Corporate social responsibility disclosures are a double-edged sword, new research suggests

While CSR reports attract new customers, they may also deter potential suppliers, highlighting a complex trade-off for businesses seeking social responsibility.

Hoping to win over customers, businesses from Amazon to Zoom have taken to touting their good deeds in corporate social responsibility reports.

CSR reports let companies spotlight what they’ve done for workers, consumers, communities and the environment – essentially all their goals beyond simply making a profit. Research shows that CSR statements are linked to rising sales.

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As a marketing professor, I thought that raised an interesting question: When companies find success with CSR disclosures, are they bringing in new customers – or are their extra sales coming from their existing base alone?

In a recent study of several hundred Chinese companies, a colleague and I put the question to the test. We found that a CSR disclosure lowers a business’s dependence on current customers by 2.1%.

That’s welcome news for businesses. It means those additional sales are coming from new customers, who are indeed impressed by the company’s CSR efforts.

But the findings weren’t all positive.

To sell more products, companies generally need to buy more supplies. So a logical follow-up question is: Does a company’s CSR disclosure lead it to source purchases from new suppliers?

In fact, we found the opposite. Companies that released CSR disclosures seemed to scare away new suppliers. This is probably because suppliers often bear the costs when a company chooses to prioritize social responsibility.

Becoming dependent on suppliers comes at a cost to businesses. When suppliers know a company depends on them, they tend to demand payment in cash rather than credit. That can hurt a company, because it now has less cash for investments.

So while CSR reports impress customers, they appear to antagonize suppliers – and that comes at a price.

Why it matters

Prior research has shown that CSR disclosures can boost sales, but it’s long been unclear whether these additional sales are sourced from old customers or newly acquired ones. Our work brings clarity that businesses can use in making decisions.

The findings are also of interest to lawmakers, regulators and corporate responsibility advocates who are debating making CSR reports mandatory.

The US doesn’t require businesses to release CSR reports, but some countries do. One is China, which in 2008 mandated that all public companies submit annual CSR reports starting in 2009. This created the conditions for the nearly natural experiment we conducted.

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Interestingly, the US Securities and Exchange Commission has reportedly considered making some form of corporate social responsibility reporting mandatory. In the absence of requirements, many American corporations will continue to voluntarily report their CSR.

In other words, the need for empirical evidence on the cost and benefits of CSR disclosure is greater than ever.

What’s next

The increasing incidence of extreme weather events and weather-related fatalities and injuries has piqued my interest in environmental responsibility. I have two ongoing research projects.

First, I’m using a company’s public disclosures to measure its environmental risks and the activities it has undertaken to mitigate them. Second, I am researching how CEO incentives shape a company’s environmental disclosure, activities and spending – or the lack thereof.

The Research Brief is a short take on interesting academic work.

Vivek Astvansh, Associate Professor of Quantitative Marketing and Analytics, McGill University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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