Show Me the Money: Communications is Key to Connecting CSR to ROI for Investors

Show Me the Money: Communications is Key to Connecting CSR to ROI for Investors

The phrase “show me the money” was made famous in the movie Jerry Maguire as a professional football character’s response to praise about his abilities on the field. It was his litmus test for the authenticity of praise and how he was truly valued. The same can be said about real world investors. They hear the positivity around corporate social responsibility (CSR) programs, but their test of authenticity is how well those programs are delivering real financial value.

Investors Increasingly See Value in Sustainability

According to the Sustainability Standards Accounting Board, the total volume of U.S. sustainable investments has nearly doubled over the past two years, reaching nearly $7 trillion. Interest is rising rapidly: Morningstar reports the proportion of all assets screened according to sustainable criteria rose from 21.5 percent in 2012 to 30.2 percent in 2014, and Bloomberg says the number of investors accessing environmental, social and governance (ESG) data on its terminals increased 76 percent from 2013 to 2014.

Despite this rising interest in sustainability, a common refrain by C-suite executives is “if sustainability is important, why doesn’t it come up more often on shareholder calls?” Perhaps it is because investors are asking about sustainability, but not using the word. Questions about executive compensation are related to governance concerns, labor policy inquiries connect to social responsibility, and supply chain questions may well be rooted in environmental or human rights concerns. So all of these prominent issues connect directly to sustainability.

Regardless of how questions are asked, company executives need to embrace the fact they are increasingly being scrutinized more thoroughly for their approach to addressing environmental, social and governance (ESG) issues. And while disclosure remains voluntary, there are indications that some level of ESG disclosure may eventually become mandatory for listed companies.

At the World Federation of Exchanges’ General Assembly in Doha this year, recommendations were made to member exchanges on how to implement sustainability policies on a voluntary basis. The WFE Guidance & Recommendations identify material ESG metrics that exchanges can incorporate into disclosure guidance to companies listed on their markets. Specifically, the enhanced guidance highlights 34 key performance indicators, including energy consumption, water management, CEO pay ratio, gender diversity, human rights, child and forced labor, temporary worker rate, corruption and anti-bribery, tax transparency and other corporate policies.

Private Companies Fall Within the Spotlight

As investors increase their scrutiny of the ESG performance of target stocks, they are also looking deep into supply chains to evaluate the performance of the company’s partners. For example, Bloomberg provides supply chain information, including evaluations of privately held companies based on publicly available data. Private companies that disclose carbon emissions to the Climate Disclosure Project (CDP), produce a sustainability report, and avoid negative media coverage are more likely to produce favorable results. As investors increasingly look more favorably on ESG disclosure from public companies, those companies will be looking to choose supply chain partners that improve their profile and sever ties with those that don’t.

Opportunity to Engage on Multiple Levels

For communicators, this growing interest in ESG disclosures and their business value calls for a more strategic approach that goes further than including CSR messaging in shareholder presentations and annual reporting. While investors are increasingly seeking ESG information, they are not looking to compromise financial returns for sustainability. Rather, they’re looking at sustainability excellence to drive superior returns. That means whenever possible, every communication from a company needs to link performance, brand attributes, product innovation and business strategy to ESG metrics.

The market influence of millennials is making this integration of a sustainability narrative even more critical as they increasingly become the investors and consumers companies rely on most for success. According to a Morgan Stanley study, compared to the overall investor population, millennial investors are twice as likely to:

  • invest in companies or funds that target specific social or environmental outcomes.
  • invest in companies or funds that aim to use ESG practices to create a value differentiator.
  • exit an investment position because of objectionable corporate activity.
  • purchase from a brand because of the company’s social and/or environmental impact.
  • check product packaging to ensure sustainability.

Communicating Financial Value

Opportunities for connecting the sustainability-to-value dots for investors and customers reside at all levels of communications within an organization, including marketing, corporate PR and internal. As the United Nations’ Sustainable Stock Exchanges (SSE) Initiative spells out, the connecting factors of ESG excellence to return on equity or capital are: growth from sustainably enhanced or advantaged products and services, productivity improvements from sustainability-related initiatives, and risk management that improves reputation and reduces cost exposure.

The objectives it lays out for ESG reporting by listed companies read like those taken from a thoughtful communications plan. Under the category of Corporate Reputation and Branding, they are:

  • Demonstrate corporate commitments to responsibly managing environmental, social, and economic impacts.
  • Exhibit corporate adherence to industry ethical standards and national and international frameworks on corporate sustainability and sustainable development, particularly in light of the U.N. Sustainable Development Goals.
  • Enhance corporate reputation by improving stakeholders’ perception of a company through reporting-related stakeholder engagement.
  • Improve employee perception of the company, helping to attract, retain, motivate and align new and existing employees.

There’s no doubt that financial analysts and investors see the value of greater ESG disclosure and corporate sustainability activities — just follow the money. However, according to Accenture, a vast majority of investors “don’t think companies are effectively creating a business case for their sustainability efforts and then demonstrating how those efforts contribute to growth and competitiveness.” That’s the challenge for communicators. If you want to investors to take notice, take stock of your CSR program and then focus on showing them the money.

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    Ron Loch is Managing Director, Chicago, G&S Business Communications. In a competitive global marketplace, Ron helps businesses gain by doing good. A G&S veteran, Ron’s collaborations with global Fortune 1000 companies and green business start-ups have delivered strategic, integrated programs to gain value from sustainability efforts and commercialize clean technologies. Ron oversees publication of the annual G&S Sense & Sustainability® Study, which gauges public perceptions of the corporate commitment to environmental and social responsibility. He also moderates many of the firm’s thought leadership events, which have welcomed speakers from Businessweek, Burt’s Bees, Verizon, Time Magazine, The Sustainability Consortium, The World Food Prize Foundation, U.S. Green Building Council, U.N. Global Compact, and more. Ron graduated with a B.S. in Journalism and Mass Communications from Iowa State University and received a Master’s Certificate in Managing the Sustainable Enterprise from the Illinois Institute of Technology Stuart School of Business. He has also completed the certified GRI sustainability reporting curriculum. Ron hones his crisis management skills by tackling obstacles in Spartan races.

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