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Stock market says: CSR = $$

posted by Tara Knight

I feel one of the most pervasive characterizations of CSR is that companies experience a financial penalty as result of subscribing to or integrating CSR practices and policies into their business. Of course, the recent Wall Street Journal  “The Case Against CSR” op-ed is one example of the disconnect that many people have of the value of CSR to a profitable business (Boston College’s The Voice of Corporate Citizenship provides an excellent overview of some of the commentary.)

Making a business case for CSR within a company whose corporate culture believes that integrating CSR comes with a significant cost to the bottom line is a huge challenge.   Recently I have been circulating a couple studies with my colleagues that have been really helpful in reframing this “CSR costs money” debate.

An August 2010 working paper from Harvard Business School, The Impact of Corporate Social Responsibility on Investment Recommendations delves into how sell-side analysts perceive CSR information, and how this information affects their recommendations. The researchers reviewed a large sample of US firms over 16 years, examining the ways corporate CSR activity is communicated to investors through analysts, and how it this affects public equity markets. Analysts’ recommendations can substantially affect stock prices and trade volume. The researchers found that firms with strong CSR strategies are perceived to be value-creating, especially over time, and this is reflected in analyst’s positive recommendations for these firms.

Another collaborative study, Does Corporate Social Responsibility Affect the Cost of Capital? from Principles for Responsible Investment, used a sample of 12,915 U.S. firms. This study found firms with a better CSR score had a lower cost of equity capital – even after controlling for firm-specific issues or type of industry. The study found that CSR investment particularly in improving responsible employee relations, environmental policies, and product strategies substantially contributed to reducing a firms’ cost of equity.

It’s clear that investors are looking for, and paying attention to CSR information. Investors with Bloomberg’s Professional market data service for example are able to access carbon disclosure information supplied to the Carbon Disclosure Project (CDP) by the world’s largest firms.  Analysts and investors are certainly accessing information about CSR policies and practices, and considering this in their investment decisions. CSR may need investment, but whether environmental, social or governance related – smart companies are leveraging strong CSR  practice as a positive factor in improving their market valuation.

@TaraKnightHK

Do plantations cause violence and death?

posted by Tara Knight

It’s a powerful question. Certainly, the last type of question I expected to see leading me into a corporate global sustainability microsite. Amazingly, it wasn’t my first surprise during my visit to the Stora Enso Global Responsibility site.

Stora Enso’s CSR microsite is ambitious. An integrated paper, packaging and wood products company based in Helsinki, Finland, Stora Enso is one of the world’s largest pulp and paper manufacturers, with operations in Europe, Latin America and Asia. Stora Enso and Hill & Knowlton’s Helsinki office built this global sustainability site to communicate Stora Enso’s commitment to sustainability. I was introduced to the site by a colleague, Jari Lähdevuori, who is part of the H&K project team that developed the microsite.

If you haven’t had a chance to take a tour, allow me to offer you a brief overview of the site. In addition to questions like “Do plantations cause violence and death?,” the site also asks visitors “How much does the forest industry accelerate climate change?” and “Does recycling paper really do any good?” Each of these questions are answered by different employees of the Stora Enso company and its stakeholder groups (including customers, forest owners and activists).

I was seriously impressed when I toured the site and found a one-on-one interview between Sini Harkki,  Greenpeace’s Nordic forest campaigner and Stora Enso CEO Jouko Karvinen where they speak quite frankly about the challenges and efforts of Stora Enso’s forestry policies. The site also includes experiential elements such as “How to build a plantation” , a module on “Lessons Learned”, and a “Test Yourself” knowledge section narrated by Carrot Mob Finland.

I asked my colleague on the project team, Jari Lähdevuori, to tell me a bit more about how this project came about:

Tara: What was the reason for the site?

Jari says: Stora Enso felt the communications about their commitment to sustainability were lost in the wash of messages from mainstream media and Non-Governmental Organizations, which seemed to have much greater reach and impact. Stora Enso did not feel their own sustainability messages were reaching the general public on a global scale.

Stora Enso wanted to communicate their sustainability policies and practices directly to the public, and bring more attention to these topics. To do that effectively, our team felt we needed compelling and entertaining content – hence, the global responsibility site.”

Tara: It’s no surprise that the site has been successful. What has the feedback been?

Jari says: “The internal feedback from Stora Enso has been very good – the site is seen as a very fresh way of communicating sustainability in a credible manner. People who have seen the site are very impressed. In fact, Stora Enso’s Head of Communications Lauri Peltola was asked if it can be used as a CSR case study at the G20 summit. It has been an exceptionally powerful way of communicating – and demonstrating – how they do business.”

Stora Enso’s Global Responsibility microsite is clearly a great example of companies really ‘walking the talk” and using the power of new media technologies to approach CSR communications with transparency and credibility by making corporate CSR practices accessible for the average person.

