The notion of CSR is about corporate self-regulation by a business that is integrated into its business model. It is a mechanism in which a business ensures and monitors whether it is complying with the ethical standards or not. It is a reality that the basic aim of the business is to earn profit thus businesses generally hesitate for making good for society while maintaining their own profits at the same time.
Many investors believe that these shall negate the benefits they are creating for society. They also think that they shall be perceived as heartless towards society. However, the fact is that businesses need to meet customer needs while maintaining their profitability as well. Thus if they do it adequately by identifying the challenges that the customers are facing and providing solutions to their customers ethically and responsibly, it is added to the growth, longevity, and survival of the company.
Further, business is in actual need to align the total societal impact and the total shareholder’s returns in their corporate strategy. Total Societal Impact is the collection of measures and assessments related to a company. It does not talk about any single metric and accounts for all the positive and negative economic, environmental, and social impacts of the company on the world. It also includes the impact of products and services of a company and its initiatives related to corporate social responsibility and its operations. Thus, it requires the company to adjust its core activities in a way that they must create a positive societal impact. On the other hand, total shareholder return measures the profits that are given to the investors on their maintaining their stocks with the company. Thus, in the present time, a company needs to align both at the same time.
Example of MARS:
The company is the sixth-largest private company in the USA. It makes chocolate and Coffee. The main ingredient the company uses is cocoa. the company finds itself in a better position in terms of smooth cocoa supplies in the long term as compared to the investors because of the company’s strategy of partnering with Ngo’s which works with small farmers. These Ngo’s cause these farmers to improve their yields and ensure that they get a fair return. These NGOs also make sure that the potential issues related to human rights and environmental issues are addressed properly if they arise.
Research data analysis:
Research studies suggest that oil and gas companies get a 3.5 percent premium on their valuation and the company’s margin premium increase to 3.4%. The percentage increase was also seen in the retail banks and consumer goods as well. It shows that the companies that perform highly in the environment and social area achieve higher margins and higher valuations.
One of the examples includes the company named “Airbnb”. The company maintains a portfolio of Total Societal Impact activities. It works to help people with housing facility programs for refugees and for communities that suffer disasters.
Another example is Standard Bank. It is a government regulation to donate 0.2 % of their profits to small and medium black-owned enterprises. However, the bank thought creatively and it took those funds and invested them in a trust. Further, they used that trust to fund loans to these black entrepreneurs. Thus, in this way, they not only benefitted the community but also alleviated their profits as well.
To sum, it is the need of the time that the companies must become creative, and innovative in a way that their corporate strategy and capital are aligned with the total societal impact and the total shareholders return they are going to create. It will cause the companies to solve the problems more profitably and shall turn out more responsible towards society.