Satisfying stakeholders' changing expectations of business:
Stakeholders and the general public have come to expect more of business – but trust them less to deliver it. Increasingly, they are looking to the private sector to help with pressing social and economic issues. At the same time almost half the worldwide public have little or no trust in large companies, according to the GlobeScan 2003 CSR Monitor, and in the UK three in four feel industry does not pay enough attention to its responsibilities, according to MORI. Activist groups are also becoming more sophisticated in targeting corporations they perceive as not being socially responsible, through actions such as coordinated media campaigns, lobbying and political pressure, public demonstrations, shareholder resolutions, and at the other extreme 'denial of service' attacks on company websites. These factors emphasise the issue of accountability to stakeholders when doing business.
In 2000, a survey by Burson-Marsteller of media, institutional investors and other key stakeholders indicated that 42% of respondents believed a company’s CSR track record would increasingly affect share prices. 89% said that their decisions as legislators, regulators, journalists and NGOs would in future be influenced by CSR issues.
Customers, investors, regulators, community groups, environmental activists, trading partners and others are asking companies for more and more detailed information about their social performance. In response, leadership companies are responding with a variety of reports and/or social audits that describe and disclose their social performance on one or several fronts. As part of this move toward greater disclosure, many companies are putting increasingly detailed information about their social and environmental performance - even when it may be negative - onto their publicly accessible websites. In 2002 a PricewaterhouseCoopers survey of 1,200 business leaders revealed that a quarter of them issue a public report dedicated to corporate social responsibility issues. An additional 14 percent of respondents say that they plan to do so in the future. Visit our External and internal communications and Reporting pages for more information about and examples of good CSR reporting.
In 2002 Business in the Community launched the Corporate Responsibility Index. This is a new business tool for companies to assess and compare how they integrate responsible business practices through their organisation compared to their peers. The initiative builds on the measurement and reporting recommendations of the Winning with Integrity report (BITC, 2000) and offers structured on-line reporting.
Satisfying growing investor pressure:
The growth of socially responsible investing has accelerated in recent years, with investor groups increasingly pressuring companies on social issues. According to the US Social Investment Forum, $2.14 trillion was invested in socially screened portfolios under professional management in 2003. This represents a growth of 7% since 2001 – at a time when the universe of all professionally managed portfolios actually decreased by 4%.
In Europe, a survey in 2001 by CSR Europe and the European Stock Exchange Euronext found that one third of 302 financial analysts and fund managers surveyed already offer socially responsible investment (SRI) products. CSR Europe estimates that the European SRI retail market is now worth 12.2 billion euros and that SRI institutions represent 336 billion euros.
Both institutional investors and private shareholders are being swayed by the corporate responsibility trend. Again according to CSR Europe, 52% of UK fund managers and analysts think that evaluating social and environmental performance will soon be part of mainstream investment decisions. Four in five believe social and environmental risk management will have a positive impact on market value in the long-term. And one in five individual shareholders has bought or sold shares specifically because of companies’ social and environmental performance (GlobeScan 2003 Global CSR Monitor).
Many of these investors are using the shareholder resolution process to pressure companies to change policies and increase disclosure on a range of CSR issues, including environmental responsibility, workplace policies, community involvement, human rights practices, ethical decision-making and corporate governance. Since July 2000, UK pension funds have been required to declare whether and how they integrate social and environmental factors into their investment decisions. According to the Journal European Affairs, “this minor change to pension fund rules . . . has pressed pension funds to engage corporations in a dialogue on social and environmental issues” and encouraged greater use of CSR reporting.
Activist groups are also buying shares in targeted companies to give them access to annual meetings and the shareholder resolution process. According to a FT/PricewaterhouseCoopers survey in 1999, pressure from stakeholders ranked the second most important issue facing business by CEOs. It is also clear that companies addressing ethical, social, and environmental responsibilities have rapidly growing access to capital that might not otherwise have been available.
In 2001 the Financial Times introduced FTSE4Good . The FTSE4Good Index Series has been designed to measure the performance of companies that meet globally recognised corporate responsibility standards, and to facilitate investment in those companies. Transparent management and criteria alongside the FTSE brand make FTSE4Good the index of choice for the creation of Socially Responsible Investment products.
Increased sales and customer loyalty:
The largest single study carried out on attitudes to CSR to date, ‘The Millennium Poll’ conducted by Environics International (now GlobeScan) in 1999 (in cooperation with The Prince of Wales Business Leaders Forum and The Conference Board), surveyed 25,000 citizens in 23 countries regarding corporate social responsibility. It revealed that:
- 90% of people surveyed want companies to focus on more than profitability
- 60% of respondents said that they form an impression of a company based on its social responsibility (defined as regard for people, communities, and the environment)
- 40% responded negatively to, or said they talked negatively about, companies that they perceived as not being socially responsible.
- 17% of respondents reported that they had actually avoided the products of companies they perceived as not being socially responsible.
Numerous studies correlate consumer purchasing preferences with ethical and socially responsible business conduct. A 2003 Social Market Foundation study found that four-fifths of consumers prefer to buy from socially and environmentally responsible companies. And the trend is upward. MORI reports that the proportion who think it’s very important that companies show a high degree of social responsibility is up from 24% in 1997 to 44% in 2002.
There is a growing number of organisations that help consumers and businesses with their purchasing decisions by rating companies and products or publishing lists of products to seek out or avoid. Social lists are based on social criteria, such as a company’s environmental performance, labour practices or community-involvement record.
As stakeholders take a growing interest in companies’ corporate social responsibility, many companies are finding that they are responsible not only for their own CSR performance, but for that of the company’s suppliers as well as its customers and even its customers’ customers. The result is that some companies are imposing codes of conduct on both their suppliers and customers to ensure that other companies’ policies or practices do not reflect unfavourably on them. This has a cascading effect along the entire supply chain, encouraging suppliers to adopt socially responsible business practices.
