JacquesBogh TheBusinesscaseforCSR

The Business Case for CSR: Estimating future earnings impacts of CSR projects – J.
Bøgh, 2010
The Business Case for CSR:

Estimating future earnings impacts of CSR projects
Abstract
While a number of authors have highlighted the many benefits of CSR for
communities, business partners, the environment and shareholders in
qualitative terms, factual research into quantitative, predictive relationships
between CSR performance and corporate financial performance has proven
to be more of a challenge. Meanwhile, amid growing interest in the field,
practitioners have only scant theoretical guidance available as to how specific
CSR projects’ impact on a corporation’s financial performance may be
predicted in order to support management decisions. This lack of guidance is
unfortunate for three reasons: shareholders’ legitimate expectations for a fair
financial evaluation of every company project are not fulfilled; choices
between CSR projects may not be made on the most rational basis; and an
opportunity to make CSR investment more sustainable by demonstrating its
positive financial impact may be missed.
In this paper, the author discusses relevant publications and theory as well as
a survey of organizations of varying size, and suggests a three-dimensional
model for establishing CSR business cases in the corporate environment.
The author
Jacques Bøgh is a corporate practitioner in the fields of
finance, risk management, internal control, internal audit and
CSR. In addition to a Master of Science in Management
from HEC Paris, he holds diplomas and qualifications in the
areas of accounting, risk management and internal audit, as
well as the Certificate in Advanced Studies in CSR of the
University of Geneva. With 20 years of professional
experience, he has had budgeting and business planning as
a specialty for many years, and has created or supported more than a
hundred predictive, NPV-based business cases for new projects, acquisitions,
and commercial proposals. He is currently group head of risk management,
internal controls, internal audit and tax in a mid-size multinational corporation,
where he is also secretary to the group committee governing CSR and ethics
matters. His interest in CSR has increased with his involvement in CSR,
ethics and governance issues.
Acknowledgements
The author wishes to thank Silvana, Julien, Paul and Salvatore for their
pointed and insightful feedback in improving the manuscript. Sincere thanks
also to Prof. Sandra Waddock and Prof. Michael Hopkins for their helpful
contributions to this document. And finally, special thanks to the 52
professionals who dedicated some of their time to participate in the survey.
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The Business Case for CSR: Estimating future earnings impacts of CSR projects – J. Bøgh, 2010
Table of contents
1. Introduction ....................................................................................................4
2. Business case: definitions..............................................................................4
2.1. Classical definition ............................................................................. 4
2.2. Actual use.......................................................................................... 5
2.2.1. Author’s own experience ............................................................ 5
2.2.2. The Business Case For Rich Internet Applications..................... 5
2.2.3. Microsoft makes the business case for Windows phone ............ 6
2.2.4. How to Recruit the Best and Brightest........................................ 6
2.2.5. The Business Case for the Arts .................................................. 7
2.3. Summary ........................................................................................... 7
3. Business case for CSR: literature ..................................................................7
3.1. Corporate community involvement: Establishing a Business Case ... 8
3.2. The Sustainability Advantage: Seven Business Case Benefits of a
Triple Bottom Line ........................................................................................ 8
3.3. Making the Business Case for Sustainability: Linking Social and
Environmental Actions to Financial Performance ......................................... 9
3.4. Corporate Social Responsibility: is there a business case?............. 10
3.5. The business case for corporate social responsibility: A company-
level measurement approach for CSR ....................................................... 11
3.6. The relationship between corporate social responsibility and
shareholder value: an empirical test of the risk management hypothesis .. 11
3.7. Summary ......................................................................................... 12
4. The need for predictive business cases for CSR projects ...........................13
4.1. Agency theory.................................................................................. 13
4.2. Stakeholder theory........................................................................... 14
5. Survey: practical approaches within organisations ......................................14
5.1. Description of the questionnaire ...................................................... 15
5.1.1. Form and time span.................................................................. 15
5.1.2. Questions asked....................................................................... 15
5.1.3. Population demographics and statistical reliability.................... 15
5.1.4. Correlations .............................................................................. 15
5.2. Key results....................................................................................... 15
5.2.1. Frequency of CSR proposal review .......................................... 15
5.2.2. Responsibility for reviewing CSR proposals ............................. 16
5.2.3. Written support for CSR decisions............................................ 17
5.2.4. Consistency and quality of CSR proposal justifications ............ 17
5.3. Segmentations by size..................................................................... 18
5.3.1. CSR and public relations .......................................................... 18
5.3.2. Board involvement.................................................................... 20
5.3.3. CSR project justifications.......................................................... 20
5.4. Main conclusions ............................................................................. 21
6. A three-dimensional CSR business case model ..........................................21
6.1. Dimension 1: Type of financial benefit ............................................. 22
6.1.1. Component: Cost reductions .................................................... 22
6.1.2. Component: Revenue increase ................................................ 22
6.1.3. Component: Risk mitigation...................................................... 23
6.2. Dimension 2: Specific or generic benefit calculation........................ 23
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6.2.1. Component: Specific benefit calculation................................... 24

6.2.2. Component: Generic benefit calculation................................... 24
6.3. Dimension 3: Type of cash flow analysis ......................................... 24
6.3.1. Component: Discounted cash flow ........................................... 24
6.3.2. Component: Simple / no cash flow ........................................... 25
6.4. The CSR business case model ....................................................... 25
6.4.1. Dimensions, components, and elements.................................. 25
6.4.2. Quality of a business case........................................................ 26
6.4.3. Relevance beyond CSR ........................................................... 26
7. Conclusion ...................................................................................................26
8. References and bibliography .......................................................................28
8.1. References ...................................................................................... 28
8.2. Bibliography..................................................................................... 29
9. Appendix......................................................................................................31
9.1. Survey questions ............................................................................. 31
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1. Introduction
Corporate Social Responsibility, or CSR1, which is by essence a corporate
activity, inevitably brings up the issue of the motivations of the organisations
practicing it. In principle CSR is about “doing good”, and thus intertwined with
notions of altruism and benevolence, which run contrary to the profit motive.
Even so, while CSR certainly benefits the organisation practicing it in addition
to the various stakeholders, CSR is also usually associated with outlays,
sometimes significant. Ignoring CSR expenditure could mean endangering
the organisation’s survival, and therefore a review of anticipated CSR
expenditure may be considered a core responsibility of management.
Conversely, reviewing CSR benefits in relation to such expenditure would
yield a more complete picture and show whether certain CSR projects actually
improve the organisation’s bottom line. Such a review is commonly referred
to as a “business case”.
The objective of this paper is to explore and model this “business case” –
specific to the organisation, predictive, and potentially encompassing future
cash flows discounted to present value. Such a business case has the
potential to protect the interests of shareholders and investors, but also to
prove that certain CSR undertakings are profitable, and thus make a CSR
engagement both more selective and more sustainable.
We will review accepted meanings of the expression “business case”,
examine the literature about “the business case for CSR”, and assess whether
both agency and stakeholder theories, although they view the corporation
from very different perspectives, support the use of business cases to assess
CSR opportunities. We will analyse the practice of CSR project review
through a survey of 52 organisations, looking into responsibilities,
methodologies, attitudes, and differentiating organisational attributes. And
finally we will propose a three-dimensional model for CSR business cases
with a view to providing practitioners with guidance as to the elements of
adequate and relevant decision support.
2. Business case: definitions

