Social Responsibility

Social Responsibility

Michela Buttignol / Investopedia

What Is Social Responsibility?

Social responsibility means that businesses, in addition to maximizing shareholder value, must act in a manner benefiting society, not just the bottom line. Social responsibility has become increasingly important to investors and consumers who seek investments that not only are profitable but also contribute to the welfare of society and the environment. While critics have traditionally argued that the basic nature of business does not consider society as a stakeholder, younger generations are embracing social responsibility and driving change.

Key Takeaways

  • Social responsibility means that besides maximizing shareholder value, businesses should operate in a way that benefits society.
  • Socially responsible companies should adopt policies that promote the well-being of society and the environment while lessening negative impacts on them.
  • Companies can act responsibly in many ways, such as by promoting volunteering, making changes that benefit the environment, engaging in ethical labor practices, and engaging in charitable giving.
  • Consumers are more actively looking to buy goods and services from socially responsible companies, hence impacting their profitability.
  • Critics assert that practicing social responsibility is the opposite of why businesses exist.
2:00

What is Corporate Social Responsibility?

Understanding Social Responsibility

Social responsibility means that individuals and companies must act in the best interests of their environment and society as a whole. As it applies to business, social responsibility is known as corporate social responsibility (CSR) and is becoming a more prominent area of focus within businesses due to shifting social norms.

The crux of this theory is to enact policies that promote an ethical balance between the dual mandates of striving for profitability and benefiting society as a whole. These policies can be either commission (philanthropy: donations of money, time, or resources) or omission (e.g., “go green” initiatives such as reducing greenhouse gases or abiding by U.S. Environmental Protection Agency regulations to limit pollution).

Many companies, such as those with “green” policies, have made social responsibility an integral part of their business models, and they have done so without compromising profitability.

Additionally, more investors and consumers are factoring in a company’s commitment to socially responsible practices before making an investment or purchase. As such, embracing social responsibility can benefit the prime directive: maximization of shareholder value.

There is a moral imperative as well. Actions—or the lack thereof—will affect future generations. Put simply, social responsibility is just good business practice, and a failure to do so can have a deleterious effect on the balance sheet.

Social responsibility can also boost company morale, especially when a company can engage employees with its social causes.

In general, social responsibility is more effective when a company takes it on voluntarily instead of waiting for the government to require them to do so through regulation.

What Are the 4 Types of Social Responsibility?

The International Organization for Standardization (ISO) emphasizes that a business’s ability to maintain a balance between pursuing economic performance and adhering to societal and environmental issues is a critical factor in operating efficiently and effectively. 

The key ways that a company embraces social responsibility include philanthropy, promoting volunteering, ethical labor practices, and environmental changes.

For example, companies managing their environmental impact might look to reduce their carbon footprint and limit waste. There’s also the social responsibility of ethical practices for employees, which can mean offering a fair wage, which arises when there are limited employee protection laws.

Examples of Socially Responsible Corporations

Social responsibility takes on different meanings within industries and companies. For example:

  • Starbucks Corp. (SBUX) committed to social responsibility from the start, including sustainability and community welfare. It purchases Fair Trade Certified ingredients to manufacture products and actively supports sustainable farming in the regions where ingredients are sourced.
  • Ben & Jerry’s Homemade Holdings Inc. has integrated social responsibility into the core of its operations. Like Starbucks, the company purchases Fair Trade Certified ingredients.
  • The Lego Group, manufacturer of Lego toys, has committed to reducing its carbon impact. It was named a World Wildlife Fund Climate Savers Partner in 2014.
  • Salesforce.com Inc. (CRM) developed what it calls the 1-1-1 model. The company dedicates 1% of its equity, 1% of its product, and 1% of employees’ time back to the community.
  • Big-box retailer Target Corp. (TGT), also well known for its social responsibility programs, has donated money to communities in which the stores operate, including education grants.

Criticism of Corporate Social Responsibility

Not everyone believes that businesses should have a social conscience. Economist Milton Friedman stated that “‘social responsibilities of business’ are notable for their analytical looseness and lack of rigor.” Friedman believed that only individuals can have a sense of social responsibility. Businesses, by their very nature, cannot. Some experts believe that social responsibility defies the very point of being in business: profit above all else.

However, social responsibility has become more mainstream and is now practiced among a wide range of companies. Younger generations, such as millennials and Gen Z, are embracing social responsibility and driving change in the workplace and as consumers.

What are examples of social responsibility?

Social responsibility includes companies engaging in environmental preservation efforts, ethical labor practices, philanthropy, and promoting volunteering. For example, a company may change its manufacturing process to reduce carbon emissions.

What are the main benefits of social responsibility?

Benefiting society and lessening the negative impacts on the environment are among the main benefits of social responsibility. Consumers are increasingly looking to buy goods and services from socially responsible companies, which can have a positive impact on their bottom line.

How does social responsibility benefit companies?

In addition to potentially increasing the bottom line, companies that implement social responsibility programs can also boost their brand image. Social responsibility programs can also have a positive impact on morale among employees.

The Bottom Line

Social responsibility benefits society and the environment while lessening negative impacts on them. Companies engaging in social responsibility can do so in a number of ways, including making changes that benefit the environment, engaging in ethical labor practices, promoting volunteering, and philanthropy. Consumers are more actively looking to do business with socially responsible companies, which can also benefit bottom lines.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Harvard Law School Forum on Corporate Governance. “Investing in Corporate Social Responsibility to Enhance Customer Value.”

  2. Harvard Business School Online. “5 Examples of Corporate Social Responsibility That Were Successful.”

  3. Harvard Business Review. “The State of Socially Responsible Investing.”

  4. Starbucks. “Starbucks Ethical Sourcing of Sustainable Products.”

  5. Starbucks. “Becoming Resource Positive.”

  6. Ben and Jerry’s. “Fairtrade.”

  7. Ben and Jerry’s. “Our Values and Mission.”

  8. Lego. “In Partnership with WWF.”

  9. Salesforce. “How Far Can the 1-1-1 Model Go? This Tech Darling Has a Unique Approach.”

  10. Target Corporate. “Sustainability and ESG.”

  11. The New York Times. “A Friedman Doctrine—The Social Responsibility of Business Is to Increase Its Profits.”

  12. Massachusetts Institute of Technology, Sloan School of Management. “Social Responsibility Matters to Business — A Different View from Milton Friedman from 50 Years Ago.”