Findings on CSR performance/CFP –studies

In most cases the studied relationship between CSR performance and financial perfor-mance has been either positive or by the least not negative (Preston & O'Bannon, 1997, p. 426; Allouche & Laroche, 2005, p. 22; Orlitzky, et al., 2003, p. 424). The studies with positive results have been in favor of the available funds or slack resources hy-pothesis (Preston & O'Bannon, 1997, p. 426; Orlitzky, et al., 2003, p. 417; Waddock &

Graves, 1997, pp. 312-313) and stakeholder or good management theory (Orlitzky, et al., 2003, pp. 417-419), which describe the same relationship from different perspec-tives (Figure 1).

The correlation between CSR performance and financial performance can also be di-rected by financial performance – the slack resources hypothesis suggests that compa-nies with more available funds from strong financial performance have superior possi-bilities in investing to CSR, which then relates as better performance in CSR (Waddock

& Graves, 1997, p. 312). However, companies with high performance in CSR may con-tinue to perform well in CSR even if there are changes in their financial performance;

companies with improved financial performance might not change their performance or inputs in CSR, which would indicate that there are more variables that affect the rela-tionship (Griffin & Mahon, 1997, p. 24).

However, according to some studies a negative relationship exists between the envi-ronmental aspects of CSR performance and financial performance, in favor of the trade off hypothesis and negative synergy model. Responsibly behaving companies can have lower profits and shareholder wealth, which then has a negative impact on socially re-sponsible investments. Environmental programs can lead to reduced performance, at least in short time perspective. They can be perceived as too costly and irrational in-vestment behavior by the market. Due to the possibly negative impacts of inin-vestments in CSR programs, it may be necessary for governments to subsidize the efforts in order to make up for the reduction in performance. However, companies can ultimately bene-fit from their investments as better access to certain markets and reduction in costs re-lated to regulations, material, labor and capital markets. (Makni, et al., 2009, pp. 419-420)

Figure 1 Results of existing studies for the relationship between CSR performance and financial performance of companies

There are additional issues to consider when it comes to evaluating the relationship be-tween CSR and financial performance. Investments in CSR can increase capital costs;

however the costs are not uniform across companies and industries. The costs of needed intermediate materials and staff can also be higher. Investments in CSR can nonetheless in the end result in economies of scale or other benefits, such as a better reputation across a company’s product selection. (McWilliams & Siegel, 2001, pp. 122-124) Studies conducted on accounting based indicators have had the highest correlation of CSR performance and CFP (Orlitzky, et al., 2003, p. 419; Allouche & Laroche, 2005, pp. 12-14) (Table 2). There seems to be a high correlation between CSR evaluated by reputational measures and CFP. This may partly be explained by a ‘halo effect’ (Preston

& O'Bannon, 1997, p. 426; Orlitzky, et al., 2003, p. 422).

A stronger positive relationship has been observed in previous studies when environ-mental measures have been eliminated from CSR performance (Orlitzky, et al., 2003, p.

417). Not all measures of CSR result in good financial performance, at least when per-formance is judged based on market value of a company. Some concrete actions (e.g.

donations) can be perceived as direct attempts of companies trying to manage external impressions of them and their activities (Orlitzky, et al., 2003, p. 422).

Studies in CSR

Table 2 Results of CSR performance and financial performance studies

Correlation between CSR and financial performance

Indicator

Positive relationship Accounting based indicators Reputational indicators for CSR

Elimination of environmental issues from CSR

Negative relationship Market value based indicators

There are other issues in evaluating the actual relationship between CSR and financial performance that should be taken into consideration in the discussion. R&D investments have a correlation with financial performance, however the role of R&D in CSR has not been always considered in existing studies. R&D and CSR can have a high correlation between each other – both are associated with innovation in processes and products.

Isolating the impact of CSR from the effect of R&D when studying the relationship of CSR with financial performance can leave the effect of actual CSR unclear (McWilliams & Siegel, 1997, p. 608). Also the field of industry and other characteris-tics of the business environment can have an impact. The correlation of CSR and CFP may vary upon industry and situation; different attributes may be significant, making CSR a strategic choice, unique to each company (King & Lenox, 2001, pp. 112-113).

Companies may invest in CSR in order to be perceived as being responsible, rather than it being an actual internal necessity. Managers may be aware of that certain profits can be gained by appearing to support social performance aims. Social performance may be pursued as an attempt to avoid bad publicity and pursued at a minimum effort level.

However, it is possible that companies that wish to appear socially responsible may ac-tually end up institutionalizing CSR policies and discover that actual improved attention is paid to stakeholders’ needs, and there may also be additional benefits that are not re-flected in financial performance. (Waddock & Graves, 1997, p. 314)

Evaluation of the actual impact of CSR performance with regards to financial perfor-mance is still a challenge. Understanding of the actual costs and benefits of different

operations in CSR is vague and the financial metrics used may not always entirely cor-respond to the actual value proposition (Peloza, 2009, p. 1532). One major issue is the difficulty of separating other firm characteristics from CSR (Rodgers, et al., 2013, pp.

609-610).