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When Sustaining Stakeholder Interest Is Essential: The Importance of Corporate Social Responsibility (CSR) Sources of Value

Companies face increasing pressure from governments, competitors, and employees to play a leading role in addressing a wide array of environmental, social, and governance issues in a company’s supply chain. It could range from climate change to obesity to human rights.

For the past 30 years, companies have responded by developing corporate social responsibility or sustainability initiatives to fulfill their contract with society by addressing these issues.

However, gathering the data needed to justify sustained, strategic investment in programs can be difficult.  Yet, without this information, executives and investors often see programs as separate from a company’s core business or unrelated to its shareholder value. While there are companies that have made progress tracking operational metrics or social indicators, they have difficulty linking such metrics and indicators to a real financial impact.

Needless to say, there are companies that are creating great value through environmental, social, and governance activities.  Increased sales, decreased costs, and reduced risks are being achieved.  Environmental, social, and governance programs can create value in many other ways. We just need to know where and how.

What is Corporate Social Responsibility

Corporate Social Responsibility (CSR) or sustainability initiatives are undertaken to fulfill contracts with society to respond to environmental issues. Environmental, social, and governance refer to a broader set of CSR Programs.

 Sustaining strategic investments in CSR Programs can be a challenge but there are already leading companies that are generating real value through environmental, social, and governance activities.

The Dynamic Ways of Creating Value

CSR Programs can create shareholder value. It is just important that companies must broaden their legitimacy in societies where they operate.

 

  1. Growth. As a source of value, Growth can be expressed in terms of New Markets, New Products, New Customers, Market Share, and Innovation. When this is created, it can deliver higher brand loyalty, reputation, and goodwill with stakeholders.
  1. Return on Invested Capital (ROIC). ROIC is generated when there is operational efficiency and workforce efficiency. When this is achieved, it can result in better workforce skills and increased productivity through participation in ESG activities.
  1. Risk Management. Risk Management is a source of value. It can be achieved when risk is lowered when compliance with regulatory requirements are achieved.  Public support is achieved and the ability of your company to secure consistent, long-term, and sustainable access to safe, high-quality raw materials and products are established.
  1. Management Excellence. Management Excellence can have an impact on leadership development, adaptability, and long-term strategic view. These are 3 key areas that investors consider most important when evaluating potential partnerships.  With Management Excellence, a value can be generated from these areas.

A Look at IBM: A Clear Example of CSR as a Source of Value

IBM has been recognized globally as one of the leading companies when it comes to Information Technology.  In creating new markets, IBM used Small and Medium Enterprise (SME) Toolkit to develop a track record with local stakeholders, including local governments and NGOs.  Free web-based resources on business management were provided to SMEs in developing economies. A total of 30 SME Toolkit sites were developed in 16 languages.

As a result of this initiative, IBM’s reputation and relationships in new markets improved.   Likewise, the relationship with companies that are potential customers was developed.  The strategic approach of IBM in creating markets through its CSR has provided IBM much value in creating and developing relationships which are essential in new markets.

Interested in gaining more understanding of sources of value to CSR programs? You can learn more and download an editable PowerPoint about Corporate Social Responsibility (CSR): Sources of Value here on the Flevy documents marketplace.

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About Joseph Robinson

Joseph Robinson is the Vice President of Strategy at Flevy. Flevy is the marketplace for best practices in business management. Learn how the Fortune 100 and global consulting firms do it. Improve the growth and efficiency of your organization by leveraging Flevy's library of best practice methodologies and templates. The documents at Flevy (https://flevy.com) are of the same caliber as those produced by top-tier management consulting firms, like McKinsey, BCG, Bain, and Accenture. Most were developed by seasoned executives and consultants with 20+ years of experience. Flevy covers 200+ management topics, ranging from Digital Transformation to Growth Strategy to Lean Management. You can peruse a full list of management topics available on Flevy here. Prior to Flevy, Joseph worked as an Associate at BCG and holds an MBA from the Sloan School of Management at MIT. You can connect with Joseph on LinkedIn here.

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