Corporate Social Responsibility from the Viewpoint of Social Risk

Abstract

This paper studies Corporate Social Responsibility (CSR) from the viewpoint of social risk as part of reputational risk. We adopt the conception of social risk that includes the risks originated by environmental and social sustainability. Any risk involves hazards and opportunities. The success of its management consists of hedging the hazards and turning opportunities into value. CSR is the key for dealing with both goals. Opportunities can be identified through an accurate analysis that leads to discovering the unsatisfied needs contained in societal claims in general and in the private politics of Non Governmental Organizations (NGO) in particular. Bringing these opportunities into line with the corporate know-how and undertaking projects together with the stakeholders with whom synergy is possible enables corporations to create shared value. A direct hedging of social risk hazards is hardly impossible. A good corporate social image constitutes a sound hedging against social risk. We have associated to social image the concept of CSR capital which means the value created through CSR. On this basis, we analyze the meaning and implications of social failure using Leland’s bankruptcy costs model. The quantification of the CSR capital may parallel the quantification of reputational capital about which several papers have been published. Combining the direct net present value created by a CSR expense with its tax savings and the savings it produces in the present value of the social failure costs, we estimate the total net present value created by these expenses. The analysis of social failure costs and the value created by social expenses is accompanied by a numerical illustration.