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Does Corporate Social Responsibility Increase Profits?

Does Corporate Social Responsibility Increase Profits?

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Published by Ron Robins
Surveys and the research literature suggest that what most executives believe intuitively, that CSR can improve profits, is possible. And almost no large public company today would want to be seen unengaged in CSR. That is clear admission of how important CSR might be to their bottom line, no matter how difficult it may be to define CSR and link it to profits.
Surveys and the research literature suggest that what most executives believe intuitively, that CSR can improve profits, is possible. And almost no large public company today would want to be seen unengaged in CSR. That is clear admission of how important CSR might be to their bottom line, no matter how difficult it may be to define CSR and link it to profits.

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Published by: Ron Robins on May 30, 2011
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Does Corporate Social Responsibility Increase Profits?
By Ron Robins, Founder & Analyst,Investing for the SoulBlogEnlightened Economics;twitter First published May 12, 2011, in his weekly economics and finance column atalrroya.comIt is generally held that corporate social responsibility (CSR) could increase companyprofits and thus most large companies are actively engaged in it. But few executivesand managers are aware of the research on this important subject. And as I reviewhere, the research does show that it may improve profits. However, linking profitgrowth to abstract variables that are frequently difficult to define is a challengingtask.Most executives believe that CSR can improve profits. They understand that CSR canpromote respect for their company in the marketplace which can result in highersales, enhance employee loyalty and attract better personnel to the firm. Also, CSRactivities focusing on sustainability issues may lower costs and improve efficienciesas well. An added advantage for public companies is that aggressive CSR activitiesmay help them gain a possible listing in the FTSE4Good or Dow Jones SustainabilityIndexes, or other similar indices. This may enhance the company’s stock price,making executives’ stock and stock options more profitable and shareholdershappier.Substantiating some of these beliefs is a study, Corporate citizenship: Profiting froma sustainable business, by the Economist Intelligence Unit (EIU) published inNovember 2008. Corporate citizenship is another term roughly equivalent to CSR.The EIU study said that, “corporate citizenship [CC] is becoming increasinglyimportant for the long-term health of companies even though most struggle to showa return on their investment from socially responsible activities… 74 per cent of respondents to the survey say corporate citizenship can help increase profits at theircompany… Survey respondents who say effective corporate citizenship can help toimprove the bottom line are also more likely to say their strategy is ‘very important’ to their business (33 per cent) compared with other survey respondents (8 percent).” At the heart of the debate as to whether CSR improves profits is first how you defineit. Besides the terms CSR and CC, another frequently used and related term iscorporate social performance (CSP). In the above quoted EIU study, it provides thefollowing definition of CC: “corporate citizenship is defined as transcendingphilanthropy and compliance, and is addressing how companies manage their socialand environmental impacts as well as their economic contribution. Corporate citizensare accountable not just to shareholders, but also to stakeholders such asemployees, consumers, suppliers, local communities and society at large.” The study of CSR and its relation to corporate profits is growing. The most recentstudy on this subject is by Cristiana Manescu. In her thesis, "Economic Implicationsof Corporate Social Responsibility and Responsible Investments,” at the University of Gothenburg's School of Business, Economics and Law, Sweden, she wrote on

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