The use of money is a universal concept. Few cultures throughout history have gone without some unit of exchange for goods and services. Yet as the 21st century advances, the use of money has become a subject of genuine debate: Should investing be motivated purely by profit, or should it also promote the societal and environmental good?
The phrase "doing well by doing good" has long been central to Corporate Social Responsibility. But whether investors are truly prepared to deploy their capital for social and environmental change remains an open question.
Renowned conservative economist Milton Friedman famously argued in the 1960s that a corporation's only duty is to its shareholders. Opinions have evolved considerably since then. The notion of CSR has become nearly universal, even if not every corporation engages in the practice.
The Debate Has Deep Roots
The conversation around Corporate Social Responsibility traces back to the Berle-Dodd debate of the 1950s, according to research by Macintosh (1999) and Ferrell et al. (2016). Adolf A. Berle, a lawyer who served in the Franklin D. Roosevelt and Harry S. Truman administrations, was the architect of both the Securities Act of 1933 and key elements of the New Deal. His argument: corporations should serve everyone in the economy, not just shareholders.
To understand how acceptance of CSR evolved, however, one must dig deeper into history, specifically into the thinking of several Roman Catholic popes whose ideas about money and morality laid essential groundwork for modern responsible investing.
Catholic Social Teaching and the Origins of Ethical Commerce
Catholic Social Teaching is one of the central ideas behind using money to do good. Pope Leo XIII (1810-1903), known as the "Pope of Peace," published Libertas in 1888 and Rerum Novarum in 1891, the first formal publication on CST covering social justice and the rights and duties of capital and labor. According to Davis (1997), those encyclicals established the ethical architecture that would later influence faith-based investing, CSR, SRI, and ESG frameworks.
In Rerum Novarum, Pope Leo XIII directly challenged Karl Marx's revolutionary ideas. He argued that socialism destroys private property and the family structure, replacing natural justice with state supervision. Yet he equally condemned unchecked capitalism, stating that ungoverned greed had reduced the laboring poor to slavery. Capital and labor, in his view, carry mutual duties toward each other.
The Popes Who Followed Built the Framework Further
Pope John XXIII's Pacem in Terris (1963) focused on the right to life, liberty, and the pursuit of happiness as natural rights for everyone, not privileges for the few.
Pope John Paul II (1920-2005) extended that argument directly into economics. Citing Genesis 1:28, he noted that Scripture called on humanity to be fruitful and multiply, not to "poison, destroy and waste every creature of our common home." His encyclical Laborem Exercens confirmed that Catholic Social Teaching opposed the consumption-driven economy since the beginning of the industrial revolution. He argued that treating workers as instruments of production violates their God-given rights, and that minimizing wages to maximize profit widens the gap between rich and poor and lacks basic solidarity.
Pope Francis, a member of the Society of Jesus, carries that tradition into the present day. A vocal critic of ungoverned capitalism, consumerism, and industrial exploitation, his encyclical Laudato Si' (2015) states that mankind has abused God's gift of the earth through a consumption-driven economy. He supports Economic Justice for All, which frames employment as a basic right enabling self-realization. He draws a direct line between economic exclusion and moral harm: just as the commandment "thou shalt not kill" anchors Christian values, he argues, passively excluding people from an economy is its own form of killing.
It is at least in part because of these pope-philosophers that CSR has become as widespread as it is today.
CSR Has Gone Mainstream. The Pressure Is Real.
Every year, Fortune 500 companies devote approximately $20 billion to their CSR efforts. Whether that spending delivers true change remains debated. CSR can energize employees, improve corporate reputations, and deliver measurable social and environmental benefits. Yet critics argue it often functions as a Band-Aid on systemic crises rather than addressing root causes.
Four interconnected pressures are now forcing firms to move beyond token gestures.
First, consumers are increasingly acting as activists. IBM's consumer research found that purpose-driven buyers, those who choose products based on alignment with their values, have become the largest market segment at 44 percent.
Second, employees are demanding that employers demonstrate integrity and are increasingly willing to become activists to force change. The Google Walkout for Change, in which employees protested outside company headquarters over diversity, equality, and transparency commitments, is a notable example.
Third, newly founded companies are disrupting established brands by grounding their competitive strategy in sustainability. Within fashion, Ecoalf built a business model on upcycling waste, from plastics to coffee grounds to used tires, into high-quality garments. Rent the Runway disrupted designer apparel through a rental model that cuts waste and discourages impulsive consumption.
Fourth, the financial industry is reshaping itself around ESG criteria. Since 2018, ESG-based investments have increased tenfold in Europe and are projected to outnumber conventional funds. Institutional investors now expect companies to define net-zero targets and warrant a premium for excelling at ESG.
The Limits of CSR as a Tool
Despite the pressure, corporate CSR strategies are not always equipped to deliver. CSR is often managed as a tactical function in a specific department, rather than embedded across the organization. Companies frequently use it to address the side effects of their business activities, rather than integrating it into core strategy. At the extreme, firms deploy CSR to polish damaged reputations or redirect attention from negative actions.
An alternative is emerging: businesses with a conscience. These organizations use their ethical commitment as a driver of transformational change, not as a marketing strategy, requiring an organization-wide commitment to doing the right thing while remaining profitable.
Patagonia offers a clear example. Founded by Yvon Chouinard, the company's stated purpose is "We're in business to save our home planet." Its first operating principle requires that products be high-quality, repairable, recyclable, and capable of being resold. Critically, each of those attributes is measurable, which distinguishes a business with a conscience from one issuing empty declarations.
What This Means for Investors
The debate over whether money should serve profit alone or also promote social and environmental good has been building for centuries, from papal encyclicals to New Deal legislation to today's ESG frameworks. What was once philosophical has become financial.
Call it CSR, conscience capitalism, or values-based investing, the scrutiny on how money is used has never been greater. Whether these frameworks produce systemic change or remain aspirational will become clearer as the 21st century moves forward.
For investors who care about that outcome, the question is no longer whether their portfolio reflects their values. The question is how well it does.
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References:
“The End Of CSR (As We Know It) And The Rise Of Businesses With A Conscience,” Forbes, 12-2-22, Oriol Iglesias, https://www.forbes.com/sites/esade/2022/12/01/the-end-of-csr-as-we-know-it-and-the-rise-of-businesses-with-a-conscience/?sh=748a38617f16
Ibid.