Practicing corporate social responsibility makes companies look good and helps their leaders and employees feel like good corporate citizens, too. But does it offer tangible benefits to a company’s bottom line?
That debate that has raged for years, although the voices of skeptics are increasingly being drowned out by the solid data that keeps rolling in.
The latest evidence that the financial benefits of CSR are causal and not just correlated comes in the form of a study as hefty as a brick. “Project ROI: Defining the Competitive and Financial Advantages of Corporate Responsibility and Sustainability“ is an effort to assess the business case for CR for the benefit of senior executives, boards of directors and even Wall Street.
Project ROI was launched by Verizon and the Campbell Soup Company in an effort to support their environmental, social and governance (ESG) practices and to measure the benefits to business of ESG programs. The study was conducted by IO Sustainability and Babson College, who undertook the work under the condition that the research team would share findings based on wherever the research led.
The results provide a great deal of encouragement to company leaders wondering about whether they should look at corporate responsibility as a distraction or an investment. According to the study, with proper design and sufficient investment, a company’s “CR Assets” can support returns related to share price and market value; reputation and brand; sales and revenue; human resources; and risk and license to operate.
The study notes that the most important drivers of ROI remain high-quality products and services, effective marketing and sales practices, smart strategies and business models, and top management and operational practices. However, “strong CR practices can augment business performance to deliver additional ROI and make up for certain deficiencies in business performance to preserve, protect, and even grow financial ROI.”
The key is that the benefits of CR will only redound to those companies that are managing these efforts well. It’s not enough to dabble; companies must approach CR seriously if they are to enjoy the significant benefits.
The ROI Project quantifies exactly what these potential bottom-line benefits are across each of the categories where companies can expect returns. Here’s the summary of the potential ROI for large, publicly traded companies, by category:
CR’s potential value for market value, share price, and risk reduction:
- Increase market value by up to: 4-6 percent
- Over a 15 year period, increase shareholder value by: USD $1.28 billion
- Increase valuation for companies with strong stakeholder relationships: 40-80%
- Reduce the cost of equity by: 1%
- Reduce share price volatility: 2-10%
- Avoid market losses from crises: USD $378 million
- Reduce systematic risk by: 4%
- Reduce the cost of debt by: 40% or more
CR’s potential value for marketing, sales, and brand/reputation:
- Increase revenue by up to: 20%
- Increase price premium by up to: 20%
- Increase customer commitment in: A core segment of 1-20%; The total segment of 60%
- Establish CR brand and reputation value as: 11% of the total value of the company
- Avoid revenue losses of up to: 7% of the firm’s market value
CR’s potential value for Human Resources:
- Reduce the company’s staff turnover rate by up to: 50%
- Save per additional retained employee: 90-200% of the employee’s annual salary
- Improvements in CR performance has the same effect on retention as an increase in annual salary of: $3,700/year
- Workers willingness to accept variability in pay: 5% pay cut
- Increase productivity by up to: 13%
- Increase employee engagement up to: 7.5%
As the CEO of a company that helps engage employees in their corporate volunteer and giving programs, I was particularly interested in this last section around human resources. It’s been clear for some time now that CSR is an essential tool for recruiting, retaining and engaging top talent, including but certainly not limited to Millennial talent. I love having more hard data that once again validates what we already know.
As the study notes, “Research finds that strong CR performance increases the commitment, affinity, and engagement of employees. This in turn enhances job performance, increases productivity, reduces turnover, lowers absenteeism, and even reduces the incidence of employee corruption. In addition, employee engagement links to CR in a virtuous cycle. Together they reinforce one another and enhance financial performance, sales revenue, brand and reputation value, and innovative capability.”
Project ROI is a godsend for any company executive trying to make the case for increasing their focus and investment in CSR. The greater a company’s commitment, the greater the returns, so it’s important that companies be clear on their goals.
The study suggests that company leaders take the following steps:
• Articulate a commitment to clear environmental, social, and governance goals
• Align CR management practices with business strategy and mission
• Establish quantifiable management metrics
• Seek authentic stakeholder buy-in and engagement
The authors of the study recommend adopting the following management framework to enhance the potential value of your CSR:
1. Fit: Make CR commitments that fit your company’s core attributes and your key stakeholders’ expectations.
2. Commit: Make a genuine commitment to address CR issues.
3. Manage: Think of, develop, and manage your portfolio of CR practices as a valuable intangible asset.
4. Connect: Build key stakeholder awareness, trust, engagement, and affinity.
The jury is in (and has been for awhile): the investment in CSR pays off. Doing good really is good business, and this study offers more proof that it’s perfectly reasonable to expect great things for your business when you do great things for the world.
This article was taken from here.