How to Answer the Stigma of CSR as a Cost Center into a Profit Center?

Corporate Social Responsibility (CSR) has been a topic of debate in the business world for the past few decades. For a long time, CSR has been perceived as an expense with no direct financial return, referring to the notion of CSR as a cost center. However, this perspective has changed significantly in recent years. Since the establishment of regulations on CSR implementation obligations contained in Law No. 40/2007 on Limited Liability Companies (UU PT) and Government Regulation No. 47/2012 on Social and Environmental Responsibility of Limited Liability Companies (PP 47/2012), many companies (Figure 1) and visionary business leaders now see CSR as a strategic investment capable of providing substantial benefits.

This can be seen in Figure 1 how the growth of CSR in China from 2006 to 2009 was significant. According to MDPI (2021), this is related to the establishment of CSR regulations and CSR reporting obligations. This condition is even more crucial when knowing that stagnant conditions occur at around 25% from 2017 to 2019 of the total registered companies. This suggests that companies have no incentive to launch CSR projects or adopt CSR reporting systems.

Figure 1. Number of CSR Reports in China’s listed companies

Before addressing these challenges, we need to frame the discussion appropriately by establishing a clear definition of CSR. Referring to Wineberg and Rudolph (2004), they provide a comprehensive description, i.e. corporate social responsibility is “The contribution a company makes to society through its primary business activities, its social investment and philanthropic programs, and its involvement in public policy” (Wineberg, 2004). This definition emphasizes the integral role that CSR plays in a company’s overall strategy, covering not only charitable activities but also how the company conducts its core business and engages with broader social issues.

One of the key aspects of CSR is its function as social investment. Social investment refers to the use of refundable funds to help organizations achieve social goals. It is the tool that brings companies closest to increasing their social impact while aligning business objectives through social good. This approach sees CSR initiatives as more than just philanthropy, making CSR a strategic endeavor that results in improved public perception, brand loyalty, and stronger stakeholder relationships. While the results may not always be directly measurable in financial terms, they can significantly improve a company’s profitability and long-term success when managed properly.

New Paradigm Shift: CSR as a Profit Center

The perception of CSR as a cost center is a stigma that encourages companies to have a skeptical view of investing in social impact initiatives. Instead of producing programs that provide long-term benefits, these programs become like consumptive products. For example, CSR programs that focus on projects in line with the Sustainable Development Goals (SDGs)-such as carbon emission reduction, community education programs, or environmental conservation efforts-require large operational costs. As a result, while these programs offer many benefits to society and the environment, companies often view them as an additional burden on the budget, perceiving them as consumptive products. So, why is this the case?

It happens when companies are not able to identify the objectives of CSR programs concretely, which makes CSR functions not run optimally. It is evident that CSR initiatives are often short-lived and highly dependent on the whims of senior executives. The lack of participation from commercial functions and local context input means that CSR programs only focus on limiting reputational impact, rather than creating long-term value (HBR, 2016). Meanwhile, research conducted by McKinsey (2010) shows that, on average, 30% of a company’s revenue is at stake in terms of the company’s relationship with society.

As companies trend and push to drive social impact with revenue at stake, many companies are pushing CSR as a “return of investment” channel to business processes with wise management. To address this, a new paradigm of CSR has emerged, where CSR is no longer considered as a cost center, but as a strategic long-term social investment. How?

Benefits of Investing in CSR that Focuses on Profit Center

The idea of CSR as a profit center is slowly gaining acceptance in modern business thinking. Dazahro, as cited in Totok Mardikanto (2014), suggests that CSR should be seen as an investment for the growth and sustainability of the company, not as a cost center. This perspective sees CSR not only as a social obligation but as a strategic tool to improve business outcomes. Let us explore some of the key benefits that support this view:

• Improving Corporate Image

CSR activities can significantly enhance a company’s reputation, making it more attractive to consumers, potential employees, and investors. A strong reputation can lead to increased sales, ease in recruiting top talent, and greater investor confidence. Companies that demonstrate their commitment to CSR through the implementation of a comprehensive sustainability strategy have been shown to experience an increase in employee productivity of up to 13% and a reduction in turnover of up to 50% (PR Newswire, 2015).

• Brand Strengthening

Well-executed CSR initiatives can increase brand awareness and loyalty, making CSR a powerful branding tool, as 82% of consumers now consider corporate social responsibility when deciding where to shop, buy and recommend products. Other research shows that CSR initiatives impact brand satisfaction indirectly through brand image and equity. Therefore, companies should strive to communicate their CSR initiatives to the most loyal targets in order to reach consumers and add value to the brand.

