What is Corporate Social Responsibility?

Discussions of Corporate Social Responsibility often descend into vague do-goodism.

In contrast, Geoffrey Heal takes a useful approach in his paper Corporate Social Responsibility: An Economic and Financial Framework (pdf). He writes,

“I analyse corporate social responsibility (CSR) from economic and financial perspectives, and suggest how it is reflected in financial markets. CSR is defined as a programme of actions to reduce externalized costs or to avoid distributional conflicts. It has evolved in response to market failures, a Coasian solution to problems associated with social costs. The analysis suggests that there is a resource-allocation role for CSR programmes in cases of market failure through private–social cost differentials, and also where distributional disagreements are strong. In some sectors of the economy private and social costs are roughly in line and distributional debates are unusual: here CSR has little role to play. Such sectors are outnumbered by those where CSR can play a valuable role in ensuring that the invisible hand acts, as intended, to produce the social good. It can also act to improve corporate profits and guard against reputational risks.”

This is certainly a much more useful definition than others such as the one from the European Union which defines Corporate Social Responsibility as a program in which ‘‘companies decide voluntarily to contribute to a better society and a cleaner environment.”

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One thought on “What is Corporate Social Responsibility?

  1. Pingback: Voluntary agreements and corporate social responsibility « Natural Capital

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