The Relationship between CSR and Profit Is U-Shaped
The firms rated low and high in social performance tended to have high financial performance, and the firms with the highest social performance had the highest income and ROA. The most unattractive position was in the middle: firms with only moderate levels of social performance had the lowest financial performance. In other words, the relationship between sustainability and profitability is “U-shaped” and—crucially—the right side of the U rises higher than the left. The greatest profitability accrues to the companies with the highest commitment to sustainability.
Relationship Between Social Performance and Financial Performance
Everyone Was Right
Milton Friedman and his detractors were both correct because their theories were focused on different parts of the U-curve. Barnett and Salomon reconcile seemingly conflicting past research findings by factoring in a firm’s ability to influence stakeholders over time by investing in social performance.
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