Corporate Social Responsibility is good for profitability

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August 21, 2014

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Corporate Social Responsibility

The evidence showing that Corporate Social Responsibility (CSR) is good for profitability continues to grow month after month.

And the case for businesses to roll out CSR activity as well as ensuring that sustainability strategies are part of company reporting is compelling.

This week there are two new additions to the body of facts and information on the business case for sustainability – a TED talk video by investment analyst Chris McKnett and a global survey from Grant Thornton, the professional services company.

Both reports underline that companies need to step up their CSR planning and activity if they wish to remain competitive over the next decade. Sustainability is no longer a fluffy “feelgood” factor but a central element of successful business development.

In a compelling and entertaining TED talk, Chris McKnett reveals how many companies are paying more attention to environmental, social and governance (ESG) strategies and how this benefits both current profits and future outlook.

Chris, who heads up ESG investments for State Street Global Advisors, says: “So if sustainability matters financially today, and all signs indicate more tomorrow, is the private sector paying attention? Well, the really cool thing is that most CEOs are. They started to see sustainability not just as important but crucial to business success.

“About 80% of global CEOs see sustainability as the root to growth in innovation and leading to competitive advantage in their industries. But 93% see ESG as the future, or as important to the future of their business. So the views of CEOs are clear. There’s tremendous opportunity in sustainability.”

More positive CSR news comes from the Grant Thornton data published this week.A survey of 2,500 businesses in 34 economies finds that businesses are being driven towards more socially and environmentally sustainable practices not simply by brand building or altruism, but because it makes good financial sense.

The research, from Grant Thornton’s International Business Report  (IBR) also shows that an increasing number of companies report on sustainability while a majority now view integrated reporting as best practice.

Cost management

Corporate social responsibility: Beyond financials finds that the main impetus for more sustainable business practices is cost management, cited by two thirds of respondents (67%), up from 56% three years ago. Cost management is a particularly dominant driver in Latin America (77%, up from 68% in 2011) and North America (76%, up from 45%).

The second biggest driver is client/consumer demand (64%), followed by because it is the ‘right thing to do’ (62%).

In the UK, businesses say that client/consumer demand (62%) is the main CSR driver, followed by recruitment/staff retention (49%) and cost management (48%).

Jane Stevensen, Director of Sustainability at Grant Thornton UK LLP, advises: “The research shows that across the world, CSR and broader business objectives are becoming more aligned. The findings suggest that the benefits of adopting more environmentally and socially sustainable business practices are becoming ever more tangible, for example through tax relief on charitable activity or lower energy bills due to efficiency measures introduced.

“Despite the overall recognition of cost benefits, it’s interesting to see that British businesses seem far more reactive in their approach to CSR and are largely responding to stakeholders’ needs.

“Beyond the immediate cost benefits, strong social and environmental credentials can create customer loyalty and enhance reputations, which has become increasingly important with the rise of social media. We live in an increasingly digital world characterised by instant customer feedback, so businesses need to be mindful not just of what they are doing, but of how they are doing it. Companies which gain while the local population or environment loses can quickly find demand for their products or services eroding.”

According to the IBR, top CSR initiative over the past year was is donating to community causes/charities, cited by 68% of business leaders globally (80% in the UK). Two thirds (65%) said they had participated in community/charity activities (73% in the UK), while 65% also said they had improved their energy efficiency or waste management (75% in the UK).

Jane Stevensen says: “For business leaders, commercial drivers can no longer be viewed as separate from social or environmental ones. During the lean times of the global financial crisis, cutting costs became the norm – but improving energy efficiency or sourcing local products also makes financial sense when economies are growing. In an ever more crowded and competitive marketplace, we’re seeing businesses use CSR to differentiate themselves and unlock new potential for growth.”

CSR reporting

The study suggests that under a third (31%) of firms globally report on sustainability initiatives, either combined with financial reports or separately. In the UK, only 24% of businesses say they report on sustainable initiatives but a further 31% plan to begin reporting externally on sustainability matters in the next five years, compared with 26% of international businesses.

Overall, 57% globally agree that reporting on non-financial matters, such as sustainability, should be combined with financial reporting, whereas in the UK, only 46% agreed.

Stevensen concludes: “Effective reporting and more integrated thinking can play an important role in encouraging businesses to demonstrate how they are performing not just financially, but also within the wider social, environmental and economic context. Not only does it offer businesses a more robust assessment of the strength of their operating model but it also better informs the decisions of key stakeholders and investors.”

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