ROI on CSR: 4 Ways Sustainability & Corporate Responsibility Drive Better Business Performance
Sustainability. Responsible Business. Corporate Social Responsibility (CSR). These terms might seem esoteric at first when you receive an assessment request from your client. Many business owners worry it will be an ‘extra effort’, and that it will drive up business costs to engage in improving environmental, social and ethical practices. Their fundamental question is “What is the benefit of CSR for my business?” or more precisely, “What is the ROI of CSR?”
Since thousands of companies are asking these questions, scores of studies have been done to analyze and demonstrate the ROI of high engagement in CSR. In additional to tactical benefits such as cost savings, a recent effort called Project ROI by IOSustainability and Babson College has aggregated the results of the best of these studies to reveal the potential returns on sustainability investments from real case studies.
The good news is that many of the principles of CSR are founded in common sense, comprised of policies, processes and actions already present in some form in many businesses. The Project ROI study puts hard numbers on deeper strategic outcomes in areas such as reducing the cost of equity, increasing market value, avoiding revenue or market value losses via brand/ reputation and sales-marketing impact, and more.
Here are some examples of areas where companies are winning with their CSR initiatives and programs:
1) Save money, reduce waste
Reducing cost while reducing impact: Although many businesses’ focus on supply and product costs, there remain many areas of production or office processes that may not have taken the time to measure or improve. Here are two examples.
- Energy use: Are you measuring energy usage? Either direct or indirect. How much are you wasting if not using low-energy lighting? … or examining process efficiencies in production? How much waste due to heating/AC in your work areas due to lack of/inadequate insulation? A good sustainability evaluation and program will address how well equipped your management system is to address these measurements, and reveal savings opportunities.
- Waste and emissions/effluent: The often overlooked part of resource usage is waste and emissions. How often do you measure waste, effluent, emissions or other byproducts of your production processes or your office? How can it be reduced? Do you know what the emissions impacts are of your business? In some cases, you need to look beyond your walls, beyond your own operations.
An excellent example of this is when Ardagh, a glass bottle supplier, worked with their client Coca Cola Enterprises (who also engaged them through an EcoVadis scorecard assessment) to re-use waste heat from Ardagh’s glass manufacturing process for CCE’s bottling operation next-door. This project made dedicated boilers redundant, thus saving energy, capital and expenses, and strengthening their partnership. Read more about their collaboration here.
2) Improved relationships with clients
In some cases, buying organizations give sustainability/CSR performance a clear, specific benefit of reserving “preferred supplier” status only for those suppliers who can demonstrate their CSR performance. For example, at Alcatel-Lucent “Suppliers must have a ‘satisfactory’ sustainability rating to become a preferred production supplier. These are the first suppliers considered for new projects.” (read more in this Case Study on Alcatel-Lucent)
In the case of Metalfrio, refrigeration supplier to Heineken, engaging in CSR leads to improved relationships with their trading partner. After receiving their scorecard, Metalfrio developed their own carbon management strategy, KPIs and action plan. They faced challenges in translation and training employees, so in addition to EcoVadis it required use of third party consultancy to fully roll the project out.
“Since continuous improvement is one of the targets of our company, we value all assessment processes, supportive actions and directions advised by our partners. HEINEKEN gave us the inspiration to bring our processes to the next step.”
Ozlem Karacaoglu, Key Accounts Manager at Metalfrio
3) New revenue opportunities/New product categories
A burgeoning wave of consumer sentiment is cresting: More and more customers are comparing the sustainability details of products, and it is changing their purchase decisions. Many new sustainable products have requirements for the supply chain that produces them. Thus, Your clients will be looking for suppliers for new categories of sustainable products.
Project ROI shows that companies making the right sustainability investments can realize a possible increase in revenue, and/or price premium of up to 20%. It also showed a potential for CSR brand and reputation value of up to 11% of total company value.
4) Human Resources: More productive employees, better recruiting
Implementing and demonstrating fair labor practices are an opportunity for huge rewards. In some countries, there are already laws that cover many aspects of fair labor practices. Despite this, violations occur everywhere in the world including the US and Europe. The existence of laws does not say anything about how a company treats its employees. The opportunity is for your company to demonstrate labor policies, actions and measurements that are not only compliant with laws, but more importantly, differentiate your business by increasing performance. Some examples include:
- Increased Employee Productivity: This can come both from direct impacts like better working conditions, but also from employee satisfaction and the psychological impact of knowing they work for a company has a commitment to a sustainable future. Project ROI found CSR leaders had potential increase in worker productivity up to 13%.
- Reduced Turnover: Project ROI found CSR performers had the potential to reduce the company’s staff turnover rate by up to 50%.
- Improve Recruiting and Attract Higher Quality Candidates: Integrating CSR practices in your company and brand has a huge positive impact on recruiting new workers to hire, as reported in our blog post on Millenials. If your company has a better sustainability reputation, it often generates more interest from new job offers, so you can be more selective and choose higher quality candidates.
The fact is, more and more of your clients will be asking for evaluations, as over 70% of large companies are assessing and/or auditing their suppliers (Ceres Gaining Ground).
Knowing where you stand on these topics and where you can improve is the first step to knowing how much you can save, as well as boost your business to the next level with current and future clients.
By: David McClintock
Marketing Director at EcoVadis