Relationship Between Corporate Social Responsibility And Financial Performance Finance Essay

The construct of companies about corporate societal duty ( CSR ) has changed over the old ages. Previously it was viewed merely as a phrase that meant administrative conformance and observation of regulations and ordinances. In recent old ages nevertheless that position has changed and companies are progressively get downing to recognize the of import function of corporate societal duty in winning over the trust and assurance of their clients. Today the concern patterns of big companies are shaped in such a manner as to publicise their moralss and values. Therefore it has become a relevant portion of concern these yearss.

Harmonizing to the European Commission ( 2008 ) , corporate societal duty is “ a construct whereby companies integrate societal and environmental concerns in their concern operations and in their interaction with their stakeholders on a voluntary footing. ” ( hypertext transfer protocol: // )

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The assorted recommendations of the European committee sing corporate societal duty were that

CSR covers societal and environmental issues even though it ‘s usually known as corporate societal duty.

In an organisation, CSR should non be separate from the organisation ‘s scheme and maps as the chief slogan of CSR is about integrating societal and environmental concerns into concern scheme and maps. Therefore it is a voluntary construct.

An of import portion of CSR is about how concern concerns cover with their internal and external stakeholders that is their employees, clients, public governments, neighbors, etc.

Despite of the costs it may convey upon the concern, there are assorted advantages of using CSR as a major tool in the concern:

A company conspicuously engaged in CSR will be basking a better repute and regard from the populace and the good repute helps the company indirectly in many ways. For illustration it makes the company easier for enlisting as there is less trouble for a reputed company to happen willing employees. The employees stay longer in the company and are more loyal to the company which is considered as a approval to the company as they can cut down the costs and attempt incurred by enlisting and preparation. They are besides more productive as they are better motivated.

A company practising CSR will likely follow with regulative demands.

It besides helps the company in achieving a good relationship with the local governments. This can assist the concern in many ways apart from smoothing its maps. This battle with the local governments is a good manner to bring forth positive imperativeness coverage.

CSR besides helps the company to understand the impact of concern on the environment which helps to bring forth new merchandises that are environment friendly.

It can besides do the concern more competitory.

Finally CSR reduces the opportunities of the concern repute traveling down due to some dirts or allegations.

Aim and Aims:

The aim of this thesis is to happen out position of relationship between Corporate Social Performance and Corporate Financial Performance that is whether it is positive or negative or whether there is no relevant relation between them at all.

In order to accomplish this aim, it will be necessary to:

Analyze the old researches done on this subject

Identify an index to mensurate the Corporate Social Performance of companies in UK

Measure the fiscal public presentation of the relevant companies

Discuss the relationship between fiscal public presentation and corporate duty.

Business in the community ‘s ( BITC ) Corporate Responsibility index is one of the taking UK ‘s benchmark for companies that voluntarily pattern corporate societal duty. Harmonizing to their study consequences of 2008, 8 companies in the UK achieved the Platinum Plus position which is awarded to the companies with highest CSR evaluations. Some of the companies in the top were BT, EDF Energy, National Grid, etc. there is besides another acknowledgment called the Community Mark which is awarded by Business in the community ‘s for companies that has achieved assorted mileposts in long term sustainable benefits to both concern and the community.

“ We want to be known as a responsible concern that is doing a difference to some of the planetary challenges society faces. We want to be known as an advanced concern that is developing solutions that benefit society while back uping long-run growing, making competitory advantage and edifice successful relationships with our stakeholders. “ ( ) This defines BT ‘s attack to responsible concern. One of the top rated companies in the Business in the community ‘s corporate duty index and has been awarder the Community Mark acknowledgment.

Literature reappraisal:

Assorted surveies were conducted to measure the relationship between corporate duty and fiscal public presentation:

Konar and Cohen ( 2001 ) founded a positive correlativity exists between a house ‘s environmental public presentation and its intangible plus value. The survey was conducted on 321 fabrication houses of the S & A ; P 500 houses. They employed two environmental public presentation steps viz. Toxic Release Inventory ( TRI ) emanation degrees and pending environment-related judicial proceeding. Changes in the intangible plus value were estimated by sing alterations in the house ‘s market value. The survey besides found out that a decrease in the toxic chemical release to the environment resulted in increased market value for the house.

