Corporate social responsibility is becoming increasingly important as businesses become increasingly competitive. Organizations that aspire to be socially responsible typically integrate different processes into their business practices to respond to social, economic, environmental and ethical issues. And although their actions may vary in the level of commitment, they all demonstrate focus on societal demands.
Being socially responsible does not necessarily mean not making a profit. Executives of socially responsible organizations recognize the need to establish long-term shareholder value by identifying and responding to the demands of the society. This justifies the increasing significance of socially responsible investing (SRI) over the last years. Investors seek to integrate sustainability and corporate responsibility into the evaluation of an organization’s long-term value.
Today, 200+ ethical funds are available to investors who are interested in creating competitive portfolios that replicate their social concerns. Ethical funds do not primarily include stocks related to arms manufacturing, gambling, alcohol, and tobacco. Other activities that are considered unethical are those related to testing of products on animals, and any activity that is harmful to the environment. Investors show no tolerance for organizations that do not abide by the corporate social responsibility norms, screening them out of their portfolios. To avoid negative screening, organizations acquire a strong motive to meet investor confidence by getting a higher SRI ranking and being more competitive in their industry. Organizations that are mostly favored are those engaging in green technology, waste recycling and renewable energy. Sooner or later, if they manage to get a positive screening, they boost their profitability, while responsible investors level out risk by focusing on company screening.
Organizations that sell eco-friendly products often experience a high sales growth as more consumers are emotionally attracted by the positive impact of these organizations on society. In this context, corporate social responsibility makes organizations more competitive and far more profitable than those that do not invest in improving corporate reputation because investors appreciate them more and are willing to finance their business.
In effect, socially responsible organizations enjoy more benefits than any other organization at any level of operation. In particular, corporate social responsibility assists to the recruitment and retention of human capital. Kenexa Research Institute (KRI) published “Corporate social responsibility efforts are recognized by employees” (2007), an employee survey with a database from the United States, Brazil, China, India, the United Kingdom, and Germany. The survey found that when workers appreciate the organization’s CSR strategies, are motivated to participate in the decision making and to align their culture with the organizational culture. As a result, employee productivity increases leading to higher employee retention rate, better organizational performance, and higher profitability.
Besides, socially responsible organizations are able to better manage their risk by developing an authentic culture of acting responsibly. Combining responsible business practices with a unique value proposition can make a socially responsible organization really distinguishable in the minds of consumers. Through the development of customer loyalty, profitability is increased in the long run.
Overall, the goal of corporate social responsibility is threefold: environmental protection, fiscal development, and social evolution. Apparently, the sine qua non is not profit, but rather protecting the environment, bridging the gap between rich and poor, creating more jobs, educating people, leading a better life. To achieve all these, organizations need to engage in really meaningful processes that can guarantee sustainable development. Then, making a profit will come as a natural outcome.