In their recent contribution to the Harvard Business Review, Doing Well By Doing Good? Don’t Count on It, Joshua Margolis and Hillary Anger Elfenbein rekindle the venerable debate on the relationship between Corporate Social Responsibility (CSR) and financial performance. Since its inception, CSR has struggled to build legitimacy against forces pressing corporate social and environmental strategies to demonstrate a direct, causal relationship with stock performance.

CSR is strategy, not alchemy. Even the best CSR initiatives cannot guarantee a higher stock price. However, when social and environmental programs are designed to operate as a business strategy, rather than reputation insurance, they have a proven ability to advance key outcomes known to influence shareholder value: recruitment and retention of top talent, successful entry into new markets, innovative product development, and improved brand loyalty.

Today’s investment research methodologies value information from a wide range of unique, diverse perspectives. Analysts and investors rely on a variety of sources to inform their understanding of a company’s investment value, without the expectation that any of these factors, in isolation, will guarantee stronger returns. Extra-financial indicators of a company’s environmental, social and governance (ESG) performance should contribute to, rather than supplant, investment strategy and analysis. It is time to shift the conversation from whether CSR predicts financial success, to how inclusion of ESG factors can enhance our assessment of a company’s value.

For a groundbreaking study on the role ESG performance can play in financial analysis, see:
http://www.unglobalcompact.org/docs/summit2007/gs_esg_embargoed_until030707pdf.pdf