CSR activities help organizations improve reputations and reduce costs.
Corporate social responsibility (CSR) is an ongoing management concern. Most financial leaders believe that CSR activities can improve profits through enhanced marketing power, reduced long-term liabilities and even lower operating costs. Whether the motivation for CSR is weighted more toward enhancement of shareholder value or a commitment to ethics, the benefits — and the challenges — of CSR are the same.
Reducing Operating Costs
Some organizations find that activities that are socially responsible also benefit the bottom line. For example, the Natural Resources Defense Council has found that energy efficiency in office buildings is good for the environment and saves money that can be reinvested for economic growth. Ergonomic equipment can show employees they're valued and reduce workplace injuries. Participating in community events can build goodwill more effectively than advertising.
This great combination of practical and inspirational drives the first CSR activities in many organizations. The downside is small, and the payoff is large. The only problem is that there aren't many of these opportunities out there.
Reducing Long-Term Liabilities
Much of the cost — and long-term benefit — of CSR involves long-term payoffs of larger investments, usually by going beyond the letter of current regulations in order to head off problems in the future. Doing the right thing for the environment, workers and the community sometimes costs more now but pays off in the form of reduced long-term liabilities. For example, manufacturing processes that protect water quality may not be required now, but could prevent costly remediation expenses if they are required in the future.
The financial benefit of these decisions will require careful valuation of the future value. While this may not be easy, it is one way that financial managers bring value to CSR activities.
Enhancing the Business Reputation
McKinsey & Company has found that effective CSR activities can improve shareholder value. Community projects may generate earned media, and environmental certifications may enhance customer perceptions. These may help organizations attract employees and justify higher price points.
The reputation benefits of CSR help build trust for the business that will prove helpful when something goes wrong. An organization that is perceived as responsible may receive the benefit of a doubt when bad news hits, which can buy a little time in a crisis.
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