The Importance Of Corporate Social Responsibility In Business

In 1925, President Calvin Coolidge famously declared “the chief business of the American people is business.” For generations, U.S. companies (and those around the world) religiously followed that mantra, doing everything necessary to maximize bottom lines and shareholder returns – even if, at least at times, “doing everything necessary” was at direct odds with important societal or environmental concerns.

Times have changed. Today, most people are strongly in favor of corporations and smaller companies contributing to a better world. Major studies have shown, for example, that:

  • More than half of all consumers would pay higher prices for products made by firms with a strong commitment to the environment and to societal improvement.
  • Nine out of ten buyers would switch brand allegiances based on a company’s social commitment.
  • 65% of workers would strongly consider quitting their job if their employer’s policies hurt the environment.
  • Over half of millennial workers would take a 20% pay cut in order to work for a firm that is socially responsible.

Most of the corporate world has responded to those concerns by developing corporate social responsibility (CSR) policies, which are codified in writing and guide company operations. In fact, well over 90% of the world’s biggest corporations publish annual CSR reports, and almost two-thirds of CEOs say they’re increasing their annual investment in corporate responsibility. Unquestionably, one reason for the increased emphasis on CSR is that many companies believe in “doing good.” But another reason is that corporate citizenship has become extremely important for a business looking to prosper in the 21st century.

CSR: Important For Branding

The keys to successful branding are building trust with the target audience and maintaining it with an existing customer base. In effect, it’s an exercise in reputation building. One of the best ways to establish a brand’s reputation is by being socially-responsible – and ensuring that the audience is aware of the company’s commitment to social or environmental causes.

There’s always a short-term cost to building a brand. And it’s true that doing it through CSR programs, cause marketing and direct contributions may incur larger costs than traditional branding campaigns on traditional media or online. The costs might include, changes in corporate operations which initially raise expenses, charitable giving, or allowing employees to devote otherwise “productive” time to support social causes. With the exception of cause-related marketing campaigns, these branding costs are unlikely to pay immediate financial dividends.

However, all branding efforts are long-term plays, and the financial benefits of branding through socially-responsible means are potentially much greater those provided by an ad or Internet flight. The bond formed between customers who believe strongly in a social cause, and a brand which they perceive to align with their deeply-felt beliefs, should greatly outweigh any short-term costs.

Studies show that eight out of ten consumers consider a company’s CSR before making a major purchase decision. Even more believe that a company should try to improve society or the environment while achieving its business goals, and a full nine out of ten will stay loyal to a brand when they form a strong psychological connection to the brand based on shared interests. That’s a formula for profitability which can last a lifetime.

CSR: Important To Customers

The numbers just mentioned show how crucial CSR has become to buyers. There’s more to the story, though. A good start is the fact that more than 50% of customers would be willing to pay higher prices for products offered by companies whose social values align with theirs. In addition, more than three-quarters say they would avoid or boycott a brand which supports an issue they personally oppose.

Those aren’t “blue sky” numbers. Nielsen has looked at sales numbers for products which either label their products as sustainably-produced, or actually promote their commitment to sustainability through marketing efforts. The average annual sales increase for labeled products was two percent. The increase was five percent for products whose manufacturers made a concerted effort to publicize their belief in, and practice of, sustainable production methods. The impact of corporate social responsibility is greatest among younger demographic groups, particularly with millennials. But CSR is definitely important to all age and socio-economic groups, and its importance is growing each year.

CSR: Important To Employees

This article has presented several statistics showing that a majority of workers prefer to work for a socially-responsible company, with a large number of millennials willing to back their beliefs by taking smaller paychecks. The importance of corporate social responsibility to a workforce, however goes even deeper. Studies show that employees are more productive and loyal when working for a company with a strong CSR commitment, because it gives them a sense of purpose and a feeling that they’re helping society. Those benefits increase even more when workers are allowed to devote a small amount of their paid work time to social causes they and the company support.

CSR helps with hiring, too. Millennials make up the largest portion of today’s workforce, and will be 75% of the workforce in less than ten years. They’re also one of the best “investments” a forward-looking company can make in its future. We’ve mentioned the importance of social-responsibility to consumers in the demographic, but organizations have discovered that a strong commitment to corporate social responsibility is a major advantage when hiring millennials. A study has shown that nine out of ten younger job applicants prefer employers who are environmentally and socially active and responsible. A powerful CSR is also a powerful recruitment tool when trying to attract those workers.

That’s one more reason why any business which feels that its workforce is important – naturally, that’s almost every business – needs to implement and adhere to a strong policy of CSR.

CSR: Important To Investors

Corporate social responsibility does more than increase long-term profitability. It also spurs investments in an organization. A FleishmanHilliard study found that more than 80% of investors are more likely to put their money into companies with strong and publicly-recognized CSR efforts and initiatives. Why? They believe there’s less risk when investing in companies which operate honestly and with obvious transparency. They also believe those firms are more likely to survive over the long run.

The strongest evidence of the value of CSR to investors: research shows that they place a 25% premium on companies which have a strong record of corporate social responsibility. Those with an unimpressive CSR record are valued 9% lower than average. Perhaps the best summary of why corporate social responsibility is so important to today’s businesses comes from Cone Communications, which does regular studies on CSR and its effects: “CSR is not a fad, a trend or ‘nice to have.’ It’s a business imperative that must be authentic and seamlessly integrated into the brand value propositions.”

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