Is Good Corporate Citizenship Also Good for the Bottom Line?
Our latest Freakonomics Radio on Marketplace podcast is called “Is Good Corporate Citizenship Also Good for the Bottom Line?” (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript here.)
The short answer: yes. That’s the finding of Robert G. Eccles, Ioannis Ioannou and George Serafeim from their recent paper “The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance” :
“We show that there is significant variation in future accounting and stock market performance across the two groups of firms. We track corporate performance for 18 years and find that sustainable firms outperform traditional firms in terms of both stock market and accounting performance.”
You’ll hear Serafeim explain his findings and you’ll also hear from Georg Kell, executive director of the UN Global Compact. Its mission is to help companies around the world adopt the behaviors of Corporate Social Responsibility (CSR) — which include not only good environmental stewardship but also fighting corruption and the ethical treatment of employees and customers. All of this is, alas, easier said than done:
KELL: “Well, if you were to ask me for the Global 1,000 corporations, how many of them are sincere and serious about sustainability and long-term value creation? Our own implementation survey and others done by other leading think tanks will probably suggest we are probably at 15 percent.”
You can search here for companies that participate in the Compact. And, perhaps more interestingly, you can look up which companies the Compact has expelled for non-compliance (and here’s an update of the expelled list).
One key component of a “high-sustainability” company is thoughtful long-term planning. One interesting example is Dow Chemical, an upstanding member of the UN Global Compact since 2007 and the focus of an HBS case study by Robert Eccles. Dow has gone through two cycles of 10-year goal-setting and is now debating whether to set goals for the next 100 years. Here’s what David Kepler, Dow’s chief sustainability officer, told us:
KEPLER: “What our first set of goals were that were 10-year goals started in 1996. Energy efficiency was a big part of that. In that period of time, we saved almost $5 billion around energy efficiencies. So there’s an economic story, but there’s also an environmental story in that.”
Unfortunately, we didn’t have space in our Marketplace piece for the Kepler conversation, nor for our conversation with Intel’s chief operating officer Brian Krzanich, (who may be the firm’s next CEO). Intel has been issuing corporate responsibility reports since 2001, and keeps a running CSR blog:
KRZANICH: “I think those things come hand in hand — they’re properties of what makes a company great. It’s just being exemplified in a different arenas. It takes good strategic thinking to think far enough out in advance and say, ‘I’m going to get a return on investing in the communities and the education systems so that my workers five, seven, eight, ten years out are going to be stronger and better and the kind of workers I want.’ That same kind of strategic thinking delivers better products and better product road maps.”