CSR Market Signals and Four Steps to Greater Profits and a Healthier Planet

Posted by Staff on Dec 13, 2010 in Column, News | 1 comment

With annoying regularity someone suggests the term CSR needs to be rethought, thrown out or reengineered altogether as if by changing the word we could usher in a radical advance in sustainability.

The neuro-linguistic challenge is not as much about the word itself however as it is recognizing the underlying concept, or the how, in a capitalist economy, can the widespread and growing belief in the need for sustainability be transformed into stronger, more actionable market signals — because, lets face it, until companies can hear the signals not nearly as much sustainability will be achieved as is necessary to stave off looming inevitable ecological and resource shortage crises.

Like any other market shaping phenomenon, the question executives should be asking is: where are the sustainability market signals and how can I benefit from them now and into the future?

 

A Giant Short Circuit

 

Fortunately, capitalism is pretty straightforward (despite what economists such as yours truly like to publically admit). There are two things to consider.

First, to gain profits companies produce goods and services that somehow capture what the market “values.” The more it captures the better it does.

Second, the market sends out signals to companies as to what it would like to see produced.

Here’s where we meet the “signal” challenge head on: what is the market? Well, for lack of a fancier term, the market is: us. It is not some independent animate object comprehensible only through inexplicably complex econometric models. Rather, it is merely and simply the sum total of what “we” the consumers want or need, and are willing to pay for.

Understanding this is critical to advancing CSR and here is why I think so:

Very, very, very few individuals advocate massive pollution; fewer still wish children work fourteen hours a day in filthy sweatshops; and everyone wants to have fulfilling, and well compensated work. The list goes on but I think you get the point: as individuals we can communicate great values, as a market… not so much.

Somewhere between the home, church or community group there is a great big disconnect between the values we hold dear as individuals and the market in which we make our purchasing and investment decisions. The result: the signals we send to companies trying to capture what the market values tells them to pollute, exploit, and pillage unless otherwise held accountable by government or the media (that is, we don’t mind companies getting away with doing bad things even if we know more or less what’s going on, but coming face to face with the results offends the sensibilities of our values).

 

Connecting to Sustainability Value

 

I cringe when I read silly passive-voiced statements like “investments need to be directed towards renewable solutions.” It’s like my ten year old boy saying someone needs to get him a plate when he is standing right beside the cupboard.

Who is going to direct sustainable solutions?

The government? Government has seldom had sway over market signals and these days they seem so poll driven as to have abdicated all independence of mind, so who knows where they would choose to invest our tax dollars. Besides, most governments are as “green washy” as many companies are these days. Government does have a big role in terms of regulation. But if the line between “good” and “bad” corporate behavior must always be drawn by regulation then I am afraid the sustainability battle is already lost: this is true because companies will always find ways avoid regulations; and because voters world wide seem to want less not more government, leaving the prospect of more and or better regulation to reactive tactics than preventative strategies.

Companies? Well companies have made some advances towards meeting the market’s sustainability signals, but mostly they are willing accomplices to both feeding and feeding on our lesser virtues. Most have learned more about playing sustainability than seeking it, which is to say, much of what we see may just be good polish. A fine article in Ethical Corp Magazine (October 2010 issue) points out that BP, among other corporations, was heralded by many serious CSR rating/ranking schemes as an evolving paragon of sustainability. Learning from the past as we ought to, we find significant holes in the efficacy of sustainability reports, which BP, Shell, Citibank, Enron among others with significant CSR issues, had in great and picture perfect supply.

No, I believe that companies have not approached anything resembling full sustainability simply because they have yet to hear the cacophonous

clamor of the market demanding in big, clear signals that this is what we, the market wants. All the ranking, sustainability reporting, and seals of approval will only take us so far (centimeters really) towards sustainability. For as with BP, valuable as they may be in the narrow sense, compared to price and quality signals, rating and rankings have the behavior changing effects of being spanked with a wet Kleenex. (A thought: perhaps if companies won $1 billion for placing first on a CSR list we might see some significant corporate sustainability advances – an appropriate role for government perhaps?).

Both business and government have a tremendous role in creating the kind of world we want. The big job of CSR is not to wait for “them” to do it however but have “us” indelibly connect our values to the market place. Fortunately, the sentiment of our values already support sustainability even if the signals we send seem as clear as if being sent on child’s crystal radio set from Mars.

 

Five Steps to a Healthier Planet and a Bigger Bottom Line

 

So how do we as consumers and investors send stronger sustainability signals to the market and as corporate decisions makers, how do we take advantage of the latent market values inherent “us’ the market! There are four key signs and responses for CSR executives.

 

1. Taking Values to Market and Marketing to Values

 

Many CSR detractors say values have no place in the market. Baloney. The market is all about values. Why did everyone buy teal cars and jackets in 1990? Because it made the cars run better or jackets warmer? No, because it was the “new” color and “we” just seemed to like it better than other colors. If that is not a value judgment I can only respond by saying where are all the teal cars today? The reason why people buy brand names when non- brand names have the same or sometimes better quality at a lower price offers a similar insight. Brands makes us feel, well…. better, wiser, richer; whatever it makes us feel, none of these “values” send off non “values” driven price signals.

