Do we really care about how companies treat their employees? How they engage with local communities, and how ethical they are? Does it make a difference when we consider buying their product or working for them? Companies make the bet that it matters. They spend millions on CSR (Corporate Social Responsibility) activities. But where is the return on investment?
A newly released study on Reputation and Corporate Social Responsibility by Reputation Institute suggest that there is actually a strong business case when it comes to CSR. Seventy-three percent of consumers across the 15 largest markets in the world are willing to recommend companies that are perceived to be delivering on Corporate Social Responsibility. The problem is that only 5% of companies are seen as delivering on these promises. And when you spend on average $ 50-100 million a year that’s a poor ROI.
I spoke with Kasper Ulf Nielsen, Executive Partner at Reputation Institute and CB Bhattacharya, E.ON Chair Professor in Corporate Responsibility at European School of Management and Technology, about the issues in getting a good return on the CSR investment.
Bruce Rogers: Why are companies not getting the return on investment that they could?
“While the CSR RepTrak® 2013 study confirms the business case for investing in CSR programs, it also highlights the struggle in building trust amongst consumers despite company CSR programs. The problem companies are facing is that the consumers do not know what the companies are doing on the dimensions of Citizenship, Governance, and Workplace. 56-61% of consumers across the 15 largest markets in the world are neutral or not sure if the companies can be trusted to deliver on CSR dimensions: Citizenship, Governance, and Workplace. The reason for that is two fold: (1) companies have not communicated about the things they do in a relevant and clear way, and (2) they are doing many programs, which are not relevant to their stakeholders,” says Kasper Nielsen.
According to Professor CB Bhattacharya, the answer to why companies do not achieve the ROI they should, can be attributed to how they treat the business of Corporate Responsibility: “Unfortunately, Corporate Responsibility is still equated to philanthropy in many organizations and hence, given short shrift when it comes to strategic formulation and implementation. Although the top 100 companies all have well developed websites detailing their CR initiatives, how many of them do rigorous research to find out how their key stakeholders view these same initiatives?”
BR: What is the problem for companies?
“The problem lies in the lack of strategic integration. The biggest challenge is to integrate CSR practices into the strategy of the companies and not treat it as an add-on. Currently most CSR professionals are housed in communications and PR departments, but CSR can and should infiltrate every department – from supply chain, procurement, innovation, manufacturing, HR, all the way to disposal. To accomplish this, CSR officers need to have their voice heard, particularly in the C-suite and the Board, so that the corporate culture and focus shifts from the single to the triple bottom line. The 2013 CSR RepTrak® study has documented the business case for companies to be socially responsible. Companies must now realize that creating social value is a prerequisite to creating business value,” says CB Bhattacharya.
BR: What should CSR professionals do differently?
“One of the main critiques of the CSR field is the lack of data to prove the ROI on activities. Now that the CSR field has grown up from being a feel-good community to having major impact on business value, it’s time to move from feelings to facts. Where is the business case backed up by data? For many companies it’s missing. They don’t have a solid business case for why it’s a good investment for the company. And they don’t have a solid framework to tie their CSR action to the strategy of the company. And without this, it becomes more and more difficult to defend the investments and almost impossible to be taken seriously in the c-suite,” says Nielsen.
But this takes action from the CSR professionals. They need to up their game if they want to move into a more strategic role for the company and not just the communication department. The first step is to adopt a solid matrix to track and evaluate their work. And then outline clear integrated strategies for how the CSR investments are improving the support of key stakeholders when it comes to buying, recommending, giving the license to operate, and benefit of the doubt. But to do so they need to get over the fear of data and numbers and embrace the power of facts over feelings.
BR: So should companies continue their investment in CSR or spend the money elsewhere?
“The conclusion is clear. There is a strong business case for CSR. It has direct impact on business performance. We see that from the CSR RepTrak® but also from other research studies. This RepTrak® study shows for example, that for every 5 points you improve your CSR perception on a 100 point scale, recommendation will go up 9%. This data will make your CFO interested in CSR. So companies should continue to invest but do it with a strong focus on strategy and business implementations. When creating social value is a prerequisite to creating business value then companies need to do more in monitoring and quantifying the returns on CSR,” says Bhattacharya.
“Results from the study demonstrate that 59% of consumers would also go out of their way to communicate something positive about companies they see as being good corporate citizens, compared to only 23% for companies perceived to be weak in this area. In a world where word of mouth is becoming your number one marking tool, this is a key business driver that companies need to leverage better. But companies are not getting the return on investment because they have not developed strong enough systems to communicate, measure, and influence stakeholder behaviors. This leaves too many companies acting on feelings rather than facts. And in this economic environment that is not a sustainable strategy,” says Kasper Nielsen.
Reputation Institute’s 2013 Global CSR RepTrak® 100 study surveyed more than 55,000 consumers from 15 countries.
Read more about the study and download the report here: http://www.reputationinstitute.com/thought-leadership/csr-reptrak-100