Business Benefits of CSR

While presumably the prospect of “doing good” is a compelling reason for companies to consider implementing CSR initiatives, the reality is that managers must develop a solid business case for investing the company’s resources in CSR activities, a process that calls for identification of the specific business benefits that the company expects to achieve from its CSR programs with respect to increasing value, saving costs and reducing risks.  Tonello noted that the earlier arguments in the 1960s and 1970s in favor of CSR were often based primarily on ethical considerations and altruism (“doing the right thing” and “being a good corporate citizen”) and that few claimed that companies that were more philanthropic would be more profitable than their less generous competitors.[1]  However, researchers began what became a decades’ long project to establish a positive relationship between corporate social performance and corporate financial performance, eventually reaching the point where such a relationship could credibly be identified and quantified.

Tonello reviewed several alternative views of the business case for CSR and concluded that there really was no single rationalization for how CSR improved the corporate “bottom line”.  Instead, he argued that businesses should build their arguments for pursuing CSR initiatives based on one or more categories of potential benefits including reduction of costs and risks; gaining and maintaining competitive advantage; developing and enhancing reputation and legitimacy; and synergistic value creation.  According to the ISO, an organization’s performance on social responsibility can influence, among other things, competitive advantage; reputation; the ability to attract and retain workers or members, customers, clients and users; the maintenance of employee morale, commitment and productivity; the perception of investors, owners, donors, sponsors and the financial community; and relationships with companies, governments, the media, suppliers, peers, customers and the community in which it operates.[2]

Other key potential business benefits for companies implementing CSR include better anticipation and management of an ever-expanding spectrum of risk; improved innovation, competitiveness and market positioning; improved ability to attract and build effective and efficient supply chain relationships; improved relations with regulators; enhanced ability to address change; assumption of responsibility for acting as a catalyst for responsible consumerism; reduction of the cost and enhancement of the security of supply of critical resources; protection of critical infrastructure and services upon which the future of the business depends; and improved decision-making and strategic execution through inclusion of more diverse perspectives.[3]  Making the business case for CSR has also been eased in recent years by growing empirical evidence of positive or neutral correlations between social and environmental responsibility and superior financial performance as measured by returns on assets, investment and capital.[4]

Bonini et al. of McKinsey & Company and the Boston College Center for Corporate Citizenship found that CFOs, investment professionals and sustainability professionals were generally in agreement that CSR and environmental, social and governance (“ESG”) programs did create value for shareholders in normal times and also argued that it was possible to show that the best CSR or ESG programs did create financial value for companies in ways that the market already assesses and relied on such as growth (e.g., new markets, new products, new customers, market share, innovation and reputation/differentiation), improved returns on capital, reduced risk and/or improved management quality (e.g., leadership development adaptability and long-term strategy).[5]

For more information on the topic of this article, see the author’s book Responsible Business: A Guide to Corporate Social Responsibility for Sustainable Entrepreneurs, which is available here , and materials distributed through the Sustainable Entrepreneurship Project. 

[1] M. Tonello, The Business Case for Corporate Social Responsibility, Harvard Law School Forum on Corporate Governance and Financial Regulation (June 11, 2011), https://corpgov.law.harvard.edu/2011/06/26/the-business-case-for-corporate-social-responsibility/  The post was based on a Conference Board Director Note by Archie B. Carroll and Kareem M. Shabana, and related to a paper by these authors, titled “The Business Case for Corporate Social Responsibility: A Review of Concepts, Research and Practice,” published in the International Journal of Management Reviews.  See the post for extensive citations on the categories of business benefits to companies from engaging in CSR that are discussed below.

[2] International Organization for Standardization, ISO 26000 Guidance on Social Responsibility: Discovering ISO 26000 (2014).

[3] P. Hohnen (Author) and J. Potts (Editor), Corporate Social Responsibility: An Implementation Guide for Business (Winnipeg CAN: International Institute for Sustainable Development, 2007), 10-12.  See also Future-Fit Business Framework, Part 1: Concepts, Principals and Goals (Future-Fit Foundation, Release 1, May 2016), 13, FutureFitBusiness.org.

[4] R. Daft and D. Marcic, Understanding Management (5^th Edition) (Mason, OH: South-Western Publishing Co., 2006), 146-147; P. Hohnen (Author) and J. Potts (Editor), Corporate Social Responsibility: An Implementation Guide for Business (Winnipeg CAN: International Institute for Sustainable Development, 2007), 14 and Project ROI: Defining the Competitive and Financial Advantages of Corporate Responsibility and Sustainability (IO Sustainability, 2015), 3-4 and 15 (noting that sound corporate responsibility management practices seemed to influence investors in three ways: investors appeared to respond positively to firms that integrated their approach to corporate responsibility with the investment and management of the firm’s intangible assets (i.e., talent, brand and reputation, and innovation); corporate responsibility was itself perceived as a valuable intangible asset that was an indicator of strong performance across good management, competitive differentiation, employee engagement, organizational culture and innovation; and investors perceive that corporate responsibility serves as “insurance-like” protection of intangible assets, thus reducing financing and other forms of risk).

[5] S. Bonini, T. Koller and P. Mirvis, “Valuing social responsibility programs”, McKinsey Quarterly (July 2009).  Bonini et al. also noted that the most widely known ways that CSR and ESG programs create value is by mitigating corporate crises and enhancing the reputations and brand equity of companies and that a company’s reputation can be an important contributory factor to financially valuable objectives such as better regulatory settlements, price premiums, increased sales, reduced risk of boycotts and higher retention of talent (and lower costs of turnover).  Data was collected from 238 CFOs, investment professional and finance executives and 127 CSR and sustainability professionals and socially responsible institutional investors in December 2008.  For further information, see S. Bonini, N. Brun and M. Rosenthal, Valuing corporate social responsibility: McKinsey Global Survey Results (McKinsey & Company, February 2009).