Exploring the Interplay Between Ethical Investing, Business Strategy, and Social Impact for Sustainable Corporate Performance
Stakeholder Theory and Corporate Social Responsibility (CSR) are inherently interconnected despite the ongoing controversy surrounding Shareholder Theory since its inception.
CSR, broadly defined as "doing well by doing good," has been influential in investing since its introduction by Howard Bowen, often referred to as the "father of CSR," in the 1950s. It gained prominence in the 1970s as social and environmental issues took center stage in public discourse (Bowen, 1953; Zhao et al., 2022).
Edward Freeman's book, "Strategic Management: A Stakeholder Approach" (1984) defines stakeholders as "any group or individual who can affect or is affected by the achievement of the organization's objectives" (Freeman, 1984, p. 46).
Freeman and others argue that the term "stakeholder" is powerful due to its conceptual breadth, generating diverse interpretations and responses from scholars and practitioners (Freeman, 1984; Freeman, 2017).
CSR encompasses various subsets, including Environmental, Social, and Corporate Governance (ESG), Faith-Based Investing (FBI), Catholic Social Teaching (CST), Socially Responsible Investing (SRI), and Corporate Social Performance (CSP). Despite Wall Street's long-standing belief that socially responsible investing implies financial sacrifice for ethical gains (Bhagat, 2022; Smith, 2020; Ashford, 2022; The Economist, 2022; Editor, 2022), research by Shannon Zimmerman, an analyst at Morningstar, reported in August 2015, shows that "in roughly 60 percent of cases, funds incorporating ESG delivered risk-adjusted results on par with or better than those of their average category peers" (Zimmerman, 2015).
In contrast, the Stakeholder Theory posits that businesses are responsible to shareholders and customers, suppliers, employees, and communities (Freeman, 1987; Freeman, 2017; Avetisyan & Hockerts, 2014; Hockerts, 2014). Investors guided by ethical values embrace stakeholder theory, viewing firms acting against their best interests negatively, which is akin to Friedman's perspective and leading to potential consequences (Friedman, 1970).
Stakeholder Theory has also influenced marketing, where scholars like Murphy, Stevens, McLeod, and Andersen (1997) argue for a fundamental shift toward the entire organization contributing to creating value for the customer and all associated stakeholders.
However, challenges arise as some corporate marketing managers resort to "greenwashing," making false or misleading claims about their ESG practices due to struggles in developing and implementing effective strategies (Searcy et al., 2016; Lokuwaduge & Heenetiagala, 2016). Failed public relations can create a gap between corporate identity and consumer perceptions, motivating greenwashing.
Socially responsible, faith-based, value-based, or sustainable investing seeks to generate profits while aligning with personal beliefs and values in investment decisions.
According to Schueth (2003), terms such as social investing, socially responsible investing, ethical investing, socially aware investing, socially conscious investing, green investing, value-based investing, and mission-based or mission-related investing refer to the same process and are often used interchangeably.
The question arises: Are CSR and Shareholder Theory compatible with enhanced corporate performance?
While further research is necessary to definitively establish the consistency of these interrelated theories with enhanced corporate performance, my research argues that not only are the two compatibles, but in an era of social dilemmas, global warming, and environmental crises, CSR becomes a moral and existential imperative.
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