Even a brief consultation of the various papers referring to “business cases”
shows that there may be several meanings to the word.
2.1. Classical definition

In the financial area, the common acceptance of the expression is centred on
investment decisions, i.e. the evaluation of marginal costs and benefits of a
potential business decision: “A business case frequently involves assessing
the value of an investment in terms of its potential benefits and the resources
1
In this paper we have considered that comments in literature about CSR and other similar
concepts, such as “sustainability”, “sustainable development”, “corporate social performance”
and the like, are close enough to be considered part of a single theoretical body when
pertaining to discussions about “the business case”. Conversely, instead of providing survey
participants with a preset definition of “CSR”, certain survey questions were designed
specifically to gather information about the meaning given to CSR in the relevant
organizations, with a view to avoiding misinterpretations and enhancing analysis of the
results.
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required to set it up and to sustain it” (Remenyi and Remenyi, 2009, p.10). In
a corporate setting, typical components of a business case for investment
decisions include:
• A written, narrative description (often presented as slides)
• Spreadsheet calculations assessing the value of revenue and cost
changes triggered by the proposed decision.
Such business cases are usually prepared by the manager(s) proposing the
investment, with the support of the finance department so as to ensure
accuracy and consistency, but also in some cases for the finance department
to serve as “sparring partner” for the manager(s). The final investment
decision is often made by a committee including several senior managers who
together have the power, delegated by the Board of Directors, to approve
investments and new ventures up to a given amount.
2.2. Actual use

While most usual definitions of the words “business case” evolve around
similar notions of structured arguments and cost-benefit assessments to
trigger a commitment of resources, the actual use of the expression varies, as
the following examples will illustrate.
The following references have been selected mainly by performing searches
of documents and websites containing the word “business case”; the search
results were then selected so as to represent a varied sample of the uses of
the expression “business case”.
2.2.1. Author’s own experience

The author has at various points in his career been responsible for business
cases and business planning. For example, for a few years, he had the
responsibility for the financial review of, and support for, business cases
regarding potential commercial proposals to existing customers or prospects
of an international telecommunications company. All business cases had to
include the following:
• Narrative including key points of the proposal and strategic /
commercial rationale, presented on a few slides
• Financial modelling including forecast marginal cost and sales as well
as net present value.
These proposals were reviewed once a week by a committee consisting of
several senior vice presidents of the organization. While the finance function
did not officially have veto power, it was always possible to point out that the
financial cost/benefit analysis would not show a profitable business
proposition, in which case the proposal was rarely accepted.
In the author’s view this approach was highly consistent with the orthodox
definition of a business case.
2.2.2. The Business Case For Rich Internet Applications

This paper represents the classical understanding of the business case
approach. Rogowski (2007) starts with narrative and opinions gathered from
surveys before featuring ROI (Return On Investment) models including
concrete cost / benefit analysis (of Rich Internet Applications, or “RIA”s, in this
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case) using monetary metrics. The following table shows one of these
models.
2.2.3. Microsoft makes the business case for Windows phone

In the introduction to this blog article, Foley (2010) explains that “At the
TechEd conference on June 7, however, officials got more granular about
some of the other functionality that the company believes will prove that
Microsoft hasn’t abandoned its core enterprise base with the new phones that
were designed to be consumer-centric.”
What follows is indeed a list of details of new features described by the
company, as well as some pricing information.
This blog article is thus implicitly calling the act of listing features “making the
business case”, even though benefits are only mentioned in technical terms
and no cost / benefit analysis is made at all.
2.2.4. How to Recruit the Best and Brightest

At the start of an interview about diversity in recruitment, Hewlett (2009) states
that “[…] making the business case for why this has to be done now, even in
the midst of the global recession, actually needs a pretty complicated
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argument. To go down the list and to spell out why it is an urgent priority now,
I think the first thing I would stress is the tremendous demographic shifts out
there in the world.” Hewlett moves on to give three arguments in favour of
diversity:
• Only 17% of people in the world with bachelor degrees are white men
• Research shows that diverse teams make better decisions and are
more innovative
• 83% of consumer decisions are made by women.
While Hewlett supports her argument with some numerical information, the
cost of the suggested recruitment strategies is not mentioned at all, while the
benefits are only explained in general terms. Again there is no cost/benefit
analysis.
2.2.5. The Business Case for the Arts

This editorial (popcitymedia.com, 2009) was written by certain organizations
as part of the Pittsburgh is Art campaign. Its purpose is to promote art, and in
particular the art infrastructure and economy, in Pittsburgh through a series of
arguments. These arguments include, for instance:
• “The arts allow us to imagine a new way to live and envision the world”
• “Pittsburgh's rich cultural legacy holds significant international value”
• “The non-profit arts and culture industry in Allegheny County generates
$[US]341 million in economic activity — $230.7 million by the
organizations themselves and an additional $110.7 million in event
related spending by audiences”
• “The industry supports over 10,192 full-time equivalent jobs and $33.7
million in local and state government tax revenues”
Interestingly, while monetary information is presented as something positive,
even as part of the benefits, it is mainly just information about resource
consumption. In reality we learn that the art industry generates 341 MUSD of
spending per year, uses more than 10,000 people, and that in monetary terms
only 33.7 MUSD are generated in revenues as a consequence. Of course the
benefits of the arts are in reality extremely precious, but the point is again just
that the word “business case” is not used to introduce an actual cost/benefit
calculation, even if monetary information is provided.
2.3. Summary
A review of the ways in which the expression “business case” is used in
various settings shows similarities and differences. A business case is always
perceived to be a set of arguments in favour of something. Yet the set of
arguments may be just narrative and general, or supported by detailed
financial and other analytical elements. The quality of the arguments may
also vary; and finally, the “something” favoured by a business case may be a
concept, a product, an action, past, present, or future. We will now examine
whether when combined with the CSR concept the spectrum is similarly
broad.
3. Business case for CSR: literature

We have thus illustrated that the “business case” concept is used in several
ways, which are gradually more or less close to the most common definition,
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i.e. a monetary cost/benefit analysis supported by narrative arguments. In

some cases analytical tools such as ROI (Return On Investment) templates or
models are supporting the “business case”; in other cases, more or less
adequate narrative arguments are either not supported by monetary
information at all, or are accompanied with inadequate monetary indicators
which for instance reflect only resource consumption without evidencing any
benefits, or vice-versa.
When “the business case for CSR” or similar wording is used, it seems that
what is referred to is usually of the less structured kind. Reference to a
business case in the orthodox definition is not found very frequently (although
it does exist).
The most frequent understanding seems to be that general reasoning based
on evidence which is only sometimes not just anecdotic, often derived from
past instances throughout a number of organisations and seemingly only
exceptionally from projections specific to one particular organisation or
instance, proves the case for CSR. The following paragraphs shall critically
review a few representative examples of references to “The business case for
CSR” in chronological order.
3.1. Corporate community involvement: Establishing a

