Does CSR pay off?

Very often the business managers ask the question how much is it worth to spend on CSR strategy and does it really pay off?

Recently Forbes has published an article on this topic, defending the opinion that CSR practice does not bring the company positive impact, a conclusion taken from David Vogel research, based on companies from Fortune 500 list. But there are many other experts with similar analysis who have come to different conclusions.

For instance, the Goldman Sachs Report from 2007 shows that among six sectors covered (energy, mining, steel, food, beverages, and media), companies that are considered leaders in implementing environmental, social and governance (ESG) policies to create sustained competitive advantage have outperformed the general stock market by 25 percent since August 2005. Additionally, 72% of these companies have outperformed their peers over the same period.

Even according to the Domini 400 Social Index, companies with positive ESG performance have compared stronger than the S&P over the last 18 years.

One more recent research, made by Panel Intelligence in November 2008, once again confirms that CSR actually pays. According to this study, 80% of sustainability leaders surveyed say they intend to maintain or increase spending in areas related to sustainability next year. In fact, they reported that sustainability and clean technology spending, as a percentage of corporate revenues, is expected to increase 73 percent through 2010.

Another recent study reveals that, as a result of “ecoflation”, packaged goods companies may expect a reduction in earnings of 19 to 47 percent in the next decade if they do not implement adequate sustainability measures.

The study Trends in Communication Management and Public Relations made by European Communication Monitor in November 2008 shows that 73% of the PR professionals in Europe think that CSR will be even more important in the following three years, and four of ten believe that CSR is a strategic issue that the communication management must deal with.

In addition, this study gives some more useful hints on CSR. For instance, 75% of the European PR pros are involved in CSR, and the main motivation for that (at almost all types of companies and all European regions) is the reputation management (70%). The most practiced CSR activity is the corporate profile (values and strategy, 60.8%). However, in some regions of Europe, the selection of CSR strategy differs: while in East and South Europe the social actions are the main aspect, the corporate ethics plays the main role on the West and North of Europe. Communicating environmental activities is less valued in East Europe.

So, does CSR really pay off? This question is so often probably because the results from CSR practice cannot be seen quickly. Lots of managers that decide on corporate budget splits cannot see the CSR effects and that is why they more easily decide to invest in strategies that can provide results for shorter period.

On the other hand, CSR cannot be directly linked to improved financial performance of the company, so probably it is necessary to make a broader business case for CSR. However, it is more than obvious that CSR indirectly helps in increasing of the company value, through: increasing the engagement among employees, bolster corporate reputation, leading to product innovation and differentiation, helping manage risk, decreasing environmental impact and contribute to solving social problems, and so on.

But at the end of the day, Vogel is right when saying that CSR is not going to save a company that has made poor business decisions.