As I have briefly discussed in my earlier posts, profitability and social responsibility go side by side. Ideally, the annual pretax profits and the yearly ’socially responsible spending’ should be directly proportional to each other. Now many entrepreneurs get confused over what actually are the ideal ratios. Let’s also not forget those who have not yet embraced the scope of CSR as a core business strategy. Given these conflicting scenarios, majority of entrepreneurs and corporations alike have not explored the concepts of socially responsible investment and social profitability.

While a detailed discussion on SRI conflicts will be followed in a separate post, here I would limit my discussion to the ‘ratios’ of pure CSR spending. If a company is making profits in billions then its CSR spending, in my personal opinion, should be at least in millions. A rough estimate of that ratio can be put at 2-5% of the total profits. So if you are earning $100 million then you should spend at least $2 million -$5 million for social causes.

The spending can be as higher as an entity likes to but setting some basic standards is necessary. If we talk of current trends, majority of the companies are not even spending 1% of their annual profits in a socially responsible manner and this applies equally to both the developing and developed world’s companies( You can read some pieces on Pakistani companies CSR spending trends here and here). There are few exceptions where companies do allocate a sizeable chunk of their profits for the society but we can count them on fingers.

There is some research work done on social responsibility and profitability issues but much has left to be desired. What CSR experts have failed to achieve is to devise a basic formula or rating standard which can judge the responsible performance of a company. Global Reporting initiative is a good start but we have a long way to go. Companies, on the other hand, have taken CSR as an easy means for boosting PR and advertising and of course greenwashing.

So what will be the future of CSR spending? I do see some light at the end of the tunnel as BoP movement is gaining pace and momentum and SRI trends are changing. There will come a time when the old school entrepreneurs would have not other choice but to shift gears towards a more socially responsible business regimen. More on this in another post.

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