You sit on the board of a public corporation. Your CEO has proposed taking steps to offset the carbon impact of your company's manufacturing process. Doing so will add to the company's overall expenses. Your CEO argues, however, that this action will actually increase the stock price, maximizing shareholder wealth. Why might socially-responsible activities also be value-maximizing?

The positive and negative effects of corporate social responsibility (CSR) on profits and stock price are not definite, with a lot of debate still going on between sides that favor CSR and those against it. Lately though, the debate is being won by those favoring CSR.

Explanation:

The position against CSR is very simple, it increases costs and higher costs result in lower profits, which in turn result in lower stock price. In Europe a lot of studies have been carried out regarding the effects of CSR, and not all show unanimous results. Depending on the industry and the country, CSR can really boost sales and stock price, but on other places it simply doesn't seem to affect them.

For example, the usual corporate suspects of representing the worst type of evils, oil companies and banks, are not affected by CSR. Probably since no one expects oil companies or banks to do something good, even when they try no one believes them.

But on the hand, most normal, non diabolic corporations usually tend to benefit from CSR. Even electric companies which are the cousins of oil companies, benefit and a lot from it. Any time a electric company engages in green alternatives, its stock price skyrockets.

The same for car manufacturers, even though electric or hybrid cars represent less than 1% of total cars manufactured. The same applies to fashion industry, consumer goods, and many more.

Socially - responsible activities might be value-maximizing because there are green investors out there who want to be identified an environmentally-conscious firm.

Explanation:

Environmental footprints such as carbon impact are not taken for granted by investors as they perceive a company as being responsible and worthy of their investment if it cares about the environment and its impact of negative externalities on its host community.

In fact, some consumers even check out a product for signs of environmental consciousness on it before making purchase, such disposition also transcends to investment decisions as well.

Hence, such companies that are conscious have their shares being highly demanded, forcing share price to rise as well as the overall value of the entity.