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  • Writer's pictureSuhani Jain and Ayush Jain

CSR Unmasked: Exploring the Dark Side of Corporate Social Responsibility

Introduction

The United Nations Industrial Development Organization states that CSR is “a management concept” in which businesses and corporations “integrate social and environmental concerns in their operations.” Corporate Social Responsibility (CSR) practices enhance your brand's image and reputation and allow your business to give back to the community. Yet, numerous companies perceive it as a mere marketing tactic and end up failing the implementation of Corporate Social Responsibility.

While CSR is often seen as a positive step towards more ethical and sustainable business practices, this paper argues that there are potential downsides that should not be overlooked. The paper begins by providing an overview of the concept of CSR and its evolution over time, before exploring the criticisms and limitations of CSR. The paper concludes by suggesting that a more critical approach to CSR is necessary to ensure that it is not simply used as a public relations tool but instead serves as a genuine means for businesses to contribute to positive social and environmental outcomes.


CSR - The Positive Side

CSR is about the way companies make profits and not just how they spend them. Embedding CSR in a company's DNA can increase profits dramatically. Companies that practice CSR can benefit from increased revenue, market share, and reduced expenses. CSR considers both the environmental impact of products and services, as well as how a company treats its people and suppliers.


Compiled statistical study evidence on the effect of CSR on financial performance:-

In 92% of the studies, CSR is shown to generate a net financial benefit.

Only 6% of studies present either modest or significant evidence of CSR leading to net financial loss.


Source : “Does CSR actually pay off?”, HEC Paris


CSR’s Financial Benefits :-

  • Increase customers’ brand loyalty.

  • Lower ESG risk.

  • Increase employees’ motivation and productivity.

  • positive effects on a firm’s stakeholder relationships

  • Companies with higher CSR ratings are seen as lower risk by the market, resulting in lower costs of debt and equity.


According to estimations, $1 invested in 1993 in “high sustainability companies” would have grown to $22.6 by 2010 while it would have grown only to $15.4 when invested in “low sustainability companies”.



On the surface, CSR appears to be a socially responsible activity that provides numerous benefits to all stakeholders. However, upon closer examination, it has been discovered that companies often manipulate the use of CSR funds to their advantage. In addition, CSR is sometimes used to cover up negative practices rather than supporting positive causes. It has been suggested that some companies spend significant amounts on NPOs and dependent firms (CSR) as a way to get control and dominance over them (Market power & support).


“Donate millions to make billions”:



Exploring the Dark Side


Real life Examples of Famous Companies' Unethical Practices.


Starbucks:-

Starbucks claims 98.6% ethically sourced coffee, invested in farmer loans and an emergency fund. However, the business of coffee growing is at risk due to climate change and fluctuating prices. Only 2.8% of drinks were served in reusable cups, resulting in over 3 billion disposable cups in landfills.


Volkswagen (Greenwashing):-

Volkswagen was accused of greenwashing by installing "defeat devices" in 11 million of their vehicles worldwide. These devices would cheat emissions tests by detecting when the car was being tested and switching to a low-power mode. In reality, cars release much higher levels of carbon dioxide during regular driving conditions.


Uber:-

In 2014, Uber allegedly had more than 175 employees book and cancel rides with their competitor, Lyft, causing frustration and financial loss for Lyft drivers. This tactic may have led to dissatisfied drivers switching to Uber and higher prices for customers.


Facebook:-

Facebook has faced numerous lawsuits and criticisms over the years, including the Cambridge Analytica scandal, where personal data from 87 million users was obtained and used without consent. In 2020, the company settled a lawsuit for $550 million due to violating laws regarding users' biometric data.


These instances highlight how well-known companies engage in unethical CSR practices solely to increase their profits. Their CSR activities are even contributing to their malevolent goals, and their brand reputation is built on these reprehensible actions.



DEEP DIVING INTO OTHER ILL-EFFECTS OF CSR STRUCTURE:-

  • Decoupling Practices -

Companies often practice decoupling, resulting in a mismatch between their CSR reports and actual performance. This is due to the discretionary and unregulated nature of CSR reporting, which can lead to biased or incomplete information, and even greenwashing (a disclosure that gives people an excessively positive image of the company's CSR performance).


To mitigate this, credible mechanisms like GRI (Global Reporting Initiative) guidelines and external assurance can provide transparency and credibility. A study of almost 2,000 firms shows that adopting the GRI guidelines can effectively align CSR reporting with actual performance.


  • Moral licensing:-

Over 90% of global companies now practice Corporate Social Responsibility (CSR), publishing detailed annual reports on their efforts. However, such initiatives may lead to moral licensing, where positive actions in one area cause unethical behavior in another, as demonstrated by List and the University of Chicago's Fatemeh Momen research.


For example, framing CSR as a prosocial act on behalf of workers can increase cheating by 30%. Employees distinguish between CSR efforts that depend on their extra efforts and those that do not, but both can have negative impacts on the company.


CSR can also fail, if perceived as inauthentic (when used as a marketing tool), such as hotels citing environmental concerns to save costs or shoe brands strategically donating products.


  • Detrimental to Business Growth:-

Forcing CSR on businesses can impose inappropriate standards, limit value creation, cause job losses, raise costs of operations and excessive accountability, especially for small businesses already struggling to survive. The impact of CSR on small businesses is small compared to large corporations, so it's better to focus on the latter. Moreover, sometimes businesses lose sight of what matters due to their heavy indulgence in CSR.




CONCLUSION :-


To achieve meaningful outcomes from CSR initiatives, companies must carefully regulate and prioritize the allocation of funds. They should involve stakeholders in identifying social and environmental issues and developing a mission statement. Concrete measures such as risk management and compliance systems must be put in place to ensure that CSR activities are not merely symbolic gestures or a means of covering up unethical practices. The ultimate goal should be to provide tangible benefits to stakeholders, and the CSR funds should be transparently managed to prevent any negative consequences. The ultimate form of CSR is one that sacrifices profits instead of increasing them.


 

Suhani Jain is a Junior Analyst at IFSA Hansraj

Ayush Jain is a Junior Analyst at IFSA Hanrsaj



Our references:-



  1. Dizik, Alina. “Why Corporate Social Responsibility Can Backfire.” Chicago Booth, 11 June 2018, https://www.chicagobooth.edu/review/why-corporate-social-responsibility-can-backfire. Accessed 20 April 2023.

  2. “Does CSR actually pay off?” HEC Paris, https://www.hec.edu/en/faculty-research/centers/society-organizations-institute/think/so-institute-executive-factsheets/does-csr-actually-pay. Accessed 20 April 2023.

  3. Levin, Benjamin. “12 Bad Corporate Social Responsibility Examples - Rigorous Themes.” Rigorous themes, 8 August 2022, https://rigorousthemes.com/blog/bad-corporate-social-responsibility-examples/#1_Volkswagen. Accessed 20 April 2023

  4. Rice, Damien, and Matt Galbraith. “.,.” ., - YouTube, 16 November 2008, https://onlinelibrary.wiley.com/doi/full/10.1111/beer.12394

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