Business Case
This study (The Centre for Corporate Public Affairs and The Business Council
of Australia, 2001) of 115 large Australian companies’ approach to Corporate
Community Involvement (“CCI”) is presented in book form. It is not so much
suggesting approaches as reporting on what businesses actually do. At the
time the book was published (2000), it seems that a number of businesses
believed that there was indeed business rationale for such CSR-related
expenditure, but there is no mention in the book of specific methods for
predictive business cases. Rather, under a subsection “Rationale for
Corporate Community Involvement”, three main reasons for CCI are identified:
commercial interest, public good, and enlightened self-interest. Companies,
the study indicates, hope to benefit from CCI in four main ways: enhanced
corporate reputation; improved relationships within the community; increased
employee morale, team work and retention; and a changed culture that
indicates a long term corporate direction. Likewise, the concluding chapter
“Assessing the Benefits” is in reality not describing benefits to companies from
their CCI, but rather benefits to the community itself, admittedly with some
concern about the efficiency of the expense incurred (“bang for the buck”).
It can thus be concluded that this particular opus only considers the business
case in qualitative terms.
3.2. The Sustainability Advantage: Seven Business

Case Benefits of a Triple Bottom Line
This book (Willard, 2002), written by an author specializing in company
seminars, is the most specific regarding the meaning of the words “business
case”. Indeed the seven chapters of the book reflect one bottom-line benefit
each, and rather detailed instructions are provided – including spreadsheet
templates – for the calculation of cost and revenue changes linked to each
one of these benefits. Even risk reduction is thus covered.
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While Willard does address the business case from the predictive, business-
relevant angle, his book leaves some questions open. Indeed, based on the
author’s own experience, the reasoning to build up the business case
numbers may be seen to be based on a somewhat one-sided approach. For
instance,
• The only cost envisaged is for training. This is not realistic – reducing
e.g. certain chemicals in manufacturing calls for significant investment
other than just training
• Cost reductions are derived in a very “top-down” fashion (although
suggestions are provided to achieve more detailed numbers), e.g.:
REDUCED MANUFACTURING EXPENSES
Simple, Macro-level Calculation

Hardware revenue $22'000'000'000
(Assumption: Hardware percent of total revenue) 50%
Hardware costs $6'600'000'000
(Assumption: Costs as a percent of hardware revenue) 30%
Sustainability savings in manufacturing costs $330'000'000

(Assumption: Percent of hardware costs saved) 5%
- Savings reinvested in other environmental projects $165'000'000
(Assumption: Percent of savings reinvested) 50%
---------- -------------------------------------------------------------------------------- ---------------------------
Annual benefit in MANUFACTURING costs $165'000'000
• Some suggested benefits which are usually notoriously difficult to
measure are supported by rather qualitative argumentation and may
be seen to be oversimplified, e.g.:
Increased Productivity of Individual Employees
Total number of employees 120'000
x Percent who will be energized by the company's sustainability initiatives 20%
x Percent increased productivity from their increased commitment 25%
x Average employee's annual salary $60'000
-------------------------------------------------------------------------------------------------- ---------------------
Benefit of increased productivity from INDIVIDUALS $360'000'000
Willard’s work is in a way pioneering – he is one of the very few who have
described a methodology for company specific, discounted cash flow based
business cases for CSR. Unfortunately though, some of the actual
calculations he suggests may not meet the standards for plausibility and
completeness against which business cases are actually reviewed in
established organisations.
3.3. Making the Business Case for Sustainability:

Linking Social and Environmental Actions to Financial
Performance
Contrasting with Willard, Epstein and Roy (2003) have taken a scientific
approach by reviewing sustainability reports of a selection of companies for
evidence of linking social and environmental actions to financial performance.
They propose a hierarchy of four “levels of integration”:
• Level 1: descriptive information not linked to financial performance
• Level 2: quantified information not linked to financial performance
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• Level 3: monetised information on expenditure, partially linked to

financial performance
• Level 4: monetised information on the benefits of expenditure (i.e.
measures of benefits in addition to measures of costs), fully linked to
financial performance.
Level 4 integration could probably be seen to indicate at least the availability
of data allowing companies to build predictive business cases. Interestingly
the authors find that level 4 integration is most often found in relation to
environmental issues, although the benefits reported are usually limited only
to direct cost reductions (e.g. as in the case of recycling) rather than more
indirect effects.
The authors also propose a framework – “Drivers of sustainability and
financial performance” – which, by linking a company’s sustainability actions
to stakeholder benefits and then financial performance, and assuming a given
causality – is reminiscent of Kaplan and Norton’s Balanced Scorecard2
(1992).
In the end, the Epstein and Roy paper describes instances where data should
be available to make a financials-based predictive business case, and also
provides an interesting four-level “integration” classification.
3.4. Corporate Social Responsibility: is there a

business case?
In this classic example of literature on “the business case for CSR”, Hopkins
and Cowe (2003) list the many benefits of CSR in great detail, among which:
• Increased investment from socially responsible investors
• Increased employee motivation and productivity
• Brand equity / increased sales
• Risk reduction re. external stakeholders.
Regarding quantitative evidence for a link between social and financial
performance, the literature existing at the time is reviewed comprehensively.
Such literature, unfortunately, is entirely based on ex post statistical analysis,
and thus fails to provide managers with a framework with which to build
predictive, NPV-based business cases.
Nonetheless the tour d’horizon highlights certain interesting facts, mainly that
• Several studies fail to show a link between CSR and financial
performance - but this would mean that CSR is at least not penalising
companies
• Studies may be hampered by biases and suspect evidence (Zadek and
Chapman, 1998; Chen, 2001).
2
The initial Balanced Scorecard approach was based on reporting measures within four
areas – Learning & Growth, Internal Processes, Financial, Customer – which were to be used
by management to assess corporate performance with regards to the execution of company
strategy. The four areas were empirically deemed to be linked by a causal relationship: better
Learning & Growth performance leading to better Internal Processes and so on. In some
respects the Balanced Scorecard may be seen as an attempt at considering other
stakeholders than just shareholders in defining the success of a company.
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3.5. The business case for corporate social

responsibility: A company-level measurement approach
for CSR
In several ways this article by Weber (2007) may be seen as an academically
more robust pendant to Willard’s work (2002). In an attempt to create a
company-specific business case template for CSR, Weber adds KPIs and
even discounted cash flows (under “Monetary Value Added”) to the usual
arsenal of more qualitative argumentation. The following is Weber’s attempt
at applying the “Monetary Value Added” approach to a specific research case:
While it is of course regrettable that only very little data was available for
analysis in this particular case study, leading to a table containing many zero
values, there is significant merit to having included classic financial analysis in
a CSR assessment framework.
3.6. The relationship between corporate social

responsibility and shareholder value: an empirical test
of the risk management hypothesis
This paper (Godfrey P. C., Merrill C. B., Hansen J. M., 2008) is examining the
gain to shareholders of a company’s CSR activities from the specific angle of
risk management and reduction, i.e. preservation rather than generation of
“Corporate Financial Performance”. Building on Mattingly and Berman ‘s
(2006) distinction between CSR activities that target the firm’s primary
stakeholders (“technical CSR”), and activities that target the firm’s secondary
stakeholders (“institutional CSR”), as well as the notion that technical CSR is
more reflective of power relations and necessity, the authors uncover strong
statistical evidence that institutional CSR has an insurance-like effect on stock
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market value in the aftermath of negative legal or regulatory action, while

technical CSR does not. In other words, it would appear that the more
altruistic versions of CSR generate a form of goodwill which reduces adverse
stock market reactions to law suits and regulatory sanctions.
The article is thus extremely relevant as to whether and how CSR has a
valuable risk reduction effect. Nonetheless, it does not provide specific
guidance to the corporate practitioner seeking to build such findings into a
predictive, company-specific, NPV-based business case.
3.7. Summary
There have been many publications, scientific or not in nature, commenting on
“the business case for CSR”. A few of them have been reviewed above and
may be summarized in the following table:
Business case for CSR

