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Benefits and Costs of CSR

Accounting (Year 12) - Insolvency & CSR

Christian Bien

What is Corporate Social Responsibility?

Corporate Social Responsibility, or CSR, is where a business goes beyond its primary goal of producing a profit to contribute positively to the society, workplace and the environment. Businesses care about their reputation in society, with customers vocalising their votes through the dollars they choose to spend.

Recent scandals such as Volkswagen's Diesel Emission Cheat, the Royal Commission into Banking and Crown's Money Laundering investigation has placed further emphasis for the need of business to align itself with society's expectations. Below are key three benefits and two key costs. For perspective, there can be an endless list of benefits and costs, below are key highlights to consider.

Benefit of CSR #1: Helps Attract Talent

Talent is a critical driver of any organisation no matter what role. Think about the checkout clerk at your local Woolworths, they're in charge of the experience that customers will receive on a daily basis. Having an organisation that places a purpose beyond profit, helps attract and retain talent.

Research reported in the Harvard Business Review showed that 9 out of 10 employees would sacrifice a higher pay for the opportunity to perform more meaningful work. Initiatives, such as implementing volunteer days and professional development opportunities ensure employees are kept engaged through giving back to community.

Benefit of CSR #2: Can Reduce Long-Term Costs

Certain CSR initiatives can reduce long-term operating costs. For example, installing solar panels can reduce long-term electricity costs while reducing dependency on fossil fuels.

Another example, could be a mining company operating in regional town choosing to prioritise employing locals instead of fly-in-fly-out workers, reducing travel costs. It is important that initiatives that attract economic benefits also be considered when deciding whether to invest in a CSR initiative.

Benefit of CSR #3: Stronger Reputation Can Attract Ethical Customers

When was the last time you took an Uber? Most of you would answer with quite recently, however, when Uber first launched they initially struggled to attract riders to its platform. Why you may ask? The simple answer is trust and reputation. When the concept first launched it was a hard sell. While commonplace now, back then a random stranger offering you a ride to your very own home, connected by a Company you have never heard of, would be against everything your parents would have taught you growing up.

Trust and reputation are the backbone of every business, in which we choose to do business with those we trust. Investing in improving a reputation grows trust and attracts long-term ethical consumers. For example, your local IGA could sponsor the local footy team, improving the image that they are a local family business entice customers who want to support local. While the benefit is not always immediate, a business's reputation can provide a key competitive advantage.

Cost of CSR #1: Programs/Initiatives Can Lead to Higher Operating Costs

CSR initiatives with no immediate economic benefit can lead to higher operating costs. For example, consider the sponsors of your local sport club, they will have a reoccurring advertising cost, increasing the operating cost.

Some other examples of programs/initiatives that can lead to higher operating costs:

Volunteer Days: Time spent volunteering is the time taken away from the productive output. (Can lead to cost savings in retention).

Use of More Environmentally Friendly Packaging: For example, a takeaway food outlet can use biodegradable cutlery, however, these are more expensive than plastic cutlery.

Cost of CSR #2: Programs/Initiatives Can Require Upfront Investment

CSR initiatives can require a significant upfront investment to get started. Consider for example, solar panels. A small household 6.6kW solar panel can cost $6,000 after government rebates. You can imagine the cost for Woolworths' 100th store which had a total of 357 solar panels on the store's rooftop.

These investments where returns are generated can have a low return on investment. The estimated payback period for solar panels is 8 - 10 years. Alternative investments could have less risk and provide a higher NPV.

Example of CSR: Woolworths and Food Bank Partnership

A prominent example of positive Corporate Social Responsibility is with Woolworths and its partnership with Food Bank. Woolworths has committed to reducing food waste across its entire supply chain, delivering its 17 millionth kilogram of food to Food Bank in 2019.

Furthermore, Woolworths actively fundraises money in support of Food Bank The benefit of this program has resulted in a stronger reputation, with a Roy Morgan research poll in 2020 finding Woolworths to be one of Australia's top 10 most trusted brands. Furthermore, Woolworths would benefit from the reduced cost of waste processing, the attraction of ethical consumers and higher employee engagement.

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