A major new study at Desautels Faculty of Management at McGill University in Canada has established a direct and measurable link between corporate social initiatives and financial performance.
The extensive research undertaken by Professor Saurabh Mishra has shown that an increase in a company’s positive CSR will lead to a 20% reduction in financial risk whereas an increase in negative CSR will result in an 11% increase in financial risk.
There are four main factors that lead to negative CSR:
1. Operating in foreign market without understanding the culture; which can result in building animosity amongst staff members first and foremost.
2. Large firms investing in actions that take away from societal welfare.
3. Companies with low financial leverage.
4. Industry volatility.
Prof. Saurabh says: "If I were to advise someone on how to avoid financial loss, I would say that negative CSR matters too. Before you become operational in a new environment, be it national or international, you have to understand the culture of that place, you have to know the environment you work in inside-out. That implies that you have to manage your operation/company accordingly to the environment and make sure you do not violate the community as it might ultimately cost you financially. Do not ignore any social and cultural norms of the market in which you operate."