For further information: David J. Vidal, (212) 339-0445
The Conference Board
For Release Thursday, February 4, 1999 Release #4466A
THE LINK BETWEEN CORPORATE CITIZENSHIP AND CORPORATE FINANCIAL PERFORMANCE IS GROWING STRONGER
More Companies Consider "Socially Positive" Investments
The link between corporate citizenship activities and corporate financial performance is growing stronger, according to a report released today by the Conference Board's Global Corporate Citizenship research program.
The Conference Board study, The Link Between Corporate Citizenship and Financial Performance, reports that the assets managed in "socially screened" portfolios grew at a rate of 227% between 1995 and 1997, compared with only 84% for assets managed by all pension funds.
The report is based on research by John Weiser of Brody & Weiser and Simon Zadek and Jenny Chapman of the New Economics Foundation, London.
Taking social screening and shareholder activism together, approximately $1.2 trillion, or 9% of the total investment assets under management in the U.S., engaged in some type of socially responsive behavior in 1997, according to the Social Investment Forum.
While a 1996 study of 469 U.S. companies appearing in Strategic Management Journal found a very significant positive correlation between return on assets and strong social performance, few other studies demonstrate the link.
"The rapid growth of shareholder activism, and socially screened investment funds at more than ( m o r e )
- 2 - twice the rate of the rest of the market, has caused CEOs to pay more attention to socially responsive investments," according to David J. Vidal, research director of the Conference Board's Global Corporate Citizenship Program.
The Conference Board report defines "socially screened" funds as having portfolios of stocks from companies that meet specific hurdles for corporate social performance.
A 1994 study by NCH in London found that 78% of U.K. shareholders were more likely to invest in companies working with charities. Although executive decision makers aren't as concerned as shareholders about investing in socially conscious companies, it is clear that CEO responsiveness to social issues can give companies a significant advantage in shareholder relations.
CONSUMERS TEND TO FAVOR COMPANIES BACKING "GOOD CAUSES"
The Conference Board study notes that "cause-related marketing" is being increasingly used to boost company performance and image. A 1997 report by Cone-Roper found that 76% of U.S. consumers say they would likely switch to a brand associated with a good cause and that when price and quality of merchandise are equal, they would likely switch to a retail store associated with a good cause.
Cause-related marketing is also increasing in the United Kingdom, where it is being used to develop corporate reputation, brand image, customer loyalty, and sales. Benefits of good corporate behavior tend to be more immediate locally than nationally in both the U.S. and the U.K. According to Cone-Roper, one study found that 59% of consumers believe that business should address social problems locally, compared with 26% who believe national problems are important. Only 9% of consumers cited international issues as a big concern.
While many companies have built a strong customer base based on their social and environmental positions and activities, the Body Shop is one of the few that have re-shaped their own market. The Body Shop established the market norm for body products that ingredients will not be tested on animals. It has also taken the lead in demonstrating that the mainstream business community can be involved in fair trade and that externally verified social audit reports are practical.
"Corporate social performance cannot substitute for superior product quality or a more competitive price," said Vidal. "But it can serve as a tiebreaker for products that are competing head-to-head and that are closely matched in features and price. It can become a strategic advantage in a crowded and competitive marketplace."
THE COST OF POOR ENVIRONMENTAL PERFORMANCE
An environmentally responsive attitude can also be advantageous to businesses. The Investor ( m o r e ) - 3 - Responsibility Research Center created industry-balanced portfolios of S&P 500 companies to examine environmental performance. A comparison of financial returns of high-polluting and low-polluting companies found no penalty for investing in a "green" portfolio and that the low-polluting portfolio outperformed the high-polluting ones in 75% of the cases.
A 1994 study by MORI, a U.K. public survey company, found that 22% of the British public avoided using the services or products of a company they thought had a poor environmental record.
REGULATORY BENEFITS OF SOCIAL RESPONSIBILITY
Superior corporate social performance can also help companies to smooth the way for regulatory approvals, and to reduce the penalties and costs of noncompliance with regulations. A commitment to social performance is an important strategic tool for any industry in which there is close regulatory oversight, such as banking, insurance, utilities, and healthcare. Investment in improving social performance can yield significant dividends when regulatory approval is a key step in executing a company's strategic plan.
On example is the NationsBank acquisition of Barnett Bank in 1997. "Both NationsBank and Barnett Bank have made significant investments in meeting community needs over the past decade," says Cathy Bessant, president, community investment, NationsBank. "In addition to being good business with high community value, these investments played an important role in providing a positive regulatory review of the merger, allowing it to be completed in a timely way and with minimum cost."
As well as helping obtain regulatory approval, strong internal systems for monitoring and ensuring high standards of ethical behavior and training programs that emphasize the company's commitment to meet and exceed required standards can dramatically reduce the company's exposure to noncompliance to regulations.
"Though measurement, causality, and definitional problems in both corporate citizenship and corporate financial performance make the analysis of linkages problematic, the future of corporate social performance can be very bright if companies continue to be aware of the social, ethical, and environmental dimensions of their products," concludes Vidal. -30- Source: The Link Between Corporate Citizenship and Financial Performance, Report #1234-99-RR, The Conference Board
Information on ordering this publication may be obtained by calling The Conference Board's Customer Service Department at (212) 339-0345. Copies are available free to the media (Call 212-339-0231).
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