CEOs Predict Greater Investor Interest in CSR
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Holmes Report

CEOs Predict Greater Investor Interest in CSR

More than 70 percent of CEOs surveyed by the World Economic Forum (WEF) believe that mainstream investors will have an increased interest in corporate citizenship issues in the future, according to a report by the WEF’s Global Corporate Citizenship Initiative.

Paul Holmes

More than 70 percent of CEOs surveyed by the World Economic Forum (WEF) believe that mainstream investors will have an increased interest in corporate citizenship issues in the future, according to a report by the WEF’s Global Corporate Citizenship Initiative in partnership with the International Business Leaders Forum.

The report, based on a survey of chief executive officers, chief financial officers, and investor relations officers, examines how companies are articulating both the business case for social responsibility and the “leadership” or “values” case for global corporate citizenship, highlighting some of the challenges of communicating often intangible but nevertheless quite relevant issues to owners.

“We see increased interest in the social and environmental aspects of corporate performance by pension funds, insurance companies and other shareholders. Investment analysts, trustees and portfolio managers appear to be taking these issues more seriously than they were just a few years ago,” said Richard Samans, World Economic Forum managing director, who believes “2004 might just be the year corporate citizenship comes of age in the mainstream investment community.”

Says Marilyn Carlson Nelson, chief executive 9fficer of Carlson Companies and a co-chair of the WEF’s 2004 annual meeting, “This report provides interesting and encouraging insight into how the corporate community communicates the strategic importance of their corporate social responsibility activities to the investment community, and the growing interest by investors in factoring a corporation’s CSR activities into investment decisions.

“This phenomenon has taken hold particularly in Europe and will, I believe, become of increasing importance to mainstream investors in the US and the rest of the world.”

The report found signs of change in the financial sector. In a limited but interesting number of cases, during 2003 some of the world’s major institutional investors started to flex their muscles on issues related not only to improved governance and ethics, but also broader issues of corporate citizenship. At the same time, the socially responsible investment (SRI) movement, while still representing a tiny percentage of global funds under management, continues to grow in terms of size, sophistication, geographic scope and influence.

Nevertheless, the CEOs, CFOs, and IROs interviewed agreed there are still obstacles to overcome. Those obstacles include defining corporate citizenship and social responsibility; making and measuring the business case; the quality and quantity of information; skills and competence in managing and measuring CSR; and the time horizon for measuring long-term impact on corporate performance.

The CEOs, CFOs and IROs identified four “rules” for communicating the importance of corporate citizenship to investors:

• Frame corporate purpose, principles and values with clarity: Even when speaking to investors, corporate citizenship needs to be about more than simply “making a business case” that links it directly to bottom line benefits. It should also be a statement about what the company stands for and would stand by, even if this sometimes incurs costs or results in a lost business opportunity.
• Emphasize the social contribution of core business: At the same time, business leaders need to be less defensive about their core role in society. They need to be able to demonstrate the societal contribution made by their economic multipliers such as employment and income generation, technology transfer, training, supply chain development, innovation and wealth creation.
• Present a credible and measurable business case for corporate citizenship: Each board of directors and executive team needs to be able to define, explain and ultimately measure the ethical, social and environmental risks and opportunities faced by its company and industry sector including both intangibles and their impact on reputation as well as the measurable.
• Ensure consistency and coherence of message: A major cause of distrust, among investors as well as other stakeholders, is inconsistent messages and incoherent policies from business. Corporate leaders need to apply a similar rigour and analysis to their social and environmental reports as they do to their annual report. They need to ensure that their social and environmental commitments extend to all aspects of the company, from the boardroom to the mailroom, from public policy positions to pension fund options, and from headquarter functions to far-flung operations.

“Focusing on the rapidly growing interest of investors in corporate citizenship as a feature of sound risk management and a benchmark to quality and customer acceptance, this latest report from World Economic Forum and IBLF collaboration demonstrates even further that CSR has migrated from the philanthropy arena to mainstream and strategic corporate practice for the most successful companies in the financial marketplace,” says Robert Davies, CEO of the International Business Leaders Forum.

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