Stanwick and Stanwick ( 1998 ) conducted a study on 102 to 125 companies listed in Fortune magazine ‘s Corporate Reputation Index that besides include a complete set of Toxic Release Inventory ( TRI ) information for a five twelvemonth period from 1987 to 1992. A house ‘s profitableness was measured by annual net incomes and was managed for different sized houses by spliting net income Numberss by the house ‘s one-year gross revenues. And the house ‘s pollution degree was measured as entire toxic emanations, and so divided by one-year gross revenues to equilibrate discrepancy in house ‘s size. The survey discovered a important relation between low emanation degrees and high profitableness for houses that are reputed for corporate duty.

Dowell et Al. ( 2000 ) found that houses following planetary environments standard that are good above the needed legal benchmarks have higher market value than houses that have par or below par environment criterions when compared to the legal criterions. The survey scrutinized 89 companies of the U.S 500 ( S & A ; P 500 ) that have fabrication or excavation operations in developing states. The samples of companies were so categorise into three ‘environmental ‘ categorization harmonizing to Investor Responsibility Research Center ( IRRC ) informations viz. ( a ) houses which follow local environment criterions when operating in developing states ( 30 % houses were positive in this respect ) . ( B ) Firms which follow U.S criterions while operating in developing states ( 10 % houses achieved this ) . ( hundred ) Firms which apply internal environment criterions which surpass U.S demands when runing abroad ( 60 % of the houses ) . ( Monks and Minow, 2004 )

Jaggie and Freedman ( 1992 ) studied specifically 13 houses involved in the mush and paper fabrication for the twelvemonth 1978. An emanation index used to mensurate the environmental public presentations of the companies was used. The houses that had the highest emanation end product were categorized with an index of 100 and the remainder of the houses were adjusted sing to that. Then the net income, hard currency flow/equity ratio and ROA indices were combined, with each of them holding equal weights, with these pollutant indices. The result of the survey showed a negative association between environmental and fiscal public presentation. ( Shaw and Barry, 2004 )

Christmann ( 2000 ) conducted a study in 2000 which came to the decision that chemical companies which employed advanced, proprietary pollution control techniques have managed important cost nest eggs, particularly the companies that had bing installations to introduce. The study was conducted concentrating on both cost direction and pollution bar on 512 concern divisions of chemical companies in the U.S. cost direction informations were compared to Compustat portion monetary value and dividend informations to guarantee that it accurately replicated the houses fiscal public presentation

Cohen, Fenn and Konar ( 1997 ) conducted a study concentrating on S & A ; P 500 companies. Their surveyors conducted the study by making two industry-balanced portfolios viz. the “ higher defiler ” and “ lower defiler ” . They so compared the accounting and market return of both the sides. Their research found that either there was some positive return from puting in the environment or there was no return at all from puting.

Blacconiere and Northcut ( 1997 ) peculiarly researched the chemical companies during a period of eight months and determined that companies which were likely to be impacted by inauspicious environmental statute law suffered jointly negative monetary value returns during the clip of the treatment of the statute law and its passage. They besides established that the houses with the largest possible liabilities suffered the greatest portion monetary value diminutions in this respect.

Louche ( 1998 ) concentrated his survey on 40 European states from assorted sectors. The fiscal steps such as ROE, ROA and net incomes per portion were regressed in the context of environmental variables like CO2 emanations, H2O ingestion and energy ingestion. Their consequences established that there was no important relationship between environmental public assistance disbursement and fiscal public presentation. The companies selected were the 1s with clear environmental studies. ( Murphy, 2002 )

Since 1970s more than 100 documents have been published that has investigated the relationship between corporate societal duty ( CSR ) and fiscal public presentation. These surveies conclude that there is a strong grounds of positive relationship between a company that is financially sound and socially responsible. For illustration the London Business School conducted 80 surveies on CSR, out of which 42 presented with positive impact, 4 showed negative result and 19 showed no correlativity. The remainder presented with assorted results.