References in literature
Corporate community The Sustainability Making the Business Corporate Social The business case for The relationship
involvement : Advantage: Seven Case for Responsibility: is there corporate social between corporate
Establishing a Business Case Sustainability: Linking a business case? responsibility: A social responsibility
Business Case Benefits of a Triple Social and company-level and shareholder
Bottom Line Environmental Actions measurement value: an empirical
to Financial approach for CSR test of the risk
Performance’ management
hypothesis
Authors Centre for Corporate Willard B. Epstein M. J. and Roy Hopkins M. and Cowe Weber M. Godfrey P. C., Merrill
Public Affairs M. J. R. C. B., Hansen J. M.
Date published 2000 2002 2003 2003 2007 2008

Type of publication Book Book Article Booklet Article Article
Description Based a survey of Seven examples of Review of Explore evidence as Attempt at a company- Analysis of possible
Australian financial benefits of sustainability reports to whether CSR specific business case links between CSR
businesses, practice CSR activities for evidence of linking makes financial sense for CSR activities and risk
and benefits of social and reduction
community environmental actions
involvement are to financial
examined. performance
Business case: None Arguments, and Four levels - level 3 = Only qualitative Includes monetary None
operational description spreadsheet partial link of descriptions of costs value added, with
calculations involving expenditure to and benefits to mathematical formula,
cost and revenue, financial performance, various stakeholders and more qualitative
leading to a Net level 4 = full link of metrics
Present Value expenditure to
financial performance
Business case: Vague ("techniques "Proof of quantifiable Somewhat similar to Causal, quantitative Mix of discounted Whether shareholders
conceptual description for assessing financial benefits" Balanced Scorecard link between CSR cash flow, KPIs, and gain upon CSR
business benefits") (Kaplan and Norton) - actions and financial purely qualitative expenditure
strategy > actions > indicators benefits
stakeholder benefits >
shareholder value
Business case - benefits - enhanced corporate - Talent attraction - Reduce costs - Increased - Sales increase - Financial
envisaged reputation - Talent retention - Create options investment from - Grants and performance
- improved - Employee - Gain customers socially responsible subsidies - Risk reduction
relationships with the productivity [increase revenue?] investors - Cost savings - Better share price
community - Reduced - Reduce risk - Increased employee - Reduction of taxes &
- increased employee manufacturing costs motivation and duties
morale, team work - Reduced productivity - Risk reduction
and retention commercial site costs - Brand equity / - Employee attraction,
- changed culture that - Increased revenue increased sales motivation and
indicates long term - Reduced risk - Risk reduction re. retention
corporate direction. external stakeholders
Link between expenditure Yes Yes Yes Yes Yes Yes

and financial benefit
mentioned?
Link between expenditure Hardly Yes Yes Yes Yes Yes

and risk reduction
mentioned?
Discounted Cash Flow No Yes No No Yes Yes
analysis mentioned?
Business case: No Yes No No Yes No
operational guidance
provided for use by
managers
It is striking that very few publications actually provide the corporate

practitioner with specific guidance for the creation of predictive, company-
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specific, NPV-based business cases. Publications could be classified

according to three underlying categories:
• Category 1: qualitative argumentation
This category would encompass publications which will describe the
perceived benefits to the organisation of CSR, but without numerical
evidence.
• Category 2: ex-post quantitative argumentation
Publications in this category would aim to show a positive link between
past CSR activity and past financial performance.
• Category 3: predictive quantitative framework
Publications in this category, while not proving any link between CSR
and financial performance, would propose or examine a framework for
establishing predictive financial business cases for CSR actions, based
on an organisation’s specific situation.
Among the publications reviewed in the course of our research, the most
typical appear to be a mix of categories 1 and 2 – where qualitative
argumentation is complemented with more or less specific reference to
research of the category 2 type. Conversely, a number of scientific articles
are clearly in category 2. Category 3 publications were empirically found to be
rare, whether of a scientific nature (Weber, 2007) or not (Willard, 2002).
4. The need for predictive business cases for CSR

projects
Meanwhile CSR is by definition a corporate endeavour, and is thus part of a
system in which shareholder value– i.e. profit generation, or the perspective of
it - is a condition for investor confidence and thus existence of the company.
Therefore, it may be expected that CSR project proposals would be subjected
to the same discipline as any proposed expenditure, i.e. budgetary discussion
and/or review of a business case showing costs and benefits and related
narrative.
A number of theories may be considered to describe the circumstances and
consequences of a situation whereby CSR endeavours were to be excluded
from preliminary cost/benefit analysis. What follows is an analysis of just two
quite different theories in this respect.
4.1. Agency theory

Agency theory (see for instance Eisenhardt, 1989) explores the issues
inherent to the relationship between a Principal and an Agent, the Agent
having e.g. been hired to perform work for the Principal. In the corporate
setting, the Principal could be the shareholder and the Agent, management.
The theory states that the Agent and the Principal may have a. different goals
b. different attitudes to risk. One classic proposal to mitigate these issues has
been to align the Agent to the Principal’s aims by offering the right incentives
to the Agent. If we posit that the main aim of the shareholder, as Principal, is
to maximise his return on investment, then the incentive structure must not
only reward past performance, but there should also be a system ensuring
that present decisions by the Agent fulfil the same aim. In the corporate
setting, the common way of testing decisions against the future return on
investment criterion is the business case. Hence it follows that a choice by
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the Agent (management) not to apply the business case test to a proposal to
use resources on a CSR project would be a. indicative of differing goals
between management and the shareholder b. lead to a suboptimal outcome
for the Principal.
An obvious criticism of this idea is that the shareholder may actually wish to
have the company expend resources on CSR projects without foreseeing a
positive return on investment – as an example, one could imagine that
philanthropic donations for the conservation of traditional textile crafts could,
under certain circumstances, be difficult to link to a positive return on
investment3. But indeed another aspect of agency theory concerns the
difficulty for the Principal to get adequate information on the Agent’s actions,
and it is arguably important, especially in relation to projects without a return
on investment, for management at least to document in a business case the
amount of resources required for such projects. Any other approach would
mean uncontrolled use of resources, which could threaten the survival of the
corporation itself.
4.2. Stakeholder theory