Trends in CSR Reporting

posted by Tara Knight

I had the opportunity recently to do a bit of digging into best practices and trends for corporate responsibility reporting – and it was a fascinating journey. CSR (or ESG – Environmental, Social and Governance) concerns and reporting are clearly moving to the forefront of corporate agendas.

There are a few more obvious trends – corporate responsibility reporting formats are clearly headed away from large volume hard print copies and towards digital solutions such as websites and online formats as reports get more detailed. Finding easy-to-manage ways to organize large volumes of information is especially true for organizations using integrated reporting frameworks to incorporate financial and non-financial indicators into a single report. (A couple of excellent resources in this area are: Corporate Register’s CR Reporting Awards  and CSR Trends 3)

In the wake of a number of corporate actions which have publically (and dramatically) not met their CSR reputations, there is a lively debate about evaluating the breadth and credibility of corporate CSR reporting. With a more skeptical audience, there is a significant appetite for more transparency, independent verification of CSR reporting, and engaging stakeholder participation to validate key aspects of corporate CSR reports.

The Chartered Accountants of Canada recently released a report, Environmental, Social and Governance (ESG) Issues in Institutional Investor Decision Making, which provides another window into why these trends have become more prevalent. As investors are increasingly concerned with the environmental management aspects of CSR as a risk mitigation strategy, especially long-term investments, CSR (or ESG) reporting is also becoming critical data in making investment decisions. In fact, their report identifies that reporting on environmental, social and governance elements of the business are now being seen by some investors as a proxy for evaluating the quality of management of a company. Jennifer Hicks wrote about this growing interest in Triple Pundit.

Of course, this trend is frustrated by the lack of truly comparable metrics to evaluate CSR or ESG reporting between companies. Although the Global Reporting Initiative seems to be emerging as a favored standard, Corporate Register’s 2010 CR Reporting Awards report indicates the second most popular option is a completely customized reporting framework.   

For companies looking to initiate or improve their CSR (and ESG) reporting, making the choice between a global standard or custom framework will be difficult. A global reporting standard might enable their investors and stakeholders to perform better comparable analysis on their CSR performance relative to the market, where a custom reporting system could be a better fit to the company’s needs. In the meantime, companies should be conscious that reporting their CSR activity is critical not just for their corporate reputation – but potentially their financial success as well.

CSR & The Stomach for Risk

posted by Tara Knight

I was recently at a business networking event focused on arts and culture here in Vancouver. One of the speakers was the director of a theater company, and she told us a story of the perfect sponsorship – and her story struck me. I recently read a post from the Business Civic Leadership Center (BCLC) blog about how corporate citizenship was viewed by the public/business community (Katie Loovis: The Top Ten “Misperceptions” About CSR) and from my perspective, Katie was right on the money about the biggest misperceptions about CSR:

10. Can’t be trusted

9. A legal risk management tool

8. The ONLY job in the company where someone can make a difference

7. How the company supports the CEO’s favorite charity

6. A fad

5. Soft

4. One word – Greenwashing

3. Employee volunteerism, right?

2. PR

1. Philanthropy

The story of “the perfect donor” the theater company told at the event was interesting to me, because the donation of a local mining company would often be simply considered item #1 “philanthropy.” In this case, each year, a local mining company sponsors the development and production of new piece of theater.

For the theater company, the relationship was incredible – it was a stable source of funding that enabled their artists to freely create and explore, and its consistency supported their ability to plan and the financial freedom to develop (potentially) great theater.

Although my company represents a number of mining firms (though not this one), this partnership really caught my attention. What made this relationship interesting to me was why this mining company committed to donate every year – it was not primarily for philanthropy. They value the sponsorship for what it communicates about their core values as a company – the stomach to tackle risk.

The assumption and management of risk is an integral and unavoidable component of the mining business. In this case, it is a core value of their company. Each year they expose their business to significant risk exploring new resources, in business ventures, and pricing in the markets. It is fundamental to the culture of the organization that their employees and clients understand that some risks pay off, and some do not, but retaining the stomach to tackle risks is what continues to drive the company forward. It was the primary value they communicated to their team and their clients and suppliers every year by supporting bold and independent theater.

The theater company spoke quite passionately about how each year the company did not place any restrictions on what the theater piece would be, and hosted an opening night gala for their employees, VIP’s and clients. The theater company openly spoke about how some years the production was awful – and some years it was brilliant. For the artists, the donor’s willingness to support the creation of new theater, great or not great, enabled far greater freedom to explore and challenge new conceptions of their art.

As I listened to the story I thought of how many companies haven’t considered their community contributions this way – not just as being “good businesses” in the community (#1 philanthropy, but also arguably #’s 2, 5, & 7) – but taking the extra step of being a good business in the community and reinforcing their organization’s values though their community investments. For me, this is what CSR can mean – a relationship that realizes deeper benefits for everyone involved.