Balancing Profits with Social Responsibility

A new Kennedy School Working Paper by Robert Stavins

May 6, 2008
by Doug Gavel

Can corporations “go green” and continue to build profits at the same time? While some consumers may go out of their way to support socially responsible businesses, others may shop elsewhere, especially if they can save money. Environmental economists are grappling with the tensions created by the often countervailing forces of corporate social responsibility and profit maximization.

In a new Harvard Kennedy School Working Paper titled “Corporate Social Responsibility through an Economic Lens,” Professor Robert N. Stavins and co-authors Forest L. Reinhardt and Richard H.K. Vietor of Harvard Business School, argue that going green and generating profits are not necessarily mutually exclusive.

“The relationship between socially responsible activities and profitability may be more accurately characterized as some firms generate long-term profits from some socially responsible activities some of the time,” the authors conclude. “The bulk of the available evidence suggests that most firms treat socially responsible actions the same way they view more traditional business activities. Instead of altruistically sacrificing profits, they engage in a more limited -- but more profitable -- set of socially beneficial activities that contribute to their financial goals.”

Robert Stavins is Albert Pratt professor of business and government at Harvard Kennedy School. He is a University Fellow of Resources for the Future, a Research Associate of the National Bureau of Economic Research, former Chair of the U.S. Environmental Protection Agency's Environmental Economics Advisory Board, and a member of the editorial councils of scholarly periodicals. His research has examined diverse areas of environmental economics and policy and has appeared in a variety of economics, law, and policy journals, as well as several books.

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Photograph of Professor Robert Stavins

Robert Stavins, Albert Pratt professor of business and government

“The relationship between socially responsible activities and profitability may be more accurately characterized as some firms generate long-term profits from some socially responsible activities some of the time,” the authors conclude.