Measuring Corporate Citizenship: Does CSR Enhance Performance?
Evidence that corporate social responsibility programs can increase revenue by attracting and retaining customers continues to grow.
In the working paper, Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance, researchers from Harvard Business School analyzed the adoption of various environmental and social policies among 180 companies and found that High Sustainability companies outperformed their counterparts on the stock market and in accounting performance.
Previous studies have explored the connection between environmental and socially conscious products and consumer behavior. Ailawadi and Luan at Dartmouth’s Tuck School of Business found that perceived environmental friendliness, employee fairness, community investments, and locally sourced products all improved consumer attitudes toward the grocery store. But people only bought more when the grocery store’s investments were related to employee fairness or local sources and suppliers. These findings suggest that CSR enhances brand loyalty if there is a direct connection between the social investment (e.g., fair wages) and the product.
The HBS findings go beyond consumer decision-making and indicate differences in company decision-making between High and Low Sustainability companies. Companies that instituted sustainable practices in the early 1990s were more likely to disclose nonfinancial information, have organized stakeholder engagement, and be more long-term oriented. Incentives for executives were also more likely to be a function of the company’s sustainability metrics.
In measuring corporate citizenship, this paper offers yet another counterpoint to CSR as a short-term marketing technique. High Sustainability companies make long-term investments that alter governance structures and corporate culture. The DNA of the company, not just the product, is altered by social and environmental commitments. And with a long enough time horizon, those investments seem to have a substantial financial ROI.