The following is a condensed, less academic excerpt of a paper I recently wrote for my final graduate course. It also represents the completion of Task #3 on my 9-Week Productivity Challenge and the beginning of a series of posts here on Earth and Money related the social and environmental impacts of our investments. The series began unofficially two weeks ago with a look at an emerging type of investment vehicle, community bonds, and Monday, introduced how we might be funding our own demise.

Corporate social responsibility (CSR) has become a major buzzword in the corporate sector. It is generally defined as the integration of social, environmental and economic concerns into the values and operations of a company, in such a way that all three are given equal weighting. In a 2012 study conducted by Taiyuan Wang and Pratima Bansal at the University of Western Ontario, they defined a socially responsible corporation as one whose actions “further the social good, outstrip the firm’s economic goals, and go beyond the legal requirement”.  They also explored relationship between CSR, financial success, and long-term versus short-term corporate orientation. They found that corporate social responsibility activities tended to result in negative financial outcomes in the short-term, but that this negative outcome could be negated by long-term corporate orientation, and that such long-term outlook was positively correlated with financial success.

This is not a particularly surprising result. Companies that seek to operate in the long-term should perform better than those that are focused solely on meeting short-term goals. Fighting a fire in one room is not going to solve the problem when the entire house is on fire. Companies with a long-term focus can better anticipate future roadblocks and problems than those bent on achieving only small-term goals. In terms of CSR, it is neither surprising that such activities lead to financial negatives, which can be moderated by long-term thinking. CSR activities typically require an up-front financial investment, with the dividends not immediately apparent. Hence, companies focused only on the short term are not likely to appreciate the long-term impacts and benefits of CSR activities, seeing only the short-term costs.

All of this fits in quite nicely into the environmental health perspective. As globalization takes its roots in our modern world, we become increasingly interconnected. A short-term, local, solely economic view will not allow a company to foresee the impacts (either beneficial or consequential) of their corporate activities. And this is at the root of many of today’s environmental health issues – whether it be pollution emitted from a factory or chemical-laden products put into the hands of toddlers, the short-term economics-first outlook has caused companies worldwide to make decisions with little regard for human health, and every regard for the bottom line.

How then can the average investor discern a socially responsible company from one whose practices do not coincide with their own values? Maclean’s magazine, in partnership with Sustainalytics, an investment research firm dedicated to researching the CSR merits of various companies, recently produced a list of the 50 most socially responsible companies in Canada. Included on the list are all five major Canadian banks, oil sands firms including Cenovus Energy Inc. and Suncor Energy Inc., garment manufacturers with previously known ties to child labour such as The Gap Inc. and Nike, and major automotive manufacturers such as Ford Motor Co. In some cases, companies make the list for changes they have made to their actual business activities. Ford, for example, aims to have its EcoBoost engine on 90% of its cars by 2013. EcoBoost reduces CO₂ emissions by 15%. Considering that electric car technology has existed for nearly a decade, a mere 15% reduction in CO₂ emissions certainly does not seem worthy of celebration. BMW, at the very least, earned its designation on the list for the development on an electric car that can travel 160 km on a single charge. In other cases, companies earn their way on the list, not for improvements to their actual processes, but for activities they conduct to remove attention from the damaging impacts of their business. Suncor, for example, earned their way on the list by providing employees with stock options linked to environmental performance, and for the development of a wind power facility in southern Ontario. Neither of these activities stands to make any change to the environmental havoc caused by their oil sands operations.

Clearly, the production of such a list is fraught with difficulty. To operate on a global or multinational scale and ensure social responsibility at every level requires both a massive investment and a long-term focus on not only economics, but also the environmental and social impact of a product or service. As described above, in some cases, no change at all to business practices is required to earn a CSR label, where other actions are being made to divert attention. And this can be misleading to the average investor.

Next week, I’ll take a look at how investor can try to evaluate whether a company is or isn’t socially responsible.