Co-authors Joe Fisher & Amy Binder
More companies have become invested in the practice of corporate social responsibility. As the tides of social sentiment change among the public, companies are exhibiting greater sensitivity to justice, diversity, and inclusivity than ever.
Evidence now suggests that companies making social investments also outperform their peers in terms of stock price, sales growth, and profitability. Corporate social responsibility isn’t just an issue of doing the right thing — it’s also good for business.
Frank Bruni of the New York Times’ recently wrote a column that began, “In the dire prophecies of science-fiction writers and the fevered warning of left-wing activists, big corporations will soon rule the earth — or already do.”
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He added, “Fine with me. They’ve been great on the issue of the Confederate flag,” referring to the public position that Walmart, Sears, Boeing, and BMW had taken in supporting the divisive flag’s removal from the South Carolina statehouse.
Bruni went on to commend Eli Lilly, American Airlines, Intel and other companies that were “crucial to the defeat or amendment of proposed ‘religious freedom’ laws in Indiana which licensed anti-gay discrimination.”
He singled out Apple, AT&T, Caterpillar, Facebook, Goldman Sachs, Google, McDonald’s, Marriott and Microsoft, who, along with 238 other companies, signed a Chamber of Commerce letter urging Congress to modernize the nation’s immigration system.
In raising their voices, these companies were demonstrating greater sensitivity to diversity, social justice, and the changing tides of public sentiment than the lawmakers elected by the public, according to Bruni.
That’s because each corporation represents a broader constituency than elected officials who are paralyzed by partisan bickering and held hostage by a few big donors, a few loud interest groups or some unyielding ideology.
Bruni drew attention to a Newsweek story that had made a similar point, when it said that inclusiveness “may not be good politics in this day of polarization and micro-targeting, but it seems to be good business.”
He closed by saying, “It forces you to admit that corporations aren’t always the bad guys. Sometimes the bottom line matches the common good, and they’re the agents of what’s practical, wise and even right.”
CSR Popularity Grows
Those of us in public relations know just how controversial this kind of corporate involvement and corporate social responsibility has always been.
In fact, the aforementioned debates surrounding CSR are as old as capitalism. In 1776, Adam Smith warned that free markets don’t always perform perfectly, and market participants have to act honestly and justly toward each other.
Two centuries later, conservative economist, Milton Friedman, remained unconvinced, declaring “the sole purpose of a business is to make money for its shareholders.”
Obviously, the increase in CSR activity over the past twenty years hasn’t occurred without controversy. That controversy makes Bruni’s comments even more significant for public relations professionals, but it would be premature to suggest that a final resolution of the matter is close at hand.
Yet, at the same time, there has been a series of recent developments with serious financial and investment implications that indicate we are entering a new phase in defining the proper social role for the corporation.
Those developments begin with an underlying reality that becomes increasingly evident every day: the public wants business to act responsibly. Whether they’re speaking as customers, employees, investors or citizens, they support and reward CSR activities.
Product developers and marketers were the first to recognize this phenomenon years ago. Research has consistently indicated that consumers’ CSR perceptions are tightly correlated with fundamental performance indicators such as purchase intent, willingness to recommend, positive word-of-mouth, and trust.
Now, a study from Nielsen reports that 55% of consumers across 60 countries are willing to pay more for products and services from companies committed to having a positive social and environmental impact.
No doubt, digital technology is the primary driver of the public’s awareness and engagement. We’re living in the global village’ that Marshall McLuhan predicted forty years ago in Understanding Media, a world where anyone can access, create and share information — and they do.
Corporate leaders have come to understand this. Disney CEO Bob Iger spoke on behalf of many of his fellow executives when he said, “Being a respected global citizen isn’t just good for our employees and the communities in which we operate, it is critical to the growth and success of our business.”
The media, traditional and online, understand this as well. Their audiences are interested in corporate social behavior, whether good or bad. They’re interested in reporting it as news and in developing it into feature content.
The annual rankings of corporations’ CSR performance are a prime example. Fortune’s “World’s Most Admired Companies” ranking has been so successful that they’ve recently added “The 100 Best Companies To Work For” and “The 100 Best Workplaces for Millennials.”
Companies See CSR Benefits
It’s not surprising that a large number of corporations are now issuing their own CSR performance reports. Companies want to communicate their own CSR story.
Twenty years ago, fewer than 30 companies worldwide, released this kind of data. By year’s end, that number will have climbed to more than 7,000, including 80% of the world’s largest 250 companies.
In a natural evolution, companies are also publishing formal corporate sustainability strategies. These detail the company’s policies, actions and investments on specific environmental, social and governance factors.
The potential significance of these factors in evaluating corporate social behavior cannot be overestimated.
To underscore this from a financial and investment perspective, the Harvard Business Review in April reported the results of a groundbreaking study, “Corporate Sustainability: First Evidence on Materiality” conducted by Mozaffar Khan, George Serafeim and Aaron Yoon (March 9, 2015).
This analysis provides tangible evidence that companies making investments on ESG factors outperform their peers in terms of risk-adjusted stock price performance, sales growth, and profitability margin growth. And it offers valuable guidance to companies and investors in selecting strategically material ESG initiatives to maximize performance results.
The researchers noted that their study was made possible by the data infrastructure recently developed by the Sustainability Accounting Standards Board. SASB is a new policy organization — and, for full disclosure, an RF|Binder client — that has been formed to develop and disseminate sustainability accounting standards that identify material ESG issues with financial implications and help public corporations disclose material, decision-useful information to investors.
CSR of Future
With Michael Bloomberg as chairman and former SEC chairperson, Mary Shapiro, as vice chair, SASB is making its case aggressively. As they enter their next phase in 2016, SASB will put the processes in place that will enable corporations to begin to integrate this into their regular reporting. SASB’s sustainability accounting standards will greatly improve the process of review and selection regarding appropriate ESG factors from both a company and an investor perspective.
Certainly SASB’s timing couldn’t be better. CalPERS, the California-based organization that administers health and retirement benefits on behalf of more than 3,000 public school, local agency and state employers, announced in May that it will now require its investment managers to integrate ESG factors into their investment decision-making process.
Recent data from the Forum for Sustainable and Responsible Investment identifies 308 money managers and 880 community-investing institutions that currently incorporate ESG issues into their investment decision-making.
That represents $4.8Tin assets under management, which is 3.4 times the corresponding figure for 2012, when money managers and community investing institutions held $1.4T in ESG assets under management.
Those numbers alone signal a new phase in the evolution of corporate social responsibility. Along with these other recent developments, it is clear that a confluence of technology and public attitudes is expanding the criteria against which corporate behavior will be measured in the future.
The implications are unmistakable. CSR is becoming strategically material for public relations professionals.
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Joseph Fisher is vice chairman and Amy Binder is CEO of RF|Binder.
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