Social and environmental commitments are not expenditure, but investment that will eventually lead to company growth and long-term success
Jean Frijns, Chief Investment Officer, ABP-PGGM Capital Holding N. V. 2004
Sustainability has gone beyond being a luxury brand differentiator to become pivotal to long-term success, driven by competition, customer demand and, it is now an aspect of recruiting and retaining the best people.
Primary function of every enterprize is to produce goods and services, and be sustainable and profitable. Corporate social responsibility does not conflict with this main function, but rather compliments and strengthens it.
The opinion that economic goals conflict with social and environmental objectives and thus corporate social responsibility is a luxury, is very outdated and no longer mirrors the reality.
In the mordent world, corporate responsibility is an integral part of the new business model.
Modern management theories are based on the opinion that responsible businesses are more successful in the long-term.
Customers, employees, investors, the Government, international organizations, and the society are more persistently demanding and expecting that companies act more responsibly, adhere to ethical behavior norms, and promote the accomplishment of sustainable development goals. In the modern, digitalized, “transparent” world, where information on the company’s activities and impacts is easily accessible, the company’s reputation, consumer and employee loyalty, access to funding, and its success is increasingly dependent on the company following corporate responsibility standards.
For the enterprises, corporate responsibility is a strategic approach that helps them to improve their relationship with various stakeholders, become more sustainable, effective, and competitive, and, this way, increase the success of their business and also benefit the society.
Companies can improve society —and do well. 73% agreed that a company can take specific actions that both increase profits and improve the economic and social conditions in the communities where it operates.
In the modern world, enterprises face constantly growing risks related to uneasy market environment: stakeholders are more strongly expecting that enterprises act responsibly and consider sustainable development issues; and global environmental and social challenges cause greater economic risks.
The World Economic Forum 2019 identified main economic risks that, along with others, included environmental challenges, such as: disruption of bio-diversity, climate change, water shortage
Companies that integrate corporate responsibility and sustainable development issues into their business strategies are much more successful in managing economic, social or reputational risks, responding to legislative amendments, and following new international trends on social and environmental issues.
In the modern world, corporate responsibility is one of the important factors in establishing the company’s reputation. And the other way around –irresponsible behavior of a company can easily damage the brand image. As a proof, we can recall many corporate scandals of the last several decades caused by irresponsible or unethical behavior of companies, or by damage they brought to the environment or the society. In the world, where the brand and reputation are the company’s most valuable assets, social responsibility helps the company to gain public trust and loyalty, which, in their turn, ensure its successful and sustainable future.
According to the annual Global Reputational Rating (Global RepTrak™ 100) of 2020:
According to public opinion survey conducted in Georgia in 2007, 56% of respondents think that corporate social responsibility has a positive impact on the company image and helps it gain public favorability. While 85% of the surveyed companies see corporate responsibility to be an important factor for the company reputation.
As proven by many studies, there is a correlation between company reputation and consumer behavior. A considerable part of the consumers state that they prefer to use goods and services of a socially responsible company, and the number of people with this mentality is increasing.
“A new era of sustainability is rising, and it’s touching every corner of the world. Consumers in markets big and small are increasingly motivated to be more environmentally conscious and are exercising their power and voice through the products they buy.”
Modern consumers need not only quality and safe goods. They also pay an increasingly greater attention to the extent at which companies consider environmental and social aspects during their production or sale processes. This growing trend is referred to with a term – Responsible Consumerism.
Responsible Consumerism means that purchasing decision of a consumer is defined not only by the quality and price of the product, but also by sustainability consideration, i.e. by social and environmental characteristics of the production processes.
Almost half (46%) of surveyed global consumers said they would be willing to forgo a brand name in order to buy environmentally friendly products
78% of global population consider that the way a company treats its employees is one of the best indicators of its level of trustworthiness.
Seventy-nine percent of all consumers say that they include sustainable packaging in their purchasing decisions—always, usually, or at least sometimes (Exhibit 3). This figure is even higher among millennials (83 percent).
66% of surveyed respondents are willing to pay more for sustainable goods.
Millennials are the most willing to pay extra for sustainable offerings—almost three-out-of-four respondents (73%)
42% of consumers have stopped buying products due to environmental concerns
According to a 2007 study, 60% of respondents in Tbilisi state that in case of similar quality and prices, they would prefer goods made by a responsible company, provided that they have trustworthy information.
Recruiting and retaining best professionals is decisive for achieving success in the modern competitive business world. On the other hand, having a reputation of responsible company is one of the important characteristics when looking for a desirable employer. Larger numbers of young professionals choose companies with high social responsibility as their workplace, expecting that the employer adheres to sustainable development values and issues. Employees are more loyal and motivated when they are proud of the company they work for.
67% of global respondents expect that their employer will contribute to a greater purpose and that the work they do will have a meaningful societal impact. 25% declare they will never work for a company that does not offer this, while 42% state they would request to be payed a lot more to work for an organization that does not offer this.