Now other values, like sustainability and all its component parts are something we undeniable want. But as noted, the signals we are sending are undeniably weak. But they are getting stronger. More consumer and investors are taking their “values” to the market by asking for products or services that meet their “value” needs. Substitute fair trade, organic, fairly sourced, recycled, and recyclable for the word teal and you get the picture.

If your company does not imbue one or more of these attributes in each of its products then I can categorically say you are loosing valuable market share now, and every moment you wait to do so, you loose more. There are so many ways to find value “values” embedded in any product to attract more buyers, but for some reason conventional wisdom says we can’t or shouldn’t or it wont work. Like anything else in business, hire professionals that know how to do it and anything can be done. And the nice thing about creating CSR brand value is that because values have no beginning or end the potential market value to capture is infinite.

 

2. Invest for Reasonable Short-Term and Great Long-Term Gains

 

The dot-com bubble of the late 1990s led us to the crazy common notion that a 25% annual return was the norm even as long-term data shows 7% is a more reasonable expectation. In the exhausting and seemingly never ending aftermath of the financial meltdown of 2008-2009, many investors are recalibrating return expectations to focus on long-term value and not massive, immediate (and unlikely) profit levels. Don’t believe me? With growth of abut 20 percent, social investment with its longer-term horizon was the only asset class in the USA, with the possible exception of treasury bills and high quality corporate bonds, that saw net growth over the last two years (check out the report at www.sif.org).

Every day investors in Europe and the United States are demanding financial advisories have the information available to make sustainability investment decisions. Like it or not, a social investors some where in the world is judging your company’ sustainability performance even as you read this word. But never mind, they only control a rapidly growing 1/5th of market cap so maybe they aren’t so important.

As a corporate investor, a short-term investment horizon is as likely to be dangerous as not. Putting sustainability squarely in a mid to long-term investment strategy is not only sound but will, like investment returns generally, result in at least equal if not better results. (If you don’t believe me, check out the various sustainability indices which, for all their limitation including some once holding BP, typically outperform peer indices. I can send you the links). On the other hand, as more investors begin to scrutinize your company’s sustainability record, what kind of picture do you want to send them?

 

3. More Transparency – More Sustainability – More Value

 

When people buy a house they tend to read the fine print on the sale agreement (or at least have a trusted lawyer do it for them) so they know what they are getting in to. People are also starting to demand the same details for everything they buy. Just as we first got basic ingredient labels and then nutrition labels, we will get sustainability labels on everything from our food to our timber to our clothing. In fact, much of this is already happening. Timberland and others are pioneering full disclosure product labels that list where many component parts of a product are sourced and at what the cost to the environment. The Forest Stewardship Council label identifies sustainably harvested wood, and there are similar labels being proto-type tested for many other products.

There is only one thing I can think to say about that: in this, the sustainable century, the companies that labels first wins. They will win even bigger if they boost credibility with third party verification of their labels and have meaningful product “values” content. This makes for highly credible and not just glossy sustainability reports. The market is only just warming up to greater transparency now, but it is coming and those companies getting ahead of the curve are creating extraordinary and virtually free CSR brand value.

 

4. Demanding Action

 

Once credible sustainability reports and sourcing labels are widely available and this is inevitable, long buried consumer values will take voracious bites out of conventional or non-sustainable product market share (do you actually think market leaders will be selling gas powered car in the 2020s?). Consumer will want the ability to decide if shoes,  for example, made mostly the USA by decently paid adults are more aligned with their values than those made by companies employing workers the age of my eight year old ponytailed daughter.

At first transparency will seem like a small fissure in a giant damn, but like a good James Bond movie, water from that small crack will start spurting, then pouring, then suddenly explode as a wall of demand for sustainable products causing a torrent of good news for companies with sustainability foresight, and a lot of very bad news for those without.

 

Tapping the Infinite Value of Values

 

Companies must respond to market signals if they are to thrive: there is no other way in a capitalist economy. Consumers and investors are increasingly deciding in the shop, on the trading floor, and in our places of work that they want to see the values they hold dear reflected in the products and services they buy and in the investments they make.

Companies ignore weak but growing signals at their peril. Those that do not wait for stronger more obvious signals, those that respond to and seek to satisfy the infinite if still latent value of sustainability in the market, would seem to me to be the companies that are truly interested in maximizing stakeholder and shareholder return.

 

Para más información sobre cómo calcular el Valor RSE de la Marca:
ES Global Consulting
Sandra Valle
svalle@esglobal.com

 

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Marc de Sousa-Shields

Marc encabeza el área de Responsabilidad Social Corporativa de ES Global. Sus responsabilidades principales se centran en la asesoría de estrategia de RSE a nivel corporativo, las evaluaciones de inversión en RSE, y las mejores prácticas de capacitación en RSE para empresas en los países en desarrollo. También ha trabajado extensamente en el campo del desarrollo económico local especializándose en la pequeña y microempresa, incluyendo micro-finanzas en las zonas rurales y urbanas de los países en desarrollo.

Algunos de los clientes de Marc en consultoría y capacitación incluyen el Banco Mundial, la Corporación Financiera Internacional, BAC Credomatic, Statoil, la Fundación Ford, Grupo Modelo, Banco Interamericano de Desarrollo, y varias prestigiosas instituciones de investigación y universidades. Para obtener más información, visita www.esglobal.com