The Capital Budgeting of Corporate Social Responsibility

Abstract

This paper focuses on the evaluation of Corporate Social Responsibility (CSR) investment projects from the perspective of the triple bottom line. One of the most relevant roles of CSR is the mitigation of the negative externalities generated by corporate investments, which often requires undertaking specific investment projects that fall in the scope of CSR. The main goal of these CSR projects is to improve corporate sustainability instead of maximising financial value creation. Thus, they must be evaluated for their impact on the natural, social, and financial capitals, answering these three questions: What is its efficacy for the mitigation of the externalities under consideration? What is its economic efficiency for stakeholders? What is its financial sustainability? The proposed evaluation method interlinks monetary with physical units by generating dimensionless indicators. The paper also presents a metric that unites in a single indicator the effects on the natural, social, and financial capitals. Reliable capital budgeting decisions must fit with corporate strategic planning. Since this principle also holds for CSR, the paper includes a section on the strategic planning of CSR. A numerical illustration and a case study, developed with the aid of text mining techniques, show the applicability of the findings of this paper.