Last week, the Economist Intelligence Unit (EIU) released a report about the financial benefits of corporate citizenship, "Corporate citizenship: Profiting from a sustainable business" (pdf), as part of the Corporate Citizenship Conference in San Francisco. Corporate citizenship is defined in the report as "transcending philanthropy and compliance, and as addressing how companies manage their social and environmental impacts as well as their economic contribution. Corporate citizens are accountable not just to shareholders, but also to stakeholders such as employees, consumers, suppliers, local communities and society at large." The report was sponsored by Cisco, HP, Qualcomm, SAS, Abbott and UTC.
In a briefing paper on the report, the EIU asserts that while overall it can be difficult to quantify the benefits of corporate citizenship and philanthropy, "visible effects on the bottom line can be gained from environment-related improvements, such as reductions in waste and increases in energy efficiency." In general, corporate citizenship can also provide benefits such as improved employee retention, improved employee recruitment and competitive advantage. Of the 566 companies surveyed, those that are most successful in gaining benefits from their programs and strategies "build on four elements: leadership at all levels, employee engagement, solid measurements, and public-private partnerships."
74% of the respondents are thinking about the bottom line when developing their corporate citizenship programs and strategy. 16% believe these programs can lead to revenue growth, 16% believe they can increase profits and 13% believe they can lead to cost savings. Despite these responses, most companies do not have a proactive strategy when it comes to addressing social and environmental impacts. Those that do, however, find that those strategies come from the very top - Executives or Boards - and benefit from them, whether it is making changes prior to government regulators stepping in or developing new technologies that solve problems.
The case for strong corporate citizenship should not diminish during an economic downturn, one report respondent warns:
"In many ways the business case for environmental sustainability is also stronger in the current economic downturn," says Peter White, director for global sustainability at Procter & Gamble (P&G), a Fortune 500 consumer goods company. "Sustainability initiatives often lead to increases in the efficiency with which materials and energy are used, reducing costs for both companies and consumers," he continues.
The furniture maker Herman Miller makes a strong case for this. The company's investments in sustainability, including 80% reductions in landfill, 91% reductions in hazard waste, 87% reductions in emissions and 67% reductions in water use, have led to a 32% annual rate of return. Their sales doubled to more than $2 billion in 2007.
Developing products with environmental or energy advantages makes good economic sense, according to Keith Miller, manager of health and environmental safety at 3M, who sees it as a business opportunity. 3M was an early adopter of this philosophy, introducing Pollution Prevention Pays (3P) in 1975. The company saved $10 million the first year and $1 billion over its 33 year lifetime. GE's ecomagination unit, which develops products with improved environmental performance, generated $17 billion in revenue in 2007. Proctor and Gamble's cold water laundry detergent, introduced in 2005, is expected to reach $20 billion in sales by 2012, while providing savings for users through reduced energy consumption. This is the theory of human impact + profit that HIP Investor founder Paul Herman posits, profitability comes when you focus your company or product on solving a human problem. This kind of focus on create entirely new markets.
Companies with large fleets that focus on reducing emissions through reduced fuel consumption can also see a direct financial benefit. And corporations that invest in green buildings, like Bank of America, may spend more upfront, but see a benefit in terms of reduced energy costs and higher rents. Further, offices in green buildings see increased worker productivity and a 1% decrease in worker illnesses. In the case of Bank of America, with 5000 employees projected to work at their new headquarters in Manhattan when it is completed in 2009, this could result in as much as a $10 million boost in productivity annually.
Product companies that reduce packaging can also see big savings while doing something positive for the environment:
For Wal-Mart, a 5% reduction in excess packaging by 2013 would result in savings of US$11 billion, with the company itself poised to save US$3.4bn. To help it achieve this goal, Wal-Mart developed a simple scorecard. This measures several key metrics, including greenhouse gases emitted during production, product-to-package ratio and recycled-content usage. In 2007 more than 6,300 vendors used the scorecard to rate almost 100,000 products. The system creates transparency and allows measurable improvements to be made.
Investors are also paying attention to how well companies are mitigating environmental and climate change risks, and not just the socially responsible investing community. We saw this last May during the Exxon shareholder melee. The Rockefeller family, whose great great grandfather founded Standard Oil which later became Exxon, publicly argued that the CEO of Exxon had failed to appropriately invest in renewable energy sources despite the knowledge that oil was a finite resource and therefore should be removed.
The key to benefiting from corporate citizenship initiatives is to be proactive and measure results. Companies that lead in terms of energy saving initiatives, waste reduction and developing products that help consumers to do the same, see greater benefit, as do those that include all levels of the organization and look to what more they can do in the future. And the stronger the economic case for companies to be better corporate citizens, the more likely they are to do so.
