Thought Leadership, Research & CPA Spotlights

Concrete Goals Inspire CSR Investment

As corporate social responsibility (CSR) has become a widespread concern in business, it is useful to investigate the way decisions about funding CSR initiatives are being made.

Economic theory suggests that decisions about how much to invest in CSR will be governed by the information managers have and their personal economic incentives. However, researchers at the University of Waterloo used psychological theories to predict that managers’ personal values affect their CSR investment decisions.

In the title of their paper, "A Dollar for a Tree or a Tree for a Dollar?", the researchers contrast two ways of looking at CSR contributions. Do we focus on the dollar we spend to plant a tree? Or do we focus on the tree we plant by spending a dollar?

How the contribution is framed—in financial or nonfinancial terms—can see managers make greater investments in CSR. But it only does so if their values are aligned with the activity.

A Dollar for a Tree or a Tree for a Dollar? The Behavioral Effects of Measurement Basis on Managers’ CSR Investment Decision

From the CPA Ontario Centre for Sustainability Reporting and Performance Management (previously the CPA Ontario Centre for Performance Management Research and Education) at the University of Waterloo

Read the summary

Key takeaways from the paper

Managers whose values align with CSR are most likely to fund CSR initiatives

Measuring investments in CSR in terms of the results they achieve (e.g. trees planted), instead of just the money spent, increases how much pro-CSR managers will allocate funding. Using nonfinancial measures to define contributions to CSR encourages investment among managers whose values already lead them to favour CSR. Those who subscribe to the idea that a business has a responsibility to a range of stakeholders may be motivated by CSR accounting that highlights the concrete outcomes of the activity.

For others, however, it has no effect. Managers who take the view that a company’s main responsibility is to maximize shareholder value may not be encouraged by measuring CSR contributions in a nonfinancial way.

Accounting choices can activate people’s values

Choosing to present information in different ways can see people’s values activated or lie dormant. CPAs should consider how reporting choices can affect behaviour within organisations.

The way accountants measure and report on CSR initiatives will affect how enthusiastically some managers will invest in them. Firms wanting to encourage CSR investment should consider measuring their contributions in nonfinancial ways, or supplementing financial measurements with nonfinancial ones.