Smart money

Michael Alan Hamlin

Posted on September 5, 2007

ESG policies and CSR initiatives should be at the center of corporate strategy

In a blurb headlined Smart Money, Newsweek recently reported that a Goldman Sachs report found that socially responsible companies outperformed the MSCI global stock index “by a stunning 25 percent.” Writing in CRO, Margo Alderton elaborated, noting that 72% of leaders in environment, social, and governance (ESG) policies also outperformed industry peers.

Why? Consumer research findings incorporated into the Goldman Sachs report showed that “being socially responsible” is the most likely factor influencing brand loyalty, at 35% compared to the next most important factors, price and availability, at 20% each. More tellingly, “52% of respondents actively seek information on companies’ corporate social responsibility (CSR) records ‘all of the time’ (6%) or ‘sometimes’ (46%).”

As Goldman itself acknowledges, these results are nothing new, noting that the socially responsible investors community has been doing similar research for the better part of three decades. What is new is that the likes of Goldman Sachs is backing up that research, and going even further. In July, the investment house announced a socially responsible investment list, called GS SUSTAIN. It shows 44 companies, half from the five industries in its study, and the remainder from emergent industries.

Sarah Forrest, Head of GS SUSTAIN Research at Goldman told Alderton, “GS SUSTAIN member companies must score well on a combination of ESG score and industry positioning. This must then translate into improving financial performance and ultimately returns. My personal belief is that companies must walk the walk and fully institutionalize ESG factors in their core business models in order to establish and maintain competitive advantage and outperform. In our analysis of ESG indicators across five sectors disclosure remains an issue, the data is hard to get and is not consistent. We call on companies, industry groups and regulators to address this challenge.”

If executives are to best serve the interests of shareholders, these trends clearly indicate that ESG policies and CSR initiatives should be at the center of corporate strategy. As Forrest notes, however, determining whether top management takes these issues seriously is not always a straightforward task. That’s in part why it’s interesting that the latest League of Corporate Foundations’ (LCF) CEO Survey provides evidence that CSR is increasingly top-of-mind among member CEOs in the Philippines.

LCF is composed of about 80 Philippine and multinational corporations with operations here. The CEO Survey is conducted every year among member CEOs to gauge the role of CSR among member organizations, and its evolving contribution to core objectives, such as brand equity, corporate culture, and certain financial goals, such as access to capital.

The survey, because it is limited to LCF members reflects the positions of executives in organizations that appear to take CSR seriously. It doesn’t, therefore, provide direct insight into the CSR values and programs of the business community at large. But because the LCF membership is composed of most of the Philippines’ most profitable firms, it is an important survey of the thinking of highly influential CEOs.

According to results of the survey published in the LCF publication, CEO Perspectives on Corporate Social Responsibility, when CEOs were asked, “Do CEOs address CSR issues at the board level?” 89% said “yes.” In addition, the report says that “a number of respondents have board structures such as CSR executive committees or compliance committees that are focused primarily on CSR.”

All of the respondents said they were personally involved in collective leadership initiatives focusing on corporate responsibility. Because these top CEOs must be extremely disciplined in how they use their time, the fact that they devote valuable face time to CSR initiatives sends a strong signal of CSR’s relevance and contribution to top corporations in the Philippines.

Indeed, when respondents were asked to identify the three factors for “making the business case for CSR,” they said: 1) Managing reputation and brand equity; 2) Enhancing competitiveness and market positioning; and, 3) Attracting, motivating and retaining talented employees. The first two responses support the Goldman conclusion that customers and clients are actively checking out CSR records. The third suggests that they aren’t the only ones that take CSR seriously.

When respondents were asked if the public has a right to expect good CSR programs, 74% either strongly agreed (31%) or agreed (43%). But whether CEOs agree that customers and consumers in general have this right, or potential employees for that matter, the reality is that most of them are exercising it anyway. Which perhaps is why, at least in part, 94% of the CEO Survey respondents said CSR needs to be a top priority for companies in the Philippines.

As Goldman acknowledged, CSR is nothing new in the Philippines either. It’s also been going on for 30 years. But in an increasingly competitive environment for opportunity and people, it’s moved to the core of corporate strategy.

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