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Study: Symbolic, not Substantive, CSR Action Has Greater Positive Financial Impact

An academic study suggests that symbolic environmental, social and governance actions have a greater positive impact on a company’s market value than substantive actions.

Previous studies have concluded that ESG actions have a statistically significant, yet small positive effect on financial performance. The authors of Do Actions Speak Louder Than Words? The Case of Corporate Social Responsibility wanted to explore under what conditions CSR affects financial performance.

Olga Hawn, a professor in the Fuqua School of Business at Duke University, and Ioannis Ioannou, a professor at the London School of Business, examined not just the different impact of symbolic and substantive actions on the value of a company, but the way it was influenced by prior CSR-based assets – which represent the cumulative results of taking CSR actions in the past.

The authors found symbolic actions have a higher impact on market value than substantive actions, when the company has higher CSR-based assets. The study also concluded that a larger gap between symbolic and substantive actions has a higher positive impact on firm performance; and the more companies engage in both symbolic and substantive actions, the higher the value accumulates to the company.

Symbolic actions include any ceremonial conformity or compliance: for example, a company announcing plans to form a sustainability or corporate ethics committee to provide the appearance of an action, without necessarily having any substance. Symbolic actions can be more generally described as “window dressing” or greenwashing – essentially anything designed to give an appearance of an action while allowing business to proceed as usual.

Substantive actions are the real actions taken by an organization to meet certain expectations and often require changes in core practices, long-term commitments and investments in corporate culture.

The authors weighed four hypotheses and tested their theory using a market-value equation and a database of 2,261 firms in 43 countries from 2002 and 2008.

The four hypotheses:

  • The higher the CSR assets (meaning prior CSR actions taken by a company), the higher the effect that symbolic ESG action will have on firm performance, and vice versa;
  • The higher the CSR assets, the lower the effect that substantive ESG actions will have on firm performance, compared to symbolic actions, and vice versa;
  • The larger the gap between symbolic and substantive ESG actions, the higher its effect on firm performance, and vice versa;
  • The higher the coupling between substantive and symbolic ESG actions, the higher its effect on firm performance, vice versa.

A Deloitte report released last month found a connection between perception of stakeholders and a company’s bottom line.  News about a company’s environmental behavior affects its market value, and an organization’s understanding of how its stakeholders perceive and value the organization’s ESG issues can lead to financial benefits, the report said.

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5 thoughts on “Study: Symbolic, not Substantive, CSR Action Has Greater Positive Financial Impact

  1. An increase in firm value following the announcement of symbolic ESG actions may result from investors believing that substantive ESG actions will follow. If all investors knew that the announcement was merely greenwashing, the reputation of the firm would not be enhanced and it is unlikely that its value would rise.

  2. Good article but feel the headline is misleading. Surely it is only Greenwash if companies fail to follow up promises (symbolic actions). What the research says to me is that the most effective strategy is to have bold sustainability vision, communicated powerfully ahead of clear actions. Best example for is is M&S and Plan A. This was merely symbolic 5 years ago, now adds £100m to the bottom line.

  3. Dan Vivian – the headline was written to draw in readers, like it did both of us, rather than be an actual summary of the article. Would you have read it if the headline was, “Announcing Future CSR Initiatives Adds Financial Value”?

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