Balancing Profit and Responsibility: The Evolution and Future of Corporate Social Responsibility and Environmental, Social, and Governance Strategies

The debate over the role of corporations in society has a rich historical context, dating back to the 1930s when discussions about Corporate Social Responsibility (CSR) first emerged. The debate gained momentum when Milton Friedman, a renowned conservative economist, published an article on the topic in The New York Times Magazine in 1970.

Howard Bowen, an American economist and president of Grinnell College, is often cited as the “father of CSR.” In 1953, he published Social Responsibilities of the Businessman, a seminal work that connected corporations' responsibility to society and advocated for business ethics and responsiveness to societal stakeholders. His contributions laid the groundwork for the CSR debate that continues to this day.

While Bowen laid the groundwork for CSR, it was Friedman who ignited a more intense debate over the topic more than 50 years ago. Their contrasting views continue to fuel this debate, making it a topic of enduring interest and relevance.

“What’s amazing is that it’s been 50 years, and the issues he (Friedman) raises are still at the core of the debate right now,” said Randall S. Kroszner, a professor of Economics at Chicago Booth. “It shows the importance of deep thinking about important issues, illustrating The Chicago Approach™. You may agree or disagree with Friedman, but the question he asked about the role of business in society is still relevant.”

(The Chicago Approach is a “multi-teaching framework that uses economics, psychology, sociology, and statistics in a collaborative setting.”)

Kroszner, a former governor of the Federal Reserve, noted that the Business Roundtable, an association of CEOs, has shifted away from Friedman’s view of giant asset managers like BlackRock. He added that more students are now interested in classes on social impact, including impact investing.

Despite this shift, resistance to CSR continues. Some companies argue that businesspeople lack the skills to understand social problems fully and that CSR burdens businesses. Indeed, some corporations have resorted to “greenwashing,” which implies they are engaging in environmentally responsible actions when they are not. This tactic aims to boost their reputation and attract investors who prioritize Environmental, Social, and Governance (ESG) criteria, a subset of CSR.

“Corporate social responsibility also became part of the narrative on ‘globalization.’ This was challenged by the allegation that firms handle CSR as a postmodern public relations exercise with much spin and without real substance,” said Gilbert Lenssen, President of the European Academy of Business in Society.

Lenssen, in a preface to a paper by Chaney, Roper, and May, wrote that despite efforts to link CSR to competitiveness—such as at the macro level of countries and regions like the European Union—policymakers and scholars in competitiveness studies have difficulty viewing CSR as integral to the practical and sustainable functioning of markets and business environments.

The debate concerns two opposing views: stakeholder theory and shareholder theory. Proponents of stakeholder theory argue that stakeholders, investors, and shareholders support socially and environmentally responsible investing. In contrast, proponents of shareholder theory maintain that businesses should obey the law and maximize shareholder wealth.

Because CSR and ESG have become contentious issues, some corporations have downplayed their ESG efforts to avoid being labeled as engaging in “woke” business practices.

Andrew Winston, in an article in the Harvard Business Review, noted that while the rhetoric around ESG has cooled, it hasn't significantly changed corporate behavior, especially in the U.S. “U.S. executives have gotten quieter about their sustainability efforts (also known as ‘greenwashing’),” Winston wrote. “Has the pullback on talking about climate and equity issues slowed action within companies? It’s unclear, but the public pressure to keep your head low doesn’t encourage a broad transition to more sustainable practices and brands.”

Winston also argued that opposition to ESG often comes from a desire to maintain power. He pointed out that some investors and shareholders are screening out fossil fuel corporations and that traditional investors, focused on short-term profits and shareholder primacy, don’t see the value in ESG. “These groups want to continue making money the way they know how,” he wrote.

Even if the public debate over CSR and ESG has quieted, both sides remain entrenched. CSR is grounded in a moral stance that corporations must give back to society.

My research aims to demonstrate increased moral value when shareholders incorporate faith-based strategies into their investment decisions. This involves taking an active approach to investing, where shareholders screen their investments, vote their proxies, co-sign shareholder resolutions, and engage in shareholder activism to hold boards of directors and executives accountable for their decisions. My study will test that faith-based investing can provide financial returns comparable to conventional indexes without compromising Christian values.

I believe shareholders are responsible to family, community, and God by using money to do good. Investing is a moral act and a fiduciary duty. Shareholders must hold boards of directors and executives accountable by actively screening investments, voting proxies, and participating.

As such, shareholders have a fiduciary responsibility to promote accountability, transparency, and well-being for the firm’s stakeholders. Without investor participation and collaboration, there is little accountability for boards of directors and executives, and the moral act of investing might be lost.

Socially, faith-based, value-based, or sustainable investing is about making money while incorporating personal beliefs, feelings, and desires into investment decisions. It is about doing well by doing good.

Whether or not the use of CSR in investing is called “woke” by figures such as Florida Gov. Ron DeSantis, I believe that societal and environmental conditions will ultimately necessitate a change in overall investment strategies.

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References:

ACCP Admin. (2024, January 25). Updated - corporate social responsibility: A brief history. Association of Corporate Citizenship Professionals. https://accp.org/resources/csr-resources/accp-insights-blog/corporate-social-responsibility-brief-history/

Cheers, Z. (2011, November 4). The Corporate Social Responsibility Debate. Scholars Crossing. https://digitalcommons.liberty.edu/honors/219/

May, S. K., Cheney, G., & Roper, J. (2007, April 12). The debate over Corporate Social Responsibility. The Debate over Corporate Social Responsibility. https://global.oup.com/academic/product/the-debate-over-corporate-social-responsibility-9780195178838?cc=us&lang=en&

Shelton, L. (2020, September 23). Corporate Social Responsibility today: The debate continues. The University of Chicago Booth School of Business. https://www.chicagobooth.edu/why-booth/stories/randall-kroszner-corporate-social-responsibility

Winston, A. (2023, April 7). Why business leaders must resist the Anti-ESG Movement. Corporate Social Responsability . https://hbr.org/2023/04/why-business-leaders-must-resist-the-anti-esg-movement

Winston, A. (2023b, December 23). ESG is under attack. How should your company respond? ^ H07XUW. HBR Store. https://store.hbr.org/product/esg-is-under-attack-how-should-your-company-respond/H07XUW