There is a growing body of evidence to suggest that international investors are increasingly concerned about a company’s CSR. This concern is starting to manifest itself in the queries of institutional investors at investor road shows hosted by local companies in Europe and the US . Investor relations manager of ‘blue chips’ are noting that they are increasingly being asked about CSR. That has prompted them to think seriously about introducing CSR reporting, if they haven't already done so.
The message is clear. Overseas investors, especially the institutions, are no longer just interested in the financial performance of companies as shown by bottom line profit. They are increasingly interested in their social and environmental performance as well. What accountants term the ‘triple bottom line’.
The well-documented corporate crashes in the US and Northern Europe in the early nineties, with shell-shocked investor confidence triggering subsidence in global stock-markets leading to a number of bitter ‘anti-globalisation’ demonstrations accompanying any meeting of global leaders a few years ago threw into sharp relief how big business can adversely affect the lives of all of us.
The increased public awareness gave rise to increased demands from society for companies to clean up their acts- and not just financially. A concept which barely registered on the agendas of boardroom meetings began to dominate some conversations. Corporate social responsibility (CSR), for so long the anthem of an ethically minded minority in the business world, had entered the mainstream.
CSR is all about how companies manage their business processes to produce an overall positive impact on society. Those companies which operate in global markets are increasingly finding it necessary to consider the social and environmental aspects of their business while pleasing their shareholders. In the past few years, CSR has become bedded into the mission of most blue chip companies. In addition, projecting and promoting a company’s CSR through the media can lend it strategic advantage over it’s less allegedly less environmentally friendly competitors.
A recent global CSR survey by Echo Research found CSR to be perceived as a top-table issue which can deliver real business benefits while simultaneously giving something back to society. The survey, covering four developed and two developing countries, found that 80% of CSR decision-makers believe good CSR practices will both enhance the corporate brand and improve employee satisfaction. Other benefits cited by survey participants included more contented shareholders and less criticism from pressure groups.
Many other studies back up Echo’s findings. A recent Ernst & Young study of 147 Global 1000 companies in Europe, North America and Australasia found that company CSR programmes influence 70% of all consumer-purchasing decisions. Similarly in a recent survey of 1000 British adults, Market & Opinion Research International (Mori) 41% said it was important that the product or service they chose came from a company with a high degree of social responsibility. In 1998 it was just 28%. These studies indicate that CSR is now a key determining factor in consumer and client choice in a number of developed economies. What are the implications of these trends for Caribbean companies? Given that the region’s economy is increasingly an integral part of the global economy then local companies will find it hard to ignore CSR. This is especially true of those companies which seek finance from foreign investors or export their goods and services to North America and Europe . As global investors become more discerning about CSR they are likely to spurn those companies that make no attempt to adopt good CSR practices.
How do companies communicate their CSR practices to the wider public? Most seem to use either their annual reports or a separate corporate responsibility report to highlight what they do. In 2001, 45% of the 250 largest global companies published corporate responsibility reports according to a study done by KPMG. The highest incidence of CSR reporting is to be found among companies in the mining, forestry, chemicals, oil and gas, vehicle manufacturing and transportation sectors. Ironically, finance and insurance companies, which often demand sustainability information from the companies they lend to and invest in, are the laggards when it comes to CSR reporting. An Ernst & Young study reveals that out of the 67 largest finance and insurance companies, less than 20 produce responsibility reports.
The increased emphasis on all aspects of a company’s performance in many developed economies is fuelled by the exponential growth in these economies of Ethical or Socially Responsible Investment (SRI). SRI funds are homing in on companies providing social or environmental benefits like the Body Shop. Increasingly even the more general funds are introducing CSR criteria.
Today there are stock market indices like the Dow Jones Sustainability and the FTSE4Good indices that use CSR criteria in the selection of the constituent stocks. To be admitted companies must meet social and environmental performance criteria as well as financial. Constituent companies benefit since funds that track these indices must buy some of their shares. As a result, more companies are making the grade and getting included in the indices. In the past year 82 more companies became eligible for inclusion in the FTSE4Good indices.
All signs point to CSR having an increased impact on business and investment practice in North America and Europe . There is a real risk that Caribbean companies with high exposure to overseas markets that choose to ignore these developments may lose investors and sales.
So what should Caribbean companies do to leverage maximum benefit from the trend towards CSR? For it to deliver real and lasting benefits to companies it needs to be more than PR whitewash. Ideally it needs to become a part of a company’s mission, an integral part of the way the company is run. CSR cannot be conceived in a vacuum. In formulating its CSR policy the company should hold a dialogue with its stakeholders and then regularly make public its CSR performance in an independently verified ‘warts and all’ report. ‘Just do it’ and then ‘tell it as it is’.
For more information please contact:
Head of Corporate Development, ACCA – Caribbean : 1 868 622 3434