CSR and Financial Performance – The Connection is Clear
Posted on August 17, 2015 | in ESG
A company’s corporate social responsibility (or CSR) can have a profound impact on an organization’s bottom line; a fact that more and more studies are supporting.
This is important information for the thousands of EHS professionals who are often pressured to show ROI, or who worry that their work is seen as something that an organization must do, but which is disconnected from broader conversations around profitability and performance. Ongoing research indicates that this worry is not only misdirected, but wrong. What data is proving out is that as a company grows its CSR, it concurrently grows areas that contribute directly to profitability.
CSR initiatives are generally based on the principle that the success of a company and its contribution to social well-being are interconnected. By improving practices in safety, sustainability, and the communities in which they do business, these companies enhance their own performance. A 2012 study from researchers at the University of Manitoba used credit ratings to evaluate the impact of CSR on corporate performance, and found that better CSR was associated with better credit ratings and higher yield spreads. A single point increase in a company’s CSR score resulted in a decrease of 3.20 basis points in risk premium for bond financing. This data was in line with the findings of previous credit rating-based CSR studies.
There is also good evidence that CSR programs can help with employee retention and satisfaction. Writing in Forbes Magazine, CSR expert Devin Thorpe recently reported that over 85% of companies surveyed say that investing in CSR results in happier employees, and over 75% of companies report that they end up with better, higher-quality employees because of CSR investments.
There’s also evidence that CSR accomplishments correlate to positive marketplace performance for shareholders. For example, a 2013 study showed that businesses investing in safe and sustainable practices have outperformed the general stock market by a stunning 25% since 2005.
Directors of EHS and Sustainability initiatives can and should “own” this type of information. By strengthening compliance and environmental performance, those in the EHS space are creating efficiencies that can directly boost profits.
And remember—while CSR initiatives can often feel like something that only “big companies” do, businesses of all sizes and types have EHS responsibilities, and all have the opportunity to make a positive impact through their CSR. Many industry observers also believe that most companies underutilize their available CSR performance possibilities, which can include elements like management of worker safety, control of environmental impact, and positive impact on the local community. By implementing a few modest improvements in this direction, business of all sizes could realize powerful improvements that would translate into a substantially better reputation and all the valuable things that come with it.
As new information continues to emerge — from business schools, research agencies, and corporations themselves — about the correlation between CSR and performance, EHS professionals can and should be increasingly bold about positioning investments in safety and sustainability as investments in the future. Safety and sustainability performance are indicators of business performance and of innovation. And the word is spreading!