Does corporate social responsibility matter to the City?

A company’s reputation as a socially responsible and accountable organisation is increasingly important to stakeholders. That in itself suggests a potential competitive edge for socially responsible companies, in terms of a sympathetic hearing from legislators, journalists and business partners. But evidence is emerging of a direct business benefit to companies able to demonstrate social responsibility and community investment.

Simon Buckby, in his article ‘Propping up the Bottom Line’ in the FT’s December 1998 supplement on business in the community, emphasises the growing need for companies to provide evidence of the link between community investment and business benefits. MORI’s research shows not only a link between social responsibility and overall reputation, but between social responsibility and consumer behaviour. Over three-quarters of consumers say social responsibility is important to them in their purchasing behaviour – they want to know, and to translate it into rewarding ‘good’ companies and penalising ‘bad’. More than a quarter of the public say they have made a product decision, positive or negative, on ethical grounds – and the trend looks set to continue.

More recent research goes further indicating that even the traditionally hard-nosed financially-orientated institutional investors and City analysts are becoming more aware of the financial benefits for socially-responsible companies. Traditionally for this audience, a ‘responsible’ company was one that offered the best return to shareholders. While this remains of key importance, there is evidence that investors and analysts are joining other stakeholders in acknowledging the importance of a socially responsible company.

Two-thirds of Britain’s leading business and financial journalists – and half institutional investors, as well as a significant proportion of investment analysts – say that knowing about a company’s environmental and social responsibility would improve their opinion of it, and over a quarter feel involvement impacts on a company’s financial performance. (See Table for figures.)

More significantly and no doubt reflecting their sense of impact on the bottom line, over a third of institutional investors and analysts go on to say that industry and commerce do not currently pay enough attention to their social responsibilities. The evidence from MORI’s research certainly suggests that there is a place for principles and profit – and indeed, that principles pay.