What Is Corporate Social Responsibility (CSR)?
Make money and do good at the same time
It’s pretty common these days for businesses to develop plans focused on corporate social responsibility (CSR) and sustainability. Generally speaking, CSR is the act of incorporating environmental and social concerns into a company’s business. These programs center around the idea that businesses can make the world a better place. At the very least, they are an attempt to reduce a company’s negative footprint on the world and can come from company leaders who sincerely want to do the right thing. There’s evidence that companies with robust CSR programs also benefit from better public relations, happier customers and stakeholders, and improved financial performance.
If you’re looking to increase your company’s own social responsibility and reduce its footprint, or want to invest in companies that do, here’s what to know about CSR, sustainability, and responsible investing.
Common Corporate Social Responsibility Programs
Companies can deploy CSR efforts in a piecemeal way, or as part of a broader program. Increasingly, companies are creating comprehensive CSR programs that engage every business unit and have dedicated staff and resources.
One report found that 86% of S&P 500 companies published reports outlining their efforts related to corporate social responsibility and sustainability in 2017. This number increased from 72% in 2013 and less than 20% in 2011.
CSR programs can often begin as a result of pressure from community members who want companies to be good neighbors. But research from Harvard Business School shows that, once in place, these programs can receive broad support from company leaders and employees, too.
CSR programs vary in scope, but a few common initiatives may include:
- Direct giving to non-profit groups, such as a local food bank, often in conjunction with volunteer efforts by employees and donations from the company
- Job training programs for the disabled, or other disenfranchised groups
- Commitments to ensure diversity in the workforce across race, gender, and sexual orientation
- A focus on reducing the company’s environmental footprint, through more efficient supply chains, recycling, reduced energy use, and other efforts
- A commitment to support disaster relief programs, such as providing supplies and support for hurricane victims
Corporate America has played a meaningful role in responding to natural disasters. For example, in 2017, Walmart and its foundation committed more than $20 million toward relief efforts related to Hurricane Harvey in Texas. And in 2018, Home Depot said it would commit $3 million for disaster relief efforts in communities impacted by Hurricanes Florence and Olivia, the California wildfires, and flooding in the Midwest.
Impacts of CSR
One could argue that CSR and sustainability programs should exist for their own sake. But the durability and support of these programs can improve if companies learn that they can actually help a company succeed financially.
In some cases, the positive financial impact is clear and logical. For example, a move to use renewable energy sources, such as solar panels, at corporate campuses might result in lower electricity costs over time. In fact, many studies suggest that there is a positive correlation between CSR programs and company profits.
A report by IO Sustainability and Babson College’s Lewis Institute for Social Innovation reviewed hundreds of CSR program studies and found that they can have a strong positive impact on market value and overall brand reputation, while also reducing risk for the company. The report noted that CSR programs have the potential to:
- Increase market value by up to 4-6%
- Reduce systemic risk by up to 4%
- Reduce the cost of debt by 40% or more
- Increase price premium by up to 20%
- Reduce staff turnover rate by 50%
Through increased market value and price premium, plus a reduction in staff turnover, company risk and cost of debt, CSR programs could really help companies save and make more money.
CSR and Investors
As investors become more socially conscious, they may want their investments to reflect their values. As a result, there has been a flurry of new investment products that emphasize companies with good track records of corporate social responsibility.
Investors can now buy into mutual funds and exchange-traded funds (ETFs) that are grouped according to their commitment to sustainability and corporate social responsibility. A few well-known vehicles include the iShares MSCI KLD 400 Social ETF (DSI), Vanguard FTSE Social Index Fund (VFTSX) and SPDR SSGA Gender Diversity Index Fund (SHE).
In addition, many investment groups are evaluating companies based on their commitment to Environmental, Social and Governance (ESG) Criteria. In recent years, institutional investors and mutual fund companies have issued annual reports outlining how ESG principles are integrated into their investment philosophy, often with positive results.
The framework for the ESG reporting stems from the Global Reporting Initiative, an independent standards organization. The impetus for the growth in ESG has stemmed in part from the 2006 launch of the United Nations’ Principles for Responsible Investment. Thousands of companies worldwide have committed to these six principles.
Principles for Responsible Investment
- We will incorporate ESG issues into investment analysis and decision-making processes.
- We will be active owners and incorporate ESG issues into our ownership policies and practices.
- We will seek appropriate disclosure on ESG issues by the entities in which we invest.
- We will promote acceptance and implementation of the Principles within the investment industry.
- We will work together to enhance our effectiveness in implementing the Principles.
- We will each report on our activities and progress toward implementing the Principles.
The Bottom Line
While companies should be focused on growing revenue and profits, there’s a case to be made that it’s also important for them to be good corporate citizens. There is ample evidence that a commitment to corporate social responsibility can have a positive effect on a company’s finances. Investors can make decisions based on whether a company shares similar values, and can now evaluate a company’s overall well-being by its commitment to CSR.
Governance & Accountability Institute, Inc. "FLASH REPORT: 85% of S&P 500 Index® Companies Publish Sustainability Reports in 2017," Accessed Oct. 3, 2019.
Harvard Business School. "Why Every Company Needs a CSR Strategy and How to Build It," Accessed Oct. 3, 2019.
Babson College's Lewis Institute for Social Innovation and IO Sustainability. "Project ROI: Defining the Competitive and Financial Advantages of Corporate Responsibility and Sustainability," Accessed Oct. 4, 2019.
Principles for Responsible Investment. "What are the Principles for Responsible Investment?" Accessed Oct. 4, 2019.