The Benefits of CSR to Business: Real or Imagined?

We've all seen them. The glossy pages of artfully produced Corporate Social Responsibility (CSR) reports that reflect what a company is spending on their marketing team as much as it does their commitment to ESG. They tout reductions in environmental damage, employee diversification initiatives and contributions to social justice causes of the day. But do they provide anything more than window dressing? Can they tell us anything about a company's viability and might they serve as any sort of economic indicator?

Proponents of CSR point out that responsible corporate behavior has the effect of limiting exposure to reputational risk. For instance, treating employees equitably minimizes the likelihood of possible labor-initiated lawsuits. Working to reduce harm to the environment might have the indirect consequence of helping to buy goodwill among potential clients. These claims, however, reduce CSR to a marketing exercise. Can CSR ever be more than a marketing tactic such that it might reflect fundamentally more sound business practices and thus profitability?

Socially responsible investing is a relatively new field and though many investment models have emerged to capitalize on this promising trend (and world outlook), their track records are limited in duration. So how can we measure the real value of attempts to invest in companies purporting to demonstrate high levels of CSR? A recent study by the CFA Institute showed that when public sentiment was negative towards a company's CSR positioning but in reality the business's CSR practices were faithful – those companies subsequently outperformed benchmarks. (1) What does that mean in practice? It means that when expectations are not properly aligned with true corporate social value, the responsible actor will likely demonstrate superior performance regardless. The difference is in the CSR itself, not merely the public's perception of it.

This nascent industry is a long way from proving definitively that corporate social responsibility is the best route to profitability and operational viability in addition to global and societal sustainability. But early data is certainly encouraging. Besides, what do we have to lose? Only everything…

References

(1) Sarafaim, George. Public Sentiment and the Price of Corporate Social Responsibility. March 30, 2020. Financial Analysts Journal. Vol 76. Issue 2. The CFA Institute. (Available https://www.cfainstitute.org/en/research/financial-analysts-journal/2020/0015198X-2020-1723390)

About the Author

Jordana Grunfeld is an MPA-PNP student at NYU Wagner School of Public Service where she specializes in Social Impact, Innovation and Investment. She is currently Co-Chair of the student Social Impact Investing Alliance. As a former political consultant and communications strategist at a boutique NYC based consulting firm, she produced media for political and public affairs campaigns across the country. Some of her favorite campaigns and clients include Bloomberg 2009, NARAL Pro-Choice New York, 1199 SEIU, Everytown for Gun Safety and Verizon. Jordana also serves on several non-profit boards.