By Any Measure: The ROI of CSR
July 18, 2017
by Bob Axelrod
“Goodness is the only investment that never fails”
– Henry David Thoreau
Really, we’ve known it all along. Share your toys, clean up after yourself, do unto to others, help those less fortunate.
This was the guidance imparted by the villages that raised us – our parents, schools, religious institutions and communities. Say what you will about the state of our world, the fabric of society is woven from the essential human propensity for good. Why then should it be called into question that conducting business similarly could pay big dividends?
Even as more companies make corporate social responsibility* (CSR) a strategic priority, skepticism abounds as to its return on investment (ROI). Free market economist, Milton Freidman, famously asserted that the only social responsibility of business was to “use its resources and engage in activities designed to increase its profits.” So, are the vast majority of large businesses rejecting Freidman’s advice by investing so heavily in CSR? Actually, there’s mounting evidence that big business is brilliantly heeding his words.
A first case in point is the financial opportunity represented by the United Nations 2030 Agenda for Sustainable Development, a bold, transformative roadmap for creating an environmentally sound, socially fair and economically prosperous world. At its heart are the Global Goals, 17 key objectives comprising 169 specific targets to be reached in fewer than 15 years.
Hitting those targets would bring an astounding economic windfall according to the Business & Sustainable Development Commission, an international consortium of business, finance, civil society, labor and international organizations. In its 2017 publication, Better Business Better World, the Commission reported that reaching the Global Goals would open up $12 trillion in market opportunities in just four economic systems: food and agriculture, cities, energy and materials, and health and well-being.
That’s like adding another China to the global economy in less time than it takes to qualify for a driver’s license. It’s staggering, but actually conservative in the context of the overall potential financial return on making the world a better, more resilient place. According to a study cited in the report, reaching just Global Goal Number 5 (Achieve gender equality and empower all women and girls) could contribute up to $28 trillion to the global gross domestic product in less than a decade.
With this financial boon comes enough jobs to employ every adult in the United States and The European Union combined. At a time when workers are being displaced by automation and robotics at an alarming pace, that’s welcome news.
While there’s no better compass than the Global Goals for navigating how to prosper by doing good, the case for an economic return can’t be made on projections alone. That’s where another report comes in: Project ROI, a 2015 review of more than 300 research studies conducted by Lewis Institute for Social Innovation at Babson College and IO Sustainability. The authors concluded that strategic, well-managed CSR programs contribute to profits, market valuation, reputation, employee retention and engagement, and cost savings.
Investors get this connection. Shareholder activists at U.S. companies are on pace to file a record number of resolutions in 2017 concerned solely with environmental and social issues. The world’s largest investment firm, BlackRock, began writing to hundreds of CEOs in 2016, cautioning against short-termism and stressing the importance of environmental, social, and governance factors.
The data support this heightened interest. Project ROI determined that as much as 6 percent of a publicly traded company’s market value can be attributed to strategic CSR – the equivalent of creating nearly $1.3 billion in shareholder value over 15 years. Investors are growing bullish on CSR for other reasons, too, like less share price volatility, reduced systemic risks and lower cost of equity.
In the face of a tight market for knowledge workers and skilled labor, coupled with high training and development costs, companies that demonstrate a strong CSR commitment to employees fare better. Project ROI reported that job turnover at leading CSR performers can drop by as much as 50 percent, saving replacement costs up to 200 percent of an employee’s annual salary for each person that stays.
In one of the featured studies, productivity was connected to a rather inspired slice of CSR strategy. A company was able to boost the productivity of its lower performing employees by 13 percent just by enabling them to choose the beneficiary of a company philanthropic donation. That’s a great boost to the bottom line at no cost to the company.
Closer to home, FleishmanHillard has long been active in community and social causes, a priority of our founders, Alfred Fleishman and Robert Hillard. In 2016, to commemorate our 70th anniversary, the company took this commitment to a new level with FH4Inclusion, a year-long, global initiative focused on a singular cause: social inclusion.
We identified non-profits, charities and organizations that champion social inclusion, and put the collective power of our employees’ time and talent to use in a way that made a huge impact: more than $2 million worth of time donated to worthy causes in the countries where we work. The initiative earned recognition from PR News and The Holmes Report and was such a big success that it will continue beyond our anniversary year.
While we weren’t necessarily seeking an ROI beyond the good we brought to the socially disenfranchised, we got it anyway. In our most recent employee engagement survey, four of six critical measures of engagement were up. But most impressive were the whopping jumps made in our employees’ belief that FleishmanHillard is committed to social responsibility. The score given to the following two questions increased by an incredible 24 and 19 points, respectively: “My office supports involvement in the firm’s corporate responsibility efforts” and “I am aware of the activities my company is taking to be socially and environmentally responsible.”
Reviewing studies, projections and engagement surveys is one thing. Seeing the value of CSR come to life before one’s very own eyes is quite another. The moment that underscored it best for this author was an expression of gratitude from one disadvantaged high school student who we helped: “FleishmanHillard changed my life.” That’s an investment in the future of our world. To paraphrase Thoreau, it’s one that simply can’t fail.
*CSR is being used interchangeably with sustainability, social responsibility, stewardship and other similar concepts.