Do Good and Do Well, Can Finance Help Companies Do Both?

Corporate Social Responsibility is not just a buzz word it is good business. By becoming socially responsible, companies can drive value, increase profitability and improve the bottom line.

For those tied to the capital markets, it can also increase a company’s stock price by attracting new and different types of investors. Per a recent Morgan Stanley survey, “71% of individual investors are interested in sustainable investing”.

Corporate social responsibility is quickly becoming a vital point of reference in the business and investment community. Finance professionals can partner with marketing, sales and operations to leverage their company’s green and socially responsible investments to sway investors and consumers in choosing them over the competition.

Consumers have changed the way they shop, and investors have changed the way they invest. In today’s economy having the cheaper price is not enough for a company to get the competitive advantage over its competitors. Companies need to bring value to their products and do so with purpose. Industry leaders are taking note of this change, such as Peter Brabeck Chairmen of Nestle “If you look at the millennials, they are the first generation now who are willing consciously to spend more… for sustainability”. The new generations of consumers are becoming more aware of what they are buying and if it adds extra value to them or their community.

Emerging Investor Interest

This trend is not isolated to just consumers, the importance of value and sustainability is also being noticed by investors. Investor’s always pay attention to new opportunities and emerging markets. Solid Corporate Social Responsibility (CSR) and Environmental, Social and Governance (ESG) reporting are becoming the new opportunities in the emerging markets of environmentally and socially responsible companies. Investors can use these reports as pivot points for possible investment ideas and money managers can leverage them for additional insight to add value to their client’s investment portfolios.

To show how popular CSR reports are becoming Eurosif and ACCA conducted a report which asked investors what was the most important nonfinancial report, it showed that “89% of respondents felt that CSR/sustainability reports are essential or of high importance.” Nevertheless, for investors and companies to take full advantage of these opportunities they will have to add purposeful value to their products, such as becoming eco-friendly or creating eco-friendly products.

Consumer Connecting with Companies

Consumers want to feel good when they purchase a product or a service. So, if they realize that company and the products they are buying are eco-friendly and sustainable this makes them feel good which will encourage them to return to the company. In addition to the customer feeling good about shopping, sustainable goods grow a connection with the company because of the values they both share. Recent studies from Nielsen and Deloitte show that millennials are most willing to pay more for products and services seen as sustainable or coming from socially and environmentally responsible companies.

Companies such as Target, Whole Foods, and Coors Light have all been promoting their sustainability and how good their CSR and ESG reports are. The promoting of these reports has yielded a new insight into a company’s health that was not available before. Goldman Sachs has been reporting ESG’s for the past 7 years, where they have shown in detail what exactly the company internally invests in. These investments include assets under supervision, different initiatives that help nurture diversity inclusion, and how much has their socially responsible portfolios grown. These are some of the areas that are beginning to play a big role in many investors mind. However, not all companies are willing to divulge this information. Therefore, there has been an increase in regulatory demands to increase transparency. Countries in Asia and Europe have been implanting stricter transparency enacting  ESG laws on business and are planning to enact more laws thanks to the Pairs Agreement.

Corporate Social Responsibility Improves Corporate Earnings

Furthermore, improvement in ESG and CSR reports are not just to increase consumer loyalty or the transparency for investors. Improvements in both reports can help companies drive value and profitability through green program initiatives, and purposefully marketing socially responsible activities. Going green or creating new innovative ways of bettering the company’s CSR and ESG reports can create value for the company. Not only by increasing the loyalty with consumers that share the same value but also creating a new brand or targeting a new audience.

For example, Target and Coors Light both address corporate social responsibility in different ways based on their competitors, Walmart and Bud light respectively. Target boasts about having better quality and responsibly sourced produce compared to Walmart. Coors Light has launched their “Everyone CAN” campaign which is an aggressive push to a sustainable and socially responsible brand. Coors Light is using bar tap handles made from recycled aluminum and beer coasters made from 90% recycled material. A representative from Coors Light recently noted, that the brand decided to replace neon bar signs with LED versions, which are “much more sustainable”. One of the reasons why Coors Light has been so aggressive is they want to capitalize on what Unilever claims to be a $1 trillion-dollar market for sustainable goods.

Not only can companies like Target and Coors Light profit from piercing into a new market, but they can also increase profits through cutting waste. For example, when the Dow Chemical invested $2 billion dollars to reduce its waste, that investment saved the company $9 billion dollars. On the other hand, instead of cutting waste, profits margins can increase by just conserving energy. The City of Los Angeles is saving $5.3 million annually thanks to the Green LA initiative that has thus far replaced 114,000 high-pressure sodium street lights with LED”

You Can Do Good and Do Well

Having solid CSR and ESG reports can have profound benefits to several different companies. Investors are drawn in because of the transparency that the reports give; as well as, the profits it brings in when companies target a new audience. Consumers also benefit, they get to shop in a company that shares their values and they get to feel good while doing it. The companies themselves are the big winners who can attract new customers, makes them look good in the eyes of investors, and get to increase profits by cutting waste and conserving energy. Overall when a company does good for the communities and/or the environment, they get to reap their rewards in terms of profits and market share.