Corporate Responsibility as a Business Driver
- More and more businesses are pivoting their model and operations towards ESG-oriented propositions
- The benefits of CSR commitments include:
- Improved brand image and reputation
- Reduced operating, HR and capital costs
- Mitigation of long-term risks
- However, just like any organizational transformation plan, the rollout of a new CSR strategy should be planned carefully and executed with agility
The highly publicized fall of Danone’s chief executive Emmanuel Faber in 2021 was symptomatic of the mixed feelings that investor communities harbor towards Corporate Social Responsibility.
Faber had set on a mission to turn the business into a purpose-driven company. He initially enjoyed the support of the board, but eventually suffered a backlash from shareholders, who blamed him for going overboard and over-emphasizing Corporate Social Responsibility (CSR) to the detriment of financial value creation.
Many business leaders and investors have indeed seen CSR- and ESG-related spending as cost rather than investment. However, the tide is turning. Heightened social and regulatory focus on the social and environmental impact of corporate activities, as well as new data demonstrating positive correlation between CSR and financial performance, are bringing fresh impetus to the debate.
Responsibility Pays: The Positive Return of CSR
Albeit intangible, reputation is indisputably a strong business asset — as evidenced by the vitality of the PR consulting industry. A strong ESG proposition has been proven to improve brand perception and build up a company’s goodwill.
Increased engagement with social and environmental issues can go a long way towards improving customer loyalty, boosting sales, and can even pave the way for upmarket strategies, considering that 57% of consumers would be willing to pay extra for sustainability.
It appears that the pandemic crisis has further heightened consumer focus on CSR: 70% of experts expect consumers to raise their expectations about corporate sustainability as a consequence of COVID-19.
Commitments to Environmental, Social and Governance criteria can also contribute towards slashing costs and expenses. In addition to a positive environmental impact, curbing the use of resources (raw materials, water, energy, etc) will reduce variable costs and operating expenses. All in all, an ESG strategy can affect operating profits by as much as 60% according to McKinsey.
Additionally, CSR impacts the cost structure of a business positively by helping to reduce employee turnover. New generations of employees are no longer content with traditional perks and benefits (although these are still and will always be appreciated!). They also expect a meaningful career and they place a premium on corporate values and impact. A solid CSR strategy will therefore help the business to attract talent, but also to retain existing employees, thereby saving the organization the time and resources (i.e. the costs) needed to look for new recruits and train them.
The cherry on top? Increased employee engagement also boosts work productivity.
Finally, ESG-oriented businesses typically find it easier to attract new investors and lower their borrowing costs.
What’s good for the planet and the community is ultimately good for the firm as well. This may sound obvious, but this cannot be stressed enough — especially when considering that an estimated 80% of the largest corporations worldwide are exposed to physical or market risks associated with climate change.
A focus on improving ESG scores also tends to limit the risk of product liability and social controversy while increasing the likelihood of good relationships with regulators and other stakeholders.
Importantly, CSR exemplarity drives long-term value and benefits. Studies have found that “$1 invested in 1993 in a value-weighted portfolio of “high sustainability” companies would have grown to $22.6 by the end of 2010. By contrast, $1 invested in a portfolio of low sustainability companies would have only grown to $15.4 within the same time frame.”
How to Make the Most of Your CSR Investment
The case for corporate responsibility is clear and compelling: doing good translates into doing well. That is, so long as your ESG investments are properly managed. Improving a company’s CSR profile usually entails transforming the organizational and operating model to some extent. And transformational programs are not always easy to complete successfully. In fact, it is estimated that 70% of them fail.
To make sure your CSR transformation plans succeed and produce optimal outcomes, it is advisable to set clear goals and formulate clear expectations that should be communicated to all stakeholders. This may entail veering away from traditional performance indicators such as ROI and IRR, which prove less effective when assessing value over long time horizons and across multiple dimensions.
It is also recommended that you plan your transformation initiative with great care: such strategic programs typically involve a number of stakeholders and parameters and therefore require a solid data-based roadmap.
Last but not least, the success of any transformation initiative hinges upon the organization’s ability to demonstrate flexibility and agility in order to adjust plans in response to unexpected circumstances or changes in market conditions.