Insights From Davos 2014
CSR: If not now, then when?
CSR is a new and advanced approach to assess the vitality of companies and is becoming increasingly relevant for the in depth evaluation of investment and development opportunities.
Given the uncertain evolution of the global financial crisis, investors are evaluating not only the short-term financial performance of companies, but also their real viability—in other words, their ability to grow when faced with new challenges and risks generated by a fast-changing world. As a result companies are facing a growing demand for transparent and accurate data on CSR performance.
According to research presented Friday at the World Economic Forum, the corporate sector has been inconsistent in keeping investors on track. Companies have failed to consistently highlight their vision and progress toward realizing their CSR goals. Chairmen, CEOs, and CFOs seldom take advantage of opportunities to discuss the latest progress or risks in the field of sustainability in their annual reports.
Among blue chip companies, less than 10 percent report on materiality from a societal perspective, preferring to focus almost exclusively on the company itself.
At the same time, these companies understand the importance of achieving a good ranking in lead indices, such as the DJSI or CDP, in order to obtain long-term commitments from capital markets. Annual reports talk about the topics that companies feel are important, and CSR activities typically only represent for 5–10 percent of total content. Specificity in annual reports is also a challenge for many companies.Companies are rarely specific as to where their CSR activity occurred.
Clearly, this lack of specificity impacts the credibility and level of transparency of the initiative. When location was specific, it was predominantly in the home country.
While CSR activities in the home market are key and can be drivers for growth, in this era of globalization, the majority of economic growth is currently concentrated in emerging nations. Many stakeholders, in particular local stakeholders, want to know about CSR activities in developing markets. Does the fear of globalization drive companies to heavily focus on home markets in their reports? Or is CSR not important to companies?
The reality is that research presented today suggests that many multinational firms are missing out on an opportunity to engage their stakeholders in a transparent and meaningful dialogue.
As a consequence, they are leaving it to others to tell their stories—with all the risks this inevitably entails. When companies do not make a convincing case about who they are, their values, and how they operate in their annual reports, it is detrimental. The lack of clarity on successes, failures, and risks leads the news media to ignore what is central to corporate image and reputation building with stakeholders, including investors
Perhaps the most intriguing conclusion from the study is the relationship between CSR strategy and stock price. Companies with clearly articulated CSR strategies generally outperform those who have yet to make the transition to dialogue and transparency—further underlining its importance.
Reference: Radaelli, S. and Schatz, R. (Jan. 24, 2014). "Creating a truly global index that maps sustainability." Presentation given at the Media Tenor Reputation Lab, World Economic Forum, Davos, Switzerland.