21 Feb Doing Good Is Not Just Good for Business, It’s Becoming Mission Critical
Every year, Laurence D. Fink, founder and chief executive of the investment firm BlackRock, and one of the most influential investors in the world, writes a letter to the CEOs of the world’s largest publicly traded companies.
What he wrote in his 2018 missive marks what many see as a watershed moment for Wall Street and the corporate social responsibility (CSR) movement.
“Society is demanding that companies, both public and private, serve a social purpose,” wrote Fink, whose firm manages over $6 trillion in assets. “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”
In his 2019 letter, Fink further called on companies to lead social change in the face of fundamental economic changes and “the failure of government to provide lasting solutions.”
He noted: “Purpose is not the sole pursuit of profits but the animating force for achieving them. Profits are in no way inconsistent with purpose — in fact, profits and purpose are inextricably linked.”
The link between profits and purpose has long been hotly debated among business leaders. Along with the outsize influence of its author among corporate titans, what makes Fink’s letters so noteworthy is the sentiment that there’s no longer much of a debate — it’s clear that companies that invest seriously in CSR perform better than their peers that don’t.
In recent years, several studies have backed up this belief with data-driven evidence. Among the most notable is a large study conducted by Babson College’s Social Innovation Lab and IO Sustainability, a research firm, and underwritten by Verizon and Campbell Soup Co.
The resulting report, “Project ROI: Defining the Competitive and Financial Advantages of Corporate Responsibility and Sustainability,” found that CSR practices have “great potential to deliver financial returns on investment.” CSR is defined here as efforts to reduce the company’s footprint, as well as positive solutions that improve environmental, social, economic, and governance conditions.
According to the report, large, publicly traded companies with a strong commitment to CSR can potentially:
- Increase their share price by up to 4-6 percent
- Increase revenue by up to 20 percent
- Reduce the company’s staff turnover rate by up to 50 percent
- Increase employee engagement up to 7.5 percent
- Increase productivity by up to 13 percent
- Establish a “reputation asset” and CSR brand worth as much as 11 percent of the total value of the company
The key word here is “potentially.” The report noted a big caveat to its findings: For companies to reach their full potential as CSR-driven organizations, it’s not enough to simply fund or manage environmental, social, and governance programs. Successful companies must be able to differentiate between good CSR practices and less effective ones, and implement them well. CSR strategies also can’t make up for deficiencies in other parts of the business.
The report offered a management framework for companies to derive the full value of their CSR strategy:
Fit: Make CSR commitments that fit your company’s core attributes and your key stakeholders’ expectations
Commit: Make a genuine commitment to address CSR issues
Manage: Think of, develop, and manage your portfolio of CSR practices as a valuable
Connect: Build key stakeholder awareness, trust, engagement, and affinity
The report found that CSR could be seen as a proxy for “strong, well-managed companies with bright futures,” suggesting that it signals employee engagement, customer satisfaction, innovation, and a strong organizational culture.
To be sure, the ROI Project isn’t the only report to show the critical importance of pursuing a corporate strategy of implementing solutions for the social good. The Deloitte 2018 Global Human Capital Trends report came to similar conclusions.
Calling it a “wake-up call for organizations,” the Deloitte report “showcases a profound shift facing business leaders worldwide: The rapid rise of what we call the social enterprise. This shift reflects the growing importance of social capital in shaping an organization’s purpose, guiding its relationships with stakeholders, and influencing its ultimate success or failure.”
The authors noted: “In many ways, social capital is achieving a newfound status next to financial and physical capital in value.”
It’s essentially becoming table stakes for companies to show that they have a purpose beyond making profits, one that benefits society at large. Newer companies that are forging a direct relationship with their customers such as Warby Parker, TOMS shoes and Everlane are making “doing well by doing good” much more than just a mantra. They are building social good into the very fabric of the company — and it’s resonating with customers.
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