US Study Indicates CSR Not So Profitable!
30 January 2006 at 12:01 pm
Corporate social responsibility (CSR) may hurt rather than help corporate profitability, according to a new US study released this month.
The study, “Does Corporate Social Responsibility Enhance Business Profitability?” was conducted by leading US economists including Dr. Arthur Laffer.
Dr.Laffer’s study examines the economic performance of companies among those considered most socially responsible by Business Ethics Online Magazine in the US.
The companies, which included Procter & Gamble, Intel, Hewlett-Packard and Southwest Airlines, were selected based on consistently “high” CSR performance, as defined by their inclusion on the Business Ethics magazine list for the last five years.
Company financial performances were compared with those of their chief competitors.
The magazine’s criteria for the Top 100 include positive evaluations of companies’ work to serve groups including women, shareholders, the environment, the community, non-U.S. stakeholders, employees and customers.
Dr. Laffer’s study was designed to test the argument put forth by some advocates of corporate social responsibility and socially responsible investing that companies can see a return on their CSR investment in the form of increased profitability.
The study says that in this analysis of 28 companies that were among the Business Ethics Top 100 Corporate Citizens every year from 2000-2004 it found no significant positive correlation between CSR and business profitability as determined by standard measures.
Moreover, there are some indications from the study that CSR activities lead to decreased profitability.
Via a profitability comparison of compound annual net income growth, net profit margin and stock price appreciation the study found that only a minority of the 28 CSR-leading companies in each comparison outperformed their peers.
The report says that being a CSR-leading company was negatively or not correlated with compound annual net income growth, net profit margin and stock price appreciation.
In addition, the research found that those who invest exclusively in companies deemed to be ‘socially responsible’ do not appear to receive financial returns that are better than those of conventional investors.
Business Ethics Online Magazine listed the company Interface, Inc. – the modular carpet manufacturer – as 65th on its top 100 list.
The magazine says the manufacturer has long been the darling of sustainability advocates, but it has struggled financially, with the 32-year old company not turning a profit since this list was first compiled in 2000.
However Interface CEO Ray Anderson who was a keynote speaker at the inaugural CSR Summit in Sydney last month offered several reasons for his company’s struggles and defended his CSR approach.
He told Business Ethics that first there was Y2K. Resources were diverted from office furnishings to once-in-a-lifetime computer upgrades. Then came the dot.com collapse, and 9/11. These events represented a 40 percent decline in office furnishing purchases, from peak to trough.
He told the magazine that sustainability initiatives did not contribute to problems — they saved the company from bankruptcy. He said their EcoSense programs and products are the best ever and helped the company survive the worst office furnishing market in history.
He concluded by saying “Our costs are down, not up. Sustainability doesn’t cost more, it saves.”
To read the full report go to the CSR Watch web site at www.csrwatch.com/Sub/Resources/csr_profitability.htm