The Role of CSR in Financial Performance
The idea of corporate social responsibility (CSR) has become extremely popular among scholars, business administrators, and executives.
CSR has been studied over the years with a special emphasis on the benefits it does generate in the company’s financial performance. Many authors who have addressed the relationship between CSR and financial performance have come to different conclusions.
Firstly, the term of CSR refers to certain obligations of firms to pursue or make decisions that are desirable to the interests and values of society. It includes different responsibilities towards the community, environment, customers, and suppliers as well as social contribution and corporate environmental ethics.
Researchers have examined how firms involved in CSR activities engage the broader group of stakeholders. They found that customers are willing to pay a premium price if the firm is involved in positive social performance.
Similarly, investors are more inclined to invest in firms that pursue CSR. Findings also show that employees demonstrate a stronger commitment to a firm that has a good public image.
Corporate reputation plays a big role as CSR activities must target and be visible to a broader audience (society, employees, customers, environmentalists etc). Customers are more attracted to organizations with values and norms they deem essential.
In this article, our main focus is related to the growing concern of companies with the environmental and social issues, since there is a greater understanding that being socially responsible increases their reputation and image, thus generating short-, medium-, and long-term benefits. In addition, most studies on the relation between CSR and finance performance focus on a single industry or country.
The effect of corporate social responsibility (CSR) on financial performance is becoming increasingly important to a broad range of corporate stakeholders, such as investors and strategic managers. A number of different methodological approaches have been developed in order to assess the CSR performance, such as content analysis of annual CSR disclosure, single- and multiple-issue CSR indicators and reputation indices.
Therefore, the main objective of this chapter is to analyze whether companies that pursue CSR-based policies have a higher level of financial performance compared to those that do not in an international sample.
Results suggest that companies pursuing CSR-based policies have, on average, higher financial performance than those that do not. In the same way, during the period of financial crisis, companies pursuing CSR-based policies are found to have outperformed other companies.
Each company goes through a rigorous review at least annually and they are:
The environmental factor is concerned with a company’s effort to change the threat of
climate change, depletion of resources, hazardous waste, nuclear energy, pollution prevention,
and recycling. To be sustainable companies have to make the initiative to minimize the
environmental footprint of their operations.
An example of a company with an environmental sustainability focus is eBay. EBay makes it possible for people to exchange and reuse products. It could be seen as a form of recycling. It helps reduce the number of products that end up in the trash. Also, the company focuses on green supply chain management. It partners up with the United States Postal Service (USPS) to create a co-branded line of environmentally friendly Priority Mail packaging. The company is continually keeping a focus on environmental sustainability.
A company’s attractiveness as an investment is also dependent on the social factor of
labor/hiring practices, reputational issues, diversity, human rights, consumer protection, animal
welfare, etc. A company has to make a conscious effort to better the community. Companies can
accomplish that by making a contribution or donating a percentage of revenues to community
projects. These types of initiatives can help bring the community together. Companies could also
partner up with non-profit organizations to help battle an issue. An example of social initiative
is TOMS’ one for one. The goal of this initiative is to improve lives. With every product
purchase, the company helps a person in need. The company helps provide shoes, sight, water,
safe birth, and bullying prevention services to people in need. The company partners with
nonprofit humanitarian organizations to provide services.
Companies who value human right have initiatives that is made to keep communication
between employees, customers, and mangers transparent. Those companies go out of their way
to make sure that right such as privacy and fairness is not infringed upon. It is important for a
company to have good relations with its employees. Ways to help facilitate that include having
good union relations, strong health programs, and strong benefit programs. Diversity initiatives
include ways to broaden the gender and race populations of the company.
Corporate governance covers the area of exploration into the rights and duties of the
management of a company which includes its board, shareholders, and other stakeholders. The
management of a company is required to be transparent and trustworthy with its practices.
Governance is an important part of CSR because it relates to providing comprehensive and
excellent CSR reports. For stakeholders to know about a company’s CSR initiatives it
needs to be reported. If it is not reported for the public to see then it might not affect
financial performance. Because of this, appropriate governance in CSR reporting is an essential
part of an effective CSR program.
Finally, it can be concluded that the relationship between CSR and firm performance is more complicated than the results of many previous studies indicate.