Corporate social responsibility can boost a company’s bottom line

Can companies do well by doing good? Research in the International Journal of Productivity and Quality Management that has looked at companies listed on the Tehran Stock Exchange (TSE) provides a positive answer to that question. The researchers have found that there is a strong link between corporate social responsibility (CSR) and financial performance. They also suggest that risk management is an important mediator of this effect.

Nasrin Dadashi and Seyyed Saeb of the Islamic Azad University, Rasht, Iran, and Ali Mayeli of Stony Brook University explain that CSR is a rather broad term that covers a company’s ethical conduct and its contributions to society. It spans three areas: economic, social, and environmental. CSR, they suggest, is no longer about box-ticking, green-washing, or rubber-stamping, and goes hand-in-hand with a company’s financial health as well, reflecting investor confidence. The team demonstrated that those companies that embraced CSR saw significant improvements.

This, they emphasize, is only half the story. Risk management, specifically Enterprise Risk Management (ERM), also emerged from the work as a key factor in the overall equation. ERM involves identifying, assessing, and mitigating potential threats to a company’s objectives. It is nothing new, yet the study shows it to play an important part not only in enhancing CSR, but also in boosting the positive impact CSR has on financial performance. CSR is no longer merely a moral imperative. CSR is a strategic imperative.

The team suggests that the integration of CSR and ERM into a company’s core strategies will not only build trust and reduce the information gap between the company and its stakeholders, but also position it better for long-term success, financially speaking. From the investor perspective, these findings also carry significant weight. When money is so often the only matter arising on an investor’s agenda, they could do well to consider an investment’s CSR and ERM, as they emerge as good indicators of future performance.