Can companies truly benefit from being socially responsible? According to recent research published in the International Journal of Productivity and Quality Management, the answer is a resounding yes. The study, conducted by researchers from the Islamic Azad University and Stony Brook University, found a strong link between corporate social responsibility (CSR) and financial performance among companies listed on the Tehran Stock Exchange (TSE). Additionally, the researchers highlight the pivotal role of risk management, specifically Enterprise Risk Management (ERM), in amplifying the positive impact of CSR on a company’s bottom line.
CSR: A Strategic Imperative
For-profit companies cannot simply view CSRs as a moral burden they must suck up — this study shows, very inarguably, that CSR is a strategic imperative. It covers the company’s ethical behaviour and its contributions to society in all economic, social and environmental spheres.
The research found that CSR is ‘no longer about box ticking, green washing or rubber stamping. Rather, it dovetails with a firm’s overall financial stability which underpins investor confidence. The results of the team also showed that organisations that employed CSR improved their financial performance drastically.
Risk Management as a Mediating Variable
The study also points to which ERM, or Enterprise Risk Management, has an important part in the equation. At its core, ERM is about identifying, assessing and mitigating potential downers on your company objectives. This is not a new finding, the study suggests that ERM has a key role in promoting higher levels of CSR and hence outweighing the effect of CSR on financial performance.
The researchers argue that by better integrating CSR and ERM into the company’s core strategies, doing so would also benefit stakeholders (as the information gap between them and the company will be less) and position the organization well for financial success over time.
Implications for Investors
For investors, the results of this study are very important indeed! The research is as well-focused on the future as any other type of investment: in a world full of talk about financial performance and little about anything else, the results suggest that looking at how much a company spends throwing money at both corporate social responsibility (CSR) and enterprise risk management (ERM) hardly produces “kumbaya” during earnings season.
Through the assessment of a company’s commitment to social responsibility and risk management policies, investors can make better decisions that could lead them toward potential long-term, sustainable growth. By going beyond simple risk/return metrics in investment decisions, investors can better match their financial goals with their values, and positively engage in building wealth for a better business future.
