There are many reasons for a company to be socially responsible. A company can feel good about its contribution to the community; it can enhance its reputation; it can attract talented employees looking for a sense of purpose; it can appeal to investors with sustainable investing strategies; it can appeal to consumers. Through corporate responsibility (CR) and environmental stewardship, companies can create new revenue streams and save on energy bills, compliance costs and risk mitigation. But let's face it: many of these advantages are hard to quantify.
So consulting firm IO Sustainability and Babson College (with the support of Verizon and Campbell Soup Company) decided to take on the ambitious task of reviewing every relevant study they could find to come up with some hard answers on quantifying the return on investment (ROI) of corporate responsibility actions.
Companies with strong sustainability or CR programs (I am using these terms interchangeably) won't be surprised by the study's findings: corporate responsibility is great for the bottom line. Maybe this is the study that will help convince laggards they need to climb on board.
After poring through more than 200 studies, the researchers found that corporate responsibility could potentially increase the market value of a company by up to 6% over a 15- year period. Market value may grow even more -- to 40-80% higher than peers' and competitors' market value -- for companies with strong relationships with stakeholders such as environmental and social NGOs.
On the cost side, the study found that CR programs offer the potential to control financial risk and the costs associated with it significantly. Socially responsible companies can reduce their credit spread by 40%, avoid market losses from crises (saving millions), double the probability of receiving investment grade ratings, reduce share price volatility 2-10%, and reduce systematic or market risk by 4%.
On the revenue side, the researchers said CR can add a price premium of as much as 20%, increasing sales revenue by just as high a rate. Companies can find that up to 60% percent of their consumers will strengthen their affinity to a brand if they perceive it as being highly responsible and sustainable. The reputational value of CR can account for 7 to 11% per cent of a firm's overall value, and CR can provide risk protection of 4 to 7% per cent of sales.
The study found several advantages on the human resources front due to retention of talent attracted to CR. Staff turnover rates are 25 to 50% lower in responsible companies, who can save around $3700 on average in wage increases to encourage an employee to stay when he or she would rather go elsewhere. In fact, in responsible companies 5% of employees say they are willing to accept a decline in compensation. These companies register a 7.5% increase in employee engagement, and they show 13% higher productivity than other companies.
Steve Rochlin, co-CEO of IO Sustainability, cautions that CR can only enhance what is already a successful business. "No company ever corporate-responsibilitied itself to success," he says. "But is there intrinsic value in corporate responsibility? Absolutely."
The study in ROI is the first step in the creation of the "Project ROI Institute," which will be an ongoing think tank measuring corporate responsibility and identifying activities with the best rate of return.
Efforts to measure CR can be useful as it is integrated more and more into business. And my hope is that one day companies will be responsible and sustainable by nature. We will still need to measure what they are doing and how well it is working--but we'll be measuring the "how" of their sustainability and not the "if."
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