Finally, the growing interest in CSR comes from business-to-business customers as well as consumers. There is a significant move by many companies, governments, universities and other institutions to align their purchasing decisions with social criteria, particularly those related to companies’ environmental and human rights performance.
Increased ability to attract and retain employees:
Springpoint Research found in 2002 that nine in ten managers believe employees are more influenced by CSR than any other audience.
Companies perceived to have strong CSR commitments often find it easier to recruit employees, particularly in tight labour markets. Retention levels may be higher, too, resulting in a reduction in turnover and associated recruitment and training costs. Tight labour markets - as well as the trend toward multiple jobs for shorter periods of time - are challenging companies to develop ways to generate a return on the considerable resources invested in recruiting, hiring, and training talent and many are including information on CSR as part of their recruitment literature.
A 1997 study of 2,100 MBA students conducted by Net Impact in the US found that slightly more than half said they would accept a lower salary to work for a socially responsible company. Studies have also shown that companies appearing on one of the many published "best places to work" lists have higher profit margins, rates of growth, and job-creation.
The World Resources Institute (WRI) and the Initiative for Social Innovation through Business (ISIB) reported in 1999 that USA graduates, when evaluating salaries, job responsibilities, and opportunities for advancement are also looking for the 'right' corporate culture, one that incorporates challenges, options, and values.
In a study for The Work Foundation in 2000, 75% of UK professionals take social and ethical considerations into account when selecting a job. 82% would not work for an organisation whose values they did not believe in.
In a 2002 UK study by Flag, 20% of university students would not choose an employer they saw as unethical, and 12% would not choose one that was discriminatory. Unsatisfactory work-life balance was also high at 26%.
However companies still have a long way to go to convince employees that their talk and walk match up. According to a Business in the Community survey, 88% of employees believe it is important that the organisation they work for is committed to living its values – but only 45% believe their current employer actually does so.
Improved financial performance
Business and investment communities have long debated whether there is a real connection between socially responsible business practices and positive financial performance, and there is now a wealth of evidence to suggest that there is, even in difficult market conditions. The Co-operative Bank maintains that its social and environmental record accounts for 20% of company profits.
A 1999 study, cited in Business and Society Review, showed that 300 large corporations found that companies which made a public commitment to rely on their ethics codes outperformed companies that did not do so by two to three times, as measured by market value added.
Evidence from the US includes:
- A Harvard University study found that "stakeholder-balanced" companies showed four times the growth rate and eight times the employment growth when compared to companies that are shareholder-only focused.
- A University of Southwestern Louisiana study entitled "The Effect of Published Reports of Unethical Conduct on Stock Prices" showed that publicity about unethical corporate behaviour lowers stock prices for a minimum of six months.
- Between September 2002 and September 2003, the Dow Jones Sustainability Index rose 23% against 21% for the world index
Ninety five research studies on the link between corporate social and financial performance are summarised in the report, People and Profits, published in 2001, funded by the Aspen Institute and the University of Michigan, USA. For more information go to www.aspeninstitute.org
Reduced operating costs
Business in the Community states in its 2002 FastForward report that 78% of senior European business people believe that integrating responsible practice makes companies more competitive, and 76% say that CSR can promote innovation and creativity.
Some CSR initiatives, particularly environmentally-oriented and workplace initiatives, can reduce costs dramatically by cutting waste and inefficiencies or improving productivity. For example, many initiatives aimed at reducing emissions of gases that contribute to global climate change also increase energy efficiency, thus reducing utility bills. Many recycling initiatives also cut waste-disposal costs and generate income by selling recycled materials. In the human resources arena, work-life programmes that result in reduced absenteeism and increased retention of employees often save companies money through increased productivity and by a reduction in hiring and training costs.
The Overseas Development Institute has developed a tool and methodology to track the impact of these sustainable development activities (such as environmental management systems, staff skills in managing health, safety and environmental issues, stakeholder relations) on the balance sheet. Visit www.odi.org.uk for more details.
Reduced regulatory oversight
Companies that demonstrate that they are engaging in practices that satisfy and go beyond regulatory compliance requirements may be subject to less scrutiny by both national and local government. The advantages of “beating regulators to the punch”, as Chris Laszlo puts it in his book The Sustainable Company, include competitive advantage, reduced risk, increased loyalty and marketing advantage as well as a freer regulatory reign.
In the U.S., for example, federal and state agencies overseeing environmental and workplace regulations have formal programmes that recognise and reward companies that have taken proactive measures to reduce adverse environmental, health and safety impacts. In many cases, such companies are subject to fewer inspections and paperwork, and may be given preference or 'fast-track' treatment when applying for operating permits, zoning variances or other forms of governmental permission. The U.S. Federal Sentencing Guidelines allow penalties and fines against corporations to be reduced or even eliminated if a company can show it has taken 'good corporate citizenship' actions and has an effective ethics programme in place.
Doing good!
When focusing on the business case for CSR, philanthropy can often be overlooked. Although there are differing beliefs as to the extent to which business should engage in social issues, there is a firm and ever growing body of opinion within the ‘CSR community’ that business has some responsibility towards the communities in which they operate and particularly towards disadvantaged communities.
Sir Geoffrey Chandler, founder-chair of the Amnesty International Business Group and a former senior executive with Shell argues in Ethical Performance magazine issue April 2002 that “I don’t believe ethical behaviour should depend on its paying. To suggest – as the business case essentially does – that doing right needs to be justified by its economic reward is amoral… doing right because it is right, not because it pays, needs to be the foundation of business”. For more information on socially responsible business practice go to: www.ethicalperformance.com
