The link between CSR and profitability

Corporate Social Responsibility refers to the strategies that corporations may adopt in order to conduct their business in a way that is ethical, society friendly and beneficial to community in terms of development, embracing responsibility for the companys actions and encouraging a positive impact through its activities on the environment, stakeholders and all other members of public sphere (Worthington and Britton, 2009, p.213). Due to globalized nature of business that knows no border, concepts such as CSR, corporate citizenship, social corporate sustainability, supply chain ethics, green market and triple bottom line accounting have become an international concern and the majority of corporations nowadays fill their agendas with objectives that stretch beyond the simple well being of the organization, behaving in a more ethically and ecologically sustainable way (Capon, 2009, p.376). Given the current climate of public opinion stated in the Millennium Poll and other surveys, organizations which are seen to be improving their levels of corporate responsibility and are able to communicate this to the consumer are likely to experience organizational benefits such as increased sales, improved employee productivity, access to new markets, less pressure from government/NGOs, reduced levels of waste and increased energy efficiency, improvements in their market share and customer loyalty (Worthington and Britton, 2009, p.212). The analysis held on CSR in recent years presents it as a strategy of dealing with the social context in which firms operate pointing out that being socially responsible can both improve firms social performance and contribute to profitable growth. To understand and critically asses the complex and dynamic relationship between corporate sustainability and long-term business success is a challenging task. According to Perrini, Pogutz and Tencati (2006, p. 59) CSR is consistent with the long term maximization of shareholder value assisting in identifying creative ways of reducing costs, opening up new markets, reducing risks, and attracting and retaining the loyalty of consumers, employees and investors, therefore more responsible firms are more likely to be financial sustainable. Even though there are few or none at all short term advantages on burning money in CSR, as Rahman(2008, p.6) stresses, this fact doesnt pass unseen in the long run, as consumers tend to associate these expenses with a high level of profitability of the firm in the past helping them to confirm their own preference for brands and therefore to sustain or increase sales for the firms. According to Robins (2011) most executives believe that CSR can improve profit, promote respect for their company in the marketplace which can result in higher sales, enhance employee loyalty and attract better personnel to the firm. Another advantage for public companies that Robins (ibid) points out is that aggressive CSR activities may help them gain a possible listing in the Dow Jones Sustainability Indexes, or other similar indices, which may enhance the companys stock price, making executives stock and stock options more profitable and shareholders happier.
1

Over the last ten years there was a significant increase in the number of cases where companies are making a profit from corporate citizenship programs.

A report in The Economist (2008, p.6) points out several successful cases of implementation of CSR, such as the furniture maker Herman Miller, where investments in sustainability-related areas have resulted in a 32% annual rate of return, reduced landfill waste by 80%, hazardous waste by 91%, overall emissions by 87% and water usage by 67%, while doubling sales to more than US$2 billion in 2007, or the Wal-Marts estimation that 5% reduction in excess packaging by 2013 would result in savings of US$11 billion, a project started in 2007 which already resulted in US$3.4bn savings.

Another successful project according to the report in The Economist (ibid) was the P&Gs environmentally responsible innovation a new cold-water detergent introduced to the US market in 2005, which led to an increase in cold-water usage that has benefited both consumers and the business saving 3% of total domestic energy consumption, developing a market of US$20bn-worth of products that are a significant environmental improvement over previous ones.

Corporate social responsibility is finally being seen as a direct driver of revenue growth and profitability and its issues are steadily rising up the corporate agenda. An article in The Guardian by Scovil (2011) suggests that a CSR strategy, with employee engagement as its heart, can make corporations more profitable and productive highlighting a recent research carried out in UK stating that over half (57%) of employees want their employers to do more for CSR, while 63% said that paid time off during working hours to commit to charitable initiatives would significantly improve their engagement with the company. Companies increasingly realize the importance of good corporate citizenship for building a sustainable business and engage more and more in socially and ecologically friendly activities, which represents a huge shift from the old days when companies just made a donation to a local charity. It is widely believed that CSR must be included in a companys core values, which takes a longer-term view searching new opportunities to enhance and grow their business through it, hence strengthening the link between corporate sustainability and their financial performance.

Reference list:
Capon, C. (2009) Understanding the Business Environment, 3rd ed., Harlow: Pearson Education
Economist Intelligence Unit, The Economist (2008) Corporate citizenship: Profiting from a sustainable business [online]. Available from: http://graphics.eiu.com/upload/Corporate_Citizens.pdf (Accessed 1 February 2012)

Perrini, F., Pogutz, S. and Tencati, A. (2006) Developing Corporate Social Responsibility: A European Perspective, Northampton: Edward Elgar Publishing Inc.
Rahman, M. M.( 2008) Linking CSR and Financial Performance through Branding, PhD. Thesis, Bangladesh: North South University. Robins, R. (2011) Does Corporate Social Responsibility Increase Profits?, The Business Ethics [online], 12 May. Available from: http://business-ethics.com/2011/05/12/does-corporate-socialresponsibility-increase-profits/ (Accessed 31 January 2012) Scovil, M.(2011) Taking Corporate Social Responsibility to the next level, The Guardian [online], 6 July. Available from: http://www.guardian.co.uk/social-enterprisenetwork/2011/jul/06/csr-employee-disengagement-motivation?INTCMP=SRCH (Accessed 2 February 2012)

Worthington, I. and Britton, C. (2009) The Business Environment, 6th ed., Harlow: Pearson Education