With the ever-increasing public scrutiny in the modern era, companies’ managers now feel the pressure to improve their brand’s perception. With Corporate Social Responsibility (CSR), managers attempt to improve the public’s view of the company, illustrating that the company is playing a positive role in the welfare of society. As CSR has become a factor in the decision making of investors, one could question whether CSR and economic performance are positively related.

According to Nakamura (2015), three forms of CSR investments (environmental, labour-related and social investments) can be argued to have an impact on the economic performance of a business. By analysing 185 firms, the findings illustrate that social investments are positively related to economic performance. More precisely, an increase in social investments improves the economic performance of a business.

Balabanis Phillips and Lyall’s (1998) study found similar results for the top British companies. They suggested that economic performance is linked to both the CSR performance and the disclosure. In particular, philanthropic activity was found to be affected by the gross profit to sales ratio of a business. Interestingly, within the research, a donation to the Conservative Party was not found to be related to the company’s economic performance. However, the combination of CSR activities and disclosure of such activities was found to improve the gross profit to sales ratio and ultimately, the business’ overall profitability.

Contrary to the positive relationship between social investments and economic performance, environmental-related investments negatively influence the financial performance of a business. This is mainly due to the cost element of implementing an environmental-related investment into the business. Labour related investments, like the enhancement of female’s corporate positions, were found to be positive but not instantly. Here, the positive economic effects are only realised after a certain period.

The findings show that a business is better off to invest socially to improve its economic performance. However, eliminating environmental and labour related investments might cause harm to the business’ reputation. Even though businesses realise losses while incorporating environmental activities, more managers decide to incorporate CSR activities to improve their position within the society.

Large businesses like Google and Target have been complimented for their CSR activities, but SMEs’ CSR deeds are often overlooked. As SMEs’ contribution to the UK economy is substantial, successful CSR activities should be encouraged within the SME community. The European Commission outlines the following tips for successful CSR:

  • Creativity: CSR concepts and methods are for each individual, one should be creative and explore how CSR can be implemented within their business.
  • Learning: CSR is a fluid concept, where individuals have to be up-to-date with the current events in society. Learn and explore how your business can implement CSR.
  • Networks: Use your existing network and coordinate a sustainable financing model, learning opportunities, and support cooperation with your potential competitors and stakeholders.
  • Ambassador: Support initiatives and reward good behaviour within your network. Communicate the benefits of CSR at your local and regional level and involve other SMEs to engage.

The decision to implement CSR into a business has shown to improve the economic performance of the business. However, some CSR activities might lead to a decrease in the business’ profitability. Furthermore, CSR’s positive outcomes are not instant. Nevertheless, CSR is an investment that benefits a business either in its profitability or brand image. With the rise of ‘ethical’ investors and the public pressure, adopting CSR activities does not seem to be a decision but part of a required long term vision.

Subscribe

Sign up with your email address to receive the latest newsletter.

Subscribe
0 Comments

Leave a reply

Your email address will not be published. Required fields are marked *

*

Talk to us to apply for loans through the government-backed CBILS scheme

TALK TO US

©2020 E2Exchange - Conceptualized and Developed by TechShu

Log in with your credentials

or    

Forgot your details?

Create Account