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Part of the Series Guide to Socially Responsible InvestingInvesting in SRI
Social responsibility is an ethical focus for individuals and companies that want to take action and be accountable for practices that benefit society. It's become increasingly important to investors and consumers who want to put their money into or purchase products from companies that take steps to contribute to the welfare of society and the environment.
Critics have traditionally argued that the basic nature of business doesn't consider society to be a stakeholder but many investors and consumers are embracing social responsibility and driving change.
Social responsibility requires that individuals and companies act in the best interests of the environment and society as a whole. Social responsibility is referred to as “corporate social responsibility (CSR)” when it applies to businesses and it's becoming more popular due to shifting social norms. Many companies have made CSR an integral part of their business models without compromising profitability.
A Massachusetts Institute of Technology meta-analysis of 200 surveys over 20 years talked with business leaders in more than 70 countries and there was a high level of interest in the topic. The report called CSR a “halo strategy” and concluded that “by presenting themselves as true believers in CSR (saints), businesses seek to improve the overall corporate image (the halo) and expect broad benefits from diverse stakeholders to follow (the warm glow).”
The crux of CSR is to enact policies that promote an ethical balance between the dual mandates of striving for profitability and benefiting society as a whole. These policies can be enacted by commission such as through donations of money, time, or resources, or by omission practices such as by “going green,” reducing greenhouse gasses, or abiding by U.S. Environmental Protection Agency regulations to limit pollution.
More consciously capitalistic investors and consumers are considering a company’s commitment to CSR practices before making an investment or purchase. Embracing CSR can benefit the prime directive: maximization of shareholder value.
Actions or the lack of them will affect future generations. CSR is good business practice and a failure to execute it can hurt the balance sheet. It can boost company morale, especially when a company can motivate its employees through social causes.
CSR is generally more effective when a company takes it on voluntarily rather than waiting for the government to require it through regulation.
The International Organization for Standardization (ISO) emphasizes that a business’s ability to maintain a balance between pursuing economic performance and adhering to societal and environmental issues is a critical factor in operating efficiently and effectively. A company can embrace CSR through philanthropy, by promoting volunteering, and by committing to ethical labor practices and environmental changes.
Companies that manage their environmental impact might look to reduce their carbon footprint and limit waste. There’s also a responsibility to treat employees ethically, such as by offering a fair wage even when there are limited employee protection laws.
CSR takes on different meanings within certain industries and companies:
Not everyone believes that businesses should have a social conscience. Economist Milton Friedman stated that the “‘social responsibilities of business’ are notable for their analytical looseness and lack of rigor.” Friedman believed that only individuals can have a sense of social responsibility. By their very nature, businesses cannot. Some experts believe that CSR defies the very point of being in business: profit above all else.
A conservative backlash to diversity, equity, and inclusion (DEI) policies has appeared and this can affect employment initiatives that are part of CSR. Florida banned the practice in state-funded colleges in May 2023 under the leadership of Governor Ron DeSantis. Phil Lyman, a congressman from Utah, even blamed the catastrophic collapse of Baltimore’s Francis Scott Key Bridge on DEI.
The Wharton School of the University of Pennsylvania noted in its house journal, Knowledge at Wharton, that “DEI is under attack.” It started “the Relationships Across Differences Roundtable (RADs), a coalition of more than 70 academics and industry leaders committed to advancing inclusivity in all its forms—race, gender, ethnicity, religion, ability, neurodiversity, and age. They are partnering to share science-backed insights and best practices, strategize on common problems, and find ways to engage all stakeholders, even the ones who don’t believe in DEI.”
Some CSR policies continue to join the mainstream despite such opposition and they're practiced among a wide range of companies. Generations such as millennials and Gen Z are embracing it and driving change in the workplace and as consumers.
CSR includes companies engaging in environmental preservation efforts, ethical labor practices, philanthropy, and promoting volunteering. A company might change its manufacturing process to reduce carbon emissions.
Benefiting society and lessening the negative impacts on the environment are among the main benefits and goals of CSR. Consumers are increasingly looking to buy goods and services from socially responsible companies and this can have a positive impact on their bottom lines.
Companies that implement social responsibility programs can potentially increase their bottom lines and boost their brand image as well. Social responsibility programs can also have a positive impact on morale among employees.
Companies engaging in CSR benefit the common good in several ways, including making changes that support the environment, engaging in ethical labor practices, and promoting volunteering and philanthropy. The practice can also be said to benefit their bottom lines because consumers are more actively looking to do business with socially responsible companies.
