Four Steps to Generate Competitive and Financial Value from Corporate Responsibility
Date: April 29, 2016
April 29, 2016–Project ROI: Defining the Competitive and Financial Advantages from Corporate Responsibility (CR) and Sustainability (download at projectroi.com) is helping reshape the way companies design their CR approach. We’re hearing that the report, which Forbes has described as a “godsend,” is being passed back and forth between CEOs and their CR teams. CEOs are asking, “How do we design our programs to deliver these results?” At the same time, CR heads are urging CEOs to support the “business-integrated, value-creating strategy for CR” that Project ROI defines.
It’s no wonder. Project ROI finds that – if done well – CR:
- Increases share price by 4-6%
- Reduces the cost of equity by 1%
- Increases sales up to 20%
- Provides reputation risk protection of 7-11% of the company’s value
- Increases employee productivity up to 13%
- Reduces employee turnover rate by 25-50%.
But companies don’t get these just for showing up. Project ROI finds companies successful in generating value from CR take four key steps:
- They design CR strategies that are Fit for Purpose and reinforce business strategies, key products, brand positioning, war for talent, and/or cost control measures. These aren’t arms-length relationships. These are aligned initiatives. Project ROI’s lead sponsor Verizon set the trend when it designed a phone for the elderly it called the Coupe. An approach to do the right thing brought the company to a hot new product that flew off the shelves. Project ROI’s supporting sponsor The Campbell Soup Company has found extensive cost savings from its efforts to reduce energy and water use.
- They Commit to lead on the issues that are Fit for Purpose. This solves a persistent dilemma of how much to invest in CR and how prominent a leadership role to take. Companies should commit to be best-in-class in addressing whatever environmental, social, or governance (ESG) issues are the best fits for their business model and strategic priorities. As for the rest of ESG issues, companies can then do what’s required to be a constructive corporate citizen. Companies like Unilever have received extraordinary attention through their focus on managing their commodity supply chain responsibly, and by supporting the well-being of individuals in key consumer markets that tie to their product and emerging market growth strategies.
- They Manage CR according to business principles. These companies set performance dashboards with specific metrics that can be tracked. For example, HP Enterprise conducted an experiment to use the CR team to support B2B sales. Sales and CR worked together to build strategies, tactics, and agreed metrics. Using these metrics the company identified $500 million in new sales over five years credited to the combined efforts of CR and Sales working together.
- They Connect key stakeholders to the actual design and delivery of programs. This isn’t just about engaging communities and NGOs. This includes customers, employees, and investors. When these core business stakeholders get involved, it turbo charges the ROI potential for CR. For example, companies like Lockheed Martin have built in key messages to engage investors on how ESG trends will shape opportunities and risks for the business. Pirelli (prior to its recent acquisition) increased its institutional investor holdings by designing and engaging investors in its integrated “business and sustainability strategy.” Regarding employees, IBM’s Citizenship Conservation Corps has returned $600 million on top of an investment of $200 million.
In the numerous engagements, trainings, and presentations IO Sustainability and our partners at Babson College have made to corporate executives and managers on these findings, we’ve found that most companies haven’t implemented this approach. In a quick poll of a 250 companies we found that some may apply the “Fit, Commit, Manage, and Connect” approach to one or two initiatives. The vast majority experience chaotic blend of CR legacy programs, pet projects, responses to NGO squeaky wheels, and knee-jerk reaction to whatever the issue of the day is.
Our work with companies has been to design focused approaches to apply Project ROI’s findings and identify the 2-5 responsible business practices and 2-5 signature initiatives that will deliver financial and competitive results. Our research shows that this strategic focus doesn’t diminish positive impacts for society. In fact, it does the opposite. Focus and commitment deepens and scales-up the positive benefits for individuals, communities, and the environment.
It’s time for C-Suites and CR teams to get on the same page and manage the business of the corporate responsibility for both impact and profit.
Steve Rochlin is co-CEO of IO Sustainability and lead author of “Project ROI: Defining the Competitive and Financial Advantages of Corporate Responsibility and Sustainability.” He can be reached at SRochlin@iosustainability.com