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How exactly *does* corporate social responsibility create shareholder value?

Corporate social and environmental responsibility is widely considered to add value, but the metrics just aren’t there yet to quantify the effect on shareholder value. That is one of the conclusions drawn by McKinsey and Company researchers based on their recent survey of Chief Financial Officers (CFOs) and investment professionals, shared here with their permission. In today’s unsettled global economic climate, survey respondents considered corporate governance programs more critical to value than social or environmental programs. While the survey found some distinct differences between the views of CFOs and those of the investors, solid majorities of all respondents expect environmental, social, and governance programs to create more value in the next five years. This finding suggests an opportunity in developing better metrics for documenting and trending such value adds.

McKinsey’s researchers report that both CFOs and professional investors see the existence of high-performing environmental, social, and governance programs as a proxy for how effectively a business is managed; more than 80 percent of both groups say that is at least “somewhat” true. Their survey suggests that this view is more widely held among Europeans than among Americans. By wide margins, CFOs, investment professionals, and corporate social responsibility professionals agree that maintaining a good corporate reputation or brand equity is the most important way these programs create value. Beyond that, there was a lack of agreement on which activities add value.

I can well imagine that the perceived value can be influenced by personal perspectives.  Those among us who choose to recycle, support public transit, and live green at home are more likely to put great stock in our organizations’ environmental programs, and would probably agree that such programs help our organizations attract and retain top talent. However, the million dollar question is, how can those conclusions be proven?

The surveyed CFOs and investment professionals who do not consider such programs in their corporate project and investment decisions were largely agreed that the contributions are too indirect to value or the available data are insufficient to make the case. The challenge seems to be in connecting the dots and making the business case; in other words: how to show them the money.

In recent years it seems that SCN members have increasingly supported the corporate social responsibility initiatives at the places where we work, do business, and invest. SAP’s Sustainability Report demonstrates SAP’s commitment to sustainability and to assisting customers in such endeavors. I would suggest that there is an opportunity here for enterprising IT “geeks” to team up with the “suits” to identify meaningful metrics and develop tools for recording and communicating them to the decision makers in the C-suites and investment offices. It is a mystery to me why this connection has not yet been made in the minds of these financial decision-makers. When I think of corporate environmental programs, many of them are wholly or in part IT-based; landscape and data center consolidation, virtualization, mobile data collection, web meetings, and telecommuting are just a few of the green initiatives that surely have must a positive bottom-line impact. Some betterment initiatives that have an enabling technology component serve both social and environmental goals, such as the broadband technologies assisting farmers of developing countries in making their irrigation more efficient, for improved water conservation. Is the payoff really that distant, or are the contributions to shareholder value not being recognized and communicated? That is what my inquiring mind wants to know. I challenge SCN members; let’s put on our thinking caps and see if we can’t come up with some answers and persuasive facts.

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  • The Carbon Trust website in the UK has some great papers on the cash benefits of social / environmental initiatives. In a nutshell these vary from industry to industry but increased access to capital / brand value / avoidence of regulatory and cost savings are central to the ROI.
    The UK chocolate industry has a lovely example of how social responsibility was used to create a powerful brand that opened a whole new market sector.
    This is an area that is very important to me an I too will be interested in the responses.
    Please email for draft white paper on how SAP tools can be used to drive environmental strategy.
    • Thank you for your comments and suggestions. I plan to comment on McKinsey’s survey and refer their readers to such information. I hope that more readers are able to point me to additional such papers, so that readers of their survey findings might be enlightened.


  • On first looks, it appears that lack of metrics cause CFOs to overlook CSR/Green initiatives. I have an alternate theory, and this is based on my time spent with marketing people :).

    Marketing indicators are not leading ones like sales. Apart from apportioning expenses in some arbitary fashion, there is no real means to compare sales and marketing in real time. We can probably say with some accuracy over time that a certain type of marketing helped to increase sales. So how do marketers get funding for their campaigns, especially for ones that have never been tried before? It happens because they are represented by some one at the top who can make a case with projections, coercion etc with CFO and CEO.

    Even after the fact, it is hard to produce metrics to substantiate that a certain type of markting helped. Say you run a TV campaign for your product and also reduced prices. You notice that sales spiked immediately afterwards – it is not easy to say how much the TV campaign helped and how much he price reduction helped. But the next time the marketing guys want to do either – they will use this information to make a case, by making the numbers tell the story they want.

    if you extend the thought to include CSR/Green initiatives etc – they are very similar in terms of lack of leading indicators. But if you get some one passionate to champion it (no body beats the marketing man on passion) – this wouldn’t be such a big deal. But what is in it for the marketing man? He needs to feel that the public cares for Green etc and that if he shouts my products are green, folks will buy. The moment he sees that – he will some how make up metrics etc and make a case to convince the guys that hold the purse strings.

  • This indeed is an important step in environment management; that is, convincing those who provide resources, on the benefit proposed to be derived.
    A study together by us certainly would bring out many more ways.

    For now, some earlier writings that may be referred are:
    1.     Business in the Environment and KPMG Peat Marvick (1992), ‘ A Measure of Commitment – Guidelines for Measuring Environmental Performance’
    2.     European Green Table (1993) ‘Environmental Performance Indicators in Industry- Report 3: Draft Handbook, August, Unpublished, Oslo.

    Hope to continue the search for more.
    Sam Anbazhagan

    • Sam,

      Thanks for sharing these citations. I am starting to see that there is no shortage of scholarly studies on this subject, and even an entire academic journal devoted to publishing findings of related studies. Those interested in more reading may wish to see Business Strategy and the Environment, published by John Wiley and Sons.

      Perhaps a well-placed green champion, armed with some of these findings, could make a difference with the skeptical or under-informed CFOs and investment professionals.