United States: Unlocking The Business Value Of CSR Programs

Last Updated: March 12 2015
Article by Stéphane Brabant, David L. Wallace and Johanna Hull

CSR in a Nutshell

Globalization has dramatically expanded the operating scope and rights of multinational companies as a result of such things as multilateral trade agreements, bilateral investment pacts and domestic deregulation. Corporations going global, however, have also discovered an unexpected quid pro quo: that "along with expanded rights have come demands that [they] accept greater global social responsibility - led not by governments, or in the first instance, international organizations, but by civil society organizations," including transnational social movements, coalitions, and activist campaigns. John G. Ruggie, Reconstituting the Global Public Domain: Issues, Actors and Practices 19 & 36 n.1, Faculty Research Working Papers Series, Kennedy School of Government (July 2004).

Corporate social responsibility (CSR) programs and related reporting are one of the more recognizable outgrowths of this dynamic for transnational companies. Critically, CSR has evolved over the past decade or so to:

Encompass not only what companies do with their profits, but also how they make them. It goes beyond philanthropy and compliance to address the manner in which companies manage their economic, social, and environmental impacts and their stakeholder relationships in all their key spheres of influence: the workplace, the marketplace, the supply chain, the community, and the public policy realm.

Beth Kytle and John G. Ruggie, Corporate Social Responsibility as Risk Management: A Model for Multinationals 9, Corporate Social Responsibility Initiative, Kennedy School of Government, Working Paper No. 10 (Mar. 2005).

CSR basically conceptualizes corporations as accountable to a wide array of stakeholders for the footprint of their business operations on society at large. Largely as a result of transformative changes in the global political order over the past quarter century or so, multinational corporations today are expected to respect the rights and dignity of stakeholders affected by their operations (e.g. employees, suppliers, local communities), and to remedy any adverse effects they have caused or to which they have substantially contributed. It is a basic expectation laid down by the UN Guiding Principles on Business and Human Rights (UNGPs), with all sorts of implications for firms in terms of goodwill, reputation, legitimacy, risk, and the bottom line.

For certain companies listed in Europe, and issuers registered with the SEC operating in the oil, gas or minerals sectors, CSR reporting is not an option: it already is or soon will be mandatory. See, e.g., EU Council Directive on the Disclosure of Non-Financial Information (Sept. 29, 2014); 15 U.S.C. § 78m(q) (Dodd-Frank's conflict minerals rule). Others must determine whether there is sufficient business value to be leveraged from voluntary CSR reporting to make it worthwhile. Uncertainty on this score has led many to question CSR's value given the costs involved (in terms of data collection, resource diversion, and otherwise), whereas others have viewed CSR as a subject too far removed from the core business of the organization to merit serious attention, or harbor doubts about the willingness of investors to reward socially responsible companies.

To be sure, some degree of skepticism about CSR was warranted by the ambiguity of the early evidence, which until recently failed to consistently demonstrate a positive correlation between CSR programs and economic outcomes. While the balance sheet is quite obviously a paramount consideration, firms that look at CSR only through the lens of corporate pro bono or philanthropy (or public relations), rather than as a new and potentially more effective way of doing business, are failing to see the bigger picture. Among other things, CSR programs can be a valuable business tool for managing risk more efficiently and effectively - on a proactive as opposed to a reactive (or crisis-management) basis.

Evidence for the Business Benefits of CSR

CSR raises important questions. Do investors care about CSR? Does CSR create value? The answer to each question appears to be, yes.

More recent econometric studies are sharpening the picture, shedding welcome light on these questions. In addition to revealing that investors and other stakeholders care about CSR disclosure, this evidence is empirically linking CSR investment to a variety of positive economic outcomes, such as higher share prices, higher firm values, lower capital costs, and better analyst forecast accuracy. See, e.g., K. Yu, S. Du, & C.B. Bhattacharya, Everybody's Talking But Is Anybody Listening? Stock Market Reactions to Corporate Social Responsibility Communications (Aug. 2013) (Yu et al.); C. de Villiers & A. Marques, CSR Disclosures: Predispositions and Consequences (Jan. 2013) (De Villiers & Marques).

Each of these studies significantly advances the literature by "unlock[ing] the business value" of voluntary CSR reporting on a quantitative basis, demonstrating a positive association between CSR disclosures and higher share prices, under certain circumstances. Yu et al.'s methodology included "an event study" to capture real-time, short-term market reaction to the release of CSR reports. The study by De Villiers & Marques, meanwhile, examined the content of CSR disclosures by 500 European firms and market factors "to gain a better understanding of the conditions where CSR disclosures are linked with positive economic performance." This research demonstrates that CSR has the capacity to deliver demonstrable business value.

More specifically:

  • Yu et al. "find positive cumulative absolute abnormal returns and positive abnormal trading volume around the release dates of CSR reports, suggesting that investors do revise their expectations of future cash flows or risks of a firm based on the information released in its annual CSR reports." Using multivariate regression analysis to link positive abnormal returns to both CSR reporting and CSR performance, their research "provides rigorous evidence that CSR performance leads to enhanced financial performance."
  • De Villiers & Marques "find that higher levels of CSR disclosures are associated with higher share prices," and that share-price gains are more strongly associated with higher levels of

CSR disclosure "in countries with more democracy, more government effectiveness, better regulatory quality, and more press freedom."

The results of another cross-country study, not yet published, similarly connect CSR with higher profits, showing: "that firms with higher abnormal (unexpected) CSR disclosure have higher firm value across various categories and firm types, suggesting that CSR concerns are persuasive and that CSR disclosures play a significant role in firm value." See D. Jeter, S. Cahan, V. Naiker, C. Van Staden, and C. de Villiers, Are CSR Disclosures Value Relevant? Cross-Country Evidence (paper-in-progress).

(Access to these studies is available here, here, and here.)

Three Practical Implications and an Imperative

The empirical evidence on CSR's value relevance is encouraging. To fully maximize its business value, however, multinational enterprises should ideally approach CSR programs as a form of risk management tied to core business operations - more particularly, as a way of assessing and managing the "social risk" inherent to the dynamics of today's global economy. As Professor Ruggie explains in Corporate Social Responsibility as Risk Management:

[This] requires understanding three premises. First, CSR is a natural extension of going global analogous to other adjustments of 'scaling up' (e.g., forming strategic alliances, finding skilled staff in foreign countries). Second, CSR activities are not discretionary expenditures or the target of cost-cutting activities. Third, CSR must be linked strategically to core business functions to reap the full benefits.

Seen in this light, CSR is a business imperative. This is true not just for companies, but for their lawyers too, who must recognize that beyond the risk of legal actions in courts around the world, their clients are also subject to the often harsher judgments and sanctions of "judges" in the "court of public opinion." Careful attention to CSR can be a way to avoid and mitigate that risk.

Finally, given the continued proliferation of reporting requirements, those looking for clarity about what good reporting on CSR performance looks like should consult the recently issued draft UN Guiding Principles Reporting Framework ( here), which offers comprehensive guidance on what is meaningful to report publicly, in line with the UNGPs. This reporting framework is a work-in-progress that will be further refined and finalized by the end of 2015, based on stakeholder feedback and learning from pilot projects being conducted by various companies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions