RF Binder 22 Jun 2015 // 1:36PM GMT
The concept of Corporate Social Responsibility (CSR) is not something new – it’s almost as old as capitalism itself. What is new is that it is increasingly becoming a crucial part of business practices. Writings on the topic date back as far as Adam Smith’s 1776 ‘Wealth of Nations,’ in which he mused that the free market didn’t always perform perfectly. Smith advised that marketplace participants must act honestly and justly toward each other if the ideals of the free market are to be achieved. Following suit, the philanthropic deeds of successful 19th century industrialists like Andrew Carnegie and John D. Rockefeller still impact people to this day.
Historically, however, not everyone has seen it this way. In 1970, the noted economist Milton Friedman famously declared: “…the sole purpose of a business is to make money for its shareholders.” He went on to say that any business executives who pursued a goal other than making money were “unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.”
But today, CEOs have publically stated that companies should contribute to the good of society. In 2010, when Disney released one of its CSR reports, the company’s CEO,
Bob Iger 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.” Other leaders such as Satya Nadella, CEO, of Microsoft and Larry Page, CEO and Co-Founder of Google have also said that CSR is a crucial part of any large company’s long-term strategy.
So who’s right? Is CSR a marketplace mandate, a rising tide that floats all boats? Or is it that companies’ sole responsibility is to look out for their own bottom lines? The latest evidence indicates that both assertions are correct; that CSR can be a boon for a corporation’s growth and prosperity.
A 2014 study by the Reputation Institute found that consumers’ perceptions of a company’s CSR efforts correlated tightly with fundamental KPIs such as purchase intent, willingness to recommend, positive word-of-mouth, and trust. People want corporations to demonstrate social responsibility. Today, more than 7 in 10 millennials say they prefer to work for companies with strong commitments to the community. And more than 6 in 10 of all Americans say they are willing to pay more for products from companies that demonstrate good values.
As a direct result of this growing sentiment, the past decade has seen an increased interest in corporate social responsibility as well as impact investing. Many have begun to pay attention to its role and importance to corporations and investors not only in the United States but also around the world.
Companies and their executives are paying attention. The number of CSR reports issued by corporations has climbed every year since 1999; reaching 62% of those surveyed most recently and 80% of the world’s largest 250 companies.
Increasingly, a company’s CSR and sustainability impact not only millennials’ decisions about which companies they join and which products they buy or services they use, but also the companies in which they invest. There is a growing belief that companies should report some of this information as part of their SEC quarterly filings.
In fact, a new policy organization – a RF|Binder client – called the Sustainability Accounting Standards Board or SASB, has been formed with this goal in mind. With Michael Bloomberg as Chairman and former SEC Chairperson, Mary Shapiro, as Vice Chair, SASB is making its case aggressively. At the core of its argument is the belief that sustainability issues are material, and therefore need to be reported as part of the 10-Q filings.
Over the past two years as part of Phase 1, SASB has been working with industry groups to identify the specific items that should be considered material for 80+ different industry sectors. As they enter Phase 2, which will start in 2016, SASB will put in place the processes that will enable corporations to begin to integrate this into their regular reporting.
There is a growing group of investors who are interested in integrating environmental, social and governance (ESG) factors into investment analysis and decision making. Today, Goldman Sachs, Morgan Stanley, TIAA-CREF represent just a cross-section of investment banks and institutions that offer their customers funds that take ESG issues under consideration. This movement is based partly on the successes of long-time leaders in this area, such as Pax World, who for the past forty years have been offering funds that do just this.
It’s also worth noting that ESG factors represent more than just moral leanings – they positively affect the bottom line as well. After all, the true key to an investor’s heart is positive growth. In 2013, Nestlé reduced the amount of packaging it used and as a result, saved more than $170 million – a powerful display of both environmental and fiscal responsibility that was noticed by shareholders. Likewise, through efficiency programs, Dow Chemical has saved more than $10 billion, and their innovations are pushing the rest of the world toward adoption of renewable energy.
Every public company needs to recognize that there has been a fundamental shift in the importance of Corporate Social Responsibility and transparency around sustainability issues. Twenty years ago, there were fewer than 30 companies around the world releasing this kind of data. By year’s end, there will be more than 7,000. For those remaining holdouts, it can no longer be seen as a “nice to do.” It must be understood as a strategic imperative – one that impacts every key corporate stakeholder as well as the vast number of decisions that ultimately drive the company’s stock price and bottom line.
By Amy Binder, CEO of RF|Binder