Better Performing Companies Do Better On CSR

February 15, 2008

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Companies that saw their share price rise by at least 50 percent in the last three years (share price climbers) place a greater importance on social and environmental goals than companies with share prices that have declined by more than 10 percent (share price losers), according to “Doing good: Business and the sustainability challenge” (PDF), new research from the Economist Intelligence Unit.

Social and environmental goals include improving environmental and human rights in supply chains, where 40 percent of share price climbers rank this as an important priority versus 18 percent of share price losers; reducing greenhouse gases (38% to 24%); and developing products which address social and environmental problems (49% to 35%). Share price climbers also put a greater emphasis on social and environmental considerations at board level.

Other key findings from the research include:

Forty percent of those in our survey believe additional regulation is necessary to tackle social and environmental challenges. Another 50 percent say that voluntary action is generally more effective, but that additional regulation may be required in some areas. But this openness to new rules is combined with the desire for clearer guidance about what government expects from business. Only 10 percent of executives in the survey say more regulation in this area is likely to harm economic growth.
Communication, then the environment, are top corporate priorities on sustainability. Given a list of 10 specific objectives relating to sustainability, companies placed the highest priority overall on communicating their firm’s sustainability performance to investors and stakeholders (61% selected this as “leading” or “major” priority). Environmental issues took the next three spots overall: improving their environmental footprint through waste reduction and use of recycled materials (57%); improving energy efficiency across global operations (52%); and developing products that address sustainability issues (51%).
The supply chain is the weakest link. Extending sustainability policy to suppliers is the area where companies gave themselves the worst marks: about one-fifth say their companies have performed poorly in setting stronger supplier standards on both environmental and human rights issues. About the same proportion have only implemented supplier controls in the last five years.
Sustainability reporting needs more work. Although companies rate their performance on communication highly, efforts regarding formal reporting are less advanced. Only 22 percent of executives say their firms have formal Triple Bottom Line reporting, although a further 40 percent say they will adopt it within five years.
Sustainability does pay. Most executives (57%) say that the benefits of pursuing sustainable practices outweigh the costs, although eight out of 10 expect any boost to profits to be small. Specifically, sustainable practices can help reduce costs (particularly energy expenditure), open up new markets and improve the company’s reputation. Part of this involves a shift away from defensive behaviour towards more active exploration of the opportunities sustainability can present-so-called “sustainability 2.0″.

The research is based on a global survey of 1,254 senior business executives, including more than 300 CEOs.

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