the accounting for each.
- Site A. No law or other obligation, so there is no present obligation. No provision. Disclosure may still be sensible.
- Site B. The ₦40 million is a legal obligation. The ₦10 million is a constructive obligation because of the public promise. Provision ₦50 million.
- Site C. Uncertainty about the exact amount does not remove the liability. Provide the best estimate, ₦25 million. Leaving it out would distort the accounts.
- Site D. Fine: expense ₦6 million. Impairment: carrying amount ₦50 million less recoverable amount ₦20 million = loss of ₦30 million.
- Total charge to profit or loss.
₦50m + ₦25m + ₦6m + ₦30m = ₦111 million. - CAMA 2020. The directors prepare the statements (s. 377(1)) and the audit committee can check compliance with legal requirements (s. 404(7)(a)).
How to score full marks
- Define CSR in two parts: responsibility to society and the environment, and beyond legal compliance.
- Give reasons it matters: reputation, customers and staff, investors, regulation, risk reduction and long-term value.
- Use the five areas of scope as headings for “principles” questions.
- State the limits of voluntary reports: unregulated, unaudited, selective.
- For environmental scenarios, apply the provision test: present obligation, probable outflow, reliable estimate, legal or constructive.
- Balance the debate: short-term cost against long-term benefit, and the shareholder view against the stakeholder view.
Common mistakes in the exam
- Saying CSR is the same as complying with the law.
- Saying there are international accounting standards for social and environmental reporting.
- Calling voluntary CSR reports audited or comparable.
- Providing for contamination where no obligation exists, or refusing to provide because the amount is uncertain.
- Forgetting that fines and impairments hit profit or loss.
- Listing CSR benefits without any drawbacks such as cost and greenwashing.
Quick revision
- CSR: voluntary, beyond compliance, wider stakeholders.
- Scope: ethics, employees, human rights, society, environment.
- Approaches: ignore, comply, promote.
- Reports: voluntary, unaudited, selective. European Union (EU) business review. No international standard.
- UN Global Compact: ten principles on human rights, labour, environment, anti-corruption.
- Poor CSR: brand damage, lost customers and staff, investor pressure, fines.
- Accounts: provisions for present obligations (legal or constructive), best estimate, fines expense, impairment.
- CAMA 2020: ss. 385, 377(1), 404(7)(a), 374(6).
Practice questions
These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.
Recall check: multiple choice
The real ICAN paper has no multiple-choice section. These questions are for quick recall. The written questions that follow are closer to the exam.
Question 1. An important feature of CSR is that it:
- Is the same as legal compliance
- Goes beyond legal compliance
- Applies only to banks
- Is audited by law
Show the answer
B. It involves voluntary initiatives and better relations with all stakeholders.
Question 2. Which of the following is NOT within the scope of CSR?
- Business ethics
- Treatment of employees
- Environmental protection
- The company’s share price target
Show the answer
D. Share price is a financial objective, not a CSR area.
Question 3. A company that complies with CSR legislation but does very little voluntarily is following which approach?
- Ignore
- Comply only
- Active promotion
- Liquidation
Show the answer
B. The three approaches are ignore, comply and promote.
Question 4. International accounting standards on social and environmental reporting:
- Are mandatory for all companies
- Do not exist for CSR specifically, so reports are mostly voluntary
- Require audit
- Fix the format
Show the answer
B. The IASB does not prescribe content or format.
Question 5. A key weakness of voluntary CSR reports is that:
- They are always too long
- They can include the good news and omit the bad
- They are mandatory
- They are audited twice
Show the answer
B. Readers treat them with caution.
Question 6. The UN Global Compact principles include:
- Uphold the abolition of child labour
- Maximise dividends
- Avoid all taxes
- Close unprofitable sites
Show the answer
A. There are ten principles.
Question 7. A public promise to the community to clean up to a higher standard can create a:
- Contingent asset
- Constructive obligation
- Revaluation surplus
- Prepayment
Show the answer
B. Under IAS 37 a constructive obligation arises from a valid expectation.
Question 8. Uncertainty about the exact cost of a required clean-up means the company:
- Should make no provision
- Should provide its best estimate
- Should delay for five years
- Should treat it as income
Show the answer
B. Leaving it out would distort the accounts.
Question 9. A fine for pollution that is now payable is recognised:
- As an asset
- As an expense of the period
- In equity only
- Never
Show the answer
B. It is a cost of the year.
Question 10. Which section of CAMA 2020 sets the content of the directors’ report, where social and environmental matters can appear?
