Pros & Cons Of Corporate Social Responsibility (CSR)

In the guide below, we outline the potential pros and cons (benefits and disadvantages) of Corporate Social Responsibility (CSR), primarily in business.

 

Summary – Pros & Cons Of CSR (Benefits & Disadvantages)

Firstly, What Is CSR?

We outline what CSR is, and important aspects of CSR in another guide.

 

Potential Pros

May Deliver Social Benefits

May Deliver Environmental Benefits

May Deliver Benefits For Businesses Themselves

Some Argue That CSR Does Not Adversely Affect An Organization’s Financial Performance

 

Potential Cons

There Isn’t A Consensus On What CSR Should Be, Or What Should Be Prioritised In Social Responsibility

Regulations, Systems, Standards, Measuring Methods, Reporting, & Auditing For CSR Aren’t Uniform Everywhere

CSR Can Be Costly, & Have An Opportunity Cost

Some Argue That Corporations Should Focus On Themselves & Their Returns 

Some Argue That CSR May Lead To An Adverse Financial Performance For Businesses

Some CSR Expectations & Goals Might Be Considered Unrealistic

Consumers Might Be Skeptical Of CSR, & Not Value CSR As Much In Some Instances

‘Ethical Purchases’ May Currently Make Up Only A Small % Of The Average Household’s Purchases

Some Argue That CSR May Lead To ‘Greenwashing’, & Other Misleading Claims About Businesses

Some Question How CSR Might Impact Corporate Autonomy, Free Markets, & Related Issues

 

Potential Pros Of CSR

May Deliver Social Benefits

One of the key aims of CSR might be to contribute to societal goals

Local communities might be one beneficiary of CSR, with employees, and also consumers being some others

Educational programs and employment opportunities for local communities (such as sourcing or making a product or service locally) may be some examples of ways businesses might contribute socially

 

May Deliver Environmental Benefits

In some instances, CSR objectives may strive to make a positive impact on the environment.

Two key ways companies might do this might be:

– By reducing waste, or better managing waste

– By reducing environmental pollution

 

May Deliver Benefits & Create Value For Businesses Themselves

Some of those benefits and some of that value creation might involve:

– Increased brand equity

We outlined some of the potential benefits of brand equity in this guide.

But, a few of those potential benefits might be better brand awareness, recognition and reputation

 

– Allowing companies to gain a competitive advantage versus other companies, differentiating their brand, and gaining better brand positioning in the market

 

– Attracting new customers

 

– Increased revenue, and/or profits

 

– Reducing various risks in the business

Such as general business risk, and potentially legal risk (from regulators, taxation, fins, etc)

 

– Attracting employees who want to work at CSR orientated companies, and retaining employees too

 

– Better relations with suppliers 

 

– Potentially greater investment in companies who implement CSR, from investors who value CSR as part of the businesses they invest in

 

wikipedia.org lists some other potential benefits for businesses in their article

 

Some Argue That CSR Does Not Adversely Affect An Organization’s Financial Performance

Various studies over the years have indicated that CSR might have anywhere from a neutral to a positive impact on on a company’s financial performance.

 

wikipedia.org references a range of different studies to illustrate this:

– One specific study indicates that: ‘… when the study is properly specified, CSR has a neutral impact on financial outcomes [when considering the relationship between social and financial performance]’

– In another study: ‘Proponents argue that corporations increase long-term profits by operating with a CSR perspective’

– Another group of research studies indicates that ‘… a positive relationship exists between a firm’s corporate social responsibility policies and corporate financial performance’

 

Potential Cons Of CSR

There Isn’t A Consensus On What CSR Should Be, Or What Should Be Prioritised In Social Responsibility

Although there are general definitions of CSR, there doesn’t seem to be a consensus on what exactly it should involve

This is largely because different groups and individuals have different interests

We explain this in more detail, and give examples of how it might be the case in a separate guide.

 

Regulations, Systems, Standards, Measuring Methods, Reporting, & Auditing For CSR Aren’t Uniform Everywhere

CSR regulations, systems, standards, measuring methods, reporting/social accounting, and external auditing aren’t the same/aren’t uniform everywhere.

This is something we outline in a separate guide.