The stakeholder theory formulated by Freeman (1984) essentially holds that
"all persons or groups with legitimate interests participating in an enterprise do
so to obtain benefits, and there is no prima facie priority of one set of interests
and benefits over another" (Donaldson and Preston, 1995). This idea, which
may now be seen to be an important cornerstone of CSR, also encompasses
the notion that “Corporations shall be managed in the interests of its
stakeholders” (Freeman, cited in Donaldson and Werhane, 1993). Freeman
does not deny the responsibility of the company towards its owners, but
suggests that other stakeholders should have increased rights regarding the
company’s actions. Yet the shareholders’ right to be informed about actual
and projected use of resources and concurrent financial benefit does not
appear to be denied under the stakeholder theory, since Freeman (as cited in
cited in Donaldson and Werhane, 1993) suggests, for instance through “The
Principle of Governance”, to protect the interests of each stakeholder without
putting any group, including owners, at a disadvantage.
But if such rights are upheld, it follows in our view that the business case
approach to assessing proposed CSR relevant expenditure is legitimate under
the stakeholder theory. Furthermore, the financial health and thus survival of
the company is not only in the shareholder’s interest, but probably in many, or
most, other stakeholders’ interest as well.
5. Survey: practical approaches within organisations

As predictive business cases for assessing CSR projects are an important tool
for rational resource allocation, we have conducted a survey to examine how
a number of organisations actually assess CSR projects in practice.
3
The author knows of a case where the main shareholder of a midsize corporation had
exactly such interests – but they were financed directly out of the main shareholder’s private
funds instead of through company means.
Page 14 of 39
5.1. Description of the questionnaire

5.1.1. Form and time span
The survey was conducted online between 12 May and 13 July 2010.
5.1.2. Questions asked

The questions asked in the survey are included in appendix 10.1.
5.1.3. Population demographics and statistical reliability

The survey was conducted among professionals, working for the
organisations whose characteristics they have reflected in the survey,
belonging to various groups (such as alumni associations) of which the author
is a member. While the sample of organisations thus assembled cannot be
said to be representative of any particular group of organisations, a number of
questions within the survey were designed to be able to analyse responses in
view of the organisations’ characteristics or attitudes towards CSR in general.
Also, the survey was answered by a very diverse sample of organisations,
large and small, multinational or not, and based in Europe, the USA, and
India. A typical indication of this diversity is that 26 out of 52 respondents
indicated that they were answering for organisations with more than 2’000
employees.
5.1.4. Correlations
We have sought to identify linkages between the responses to all possible
question pairs by performing an integral correlation analysis. Due to the
relatively modest size of our sample, we have only considered correlations
with an absolute value above 0.3 (i.e. above 0.3 or below -0.3), and we have
avoided to comment on correlations which appeared to be common
consequences of a single, different root cause. Admittedly the causality in
such instances rests on our hypotheses and interpretations, since the survey
was not designed to identify causal relationships.
5.2. Key results

5.2.1. Frequency of CSR proposal review
Respondents were asked: “Does the management or the Board of Directors of
your organisation sometimes decide whether to implement - or not - particular
CSR actions or projects?”.
Does the management or the Board of Directors of your organisation sometimes decide
whether to implement - or not - particular CSR actions or projects?
Response Response
Answer Options
Percent Count
Yes, several times a year 44.0% 22
Yes, approximately once a year 14.0% 7
Yes, but less than once a year 14.0% 7
No, never (has never happened so far) 18.0% 9
Don't know 10.0% 5
answered question 50
skipped question 2
Page 15 of 39
The question was intended to be phrased so as to make it clear that a review,

with a possible negative outcome, was being performed.
58% of respondents indicated that reviews were taking place at least once a
year, while 18% indicated that reviews were never taking place. Interestingly,
the replies to this question were significantly correlated with the evaluation of
the statement: “CSR is a central part of company strategy”. The more positive
the reply to the latter, the more likely an organisation was to perform regular
reviews:
CSR central to strategy?

Frequency of CSR proposal review? Yes / rather yes No / Rather no All replies
Yes, several times a year 59% 25% 42%
Yes, approximately once a year 11% 0% 13%
Yes, but less than once a year 11% 17% 13%
Don't know 15% 0% 10%
No, never (has never happened so far) 4% 58% 17%
(blank) 0% 0% 4%
Grand Total 100% 100% 100%
5.2.2. Responsibility for reviewing CSR proposals

The responsibility for reviewing CSR proposals was investigated through the
question “Who makes "go/no go" decisions regarding CSR actions or projects
in your organisation?”, with multiple answers possible.
Who makes "go/no go" decisions regarding CSR actions or projects in your organisation?
(multiple answers possible)
Response Response
Answer Options
Percent Count
The Board of Directors 42.9% 15
Top management (CEO, CFO...) 82.9% 29
Middle management 22.9% 8
Don't know 0.0% 0
Other (please specify) 8.6% 3
skipped question 17
Among the answers provided, “top management” was the most frequent with
82.9%, showing that CSR decisions are usually not left to middle
management. Surprisingly perhaps, top management involvement was not
matched with involvement by the finance department, which was reported in
only 45.7% of cases:
Is the Finance department involved in preparing CSR decisions?
Response Response
Answer Options
Percent Count
Yes 45.7% 16
No 34.3% 12
Don't know / not applicable 20.0% 7
skipped question 17
Page 16 of 39
5.2.3. Written support for CSR decisions

Respondents were asked how CSR decisions were supported in their
organisations:
How does your organisation make CSR decisions? (multiple answers possible)
Response Response
Answer Options
Percent Count
No written justification 25.7% 9
Written justification without numerical / financial tables 22.9% 8
Written justification, with numerical / financial justification - but not specific to the 22.9% 8
company (e.g. "studies show that ISO 14001 certified companies outperform the
stockmarket by 1%")
Written justification, with specific numerical forecasts of the impact on the company 17.1% 6
(costs only or revenues only)
(costs and revenues)
(costs and cost savings)
Written justification with Discounted Cash Flows (DCF) or Net Present Value (NPV) 8.6% 3
Written justification involving benefits in terms of risk reduction 25.7% 9
Don't know 11.4% 4
Comments 3
skipped question 17
Among the salient findings, it should be noted that fully 25.7% of respondents’
organisations required no written justification for CSR actions. It could be
theorised that such organisations should be very small and thus not require
complex approval circuits, but there was no strong correlation to size,
geographical extension or other characteristics.
We also noted that only 8.6% of respondents indicated that their organisation
would use discounted cash flows or net present value in making CSR
decisions. Not surprisingly, the three organisations in question were large,
mature, multinational organisations in the consultancy, air transport and
telecommunication sectors.
5.2.4. Consistency and quality of CSR proposal justifications

Two questions were aimed at assessing the consistency and quality of CSR
proposal justifications:
How consistent are CSR action / project justifications at your organisation?
Response Response
Answer Options
Percent Count
Very consistent (there is a recurrent process) 24.2% 8
Quite consistent 42.4% 14
Not very consistent 24.2% 8
They vary widely 6.1% 2
No opinion 3.0% 1
skipped question 19
Page 17 of 39
What is the average quality of CSR action / project justifications?
Response Response
Answer Options
Percent Count
Very good 20.6% 7
Good 41.2% 14
Average 32.4% 11
Bad 0.0% 0
Very bad 0.0% 0
No opinion 5.9% 2
skipped question 18
As could probably be expected, the answers to these two questions were

strongly correlated. More interestingly though, they were both also strongly
correlated with risk assessment activities. The organisations with the most
structured approach to risk assessment activities would have CSR project
justifications of a significantly better quality, as is illustrated by the following
table:
R is k a s s e s s me nt a c tiv itie s in func tio n o f q ua lity o f CSR jus tific a tio ns
2.5
1.5
0.5
0
There is a legal The company has a The company The company The company ranks The company ranks The company ranks Risk assessments
obligation to perform formalised approach performs risk performs risk risks according to risks according to risks according to are discussed by the
risk assessments to risk assessment assessment at the assessments at least importance probability and probability and Board of Directors
enterprise level (as once a year impact monetary impact
opposed to function
or department
specific only)
Very good Good Average
In this graph, the blue bars are indicative of “Very good” CSR justification quality, the red ones
reflect a “Good” rating and the yellow ones an “Average” rating. The fact that the blue bars
are smaller indicates a better rating across all the risk assessment questions when
respondents rated CSR justifications to be “very good”.
5.3. Segmentations by size

