Social Responsibility = Increased Profits

How Can Social Responsibility = Increased Profit?

Businesses who have environmental and social responsibility at the heart of their operations can expect increased share values.

This is according to a recently published joint research project conducted by Arabesque Asset Management and the Smith School of Business and the Environment entitled, ‘From the Stockholder to the Shareholder’.

"Social responsibility practices not only make sense ethically, they also make sense financially."

The study incorporated data from over 190 academic investigations into the impact of environmental, social and governance (ESG) policies and corporate social responsibility (CSR) and found that 80% of the studies included presented a positive correlation between social responsibility and stock market performance.

In addition to these findings, the research also found that businesses with higher sustainability scores were viewed as being less of a risk to potential investors.

Of the studies reviewed within the report, 88% suggested that robust ESG practices resulted in a better operational performance. 

In fact, share value has been directly linked to all three dimensions of ESG.

Improvements in ESG = Increased Share Value

Businesses who violate environmental regulations and standards were seen to show a significant drop in share price.

The report also evidenced that good employee relations and employee satisfaction contributed to better stock market performance.

Lastly, the stocks of well-governed businesses far out-performed stocks of poorly-governed businesses.

Improvements in CSR = Increased Share Value

With improvements in performance noted in businesses adopting CSR, investors will be more inclined to drive the CSR agenda as it will provide greater return on investment (ROI).

Business leaders are encouraged to be more involved in the planning, implementation and monitoring of their business’ actions.

This heightened engagement in such processes has been labelled ‘active ownership’.

Active ownership identifies social responsibility as being one of the most significant trends in financial markets for decades.

It allows investors to positively influence corporate behaviour and in turn benefit from the improvements sustainable business practices can provide.

Social Responsibility and Profitability are Highly Complementary

The report ultimately highlights the link between increased social responsibility and profitability within business.

Irrespective of the objectives and issues a business aims to address a positive and effective incorporation of ESG and CSR policies in all relevant areas will result in a competitive advantage in the areas of risk, performance and reputation.

The report concludes by proposing that that as social responsibility and profitability go hand in hand there will likely be a growing trend in socially responsible investment.

Investors will seek to engage with and associate themselves with socially responsible businesses.

The message here is that socially responsible business practices not only make sense ethically but they also make sense financially.