Does CSR Make a Material Difference to Our Share Price?
As a sustainability professional in the energy sector, the question in the title above dogged me. It wasn’t just a request to prove the business case for corporate social responsibility (CSR). It was also a line in the sand from my colleagues who made it clear that integrating my recommendations into their daily work would occur only after I could demonstrate that CSR was a quantifiable factor toward our company’s overall success. Challenge accepted.
I set about during the next several years of my career to prove unequivocally that factors such as local sourcing, greenhouse gas reductions, and NGO partnerships do in fact translate into improved economic performance. The good news I discovered was an overwhelming amount of evidence to support this correlation. I am happy to share some of it now along with anecdotes of how I armed myself with this knowledge to effect change.
Because it’s worth repeating, yes CSR does absolutely make a material difference to share price. Leading analysts from the Responsible Investment Association (RIA) to Bloomberg to Goldman Sachs have all come to this same conclusion. This shouldn’t come as a surprise to anyone because stock prices have always been influenced more by intangible value than just a company’s profit and loss statements. Investors today are more and more drawn to stocks associated with strong corporate citizenship, brand equity and reduced exposure to climate risks and public backlash.
The latest RIA Trend Report (2016) found that 75 per cent of professional investors consider a company’s position on environment, social and governance (ESG) issues before deciding whether to invest. Nearly the same amount also view sustainability management as a way to mitigate risk in an increasingly disrupted market. This makes sense when you consider in 2004, for example, GE established its Ecomagination brand, which adopted sustainability practices to solve social and environmental challenges. During the 2007-2008 global economic crisis, the Ecomagination brand was GE’s only source of growth.
Sustainable investments now dominate the stock market. Globally, nearly $60 trillion is managed by more than 1,300 investment firms who have signed onto the UN Principles for Responsible Investment. In 2006, there were only 100 signatories controlling approximately $6.5 trillion.
In Canada, sustainable investment assets surpassed $1 trillion by the opening of 2016. That represents a 49 per cent increase over 2014’s assets, which equaled $729 million.
As a CSR practitioner in a publicly traded company, you hold enormous power to influence the direction of the business because you attract investors. Your team IS a revenue centre, NOT a cost centre. Perhaps you’re not yet convinced. Allow me to share just one personal story from my time as a CSR Advisor in the Canadian energy sector.
I worked at Cenovus Energy shortly after the company split off from Encana and they were anxious to differentiate themselves. I recognized that getting Cenovus on the Dow Jones Sustainability Index would be a good differentiator and could attract some investment to the company. I also saw an opportunity to leverage the effort as a way to engage employees and executives across the company both to help them better articulate what they were doing but also suggest opportunities to improve and obtain a higher score. That year, Cenovus was not only celebrated for being listed on the Dow Jones Sustainability Index but recognized for being the only North American based oil and gas company on the World Index. I paid close attention to our company’s stock price the day the news broke and there was a definite bump. Now, anyone who watches such things will tell you that there are lots of factors influencing that bump so one cannot jump to conclusions but what happened next was the best part.
I received an email from the CEO of Cenovus congratulating me for a major company success. It was a note added to a forwarded email from a major investment bank where the senior manager wrote:
“Congratulations for being recognized on the Dow Jones Sustainability World Index. This is a major achievement and we are fielding a number of calls from our Euro investors who are taking a close look at you.”
Who doesn’t like being recognized by the boss but more importantly, this email was like a magic key that I used several times to unlock meetings with people that I thought needed extra support to integrate sustainability thinking based on the learning from the Dow Jones process.
Be empowered to effect change in your company and lead with the knowledge that your recommendations make a material difference to the company’s bottom line. You have all the buy in you need already. According to the 2016 MIT Sloan Management Review, 90 per cent of executives think that incorporating sustainability into their companies is important but only 25 per cent of companies actually have an actionable sustainability business model that can attract investors. You are the difference. It’s up to you to make sustainability actionable in your business model. If you are successful, your company will make more money and successfully maneuver through a complex and uncertain business environment.