Due to the relatively modest size of the total sample used for the analysis,
only one dimension has stood out as a truly important differentiator in
organisations’ approach towards CSR and CSR project justification: size. We
have divided our sample of 52 organisations up according to whether
respondents indicated that their organisations’ total worldwide number of
employees exceeded 2’000 (hereafter referred to as “large” organisations) or
not (“smaller” organisations).
5.3.1. CSR and public relations

We found that larger organisations were much more likely to see CSR as a
means of stakeholder management or public relations / marketing. Indeed
Page 18 of 39
large organisations would define CSR in this way in 42.3% of all cases
whereas smaller organisations would do so in only 22.7% of all cases:
Question: How is CSR best defined in your organisation?
Part of compliance with laws and

regulations
Stakeholder management
Some peoples' personal engagement,

sponsored by the company
Part of the business model
Other (please s pecify)
Important part of marketing / public

relations approach
Doing good / philantropy
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0%
Employees > 2'000 Employees < 2'000
Furthermore, 76.9% of large organisations would publish a CSR report,

whereas 81.8% of smaller organisations would make no such publication:
Question: Does your company publish a CSR report (or similar)?
Other / don't know
No
Yes
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0%
To explain these differences one could surmise that since larger organisations
are more “visible” to a larger number of salient stakeholders, and hence
paradoxically more vulnerable to “name and shame” campaigns and the like,
their self-interest lies in using CSR as a means of risk mitigation. Perhaps this
would also explain why large organisations tend more often to have a
balanced approach to CSR, not giving priority to e.g. social or environmental
issues, as evidenced by the responses to the question “What is the main
theme of CSR in your organisation?”:
Page 19 of 39
Question: What is the main theme of CSR in your organisation?
Other (please specify)
Both (balanced)
Social (local community, employees,

health & safety)
Environment (reduce pollution)
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%
5.3.2. Board involvement

We found that large organisations were also much more likely to see their
Boards of Directors take responsibility for CSR matters. 77.3% of large
organisations had a Board of Directors member or committee specifically
responsible for CSR, while this was the case only for 18.2% of smaller
organisations.
Board member or committee

responsible for CSR
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0%
5.3.3. CSR project justifications

In general we saw large organisations favour a more structured approach to
the justification of CSR projects. As mentioned above, the only organisations
using NPV or DCF relevant business cases among the sample were large
organisations, no smaller organisations at all using such an approach.
Moreover, and in line with the hypothesis that CSR is more relevant as a risk
mitigation tool in larger organisations (see above), large organisations were
much more likely to base CSR decisions on written justifications involving
benefits in terms of risk reduction:
Written justification involving benefits

in terms of risk reduction
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0%
Page 20 of 39
5.4. Main conclusions

We believe that our survey yielded a few key findings:
1. Attitudes towards CSR, and the justification of CSR projects, are very
different according to organisational size
Large organisations are more likely to publish a CSR report, consider
CSR as a stakeholder management and public relations / marketing
tool, see Board members involved in CSR, and justify CSR decisions in
terms of risk management
2. Risk mitigation and assessment play a significant role in CSR practice
and justification for large organisations
30.8% of large organisations would justify CSR projects in terms of risk
reduction, and the same proportion would define CSR in terms of
stakeholder management, suggesting a link to risk mitigation
3. A structured approach towards risk management is correlated with
higher quality and more consistent CSR project proposals
There was a very strong correlation between the quality of risk
assessment activities and the quality and consistency of CSR project
proposals
4. Very few organisations, and only large ones, use discounted cash flow
based business cases to analyse CSR project proposals
Only 3 organisations (out of a total of 52) would indicate use of
discounted cash flow based business cases to analyse CSR project
proposals.
6. A three-dimensional CSR business case model

We believe that the results of our survey support the need for a classification
and codification of the possible approaches to CSR business cases in the
corporate context, so as to make a range of choices available to the
practitioner and to make the identification of adequate justification approaches
more easy and straightforward.
Classifications had been proposed by Epstein and Roy (2003) and Weber
(2007). Epstein and Roy proposed 4 levels of increasing “integration”
involving cost / benefit information, where Level 1 would relate to “descriptive
information not linked to financial performance” and Level 4 to “monetised
information on the benefits of expenditure (i.e. measures of benefits in
addition to measures of costs), fully linked to financial performance”. Yet the
Epstein and Roy classification does not consider the quality of benefit
information, e.g. whether the benefit is obtained in terms of cost savings,
additional revenue, or risk reduction, and was not applied to the context of
business case proposals. Conversely, Weber’s work relates directly to the
elaboration of CSR project proposals and considers three “assessment
components” (CSR Value Added, KPIs, and qualitative impacts), but within
these components only one – admittedly relatively complete – relates to
objectivised monetary benefits for the organisation itself. In fact Weber
proposes a valuable template for a CSR business case, but does not within
the business case approach propose a qualitative hierarchy between the
various inputs and analysis.
In the three-dimensional model we propose, we have de facto excluded the
lower “levels” identified by Epstein and Roy (2003), where there would be no
Page 21 of 39
monetised information about expenditure. Indeed we consider that a business

case must, as a starting point, contain, albeit with a variable degree of
confidence, the expected amount of incremental resource consumption linked
to a “go” decision in favour of the proposed CSR action. Likewise we did not
specify the availability of narrative argumentation as well as discussion of the
strategic fit with organisational objectives, which we have considered to be
indispensable in any business case.
For each of the three dimensions we propose two or three components, which
are not mutually exclusive. However, the components allow for different
levels of predictive and decision-making quality; in summary, the more “high
quality” components a business case comprises, the better the business case
can be in terms of reduced uncertainty and improved decision support.
6.1. Dimension 1: Type of financial benefit

Weber (2007) identifies five “main areas of CSR business benefits” in
available research:
1. Positive effects on company image and reputation
2. Positive effects on employee motivation, retention, and recruitment
3. Cost savings
4. Revenue increases from higher sales and market share
5. CSR-related risk reduction or management.
In the context of a CSR business case, we believe that the first two areas,
while important for the narrative, will see their effects expressed through the
three other ones. We thus propose three components for the “Type of
financial benefit”.
6.1.1. Component: Cost reductions

