Investing in Impact: Why Businesses are Beginning to Take Corporate Social Responsibility (CSR) Seriously.

How effective Corporate Social Responsibility (CSR) practices are fast becoming a necessity for Businesses.

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What is CSR?

Corporate Social Responsibility (CSR) refers to the strategies and practices implemented by corporations to ensure their operations are ethical and beneficial to society, spanning environmental, ethical, philanthropic and economic responsibilities [1].

CSR acknowledges that businesses impact the environment, society and culture in which they operate, and thus have a responsibility to manage these effects.

A Shift in CSR Efforts:

Despite the optimistic assurances associated with CSR, empirical evidence suggests that it's implementation has historically been ineffective, shrouded in cynicism and inaction. For example, a 2022 survey Tyl survey reported that 52 percent of UK businesses lacked a well-defined CSR strategy [2].

This deficiency in strategic efforts highlights a broader issue within the corporate sector, where CSR initiatives are frequently underdeveloped and poorly executed. Economic analyses suggest that such shortcomings may stem from a misalignment between CSR objectives and corporate financial priorities, leading to superficial or tokenistic efforts rather than substantive, impactful actions.

However, in recent years, there has been a notable shift, with large corporations increasingly taking their CSR commitments more seriously. In fact, in 2019, 90 percent of companies listed on the S&P 500 index published a CSR report, a substantial increase from just 20 percent in 2011 [3].

Moving away from the use of CSR as a performative buzzword concealing an unfulfilled agenda, companies such as Nestle, Verizon and Ikea are beginning to make tangible changes to their business strategies [4]. This apparent shift in CSR efforts sets the scene for an exciting reset of attitudes towards social responsibility. But what is driving this alteration of attitudes? How does taking CSR seriously benefit businesses?

Whilst historically CSR has been a high-cost, low-reward investment for companies, it is increasingly becoming a necessity for high revenue returns. Based on empirical evidence, Forbes Business Council has concluded that high CSR performance positively affects innovation and company value [8]

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High CSR Profile as a Competitive Differentiator:

Consumer Demand:

Customer demand for corporate ethical and environmental responsibility is on the rise. This hypothesis is supported by a host of empirical evidence, such as a 2019 Aflac Survey that indicated that a significant majority of American consumers, approximately 77 percent, are motivated to purchase from a company with a strong CSR agenda [5].

Meaningful CSR efforts cultivate trust and loyalty from less price-elastic customers, enabling companies to command premium pricing, thereby augmenting profitability. In contrast, increasing demand for company transparency reveals poor CSR efforts, building a negative brand image and leading to a diminution in profitability.

Investor Demand:

Growing emphasis on Environmental, Social and Governance (ESG) criteria among investors reflects increasing concern about where their money is invested. A 2019 survey reported that 73 percent of American investors stated that CSR efforts contributed to their investment decisions [5].

As investors increasingly recognise that robust CSR practices mitigate risks, enhance long-term returns and contribute to overall market stability, the integration of CSR and ESG criteria into investment strategies is increasingly common.

Increased Productivity:

Effective CSR efforts can significantly boost productivity within a business. Engaging in ethical and sustainable practices cultivates a positive workplace culture, increasing employee morale, engagement and ultimately productivity. For example, a Harvard Business School study revealed that nearly 70 percent of employees express that they would not work for a company without a strong CSR strategy [3].

By integrating CSR into their core strategies, corporations create a more productive and resilient workforce.

Increased Innovation:

High CSR performance has a positive statistical effect on innovation and shows a positive correlation between CSR and firm value. Numerous studies have highlighted that companies with robust CSR strategies are perceived as lower-risk entities by financial institutions and investors [9], [10]. This translates into lower finance costs are lowered and allows for investment in new research and development (R&D) efforts, increasing innovation.

Fulfilment of Regulatory Compliance:

Implementing CSR strategies can significantly aid businesses in meeting regulatory requirements. By proactively adopting ethical practices, environmental sustainability measures and transparent operations, companies ensure compliance with existing laws and anticipate future regulatory changes. This is particularly relevant as the EU’s Corporate Sustainability Reporting Directive (CSRD) has published that commencing in 2024, large companies (with over 40 million euro turnover) will have to publish detailed CSR reports increasing transparency and accountability [11].

This proactive approach not only minimizes legal risks and potential penalties but also enhances the company's reputation and trustworthiness among stakeholders.

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If consumer, investor and government demands continue on a trajectory of contending for greater transparency, sustainability and social responsibility, corporations are set to play an exciting role in creating a more equal, just society.

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Bibliography:

[1] Corporate Finance Institute (2024) Corporate Social Responsibility (CSR). Available at: Corporate Social Responsibility (CSR) - Types and Business Benefits (corporatefinanceinstitute.com). (Accessed: 15.07.2024)

[2] Tyl (2022) The Power of Giving Back. Available at: The Power of Giving Back - Tyl by NatWest (Accessed: 15.07.2024)

[3] Stobierski, T. (2021) 15 eye-opening corporate social responsibility statistics. Available at: 15 Eye-Opening Corporate Social Responsibility Statistics (hbs.edu). (Accessed: 15.07.2024)

[4] Fast Company (2024) The most innovative corporate social responsibility companies in 2024. Available at: The most innovative corporate social responsibility companies in 2024 (fastcompany.com). (Accessed: 15.07.2024)

[5] Aflac CSR Survey Report Results and Analysis (2019). Available at: 2019-aflac-csr-infographic-and-survey.pdf. (Accessed: 15.07.2024)

[6] Reichheld, A., Peto, J., and Ritthaler, C. (2023) Research: Customer’s Sustainability Demands are Rising. Available at: Research: Consumers’ Sustainability Demands Are Rising (hbr.org). (Accessed: 15.07.2024)

[7] Kyriakou, S. (2018) Why is CSR important for investors? Available at: Why is CSR important for investors? - FTAdviser. (Accessed: 15.07.2024)

[8] Amyx, S. (2020) How Commitment to CSR Improves The Bottom Line. Available at: How Commitment To CSR Improves The Bottom Line (forbes.com). (Accessed: 15.07.2024)

[9] Monti, A., Pattitoni P., Petacci, B., and Randl, O. (2022) ‘Does corporate social responsibility impact equity risk? International evidence’, Review of Quantitative Finance and Accounting, 59, pp.825-855

[10] Wang, Z., Kong, D., and Liu, S. (2024) ‘Corporate social responsibility and firm-level systematic risk: The moderating effect of economic policy uncertainty’, International Review of Financial Analysis, 94.

[11] European Parliament (2022) New social and environmental reporting rules for large companies. Available at: New social and environmental reporting rules for large companies | News | European Parliament (europa.eu). (Accessed: 16.07.2024)