The primary research will be carried out to happen the relationship utilizing the market theoretical account I? for the companies that are listed in FTSE-100. A sample of 35 companies listed in the FTSE-100 taken. The survey is conducted utilizing the arrested development theoretical account after taking I? for the stock estimated for two periods, one before the inclusion in the BITC ‘s Corporate Responsibility Index and the following after the inclusion.

The survey design to be employed here is the Regression Model with the I? for the stocks estimated for two periods, the first before being included in the BITC ‘s CR Index and the following after their inclusion.

Measurement of fiscal public presentation:

The fiscal public presentation is calculated with the appraisal of Measures of Financial Risk which is summed up by Entire Risk ( Standard Deviation of monthly returns ) and systematic market hazard.

Measurement of societal duty:

The Business in the Community launched its Environment Index in 1996 to assist companies benchmark their environmental direction and public presentation. In 2002, member companies requested a mechanism to benchmark their other activities, so Business in the Community developed the broader CR Index to measure their impacts on the community, market place and workplace through their operations, merchandises and services, and interaction with cardinal stakeholders.

Performance Set:

Platinum: a‰?95 %

Gold: 90 – 94.5 %

Silver: 80 – 89.5 %

Bronzes: 70 – 79.5 % ( )

In add-on to this, interviews with the directors of some companies should be conducted to acquire a elaborate position of their policies and sentiment. This is done to compare the consequences of the old analysis with the director ‘s point of position.

Besides interviews and electronic mail communications with some research bureaus should be carried out to acquire attain relevant information. Some of the bureaus are

European Academy of Business in Society ( EABIS )

Business and Human Rights Resource Centre

Ethical Investment Research Service ( EIRIS )

The informations ensuing from these researches will be examined and analysed. This undertaking will affect the analysis of both the quantitative and qualitative informations.

The external research will be conducted through reading and placing the findings of published stuff like magazines, diaries, newspapers and other media.

The fiscal public presentation will incorporate both the quantitative and qualitative informations. The market theoretical account I? coefficient will bring forth the quantitative informations while the fiscal analysis will necessitate the qualitative information every bit good. The consequences could be displayed in the signifier of graphs, spreadsheets and images. Therefore it will incorporate both the qualitative and quantitative informations.

The qualitative informations that comes from the directors, for illustration the relevancy of societal duty will help in the analysis, confirmation and decision of the relationship between corporate societal duty and corporate fiscal public presentation.

The fiscal information for the sample of 35 UK companies listed could be obtained from the Financial Times Stock Exchange where the stock monetary values of the companies are available on a day-to-day, monthly and annual footing. This will ease in the determination of the value I? . Then the BITC ‘s Corporate Responsibility Index could be used to mensurate the societal duty variable of the companies which is available on the cyberspace.

Finally informations will be acquired from beginnings like magazines, books, articles, official web sites of companies, diaries, company studies, research bureaus etc.


This thesis aims to happen out the relationship correlativity between the fiscal public presentation and the societal duty of the companies as there is an increasing demand in today ‘s universe in the face of issues like planetary heating, ozone bed depletion, wildlife hazard, increasing pollution, deficiency of imbibing H2O, etc. nowadays companies and concerns following a policy of societal and environmental consciousness is indispensable for doing the universe a better topographic point to populate.


Monks, A.G & A ; Minow, Nell, 2004. Corporate Governance. 3rd edition. Oxford: Blackwell Publishing.

Shaw, William.H & A ; Barry, Vincent, 2004. Moral Issues in Business. 9th edition. USA: Thomson Learning Inc.

Murphy, Christopher.J, 2002. Profitable Correlation between Environmental and Financial Performance.

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