Since the early work of Bowen in 1953, the connection between corporate social responsibility (CSR) and financial performance has been a topic of great significance in the business world. CSR encompasses a wide range of activities that reflect a company’s efforts to address social and environmental concerns beyond just maximizing profits and shareholder wealth. The perception of CSR varies between companies, managers, and societies, but it is commonly viewed as a way to promote stakeholder welfare (Becchetti & Trovato, 2011).
Today, managers and shareholders are becoming more aware of the importance of social responsibility in gaining a competitive advantage. Companies are prioritizing CSR activities and incorporating them into their business strategies (Maretno, 2018). They are using their resources to address social and environmental issues and improve the well-being of the communities in which they operate. Environmental, social, and governance (ESG) activities are the three pillars of sustainability, and companies are increasingly striving to improve their ESG performance (Staub-Bisang, 2012).
However, with the commitment to social responsibility comes the question of whether such initiatives can improve financial performance in the long run. Allocating resources to CSR activities can be costly and requires companies to spend limited resources that could be invested in more profitable projects (Maretno, 2018). Therefore, managers need to know whether these initiatives will be valuable investments in the long run (Kurucz et al., 2008).
Research has shown that there is a positive relationship between CSR and financial performance. Companies that prioritize CSR activities tend to enjoy better financial performance in the long run (Carroll, 2008). For example, a company that invests in reducing its carbon footprint may save on energy costs and improve its reputation with customers who value environmental sustainability. Such a company may also attract socially responsible investors who value ESG performance.
Furthermore, companies that prioritize CSR tend to have better relationships with their stakeholders. This can lead to increased customer loyalty, improved employee engagement, and better relationships with suppliers and other partners (Maretno, 2018).
All of these factors can lead to improved financial performance in the long run.
Takeaway
In today’s business world, companies are recognizing the importance of Corporate Social Responsibility (CSR) in promoting sustainable and ethical practices. From reducing carbon emissions to supporting local communities, CSR activities can have a positive impact on society and the environment while also enhancing a company’s reputation and financial performance.
As discussed, there is a strong relationship between CSR and financial performance. Companies that prioritize CSR tend to have better financial performance in the long run, as they benefit from improved relationships with stakeholders, cost savings, and the ability to attract socially responsible investors. In addition, CSR can also lead to increased customer loyalty, better employee engagement, and stronger partnerships with suppliers and other stakeholders.
To fully realize the benefits of CSR, it is important for companies to view it as a strategic priority rather than just a compliance requirement. By incorporating CSR into their business strategies, companies can align their values with those of their stakeholders and contribute to a more sustainable future.
In conclusion, companies that prioritize CSR can enjoy numerous benefits, including improved financial performance, better stakeholder relationships, and enhanced reputation. As such, managers should make CSR a strategic priority and invest in ESG activities to promote sustainable business practices and drive long-term success. Ultimately, companies that prioritize CSR are not only doing the right thing for society and the environment but are also more likely to succeed in the competitive global market.