Cost savings may be the consequence of certain CSR relevant activities. A
very classic example is the reduction of raw materials or energy use, which
reinforces an organisation’s green credentials while reducing cost. Based on
the author’s experience such benefits, when they are plausibly part of the
business case, are often the most easily quantified. They are very often
derived from predominantly objective reasoning, and since the savings
involved are mainly of a technical nature, they are frequently calculated in
collaboration with professionals who are used to calculations, such as
engineers.
Conversely, if cost reductions are hoped to be derived from less predictable
effects such as employees being “energized by the company's sustainability
initiatives” (Willard, 2003), the projected financial effects would in turn be
subject to a higher degree of uncertainty.
6.1.2. Component: Revenue increase

Revenue increases may on average be considered more uncertain than cost
savings because projections rely on third parties (i.e. the market) to a higher
extent. A typical example of anticipated revenue increases could be the
higher sales hoped for in the wake of the introduction of an “adopt-a-tree”
scheme for a men’s perfume (this example is the reflection of an actual case
involving Procter & Gamble’s “Hugo” brand).
Page 22 of 39
6.1.3. Component: Risk mitigation

Our survey shows that a number of organisations, especially larger ones, see
risk reduction as a significant factor in the justification of CSR activities.
Nonetheless, because of the importance of subjective judgement, it is often
proving difficult to translate risk reduction into monetary benefits in a business
case. In principle though, this could be supported by referring to risk
management frameworks such as COSO (2004), which prescribe that risks
should be assessed for likelihood and impact. In larger organisations this
approach is often practiced by departments responsible for risk management,
internal audit, or finance. Weber (2007) suggests that “CSR risk-related costs
can thus be calculated by multiplying the expected economic impact from
CSR-related risks with its probability. As CSR risk-related benefits refer to the
avoidance of such negative economic impacts, they can be calculated by
multiplying estimated avoided CSR risk-related costs by -1”. While Weber’s
suggestion points in the right direction, we believe that it is important to
highlight that the expected benefit will not be the complete elimination of a
given risk, but rather the incremental reduction of such risk – in other words,
Weber’s “-1” factor may be misleading.
It is thus proposed, for instance, that the proponents of a CSR business case
collaborate with the company or organisation department in charge of risk
assessments to identify, discuss and assess possible favourable impacts. For
example, suppose that an oil company sees the risk of a delay to an
exploration project, costing a potential 10 million USD due to possible protests
by local communities, to have a cumulative likelihood of occurrence of 30%
over a three year period. A CSR-relevant community programme could have
an impact on that risk’s cost, likelihood, or both. For instance, if the potential
cost were to be reduced to 8 million USD, the business case for the
community programme should consider a benefit of 30% of 2 million USD (the
reduction in potential impact), i.e. 600’000 USD. To calculate a net present
value of the benefit (i.e. to put a time value on the money possibly “saved”),
since the risk is estimated over three years, it could be considered to occur
“on average” 18 months from the date of assessment.
Even though the result is monetised, the assessment of risk impact and
likelihood is very much based on judgement, and the estimation of a potential
risk reduction pursuant to CSR activities adds further subjectivity. This is why
we consider the Risk reduction component to be the least assured within the
“Type of financial benefit” dimension.
6.2. Dimension 2: Specific or generic benefit

calculation
Based on our review of literature, we identified categories (see chapter 3)
among which Category 2 would contain data aiming to show a positive link
between past CSR activity and past financial performance, whereas Category
3 would be concerned with frameworks for organisation specific, predictive
business cases. Likewise, we propose to consider the basis on which CSR
benefits are calculated in a business case as one of its key dimensions,
indicative of structure and quality.
Page 23 of 39
6.2.1. Component: Specific benefit calculation

Specific benefit calculation would entail that the financial benefits in the
business case be based on organisation specific data, information, and
reasoning. For instance, in assessing the added revenue to be derived from a
new, “greener” product formulation, a company’s marketing department would
examine the potential effects of new pricing, positioning, packaging etc. on
predicted sales based on experience, scenario reviews, customer panels and
so on, and the outcome would be likely to be a sales curve which may have a
different profile compared to the baseline.
6.2.2. Component: Generic benefit calculation

Generic benefit calculation would conversely be based on the idea that
beneficial effects observed or predicted through third party studies, for
instance in scientific papers, may be transposed with few alterations to the
organisation in question. For example, a garment producer could decide to
implement CSR and expect a 25% increase in sales based on Dao et al.’s
analysis4 (2003). It is obvious that a 25% sales increase will not be obtained
in all cases were CSR activities are implemented – if there is indeed a link as
suggested, it is probable that CSR activities costing a total of 1’000 USD per
year will have different effects from activities costing 100’000 USD per year. It
seems obvious, then, that specific benefit calculations will yield better
assurance as to the probability that predicted financial benefits will come true.
Conversely, generic benefit calculations may be a useful complement, for
instance as a “sanity check” instrument, to specific benefit calculations. In the
garment producer case, if a bona fide CSR programme was predicted through
specific benefit calculations to trigger a revenue increase of 15%, Dao et al.’s
paper could be used to support the predicted outcome.
6.3. Dimension 3: Type of cash flow analysis

The last dimension of the model pertains to the use of cash flows in the
business case.
6.3.1. Component: Discounted cash flow

A discounted cash flow (“DCF”) could be defined as the stream of funds (or
losses) that will be generated by a project in the future, reduced to its present
day value by applying a discount rate to take into account the time value of
money. It is a classic and important tool of business case analysis, allowing
to take profitability, time and risk into account when assessing one project, or
comparing several projects to each other. The result of a DCF analysis would
typically be a Net Present Value, or an Internal Rate of Return. The
conditions for applying a DCF analysis to a business case are:
• Cash outlays, inflows, and savings must be established by period
(typically by year) until the end of the project, or until a reasonable point
in the future (often 5-10 years if the project is not supposed to “end”)
4
According to Dao’s analysis as cited on www.vietnamforumcsr.net: “A recent MOLISA
survey of 24 garment and shoe producers found that CSR implementation has helped the
companies increase sales by 25%, increase productivity from 34.2 to 35.8 million
VND/laborer/year, and increase total exports from 94% to 97%.”
Page 24 of 39
•A discount rate must be set. In theory the discount rate reflects the
cost of money (interest on loans and / or shareholders’ expected
returns on share capital) as well as the risk of the project being
assessed. If an Internal Rate of Return is computed, the discount rate
will in effect be the hurdle rate below which the business case will be
deemed unprofitable.
Once these inputs are available the DCF calculation becomes possible. While
of course the inputs, even though they will be expressed in precise numbers,
may be subject to significant subjectivity, a DCF analysis is nonetheless
required to assess the true financial profitability of a business proposal.
6.3.2. Component: Simple / no cash flow

Despite the importance of DCF analysis, a business case would also benefit
from a simple cash flow analysis whereby future cash flows are calculated
over a number of years. In this case, the only missing element for a DCF
analysis would be the discount rate, which can be difficult to establish,
although practitioners often use ad-hoc working assumptions in that respect.
Furthermore, it is also possible that inflows and outflows are calculated, but
not by period. Again this diminishes the value of the business case as a
decision support tool but does not eliminate it.
6.4. The CSR business case model

In order to summarise the proposed three-dimensional model we have
represented it as a cube.
The CSR business case model5
6.4.1. Dimensions, components, and elements

