Why Don't More Companies Invest in CSR?

By Greg Doyle

“Why don’t more companies invest in CSR?”

I had a friend ask me this exact question. The question led me to reflect on the many different arguments companies make against investing in corporate social responsibility (CSR). Although the arguments vary based on the individual company and its leadership, some broad themes resonated in my response.

Over the past two years, I have worked in the CSR departments of both ESPN and Constant Contact. What makes me qualified to address this question? Both companies weren’t born with a commitment to operating responsibly. Rather it took individual change-makers, or disruptors, to convince each company’s management to formally invest in sustainable business practices. I worked alongside these change-makers and probed them on the arguments they encountered along their journey to creating positive change in the workplace.

Below are the three common arguments companies make against investing in CSR:

Wall Street incentivizes short-term profits as opposed to long-term sustainability

Publicly-traded companies often judge themselves on one number: their stock price. How did this become the norm? Wall Street analysts follow certain publicly-traded companies and base their buy-or-sell decisions on models that solely consider a company’s immediate financial performance. Their models fail to consider a company’s record on key environmental, social or community issues, factors that ultimately affect their long-term financial performance.

Additionally, analysts base their models on the assumption that an investor’s only concern is a prospective company’s financial performance. This is clearly not the case. Socially responsible investing (SRI) has increased in popularity in recent years with no signs of slowing down. However, the average holding period for a stock continues to decrease, as the majority of investors try to turn a quick profit.

Until all investors and analysts begin to consider the breadth of contributing factors to a company’s long-term performance, management of publicly-traded companies will continue to use it as an excuse to pursue profits at all costs. This is especially the case when management’s compensation is directly aligned with the company’s financial performance.

The financial benefits of CSR are hard to measure

Upon being convinced of the financial benefits of acting responsibly, companies often use the “measurability” question to stop change-makers in their tracks. Companies expect a certain level of return on each of their investments, regardless of whether the investment is building a new manufacturing facility or designing a signature cause program that involves reinvesting back into their local community. Although these two sample investments can’t produce the same financial metrics, they each have real business results.

How did the change-makers I talked to address this question? They stressed the common-sense business benefits that stem from reinvesting back into the community. For example, as a technology company, Constant Contact will only be as successful as their employees’ capabilities. By supporting their nonprofit partners in the STEM (science, technology, engineering and math) space, Constant Contact is investing in its future human resources, one of the key critical successful factors (CSFs) of their entire business.

“We already give back to the community”

Companies often claim that they already “give back to the community.” They support this claim by citing the amount of money donated by their employees, the number of hours their employees volunteer on their own time, and the number of board seats management holds with different nonprofits. While this is certainly better than doing nothing at all, or acting irresponsibly, these companies have the ability to make an even greater impact.

Management often uses this case to avoid further investment into the communities where they have a footprint.

The three arguments against CSR outlined here are avoidable. By proposing a CSR strategy that aligns with the revenue streams of the individual company, changemakers can ensure that both societal and business benefits are realized.

Image Credit: Flickr/Images Money

Greg Doyle is a Business Development Associate at Good Sports, a nonprofit that helps to lay the foundation for healthy, active lifestyles by providing athletic equipment, footwear, and apparel to disadvantaged young people nationwide. He can be reached at gregory.doyle@uconn.edu.