What to Make of Unprofitable Corporate Social Responsibility

Many companies lose money by acting responsibly. So why do they do it?Because in a favourable business climate, companies act generously.Decades of empirical tests have yet to confirm that corporate social responsibility is and has been a financially responsible business strategy. This paper addresses why firms may choose to adopt a CSR strategy notwithstanding its bottom line effect. It is argued that a purely rational, enlightened self-interest understanding of the CSR movement is incomplete, and rather, that the insights of prospect theory allow for a fuller account of socially responsible behaviour. Analysing the business and political climate in which CSR has emerged, the paper concludes that a boundedly-rational approach to risk is inclining businesses to adopt CSR. The paper challenges business leaders and scholars to re-examine their assumptions of how risk is incorporated into CSR strategies, as well as suggesting a new path out of the social-financial performance controversy