Each dimension is represented as a side of the cube, with the components
“slicing” the cube in decreasing order of quality from left to right, from front to
back, and from top to bottom. The intersection of three components is an
element of the CSR business case – for instance, a business case could
comprise an element where the benefit is linked to revenue increase,
calculated on a generic basis, and calculated by year to derive a discounted
cash flow. In total, the model allows for 3 x 2 x 2 = 12 elements.
5
Copyright Jacques Bøgh – all rights reserved
Page 25 of 39
6.4.2. Quality of a business case

It is obvious that a high number of elements reflects more complete decision
support. Likewise, because of the “quality order” of the components, as a
general rule elements in the near upper left corner would be of a higher quality
than those in the lower far right corner – i.e. the specific calculation of a cost
reduction, subject to a DCF analysis, provides better decision support than a
risk mitigation benefit based on a generic calculation and not analysed for its
cash flow effects.
6.4.3. Relevance beyond CSR

While all of the elements of our model have relevance in business cases
concerning non CSR proposals, we believe that two components in particular
are less frequently encountered in these cases: Generic benefit calculation,
and Risk mitigation. Indeed our review of relevant literature may suggest that
CSR proposals seem on average to entail more indirect benefits, which are
more easily captured when applying these two components.
Non CSR business cases may also make use of these two components, but
we would expect this to be the case less often. Hence our model, while
covering such instances adequately as well, is nonetheless particularly
relevant to CSR business cases.
7. Conclusion
In this paper we have reviewed accepted meanings of the expression
“business case”, to find that while a business case is always perceived to be a
set of arguments in favour of something, the set of arguments may vary
significantly in nature and quality. We have examined the literature about “the
business case for CSR” and noted that frequently, qualitative argumentation is
complemented with more or less specific reference to research purporting to
show a positive link between past CSR activity and past financial
performance. Conversely, it seems that only a few authors have examined
the subject of predictive financial business cases for CSR actions, based on
an organisation’s specific situation.
We have demonstrated that both agency and stakeholder theories, although
they view the corporation from very different perspectives, illustrate or infer
the need to use business cases to assess CSR opportunities.
We have evaluated the results of a survey of 52 organisations, looking into
responsibilities, methodologies, attitudes, and differentiating attributes in
relation to the review of CSR projects. We found that attitudes towards CSR,
and the justification of CSR projects, are very different according to
organisational size; that risk mitigation and assessment play a significant role
in CSR practice and justification for large organisations, and that a structured
approach towards risk management is correlated with higher quality and more
consistent CSR project proposals; and finally, that within our sample very few
organisations, and only large ones, use discounted cash flow based business
cases to analyse CSR project proposals.
Finally we have proposed a three-dimensional model for CSR business cases
with a view to providing practitioners with guidance as to the elements of
adequate decision support. In this relation, we think that the rational approach
to the evaluation of risk mitigation benefits is of particular interest, but also a
Page 26 of 39
challenge insofar as it calls for close coordination with those in charge of risk
assessment.
Thus our three-dimensional model supports identification of the strongest
CSR opportunities, but also suggests avenues for strengthening CSR
justifications in general with a true business case approach.
Yet further research would be required to test the application of the model in
actual corporate settings and identify any issues in translating theory into
practice.
In conclusion, the work needed to assemble the elements of a high quality

CSR business case is well worth the effort: whether by showing that more
CSR proposals are financially sustainable, by supporting a more structured
selection process between several CSR options, or making more enlightened
decisions in general, organisations only stand to gain in applying the business
case discipline to their CSR decision-making process.
Page 27 of 39
8. References and bibliography

8.1. References
The Centre for Corporate Public Affairs and The Business Council of
Australia, 2001. Corporate Community Involvement: Establishing a
Business Case, The Centre for Corporate Public Affairs, Melbourne.
Chen L., 2001. Sustainability Investment: The Merits of Socially Responsible
Investing. UBS Warburg, London.
COSO (Committee of Sponsoring Organizations of the Treadway
Commission), 2004. Enterprise Risk Management — Integrated
Framework, Executive Summary. The Committee of Sponsoring
Organizations of the Treadway Commission, New York.
Dao Q. V., et al. Summary report of CSR in the garment and footwear
sectors, ILSSA, 2003 – as cited on vietnamforumcsr.net. Corporate Social
Responsibility. [Online] (September 16, 2007)
Available at:
http://www.vietnamforumcsr.net/default.aspx?portalid=1&tabid=71&itemid
=614 [Accessed 22 July 2010]
Donaldson, T. and Werhane P. 1993. Ethical issues in Business: A
philosophical Approach, 4th edn. Prentice Hall, New Jersey.
Donaldson T. and Preston L., 1995. The Stakeholder Theory of the
Corporation: Concepts, Evidence, and Implications, Academy of
Management Journal, 20: pp. 65-91.
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9. Appendix
9.1. Survey questions
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The Business Case for CSR: Estimating future earnings impacts of CSR projects – J.

The Business Case for CSR:

6.2.1. Component: Specific benefit calculation................................... 24

2. Business case: definitions

2.1. Classical definition

2.2. Actual use

2.2.1. Author’s own experience

2.2.2. The Business Case For Rich Internet Applications

2.2.3. Microsoft makes the business case for Windows phone

2.2.4. How to Recruit the Best and Brightest

2.2.5. The Business Case for the Arts

3. Business case for CSR: literature

i.e. a monetary cost/benefit analysis supported by narrative arguments. In

3.1. Corporate community involvement: Establishing a

3.2. The Sustainability Advantage: Seven Business

Simple, Macro-level Calculation

Sustainability savings in manufacturing costs $330'000'000

3.3. Making the Business Case for Sustainability:

• Level 3: monetised information on expenditure, partially linked to

3.4. Corporate Social Responsibility: is there a

3.5. The business case for corporate social

3.6. The relationship between corporate social

market value in the aftermath of negative legal or regulatory action, while

Business case for CSR

Date published 2000 2002 2003 2003 2007 2008

Link between expenditure Yes Yes Yes Yes Yes Yes

Link between expenditure Hardly Yes Yes Yes Yes Yes

It is striking that very few publications actually provide the corporate

specific, NPV-based business cases. Publications could be classified

4. The need for predictive business cases for CSR

4.1. Agency theory

4.2. Stakeholder theory

5. Survey: practical approaches within organisations

5.1. Description of the questionnaire

5.1.2. Questions asked

5.1.3. Population demographics and statistical reliability

5.2. Key results

The question was intended to be phrased so as to make it clear that a review,

CSR central to strategy?

5.2.2. Responsibility for reviewing CSR proposals

Is the Finance department involved in preparing CSR decisions?

5.2.3. Written support for CSR decisions

5.2.4. Consistency and quality of CSR proposal justifications

How consistent are CSR action / project justifications at your organisation?

What is the average quality of CSR action / project justifications?

As could probably be expected, the answers to these two questions were

Very good Good Average

5.3. Segmentations by size

5.3.1. CSR and public relations

Part of compliance with laws and

Some peoples' personal engagement,

Part of the business model

Other (please s pecify)

Important part of marketing / public

Doing good / philantropy

Employees > 2'000 Employees < 2'000

Furthermore, 76.9% of large organisations would publish a CSR report,

Other / don't know

Employees > 2'000 Employees < 2'000

Question: What is the main theme of CSR in your organisation?

Other (please specify)

Social (local community, employees,

Environment (reduce pollution)