The paper “ Corporate Social Responsibility as Financial Cost & Its Effects on Financial Performance” is a persuasive example of coursework on the management. This report has been drafted in a comprehensive manner to discuss the critical element of Consumer Social Responsibility acting as a financial cost to the organization and contributing to its financial performance or profitability and hence, how a trade-off is necessary for the same. To ensure a proper understanding of the topic, firstly Consumer Social Responsibility has been explained in detail and how the same acts as a “ financial cost” to the organization in today’ s modern era of business.
The report also throws light on how CSR affects the financial performance or profitability of any organization and hence how important it is for figuring a balanced trade-off for ensuring long term sustainable development of the business. Finally, a conclusion is drafted to ensure that the readers are equipped with proper practical and theoretical knowledge and understanding of the entire topic under study. Understanding Corporate Social ResponsibilityCorporate Social Responsibility (CSR) has certainly emerged as a global trend in the international scenario of business which focuses on continuously increasing the social responsibility of business in context to its social, economic and environmental aspects.
CSR is a broader sense refers to the voluntary activity of organizations that combines both social and environmental concerns of business operations by continuously involving interaction with its stakeholders. It aims towards improving the awareness of business towards its society. In a nutshell, Corporate Social Responsibility (CSR) comprises four basic components which are crucial and critical for the success of any organization namely: Economic Responsibility: This refers that organizations are economic and nature and hence have an obligation to be productive and profitable to satisfy the emerging needs and wants of consumers and society at large. Legal Responsibility: This involves the completion of economic responsibility with correct legal laws and regulations of society. Ethical Responsibility: This ensures that organizations need not just follow the laws but ensure to behave ethically towards societal norms and values andDiscretionary Responsibility: This is a voluntary choice decided upon by organizations top management however with CSR becoming more upfront they no longer are discretionary and mandate by law. Thus we see how modern era business is highly dependent and attached to CSR and no firm tends to eliminate its Corporate Social Responsibility as the same shall not just ensure lower profitability and lower customer retention but shall equally bring legal consequences. Now let us have a look at how CSR is a financial cost to the company and how it affects the financial performance or profitability of the business. CSR As Financial Cost & Its Effects on Financial PerformanceImplementation of CSR attracts different types of financial costs it namely sunk cost, recurrent cost and opportunity cost.
These costs may be short term in nature or may involve continuous outflows. Examples of such cost can be outflows in terms of purchase of environment-friendly products and equipment, change in management structures or even implementation of strict quality control measures to ensure high-quality products and services to society at large. Environment-related implementation of CSR mainly incurs a financial cost in terms of capital (Example: New equipment and new energy-saving devices) and minor recurrent costs such as up-gradation and maintenance of plants and equipment.
In contrast, it is to be highly noted that recurrent cost for implementation of CSR which is aimed towards the improvement of social aspects of business activities, often exceeds its capital costs (Orlitzky, 2001). Further, in addition to the actual cost incurred for the implementation of CSR, there is yet another cost of certification which is based on an international code of conduct and voluntary sustainability standards.