Question

What incentive do for-profit companies have for corporate social responsibility (CSR)? If companies are focused on increasing their profit, why should they be concerned with CSR activities that are likely to raise costs (thus reducing their profit). Is there value in CSR, and if so how do companies capture that value? In other words, can companies leverage CSR activities into increased profit?

Answer 1

CSR activities might involve significant costs. However, such costs should be treated as investments as CSR can actually contribute to higher profitability. CSR helps a firm engage with the local community, build a favorable brand image, create brand loyalty, increase brand visibility, enhance brand equity. In this age of social media and increased consumer activism, CSR helps a firm stands out from the crowd and creates a very positive brand image. Brands engaged in CSR are generally held in a very high esteem. Consumers perceive such firms as more honest, transparent, and quality conscious. Therefore, all CSR related expenses payback to a firm in terms of higher brand recognition, brand loyalty and suitable brand image, which translates into higher sales revenue and higher profit. For example, Starbucks engage in a number of CSR activities like community welfare, ethical sourcing of coffee, environmental protection, etc. These CSR adds to the brand value of Starbucks and helps it strengthen its image as a responsible corporate citizen. Such an image helps Starbucks achieve higher profitability and competitive advantage in the market and makes it the largest coffee chain in the world. Companies can create value through CSR activities by engaging with the local community or taking steps towards protecting the environment, reducing pollution and emission, helping marginalized sections of the society, etc. Such activities make immense business sense as firms get more loyal customers in this way.