Corporate Social Responsibility (CSR), Explained

By Michael Flannelly · May 13, 2024 · 6 minute read

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Corporate Social Responsibility (CSR), Explained

Corporate social responsibility, or CSR, is a type of self-regulation that a business uses to enhance the well-being of communities and society through ethical, environmental, and social measures. There are different types of CSR that investors can familiarize themselves with.

By investing in companies that practice CSR, investors have the opportunity to use their own wealth-building strategies to make a positive impact on the world. That doesn’t necessarily translate to increased potential returns, of course, but it can be helpful to understand what CSR means if and when you encounter it in the markets.

What Is Corporate Social Responsibility?

Corporate social responsibility (CSR) refers to a company’s dedication to establishing business decisions that positively impact society. Usually, these business decisions support socially responsible movements, like environmental sustainability, ethical labor practices, and social justice initiatives. It’s similar to, but distinct from, environmental, social, and governance investing (ESG), a concept which investors may also encounter.

Ideally, CSR strategies work in tandem with the traditional business objectives of hitting revenue and profit goals, and other metrics investors may find on a financial statement.

There is no codified set of standards that explain corporate social responsibility. Companies choose to enact CSR policies on their own initiative. It can take many forms depending on a company or an industry, but generally, CSR policies promote economic, social, and environmental sustainability.

However, the International Organization for Standardization (ISO) released guidelines for corporate social responsibility in 2010. These guidelines are suggestions, not requirements, that can help put companies on track to further CSR principles.

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Why CSR Is Important

Corporate social responsibility is important because companies can use their financial position and operations to try and build more ethical business models that may have a positive impact on the world at large. When the companies enact socially responsible policies prosper, those practices become more commonplace and widespread.

Additionally, investors increasingly focus on more than traditional business valuation methods when making investment decisions. Investors may want to put money into companies that support socially responsible movements, so they may be attracted to companies with CSR policies.

In other words, investing in companies that practice corporate social responsibility gives investors the chance to effectively vote with their wallets on how they want the companies around them to behave.

4 Types of Corporate Social Responsibility

Corporate social responsibility is an umbrella term that captures a wide array of policies that a company can enact. CSR-focused companies may target their efforts on one or more specific social, economic, or environmental areas of concern. The following are some of the most common areas of CSR:

1. Environmental Sustainability

Many companies focus on environmental sustainability when making business decisions. With climate change threatening to cause severe impacts worldwide, companies are committing to creating sustainable production methods, distribution, and overall business practices to reduce carbon footprints.

For investors, sustainable investing could mean seeking out companies that promise to hold to sustainable business practices — and doing the research to ensure they’re keeping that promise in real life. Additionally, it could mean focusing on companies that are specifically involved in creating the products that allow for environmental sustainability in the long term, such as renewable energy, biofuels, or hybrid and electric cars.

2. Philanthropy

One of the ways large companies might align themselves with CSR values is by supporting philanthropic efforts. By donating money, products, or services to nonprofit organizations and social causes, a company can show the public what it values and how its furthering causes.

💡 Recommended: How to Make End-of-Year Donations

3. Ethical Labor Practices

Corporations that commit to ethical labor practices, such as focusing on diversity and inclusion or having a zero-tolerance policy on sexual harassment, may garner more favor among investors looking to support a socially responsible company.

4. Volunteering

Another way almost any business can get in on CSR might be to support local volunteering efforts by sending out their representatives or fundraising for other volunteering organizations and movements.

Companies might also support volunteerism by offering their employees paid time off specifically for that activity. Some companies provide employees several days off per year, which they can use to participate in any volunteering effort they choose.

Examples of CSR

Many companies in the S&P 500 have enacted corporate social responsibility initiatives, and the trend is growing. Here are a few examples of CSR policies at large corporations:

•   Starbucks (SBUX): The coffee giant has committed to hiring a diversified workforce, including hiring thousands of veterans, refugees, and disadvantaged youth.

•   Levi Strauss (LEVI): The apparel maker launched the Levi’s® Music Project, an initiative that looks to provide young people with music education and community resources.

•   Ford Motor Company (F): The carmaker is pushing to have 50% of its global sales be electric vehicles (EV) by 2030 to help address climate change.

•   Salesforce (CRM): The software company says it has given about $240 million in grants, 3.5 million hours of community service, and provided donations to more than 39,000 nonprofits and education institutions.

•   The Coca-Cola Company (KO): The beverage company is focusing on water conservation, saying it will push to responsibly use water in its production process and advocate for smart water policies.

Benefits of Corporate Social Responsibility

There are many reasons for a company to adopt and execute corporate social responsibility policies. First and foremost, CSR practices help promote a relatively healthier society and environment. By following socially responsible protocols, companies could have the opportunity to make significant social, economic, and ecological changes. As noted above, investors are increasingly looking to put money into companies that adhere to CSR.

Beyond these direct positives, CSR policies can also boost a company’s competitiveness by benefiting the firm in the following ways:

•   Stronger brand image: Corporate social responsibility policies can help create a positive image for a company, attracting consumers, employees, and other stakeholders.

•   Employee retention: Talented employees may stay with a company longer when they feel they are working for a business that has strong CSR policies. Additionally, this reputation can help attract new employees.

•   Reduced regulatory burden: A comprehensive CSR policy can help a company navigate relationships with regulatory bodies, especially as governments establish more rules around sustainability.

There are some potential drawbacks to CSR, however, that investors should be aware of as well. For one, CSR initiatives may lead to higher costs and expenses for companies, potentially impacting profitability. Some stakeholders or shareholders may also disagree with those initiatives, which may likewise have varying consequences. It’s also possible that a company professing to focus on CSR are merely playing lip-service — in other words, they’re more or less pretending to be responsible, while not doing much to follow through (“greenwashing,” for example.

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The Takeaway

Corporate social responsibility is one of several business models companies are using to navigate a changing world. By investing in companies that support those practices, investors could have the opportunity to positively impact the world while also potentially building their nest eggs.

However, it can take a lot of work for investors to determine what companies have the best CSR policies and what companies are truly adhering to their initiatives. So if you want to invest in companies that support CSR policies, it may be best to start small rather than build a whole portfolio around CSR stocks.

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