- Companies with strong CSR attract foreign investment, improve governance, and ensure long-term sustainability.
The companies in today’s globally competitive market must present themselves as socially responsible. In socially beneficial programmes, active involvement is one strategy companies employ to achieve competitive advantage in pursuing their goals. Multinational companies often have no choice but to play significant roles in the social issues of their respective nations. If they do not, various government regulations on environmental security and labor laws can pose as great costs to them. No doubt, corporate social responsibility (CSR) has come to be an integral element of planning to acquire and maintain the competitive advantage while competing with the international companies.
Over the years, companies have taken the initiative to be socially responsible.
The focus for companies has been on maximizing wealth in the past. With the growth of CSR, there have been many debates regarding its advantages. More companies are beginning to realize the value of being socially responsible and how critical it is to business function. It is analysed that CSR and the accounting measurements of financial performance are positively related. CSR and the market-based measurements of financial performance are negatively related. This suggests that CSR positively affects a company’s profits and negatively affects future stock returns. It is said that since investors are more willing to invest in CSR stocks, these firms end up experiencing lower future stock returns.
Financial institutions and International firms are also more likely to invest in companies with strong CSR credentials, as these are seen as lower-risk and more sustainable over the long term.
As CSR in global business strategies, has gained prominence, its influence on the financial performance of Pakistani companies has become increasingly evident, although it remains a nuanced subject. Companies that engage in CSR initiatives, like charitable donations, environmental sustainability efforts, and fair labor practices, often experience a boost in their public image. This is mainly important in Pakistan, where consumers are becoming more socially conscious.
CSR in our country has proven to have a positive impact on financial performance through enhanced brand image, market access, cost savings, and better employee engagement. While there are issues in measuring the direct financial advantages of CSR in the short term, the long-term benefits are becoming clearer, mainly as businesses align their strategies with global sustainability trends and social responsibility.
Companies that integrate CSR into their core operations are likely to experience enhanced profitability, stakeholder trust, and resilience, ultimately driving financial success. Sources recorded that strong CSR practices can assist build consumer trust and loyalty, which directly contributes to increased sales, market share, and repeat business. CSR may be particularly important in industries such as textiles and manufacturing in our country, where international buyers (e.g., from Europe and North America) are increasingly looking for ethical and sustainable sourcing.
CSR initiatives in Pakistan focused on energy efficiency, waste management, and sustainable sourcing can result in long-term cost savings for companies. For example, reducing energy consumption or using sustainable materials can lower operational costs. Through integrating green technologies and waste reduction practices, businesses can decrease their environmental footprint and reduce costs, leading to higher profit margins over time.
Many CSR activities involve upfront costs, and while they can provide long-term financial benefits, companies in Pakistan might face resistance to CSR investments in the short term, particularly in industries where profit margins are slim. The connection between CSR and financial performance may not always be straightforward to measure, as the advantages of CSR can take time to materialize, making it harder to quantify immediate financial returns.
CSR can improve the overall governance structures of a company. Studies analyzed that businesses in Pakistan with strong CSR initiatives often adopt more transparent, accountable practices, which in turn can enhance financial performance through reducing corruption, improving decision-making and gaining stakeholders’ trust. Investors and financial markets tend to reward companies that demonstrate good governance, increasing stock value and overall financial stability. While CSR investments might incur short-term costs, they can contribute to a company’s long-term sustainability by ensuring operational resilience, access to global markets, and stakeholder loyalty. The shift toward sustainability and social responsibility aligns with long-term financial goals through fostering a stable customer base, fostering innovation, and attracting long-term investors. CSR can significantly impact a company’s ability to attract investment, particularly from investors interested in environmental, social, and governance (ESG) factors.
According to statistics released by the State Bank of Pakistan (SBP), in country attracted FDI inflows of $1.523 billion between July-January FY2025, as against to $976 million in the corresponding period of FY2024, depicting a substantial increase of $548 million.
During this period, total FDI inflows stood at $2.122 billion, significantly outpacing outflows of $599 million. The net positive flow indicates a strong rebound in foreign investments despite global economic unrest. The SBP mentioned a net outflow of $232 million in portfolio investments during July-January FY2025, despite the enhanced performance of the equity market. On a year-on-year basis, January 2025 saw a notable recovery in FDI, with a $194 million FDI compared to an outflow of $132.3 million reported in January 2024. Total foreign investment, which includes FDI, portfolio investment, and foreign public investment, recorded a year-on-year rise of 25.6 per cent.