Cost-benefit analysis must drive sustainability investment, says Dr. Marc Orlitzky. He explains why CSR may not improve financial performance.

Rigorous cost-benefit analysis and research must underlie sustainability investment, says Dr. Marc Orlitzky (University of South Australia). In this Thought Leadership post, he discusses why CSR may not improve financial performance. Thought Leaders are leading academics and practitioners: world experts on sustainability issues.

The Unintended Consequences of Sustainability

We cannot assume that sustainability’s economic effects are positive because:

  • Research has not shown a conclusive business case for sustainability. Sustainability and CSR can have firm-level pay-offs, but it’s extremely difficult to predict which specific sustainability projects increase, let alone maximize, economic returns.
  • Investors and other market actors often have inadequate information about a company’s sustainability actions. They can easily end up acting on incomplete or inaccurate information.

A More Rational Response

To avoid unquestioning pursuit of sustainability:

  • Market actors should seek the best possible information on corporate sustainability actions and their relationship to economic fundamentals. One way to do this is to rely on more objective, tangible, or trustworthy metrics, perhaps generated by independent rating agencies.

Return to Economic Fundamentals

Let’s bury the myth that there are no widespread trade-offs between social or green action and a healthy economy. Relationships between CSR and economic performance are highly variable and complex, and we need to act on objective data and facts rather than engaging in wishful thinking. We must become more rational about “socially responsible” actions that have so many emotional and moral connotations.

About the Author

Dr. Marc Orlitzky is Chair in Management at the University of South Australia. His major research interests are in market behavior, business ethics, corporate governance, and methodology. He has published many widely cited papers and won numerous awards for his work. He co-authored Toward Integrative Corporate Citizenship: Research Advances in Corporate Social Performance (2008) and co-edited Corporate Governance and Business Ethics (2010).

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