As a summary, there can be differences in different countries between:

– Laws and regulations 

– Standards set for companies to meet

– The methods used by companies for measurements and data presentation in their accounting and reporting

– External auditing agencies (of company performance and reporting)

 

Some who are critical of CSR even go as far as to suggest that CSR reports on a company’s social and environmental performance have little credibility because impact is hard to measure in the first place (because CSR can include intangible aspects), and impact/performance is also hard to verify. 

They may suggest that there needs to be better systems for measuring and verifying a company’s performance and reports.

 

CSR Can Be Costly, & Have An Opportunity Cost

There’s various costs for CSR policies and practices, and investment in philanthropy and activism

Costs can include money, time, resources like labor and materials, and so on.

In some cases, this cost can be significant.

Not only might this impact profit margin, but, businesses also only have finite resources to allocate to philanthropy and other CSR based practices.

Money invested into CSR is also an opportunity cost – it’s money that could have been put into other aspects of the business such as R&D, operation, customer service, and so on. 

 

Some Argue That Corporations Should Focus On Themselves & Their Returns 

Some economists have argued that corporations have a purpose other than CSR, and that purpose is to maximize returns for shareholders.

Focussing on CSR may be a conflict of interest in corporations maximizing returns for shareholders.

 

Some Argue That CSR May Lead To An Adverse Financial Performance For Businesses

Some reports indicate that CSR may lead to an adverse financial performance for businesses across one or several metrics.

There might be debate though on whether adverse financial performance can happen only in the short term, or whether it can happen in the long term too.

 

From wikipedia.org: ‘[Creating shared value and CSR] acknowledges trade-offs between short-term profitability and social or environmental goals, but emphasizes the opportunities for competitive advantage from building a social value proposition into corporate strategy’

 

Some CSR Expectations & Goals Might Be Considered Unrealistic

This might especially be the case when external groups, such as activists, put pressure on businesses to take on corporate social responsibilities that:

– Would significantly reduce their profit, or increase their costs (and even risks), to the point they have little to no incentive to continue to run the business

 

– Cannot practically be executed (because of finite businesses resources like time, money and labor, or other reasons)

 

Consumers Might Be Skeptical Of CSR, & Not Value CSR As Much In Some Instances

wikipedia.org mentions how ‘… a review of CSR literature, covering 700 academic sources from numerous fields …found that the primary reason for firms to engage in CSR was the expected financial benefits associated with CSR, rather than being motivated by a desire to be responsible to society’

With this being the case, consumers may respond to CSR less favorably where they know companies are doing it for financial motives or business motives, rather than to truly make a social or environmental difference

 

wikipedia.org also separately mentions how ‘… not all CSR activities are attractive to consumers’

They give examples of how this might be the case in their article

 

‘Ethical Purchases’ May Currently Make Up Only A Small % Of The Average Household’s Purchases

What consumers say they will do when it comes to purchasing decisions, and what they actually spend their money on, may end up being two different things.

Although consumers may say they value businesses who are socially responsible, they may not buy from them with a high % of their weekly budget.

 

wikipedia.org indicates that:

‘… surveys indicate an “ethical purchases” are a small percentage of household expenditures’

 

Some Argue That CSR May Lead To ‘Greenwashing’, & Other Misleading Claims About Businesses

‘Greenwashing’ and other misleading claims related to CSR may result from CSR being hard to measure, and also verify.

Greenwashing and misleading claims by a company, or within an industry, can lead to be skepticism by consumers in CSR.

Some even argue that greenwashing and misleading claims can be used to redirect customer focus away from clear drawbacks of a product – unhealthy food and smoking products may be two examples.

 

Some Question How CSR Might Impact Corporate Autonomy, Free Markets, & Related Issues

– Impacting Corporate Autonomy

CSR regulations and schemes give some external groups and agencies more control/authority over companies that have to follow CSR regulations and schemes (or who are pressured to follow them)

 

– Impacting Free Markets

Additionally, some argue that both businesses and consumers should have the freedom to be able to spend their money how they like, and consumers should not have to pay what effectively amounts to a ‘CSR tax’ in their purchases from companies that implement socially responsible practices.

A critic might say that CSR should be voluntary instead of being enforced on businesses and consumers through what might be perceived as a form of socialism.

 

 

Sources

1. Various ‘Better Meets Reality’ guides

2. https://en.wikipedia.org/wiki/Corporate_social_responsibility

3. https://www.businessnewsdaily.com/4679-corporate-social-responsibility.html

4. https://online.hbs.edu/blog/post/types-of-corporate-social-responsibility

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