Thursday 4th August 2016
Over the past decade, businesses have increasingly invested in Social Responsibility and Sustainability. These disciplines increasingly function as a part of the core strategy for many organisations globally and is becoming rapidly more popular in its application. Why are so many companies investing in CSR? What are the benefits?
There are a variety of reasons that account for the shifting business strategies within global organisations as they make attempts to decarbonise, migrate to renewable energy and away from fossil fuels, invest in the communities where they operate, employ ethical investment and operational strategies and implement programmes of diversity and inclusion within their workplaces. One of the primary reasons for this is that there are a variety of recent studies that have found that companies that have comprehensive sustainability strategies outperform companies that do not. Shareholder returns do not need to be compromised when investing in CSR. The low carbon market is now worth USD 5 trillion, and growing. On average, organisations that have effective sustainability policies will enjoy lower borrowing costs at large financial institutions and have improved market valuations. The ethical investments market accounts for 18% of all global investments, and increasing these companies are more likely to attract investment. Transparency is important in these areas, and there is strong evidence to show that corporations that publish emissions targets were more profitable than those with no targets.
There are further schools of thought that propose that engaging in effective CSR activities will reduce the firm’s inefficient capital expenditures and exposure to risk. Empirical research shows that being environmentally proactive results in cost and risk reduction. Specifically, data shows that being proactive on environmental issues can lower the costs of complying with present and future environmental regulations and enhance firm’s efficiencies and drive down operating costs. There are further schools of thought that propose that engaging in effective CSR activities will reduce the firm’s inefficient capital expenditures and exposure to risk.
Furthermore, CSR activities directed at managing community relations may also result in cost and risk reductions. For example, building positive community relations may contribute to an organisation attaining tax advantages offered by city and county governments to further local investments. In addition, positive community relationships may decrease the number of regulations imposed on the firm because the firm is seen as a sanctioned member of society.
In these ways, companies may gain competitive advantage over other organisations within their industries. Developing a good reputation with consumers and investors is extremely important, as consumers are becoming more vigilant about the origins of the products they consume and investors are increasingly interested in ensuring that potential opportunities for investment have mitigated risks by employing comprehensive sustainability policies. The win-win perspective on CSR practices aims to satisfy stakeholders’ demands while allowing the firm to pursue financial success. By engaging its stakeholders and satisfying their demands, the company finds opportunities for profit with the consent and support of its stakeholder environment.
While it is highly valuable for a company to simply engage in CSR for altruistic or ethical justifications, more and more organisations are seeing the measurable payoff that effective CSR programmes bring. With innovations in science, technology and the transition to a more circular economic model, the benefits of CSR and sustainability are being actualised in companies of all sizes all over the world.