Corporate social responsibility (CSR) scores are meant to measure a company’s commitment to ethical practices and social contributions. CSR scores have their critics. Among other concerns, the scores are sometimes criticized for their lack of uniformity, their reliance on subjective or qualitative measures, and their lack of verifiability. A recent Wall Street Journal column criticizes CSR scores on yet another ground, which is, according to the author, that CSR scores may serve as a way for companies to mask financial fraud.

Background Regarding CSR Scoring

CSR scores developed in the 90s and early 2000s to provide quantitative assessments of a company’s performance in areas related to social responsibility – for example, environmental sustainability, ethical labor practices, community engagement, and corporate governance. The rise of ESG investing accelerated the development of these kinds of scoring systems. (ESG and CSR represent similar approaches, though CSR arguably represents a broader, more general perspective focusing on companies’ voluntary efforts to make social or environmental improvements). CSR scoring has long had critics who question the objectivity and inconsistency of the scoring, as discussed for example, here.

The August 13, 2025 Article

In an August 13, 2025 Wall Street Journal article entitled “The ‘Corporate Social Responsibility’ Mask” (here), Noah Gould, an executive at the Acton Institute, adds yet another critique of SCR scoring – that is, that some companies may be using it as a smokescreen to mask financial misconduct.

Gould cites several recent studies to support his assertion. First, he cites an academic study from earlier this year that, according to Gould, “emphasized the gap between CSR reporting and reality, with some businesses touting their CSR scores to win favor with investors and the public.” Like “greenwashing,” Gould says, “CSR-related activities can project virtue while distracting attention from misconduct.” The report to which Gould refers, found, according to Gould, evidence of “intricate coordination between fraudulent actions and their coordination with CSR initiatives” among the 502 U.S.-listed companies the authors studied.

Gould also cites a 2021 study from the University of Hong Kong that analyzed 131 companies convicted of financial fraud. The authors studied the companies’ scores during the period in which the companies were committing fraud with the scores of similar companies in the same industry. The authors found that the fraudulent companies had CSR scores that were on average higher than companies in their industries. Gould commented on this study by saying “While high CSR scores are supposed to indicate ethical companies, the reverse seems to be true.”

After quoting Milton Friedman’s 1970 essay critiquing corporate social responsibility, Gould comments further that CSR initiatives may provide a “means by which bad actors can try to distract from their misdeeds.” There are, Gould says, processes already in place in our financial system, such as mandatory financial reporting, that are “far better at exacting real accountability than corporate social responsibility.” This may sound “like a colder vision of business,” but CSR’s record, Gould says, “shows that reality seldom is what it first seems.”

Discussion

Gould’s article is interesting in summarizing recent scholarship showing that companies that have engaged in financial fraud may have higher CSR scores than their industry peers, suggesting the possibility that the companies may have been trying to use their CSR scores a s a way to mask their financial fraud.

But while some financially fraudulent companies may have been using CSR scoring to mask the fraud, and therefore had higher SCR scores, that does not mean that the reverse is true. That is, the fact that companies may have higher SCR scores does not mean they are engaging in financial fraud.

There is nothing in the literature that Gould cites to suggest that all companies with higher CSR scores are engaged in financial fraud, but that does seem to be what Gould is trying to suggest when he says that “while CSR scores are supposed to indicate ethical companies, the reverse may be true.”

However, while bad companies may have had high CSR scores, that does not mean that any company with a high CSR score is bad, nor is the fact that bad companies had high CSR scores, in and of itself, proof that CSR scores themselves are bad, as well.

That said, I am not going to try to defend CSR scores either. It may be that in any event the relevance of CSR scores has significantly diminished. A backlash against ESG and CSR began building several years ago, a development that has gained significant momentum under the current Trump administration. Interest in ESG investing has dropped significantly in recent months. Corporate social responsibility generally does not have the profile that it once did, even just a few short year ago.

But while CSR may not be as a prominent an issue as it once was, and while there undoubtedly are significant reasons to critique CSR scoring, I still think it important to understand that while some fraudulent companies may have had high CSR scores, that does not mean that a company with a high CSR score is a financial fraud.