The Capital Budgeting of Corporate Social Responsibility

Maria-Teresa Bosch-Badia,Joan Montllor-Serrats,Maria-Antonia Tarrazon-Rodon

doi:10.3390/su12093542

Maria-Teresa Bosch-Badia, Joan Montllor-Serrats + Show 1 more

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https://doi.org/10.3390/su12093542

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Abstract

This paper focuses on the evaluation of Corporate Social Responsibility (CSR) investment projects from the perspective of the triple bottom line. One of the most relevant roles of CSR is the mitigation of the negative externalities generated by corporate investments, which often requires undertaking specific investment projects that fall in the scope of CSR. The main goal of these CSR projects is to improve corporate sustainability instead of maximising financial value creation. Thus, they must be evaluated for their impact on the natural, social, and financial capitals, answering these three questions: What is its efficacy for the mitigation of the externalities under consideration? What is its economic efficiency for stakeholders? What is its financial sustainability? The proposed evaluation method interlinks monetary with physical units by generating dimensionless indicators. The paper also presents a metric that unites in a single indicator the effects on the natural, social, and financial capitals. Reliable capital budgeting decisions must fit with corporate strategic planning. Since this principle also holds for CSR, the paper includes a section on the strategic planning of CSR. A numerical illustration and a case study, developed with the aid of text mining techniques, show the applicability of the findings of this paper.

Highlights

Environmental and social sustainability have become the core components of Corporate Social Responsibility (CSR)
To measure the economic efficiency for stakeholders and the financial sustainability for shareholders, this paper proposes the Social Return on Investments (SROI) and the Present Value Index (PVI), respectively, because their technical similarity facilitates a homogeneous approach to the four indicators required by the capital budgeting of CSR projects
This paper has approached the measurement of these diverse, but related, impacts through the metrics summarised in the CSR vector

Summary

Introduction

Environmental and social sustainability have become the core components of Corporate Social Responsibility (CSR). The analysis of corporate projects faces the challenge of evaluating their environmental and social weak points and, afterwards, designing and implementing the appropriate courses of action for their mitigation. The cost-benefit analysis enables managers to realise the negative externalities associated with investment projects. The analysis of the courses of action aimed at controlling or mitigating negative externalities is often best performed by separating it from the study of the leading projects, once their externalities are known. A substantial reason for this independent approach is the fact that several alternative courses of action can be designed for managing the externalities under analysis. We will call these mitigating courses of action CSR investment projects

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