Corporate Social Responsibility (CSR) has always been extremely influential over operations of organisations and isn’t something new like most people assume. However, since the financial crash of 2008-09 there has seen a surge in corporations implementing CSR teams into their hierarchy to ensure they are meeting the triple bottom line (economic, social and environmental (ESG)) expectations. This implementation has impacted financial performance for companies massively, causing an array of views towards CSR and its impacts. This variation in views largely depends on the type of stakeholders it is impacting. Shareholders tend to view most CSR approaches as negatives as it can be costly to implement while stakeholders like the government stand positively with these approaches as they know they are conforming with set out legislations and guidelines to help with improving ESG. The Business Case for Corporate Citizenship (originally founded by Arthur D Little) is a framework that looks at numerous theories which assess how CSR implementation has actually impacted businesses, providing evidence of both benefits and negatives.
CSR has recently caught a lot of attention for the value it provides for different companies. This has caused numerous studies on CSR to be conducted, within the business case a massive study was done on reputation management. The idea of reputation management is to assess the strength of the relationship between reputation the CSR initiative provides and how it impacts financial performance. When companies provide a high level of CSR that is extremely influential and combats any assumption of green washing, companies tend to be perceived positively by consumers. This benefit is often a target set out by CSR strategists as it is one of the few ways profits can arise from CSR implementation (data-backed). This is evident by Coca-Cola’s goal to reduce their carbon footprint by 25% by the time it is 2030 and to continue selling their drinks in 100% recyclable packaging. Since releasing this announcement of their goal, they are said to have seen a sharp uprise in sales and stock price (Coca-Cola, 2023). This is vital for large conglomerates like Coca-Cola because when firms see little profits or little increase in stock price when CSR implementations are announced, it is common they back track or green wash. The idea of back-tracking or greenwashing maybe be a positive for companies in the short-run however, in the long-run it is likely, due to the magnitude of the company, a massive drop in reputation could occur. Drops in reputation are linked to be a lot more influential on profits than increases to reputation. So, although conducting CSR for reputation management may not see massive profits for all companies it is extremely likely that the reverse of not doing anything or being seen to have green washed could have larger impacts that cause astronomical negatives. This as a result, indicates reputation management is essential for companies because including CSR can be seen as both a defensive and profit-minded approach that can show the benefits that CSR strategies can provide. CSR strategies also provide benefits on a more societal level.
Corporations have also been searching for incentives and strategies to implement societal improvements. One-way companies have done this is attempting to help improve employee recruitment, motivation and retention. Improving life for the staff is essential for all companies as it reduces employee turnover and can help increase efficiencies by increasing motivation and job satisfaction. This is essential to analyse when it comes to the effectiveness of implementing CSR strategies as firms operate through employees so having to look into ways to one improve how they work while also improving reputations by reinforcing a positive workplace can be a core goal for many firms. A recent study on energy powerhouse Centrica (2023) showed 1,000 hours of employee community time helped lead to a 67% job satisfaction rate and over 50% rise in advocacy rates. This study illudes to the idea that allowing employees to help out with the local community helps improve their overall well-being. This therefore plays a large proportion for the results of figure 1. On the other hand, many studies have argued this point and think that not all situations benefit as much as Centrica did. This is largely because the case of ‘Moral Arguments’ by Nijhof and Jeurissen (2010) which implies the rationale for completing an action like allowing employees to help out with local community may not be done for the correct reason and could potentially have been done to improve reputation and increase efficiency. It is also understood from research by Bhattacharya (2008) that companies often lack employee awareness and involvement. This suggests that they don’t know what factors are demanded by employees to help improve their satisfaction. In the case of RGIS, the initiative to improve working space for employees by increasing work space but also increasing hybrid working backfired. This is said to be down to the fact that employees ‘felt it was clear their moral alignment was in it for profits and not to actually help their employees through the good of their heart’. This caused their employee recommendation rate to fall to 46% (as of 2022). This lack of motivation and satisfaction caused a -64.72% fall in share price. This highlights how some initiative to improve employee’s motivation can be largely beneficial but, in some cases, it won’t always lead to the same benefits as employees see through the strategy and consequently rebel to the workplace causing large decreases in profits. It is clear though, this depends on the company and it must be assessed to ensure that helping out the community in different ways articulates a strategy that makes sense and is going to improve the social impact, rather than reflecting bad on the company.
CSR approaches to improve ESG sectors of firms often require large amounts of investment as it is a new focus of firms over recent years. However, the evidence backs investing into CSR strategies performs extremely well and often increases investor demand for firms’ equity because, the new view of CSR becoming an integral part of business is on the rise along with the expectations of all firms no matter the size to have a natural focus on CSR. Large firms like PepsiCo have focus on all areas of ESG and have been able to reap the benefits. Pep+ is PepsiCo’s new strategy for having a positive impact on both the world and people; they have taken part in initiatives like ensuring their crop sources benefits the agriculture industry, evaluating their product portfolio to ensure healthier options are available and to reduce overall carbon emissions from the production and logistics behind moving products from one are to another (1.3bn miles in 2022) (PepsiCo, 2023). The benefits PepsiCo and many other firms get from CSR initiatives is impactful to the market. This is because 86% of institutional investors are said to believe they are persuaded by these initiatives and often value this a lot more than production efficiency (Boffo, 2020). Essentially this data shows how essential CSR performance is for companies and its profitability and investments. On the other hand, gaining benefits from CSR is a lot harder on smaller companies and has shown investment into strategies to improve ESG doesn’t always help share price or the demand for the firms compare to the sheer volume invested. This is down to firms gaining the capacity to invest sums of money into more efficient practices can require a strategy and CSR team. This is a challenge as they often have access to less resources meaning having this additional pressure can be time consuming in the recruitment process. This essentially means that new and small companies have to give a lot more up just to take on this responsibility. The ROI for these firms is said to be approximately 7.5% increase in employee engagement and a 6% increase in equity demand (Allen, 2021). Although, there is a slight rise in the investment demand and improvement to efficiency, larger firms see a much larger benefit often meaning small caps don’t go out to have massive CSR teams due to the lack of incentives.
Overall, engaging in CSR initiatives is extremely impactful for businesses and can lead to numerous benefits for firms. Benefits like improvement to reputation and investors being more inclined to purchase equity of firms is a key driver for why firms invest larger sums of moneys into these initiatives. However, the moral argument by Nijhof and Jeurissen (2010) and the fact that smaller firms struggle to benefit as much from the ROI does insinuate there are some constraints. I think more data is required to have an overall opinion on how CSR impacts firms and their financial performance. However, one thing I know is clear is that the benefit to the planet will improve how people perceive them which can only be beneficial. Campaigns and subsidies to smaller firms to help with their CSR initiatives would likely be extremely beneficial for both the firm and the economy. CSR approaches must be adopted by everyone to see foreseeable impacts therefore, investing to aid smaller firms would mitigate numerous negative risks allowing them to play their part too. Finally, a regulatory body on greenwashing and data manipulation would be revolutionary as a lot of large firms would have to provide clear evidence meaning CSR reports are more accurate and concise helping aid investments into firms be more accurate and fairer.
By Sam Golder
CEO
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