Benjamin Franklin coined the aphorism "doing well by doing good." But how does this relate to modern investing? How do shareholders and investors determine the balance between pursuing societal good and maintaining profitability?
The answer lies in each shareholder's philosophy.
I argue that integrating Corporate Social Responsibility (CSR) with Faith-Based Investing (FBI) not only enhances profitability but also allows investors to align their investments with moral values.
Faith-Based Investing incorporates Christian principles into investment decisions. My literature review explores the historical evolution of value-based investing and its impact on portfolios, covering Catholic Social Teaching (CST), Corporate Social Responsibility (CSR), Socially Responsible Investing (SRI), Environmental Social Governance (ESG), and Corporate Social Performance (CSP). These areas form the foundation of Faith-Based Investing, addressing investments that conflict with religious principles.
Corporate Social Responsibility isn't new but has sparked debate over whether companies should balance societal and environmental responsibilities with shareholder profits.
According to the Harvard Business Review, "most companies have long practiced some form of CSR with the goal of contributing to community well-being. However, there's growing pressure to treat CSR as a business discipline, demanding that each initiative deliver business results. This focus can distract from CSR's core goal: aligning a company’s social and environmental activities with its business values."
Kasturi, Chase, and Karium argue that investments should align with both CSR and profitability. They emphasize, "Aligning investments means selecting activities consistent with the company’s business purpose and promoting social goals valued by the company. Over time, activities not meeting these criteria must be reconsidered."
In contrast, in the Milken Institute Review, Mischke, Woetzel, and Birshan contend that "serving stakeholders, employees, communities, and the broader public isn't necessarily at odds with profitability. Both can often be achieved simultaneously."
For years, Wall Street has perpetuated the myth that socially responsible investing implies sacrificing financial returns for ethical satisfaction. Shannon Zimmerman (2015) reported that "around 60% of funds integrating ESG principles deliver risk-adjusted returns equal to or better than peers."
The ESG landscape evolved significantly in 2020 amid the U.S. election year and the Covid-19 pandemic, prompting financial institutions to adopt proxy policies and engage in proxy voting.
Proxy voting and advising are regulated by the SEC under the Investment Advisers Act of 1940. Shareholders use proxy cards at annual meetings to debate the wisdom of CSR initiatives in terms of profitability.
Joshua Margolis and Hillary Anger Elfenbein argue that doing good typically doesn't harm shareholders financially. They state, "Only two percent of studies found that dedicating corporate resources to social performance imposes direct costs on shareholders. Companies can do good and perform well, even if not primarily driven by financial return."
They caution against viewing profitability as the sole justification for CSR, noting, "Companies shouldn't expect significant financial rewards for socially responsible behavior. While it may not incur financial costs, other investments may yield greater financial returns."
Ultimately, framing societal investments in shareholder terms may overlook broader societal benefits. Investments should be evaluated based on their merits, with leaders examining motivations before endorsing them. Doing good can be intrinsically rewarding.
My research suggests that CSR enjoys religious and social support, yet its full impact remains underexplored. Longitudinal studies can illuminate how CSR benefits society, the environment, and corporations.
In summary, investing in CSR-aligned companies can offer shareholders fulfillment without necessarily sacrificing financial returns.
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References:
Rangan, K. V., Chase, L., & Karim, S. (2024, February 29). The truth about CSR. Harvard Business Review. https://hbr.org/2015/01/the-truth-about-csr
Mischke, J., Woetzel, L., & Birshan, M. (2021, April 12). The necessity of doing well by doing good. McKinsey & Company. https://www.mckinsey.com/mgi/overview/in-the-news/the-necessity-of-doing-well-by-doing-good
Zimmerman, S. (2015). Why values-based investing might work: characteristics inherent in ESG could give investors an edge. Morningstar Inc. , (August/September), 79–81.
SEC. (2021, February 26). Environmental, Social and Governance (ESG) Funds – Investor Bulletin. SEC: Investor Alerts and Bulletins. https://www.sec.gov/oiea/investor-alerts-and-bulletins/environmental-social-and-governance-esg-funds-investor-bulletin#:~:text=Alerts%20and%20Bulletins-,Environmental%2C%20Social%20and%20Governance%20(ESG)%20Funds%20%E2%80%93%20Investor%20Bulletin,popularity%20with%20investors%20over%20time.
Bhattacharya, A., Good, V., Sardashti, H., & Peloza, J. (2020). Beyond warm glow: The risk-mitigating effect of Corporate Social Responsibility (CSR). Journal of Business Ethics, 171(2), 317–336. https://doi.org/10.1007/s10551-020-04445-0
Smith, B. R., Lawson, A., Jones, J., Holcomb, T., & Minnich, A. (2022). Trying to serve two masters is easy, compared to three: Identity multiplicity work by Christian Impact Investors. Journal of Business Ethics, 179(4), 1053–1070. https://doi.org/10.1007/s10551-022-05156-4
Margolis, J. D., & Elfenbein, H. A. (2014, August 1). Do well by doing good? don’t count on it. Harvard Business Review. https://hbr.org/2008/01/do-well-by-doing-good-dont-count-on-it