The impact of sustainable practices on shareholder value

CORPORATE social responsibility (CSR) has increasingly become a mainstream business activity, ranging from voluntarily engaging in environmental protection to increasing workforce diversity and employee welfare - although standard economic theories predict that it should be rather uncommon.

The neoclassical economic paradigm usually considers CSR as unnecessary and inconsistent with profit maximisation. This discrepancy between theory and real-world observations has attracted much scholarly attention in recent years.

Two general views on CSR and sustainable practices prevail in academic research. The first view argues that socially responsible firms can and often do adhere to value-maximising practices. As such, the reason why CSR prevails is because it creates a competitive advantage for the firm and thus contributes to firm value. The opposite view on CSR begins with American economist Milton Friedman's well-known claim that "the only responsibility of corporations is to make profits" in a 1970 New York Times article.