According to Millennials’’ Survey of 2019 (carried out in 42 countries worldwide and surveying a total of 13416 respondents), business leaders’ priorities must align with broader societal impact to attract this generation of talent.
Nearly one in four companies said one of the driving forces behind their investments in sustainability is to improve their ability to recruit and retain the best people.
In April 2019 more than 4,500 Amazon workers sign an open letter demanding CEO Jeff Bezos takes a proactive stance on climate change and end the company’s ties to the oil industry.
A successful busines story always has a background of acceptance of and openness to innovations, new directions and trends, and responsiveness to market demands. CSR is a mechanism of applying new opportunities and innovations effectively.
For example, environmentally friendly goods and items, such as electro mobiles, vehicles operating on solar energy, ethically produced coffee, wind turbines, recycled goods, etc., open access to new markets.
According to Global Consumer Sustainability Survey, 2019:
Innovative and sustainable production/sales methods give the companies a competitive advantage.
For example, a company might be certified according to environmental or social standards, so it might become a desirable supplier for some enterprises or sellers.
Analysis conducted for environmentally friendly technologies also indicates that going beyond minimal legislative requirements helps increase the company’s competitiveness.
In 2015, sales of consumer goods from brands with a demonstrated commitment to sustainability grew more than 4% globally, while those without grew less than 1%.
Sustainably manufactured consumer goods made about 16% of the total market, however, their sales growth rate reached 57% over 2015-2019, and the trend still continues despite the COVID-19 pandemic.
Being a major characteristic of corporate responsibility, dialogue with stakeholders can become a source of new products, innovative production technologies or new ideas, help the business to identify new market directions and trends, and ultimately lead to competitive advantages of the brand.
A company’s social responsibility implies to the introduction of high corporate management standards. Systematic approaches and constant improvement in the management systems lead to the increased effectiveness and reduced expenses.
Reduced expenses that result from the implementation of CSR approaches combined with effective environmental policies are particularly noticeable. Assessment of environmental aspects of the company’s operations can reveal new opportunities to “turn the flow of waste into the flaw of income”. For example, in addition to answering environmental concerns, minimization of the waste, recycling and using secondary materials also lead to lower expenses. Effective energy-management and cutting back on energy consumption, systemic decrease of water usage, effective and sustainable usage of resources achieve both objectives – the company’s less environmental impact and its lower operational expenses.
Another potential area to reduce the expenses is advertisement costs. Implementation of good corporate citizenship programs increases the Media coverage of the company’s activities. In its turn, this intense Media coverage serves as a good advertisement for the business.
Responsible companies have opportunities to create effective supply chains and have better partnerships. Often times, such companies require from their suppliers to adopt CSR approaches and comply with certain social and environmental standards, such as: environmental protection management schemes, labor standards and human rights. Accordingly, corporate responsibility gives small and medium size companies better opportunities to be switched to supply chains. Existence of high standards of responsibility, responsible policies and management systems also are becoming a pre-condition for large companies to establish new partnership relations, and the trend is increasing.
Effective communications with stakeholders, consideration of their interests in business activity and accountability to them help business operators to gain and maintain “social license” for their activity, in other words – to create their “social capital”. A socially responsible company with public support has better opportunities to continue and expand its operations or even to launch a new activity.
The term “social license to operate” was created in the UK and implies to public support that is necessary for successful operation of a company. The term does not imply to official permits that are necessary to operate, rather it refers to mutual understanding between the company and its stakeholders. The main pillar of the “social license to operate” is trust, and it is based on the views of the employees, clients, suppliers and the broader public.
87 percent globally believe that customers, employees, and communities are more important than shareholders to a company’s long-term success.
The fact that corporate responsibility is constantly gaining the importance on the capital markets is one of the main factors for CSR development. When making investment decisions, along with looking at the company’s financial indicators, an increased number of investors considers the company’s social, environmental and corporate management (ESG) issues. The approach is known under the term „Responsible Investing“
Globally, by the 2018, the assets managed by the principles of sustainable and responsible investing equaled to 30.7 trillion USD. Out of this, 49% of total assets under professional management in EU and and 26% in the US was invested according to sustainable investing strategies. Japan, Australia and Canada also represent growing and important markets for Responsible Investment.
Existence of this much capital on the financial markets that is being managed in line with “responsible investing” principle – considering social, environmental and ethical concerns – is a strong motivator for the companies (especially those that are listed on stock markets) to introduce responsible approaches into their operations and thus help their shares become acceptable and attractive to such investors.
HSBC Navigator has found that for many businesses, becoming more sustainable is not only beneficial for the environment and the society, but for their bottom line too. Sustainability and commercial goals go hand in hand. Never has there been a more important time for businesses to play their part in creating a more sustainable future. Forward thinking companies are acting now.