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Unanimous Growth

How CSR can be beneficial to economy? by Anisha Bhatia

Corporate social responsibility (CSR) is:

It is an obligation, beyond that required by the law and economics, for a firm to pursue long term goals that are good for society.CSR is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as that of the local community and society at large. It is about how a company manages its business process to produce an overall positive impact on society

Corporate social responsibility is about the integration of social, environmental, and economic considerations into the decision-making structures and processes of business. It is about using innovation to find creative and value-added solutions to societal and environmental challenges. It is about engaging shareholders and other stakeholders and collaborating with them to more effectively manage potential risks and build credibility and trust in society. It is about not only complying with the law in a due diligent way but also about taking account of society’s needs and finding more effective ways to satisfy existing and anticipated demands in order to build more sustainable businesses. Ultimately, it is about delivering improved shareholder and debt holder value, providing enhanced goods and services for customers, building trust and credibility in the society in which the business operates, and becoming more sustainable over the longer term.

While there are different ways to frame the benefits of CSR in business because they are interrelated, they generally include the following:

  • stronger financial performance and profitability through operational efficiency gains
  • improved relations with the investment community and better access to capital
  • enhanced employee relations that yield better results respecting recruitment, motivation, retention, learning and innovation, and productivity
  • stronger relationships with communities and enhanced licence to operate
  • improved reputation and branding

The most recent and comprehensive review of the relationship between financial performance and socially responsible business practices in large companies is by Margolis, Elfenbein, and Walsh (2007). In a meta-analysis of the results from 167 studies, they found that 27% of the analyses show a positive relationship, 58% show a non-significant relationship, and 2% show a negative relationship. They argue that the evidence indicates that CSR, in general, has little effect on profitability, but note that there is stronger evidence to suggest that some causality does operate in the opposite direction: companies that are profitable are more likely to engage in more CSR activities.

Reducing waste and emissions doesn’t just help the environment – it saves money too by cutting utility bills and waste disposal costs, thus bringing immediate cash benefits. However, consider these other benefits as well:

  • Building a reputation as a responsible business sets a company apart.
  • Many consumers prefer to buy from ethical businesses.
  • Some customers don’t just prefer to deal with responsible companies, but insist on it. For example, sales of ‘environmentally friendly’ products continues to grow – and these products often sell at a premium price.
  • Companies often favor suppliers who demonstrate responsible policies as this helps them to minimize the risk of any damage to their own reputations.
  • A good reputation makes it easier to recruit employees.
  • Employees stay longer, reducing the costs and disruption of recruitment and retraining.
  • Employees are more involved and motivated and, as a result, they’re more productive.
  • CSR helps ensure compliance with regulatory requirements.
  • Involvement with the local community creates ideal opportunities to generate positive press coverage.
  • Good relationships with local authorities make doing business easier.
  • Understanding the wider impact of a business can help in thinking up profitable new products and services.
  • CSR can make firms more competitive and reduces the risk of sudden damage to their reputation and sales. Investors are more willing to provide financial resources to such firms as a result.

“The purpose of life is not to be happy. It is to be useful, to be honorable, to be compassionate, to have it make some difference that you have lived and lived well.”

CSR As An Investment

CSR can be viewed by businesses as a form of investment that helps to differentiate a company and its goods and services.

What then is the right way to look at CSR as an investment – particularly given that it frequently involves intangible and less quantifiable domains. The bottom line is that a prudent business may tend to regard CSR in the same way it treats most investment decisions. It would be inclined to use the same systematic approach to assess the anticipated benefits and related revenues relative to the costs that it employs for investment proposals. A rigorous and systematic approach to CSR investment is likely to yield the most positive results for both the business and society as it is likely to demonstrate the most efficient allocation of resources from the perspective of both the firm and society.

There are many different areas where a firm can invest to develop CSR attributes (e.g. human resource management, environmental protection, health and safety, community involvement, etc.). Investment decisions on CSR need to take account of various factors and parameters as well as the anticipated cost and benefit stream to be produced by the investment.

CSR is about the organization’s obligations to all stakeholders – and not just shareholders.

There are four dimensions of corporate responsibility:

  • Economic – responsibility to earn profit for owners
  • Legal – responsibility to comply with the law (society’s codification of right and wrong)
  • Ethical – not acting just for profit but doing what is right, just and fair
  • Voluntary and philanthropic – promoting human welfare and goodwill
  • Being a good corporate citizen contributing to the community and the quality of life

The corporate responsibility view:

  • Businesses do not have an unquestioned right to operate in society
  • Those managing business should recognize that they depend on society
  • Business relies on inputs from society and on socially created institutions
  • There is a social contract between business and society involving mutual obligations that society and business recognize that they have to each other

The basic premise is that business organizations have responsibility to various groups in society (the internal and external stakeholders) and not just the owners/ shareholders. The responsibility includes a responsibility for the natural environment and Decisions should be taken in the wider interest and not just the narrow shareholder interest

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