Thursday, August 13, 2009

Economic benefits that flow from CSR.

The most recent and comprehensive review of the relationship between financial performance and socially responsible business practices in large companies is by Margolis, Elfenbein, and Walsh (2007). In a meta-analysis of the results from 167 studies, they found that 27% of the analyses show a positive relationship, 58% show a non-significant relationship, and 2% show a negative relationship. They argue that the evidence indicates that CSR, in general, has little effect on profitability, but note that there is stronger evidence to suggest that some causality does operate in the opposite direction: companies that are profitable are more likely to engage in more CSR activities.

Bill Joy, co-founder of Sun Microsystems, believes "there’s an enormous amount of business potential in green technologies, including fuel cells, advanced battery technology and biotechnology. Hopefully, CSR will soon loosen its association to the notion that doing so involves economic sacrifice. A focus on CSR can reduce costs as well as waste. So, it's not just about doing the right thing. It also offers direct business benefits."

Reducing waste and emissions doesn't just help the environment - it saves money too by cutting utility bills and waste disposal costs, thus bringing immediate cash benefits. However, consider these other benefits as well:

* Building a reputation as a responsible business sets a company apart.

* Many consumers prefer to buy from ethical businesses.

* Some customers don't just prefer to deal with responsible companies, but insist on it. For example, sales of 'environmentally friendly' products continues to grow - and these products often sell at a premium price.

* Companies often favor suppliers who demonstrate responsible policies as this helps them to minimize the risk of any damage to their own reputations.

* A good reputation makes it easier to recruit employees.

* Employees stay longer, reducing the costs and disruption of recruitment and retraining.

* Employees are more involved and motivated and, as a result, they're more productive.

* CSR helps ensure compliance with regulatory requirements.

* Involvement with the local community creates ideal opportunities to generate positive press coverage.

* Good relationships with local authorities make doing business easier.

* Understanding the wider impact of a business can help in thinking up profitable new products and services.

* CSR can make firms more competitive and reduces the risk of sudden damage to their reputation and sales. Investors are more willing to provide financial resources to such firms as a result.

"The purpose of life is not to be happy. It is to be useful, to be honorable, to be compassionate, to have it make some difference that you have lived and lived well."
- Ralph Waldo Emerson

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