- Section 385
- Section 394
- Section 402
- Section 409
Show the answer
A. As ICAN teaches it.
Written questions
Question 11 (10 marks). (a) Explain five reasons why corporate social responsibility has become important. (5 marks) (b) Describe five principles that a company should follow to be socially responsible. (5 marks)
Question 12 (20 marks). (a) Define CSR and state its scope. (5 marks) (b) State five items typically included in an environmental report and in a social report. (5 marks) (c) State five of the principles of the UN Global Compact. (5 marks) (d) Explain five consequences of a poor CSR record. (5 marks)
Question 13 (10 marks). Kora Chemicals Ltd has three contaminated sites. Site P: clean-up would cost ₦20 million, but no law requires it. Site Q: the law requires a ₦35 million clean-up, and the company has publicly promised the community an extra ₦8 million of work. Site R: clean-up is required, the best estimate is ₦18 million, but the managing director says no provision is needed because the cost cannot be known exactly. Explain the accounting treatment of each site. (10 marks)
Model answers
Show the model answer to Question 11
(a) Why CSR matters (5 marks, any five at 1). A company must sustain its profits, which may depend on its social and environmental standing. Stakeholders, including global bodies, non-governmental organisations and governments, expect businesses to contribute to sustainable development. Customers and employees prefer responsible companies. Contributions to education, health and safety create a stable environment and lower external risk. Acting responsibly may win government favour and avoid regulation. Ethical behaviour protects reputation.
(b) Principles (5 marks, any five at 1). Conduct business ethically, with guidelines for employees, directors and managers. Treat employees fairly, with a good working atmosphere, education and training. Respect human rights and provide safe working conditions. Act as a responsible citizen of the community by supporting causes such as education and health.
Protect the environment through waste disposal and recycling, renewable energy, replacing resources used, and reducing air, water and noise pollution.
Show the model answer to Question 12
(a) Definition and scope (5 marks). CSR is a company’s responsibility to society and the environment, going beyond legal compliance to voluntary initiatives and better relations with all stakeholders. (2) Scope: ethical behaviour, the treatment of employees, the treatment of human beings generally, relations with society and communities, and environmental issues. (3)
(b) Reports (5 marks, any five at 1). Environmental:
- environmental policies
- improvements since earlier years
- key risks and responses
- legislation and compliance
- significant initiatives
- key performance indicators against targets
- environmental costs and accounting policy
Social: employee numbers and involvement; health, safety and accidents; recruitment of minorities and disabled people; local charities and communities; stakeholder working groups.
(c) UN Global Compact (5 marks, any five at 1). Support and respect human rights. Do not be complicit in abuses. Uphold freedom of association and collective bargaining. Eliminate forced and compulsory labour. Abolish child labour. Eliminate discrimination in employment. Support a precautionary approach to environmental challenges. Promote environmental responsibility. Encourage environmentally friendly technologies. Work against corruption.
(d) Consequences (5 marks, any five at 1). Bad publicity damages the brand and public image. Stakeholders may prefer other companies. Good staff may prefer ethical employers. Institutional investors may pressure the company or avoid it. Fines and penalties. Clean-up costs. Civil lawsuits. Lost contracts and falling sales.
Show the model answer to Question 13
Site P (2 marks). No law or other obligation requires the clean-up, so there is no present obligation and no provision. The existence of contamination alone does not create a liability. (2)
Site Q (4 marks). The ₦35 million is a legal obligation. (1.5) The ₦8 million is a constructive obligation, because the public promise has created a valid expectation in the community. (1.5) The provision is ₦43 million (₦35m + ₦8m). (1)
Site R (4 marks). Uncertainty about the exact amount does not remove the liability. (1.5) The company should recognise a provision for its best, prudent estimate of ₦18 million. (1.5) Omitting it on the ground that the amount is not known precisely would distort the statements. (1)
Pathfinder on corporate social responsibility
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
CSR is the background to the sustainability questions that were asked: November 2025 Question 6(b) and Question 7 (ISSB standards, multiple capitals, the emergence of the ISSB), covered in the next two topics. The environmental clean-up scenarios in this topic also prepare you for provision questions such as the litigation and onerous lease items in May 2026 Question 7.
Revise first: How environmental issues reach the accounts
ICAN’s practice questions ask for the reasons CSR has become important, the principles of a socially responsible company and the treatment of four contaminated sites. The worked example and practice questions 11 and 13 follow that pattern.
Revise first: Worked example: environmental clean-up decisions
Source: ICAN Pathfinder, Strategic Business Reporting. Diets covered: November Diet, 2025 and May Diet, 2026.
Spotted a mistake? Tell us and we will check it.
