One of the propositions behind socially responsible investing is that companies do “well” by doing “good.” Even though it might initially cost them more to ensure they do things like protect the environment, engender human rights and improve public health, society will in the end reward them with higher profits.
But economists Matt Kotchen of Yale University and Jon Jungbien Moon of Korea University suggest that an important reason companies do good is to paper over the bad stuff they’ve done.
Using a database that monitors companies on about 80 of measures of social responsibility, they found that when companies engage in bad behavior – which they call Corporate Social Irresponsibility, or CSI – they offset it by engaging in Corporate Social Responsibility, or CSR. Usually, the offsets occur within the same category – if a company does something seen as hurting the environment, it does something else that’s seen as helping the environment.
Spill some oil, save some tigers.
An exception is when companies’ corporate governance is the problem. “When CSI arises about corporate governance—such as concerns about high compensation or low political accountability—those responsible for corporate governance seemingly choose to offset with CSR in other dimensions, rather than reform governance itself,” say the economists.
Overpay the CEO, save some sea otters.