In the current business climate CSR is an indicator of business success and provides a competitive advantage against surrounding and same sector businesses. Demands on corporate transparency are increasing as there are better informed external stakeholders in the current market than ever before including customers, media, future and current employees, industry analysts, potential and current investors, communities, and regulatory bodies. These stakeholders are holding companies accountable for their environmental and social impacts.
With this new age of transparency and accountability comes another element of competitiveness among firms both nationally and internationally. Companies, in Ireland and globally, are expanding rapidly and using their CSR policy and practices to distance themselves from competitors and to increase their Unique Selling Proposition (USP) for investors and consumers (Wirl, 2014).Potential and current investors, with the aid of tools such as the MSCI KLD 400 Social Index2, can now target companies with high Environmental, Social and Governance (ESG) ratings and avoid companies which fail to meet ESG targets.
Similarly where companies are more socially responsible than their competitors they receive higher acquisition returns,further signs that investors will favour companies who engage with effective CSR (Deng, Kang and Low, 2013).
Shareholders holding firms accountable for their ESG rating are already a reality. A 2013 Greenbiz survey concluded that 50% of companies saw increased enquiries from investors/shareholders about sustainability-related issues in the previous 12 months. The five topics that shareholders/investors were anxious to address were:
Research has shown that companies’ CSR policies are significantly influenced by the CSR policies of companies in surrounding areas, even after controlling for factors such as size, leverage, profitability, capital expenditure and advertising (Jirapon et al 2014), thus highlighting that in order to increase a firm’s USP they must at least match the responsible business practices of their competitors and of the surrounding businesses.
This article is an extract from our new publication, The Business Case for being a Responsible Business.
To receive a free copy, please contact Joe O’Donnell at email@example.com