New Evidence Bolsters Claims of Connectivity Between CSR and Market Caps

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In an article written for Sustainable Brands, Mark W. McElroy, Ph.D. discusses the connection between corporate social responsibility and market capitalization. For the past 40 years, the search has been on for a causal link between the sustainability performance of organizations and their economic bottom lines. Executives and sustainability proponents could point to a compelling business case for Corporate Social Responsibility. For the most part, arguments put forward have been weak, leaving most of us on the sustainability side with little more than a moral case to work with.

Valiant efforts have been made in the capital markets to discover the missing links between the sustainability performance and market capitalizations of listed firms. However, such efforts have done little more than reveal the occasional correlations between some companies’ strong CSR performance and their financial results. Unfortunately, there was never a way that makes it clear which is the cause or effect.

There has been evidence of the effects of sustainability on profits, while improving the eco-efficiency of a company. Benefits include lowering costs by reducing material and energy consumption, as well as, increasing its revenues by offering products and services that some customers may find socially or environmentally attractive. In addition, it enhances employee recruitment and retention by attracting the best and the brightest who may also be committed to sustainability. Finally, it reduces risk by helping to insulate a firm from the legal and business threats posed by poor sustainability performance, or the growing scarcity and cost of natural resources on the planet

Context-Based Sustainability is a compelling new approach to CSR and management in general that takes social, economic and environmental limits in the world explicitly into account when attempting to assess the performance of organizations. In order for an organization’s use of natural resources to be sustainable, it must neither put the sufficiency of such resources at risk. Since many of the resources involved are shared, CBS also makes it possible to assign fair and proportionate shares of the responsibilities to maintain them to specific organizations.

For the full article, CLICK HERE.