• Collaboration with Stakeholders

Engaging in CSR strengthens positive relationships with key stakeholders, from local communities to governments. These relationships can make business easier, reduce conflict, and open up new opportunities for collaboration and growth. This is the case with Lego who, since 2021, have been trialing paper bags in boxes in collaboration with the Forest Stewardship Council. Lego will invest $400 million in its sustainability efforts in the coming years.

• Competitive Differentiation

In a crowded marketplace, unique and impactful CSR programs can differentiate a company from its competitors. This differentiation can be a key factor in consumer choice and brand preference. According to Zipdo in Procurement Tactics, 42% of companies worldwide use CSR as a differentiation tool from competitors. This can be one of the company’s strategies in building competitive advantage.

• Innovation and Learning

CSR initiatives often drive innovation within companies that leads to the development of new products, services and processes. For example, efforts to reduce environmental impact can result in more efficient operations or the creation of eco-friendly products that appeal to environmentally conscious consumers.

• Access to Capital

Companies with strong CSR programs may find it easier to attract investment and financing. Many investors now consider Environmental, Social, and Governance (ESG) factors when making investment decisions, giving CSR-focused companies an advantage in the capital market.

• Increased Share Price

Consistent and well-communicated CSR efforts can increase a company’s market value and stock price. Studies show that companies with strong CSR practices often outperform their peers in the stock market over the long term.

Profit Center: CSR as a Long-Term Mutualism Investment

Effective CSR implementation will reduce operational risk, enhance brand reputation, and build strong customer loyalty, thereby increasing contributions to long-term profitability (Investopedia, 2024). In the book Review of Corporate Social Responsibility Implementation (2022), it is explained that CSR implementation encourages ethical business practices so as to increase employee participation, create community support, and build positive cyclical engagement that encourages innovation and growth.

Companies that integrate CSR into their core strategy can more effectively deal with regulation, attract socially conscious investors, and build a resilient brand identity.

As such, CSR becomes a critical component of a company’s strategic framework, balancing short-term costs with substantial long-term benefits, and ensuring continued success in a competitive market and building social awareness.

Practically speaking, to encourage strategic CSR that is oriented towards the profit center, it is necessary to consider three main elements known as the Triple Bottom Line Concept described in the book Cannibals With Forks by John Elkington (1994). This concept combines three important elements that must be considered in creating sustainability between profit, society, and the environment in business activities. The three elements are people, prosperity, and planet, each of which has an important role in ensuring the sustainability of the company.

Figure 2. Triple Bottom Line Framework by John Elkington, 1994.

• People

Refers to the company’s impact on the individuals and groups to whom its business activities are directed. Their support is vital to the company’s survival and development. This element includes employees, their families, customers, suppliers, communities, and all those who are affected or influence the company.

• Prosperity

Reflects the company’s impact on local, national, and international economies. It encompasses the challenge of maximizing prosperity while considering society and the environment. This element includes job creation, innovation, tax payments, wealth creation, and various other economic impacts generated by the company.

• Planet

Relates to the environmental conditions affected by the company’s activities. The survival of society and the company is highly dependent on environmental conditions, so attention to the environment is essential.

The Triple Bottom Line concept is the foundation for companies to improve a more sustainable system through the implementation of Corporate Social Responsibility (CSR). By considering these three elements, companies can make a more meaningful contribution to society and the environment, while maintaining profitability.

Case Study of CSR Implementation as Profit Center

To illustrate how CSR can function as a profit center, let us examine a case study of Maxima Impact Consulting’s collaboration in supporting the impact initiatives of PT BUKIT MAKMUR MANDIRI UTAMA INDONESIA (BUMA) which is committed to sustainability in the coal mining business and social responsibility with community development programs through farmer group assistance for sustainable agricultural development. One of the main initiatives is the Sustainable Agriculture program in Umaq Dian Village, Kutai Kartanegara, East Kalimantan which includes agroecosystem assessment with the concept of sustainable agriculture, aiming to improve the quality of life of the community economically, socially, and environmentally.

Figure 3. The process of planting seedlings in the Sustainable Agriculture program, 2023.

In its case, the strategy launched in this program is BUMA’s effort to ensure economic and environmental sustainability after the mining project ends. As a preventive measure, through Sustainable Agriculture has impacted 16 farmers with 11,400 square meters of land affected, resulting in increased yields of up to 30%, income up 10.4%, and harvest achieved 71.4%. The 16 farmers involved have shown high interest in agricultural management, opening up the potential for developing a business unit for the production of agricultural input components such as organic fertilizers, organic plant nutrients, organic pesticides, and utilizing locally available materials.

Through this implementation, Maxima believes in providing strategic impact by supporting CSR programs that are oriented towards the Profit Center. By viewing CSR as an investment rather than an expense, businesses can create shared value that benefits all parties involved. Want to build impactful initiatives through CSR programs that are meaningful to the beneficiaries? Consult with Maxima Impact Consulting and discover strategies to create an impactful transformation!