Measuring Corporate Responsibility’s ROI
In years past, a company with strong philanthropic activities was viewed as a pillar of the community—a good corporate citizen. Today, companies are defining their corporate citizenship—or corporate responsibility—less by their charitable contributions and more by how they are meeting the needs of stakeholders and the society at large.
In a nutshell, corporate responsibility (CR) is the “how,” not the “what.” A common CEO sound bite is, “How we do business is just as important as what we do.” Translation: “Some consumers will buy our widget. But more consumers will buy this same widget if they know it was produced in an ethical, socially responsible and environmentally sustainable manner—quality and cost being relatively equal.”
The evidence to support this assumption is mounting. Wal-Mart just released data from its Live Better Index, a new barometer for measuring consumers’ adoption rates of various products, including eco-friendly items.
According to Wal-Mart’s index, consumers are showing a higher adoption rate for certain green products compared to similar—or traditional—products. One environmentally friendly product Wal-Mart is tracking is compact fluorescent lightbulbs (CFLs). It found that over the last year, consumers adopted CFLs 19.70% more than other types of lightbulbs.
Offering green products is one way companies are demonstrating their corporate responsibility. But products like CFLs wouldn’t see the light of day if a company didn’t believe it could sell them and eventually make a profit. Sales and profitability are measures a company uses to determine its return on investment (ROI). Ultimately it’s this equation that inspires or deters more product innovation of this type.
Measuring the ROI of CR initiatives can go beyond sales and profitability measures. For instance, a socially responsible company that offers a progressive workplace environment may find it easier to attract and retain top talent.
Companies typically measure the costs associated with recruitment and retention —and the impact both have on the bottom line. They also measure employee engagement and satisfaction.
All of these employee-related metrics should be viewed as indicators of the value corporate responsibility has on creating a better workplace environment for employees.
Measures to conserve energy not only help a company reduce costs, they help it demonstrate its environmental stewardship. Using less energy or fuel means less greenhouse gases are emitted, necessary steps toward shrinking a company’s carbon footprint.
However, implementing conservation measures often requires an initial investment, which is a hard sell during tough business cycles. In these situations, the case needs to be built around the anticipated return on investment and presented to management as an investment that will pay dividends in the long run.
For instance, a lighting retrofit project is an investment of dollars, but the expected energy savings can be projected over a number of years.
These types of initiatives serve as proof points of the company’s sustainability efforts. If well communicated, these proof points build or support a company’s reputation as a good environmental steward. Thus, there is reputation value to be realized.
Measuring the actual impact that CR has on a company’s reputation is more challenging, unless the company has a large enough presence to land on some prestigious list, such as Fortune’s Most Admired Company or The CRO’s 100 Best Corporate Citizens.
Beyond the listings and rankings, it’s up to the company to conduct its own benchmarking and survey research to assess the strength and attributes of its reputation. If it engages in surveying, then specific questions should be included that enables the company to measure its CR reputation and quantify the value of its initiatives over time.
The bottom-line question most companies ask is whether their corporate responsibility initiatives will contribute to their businesses an if so, will it pay off with higher profits. Wal-Mart may in fact be helping to answer that question. PRN
This article was written by Liz Gorman, VP of corporate responsibility at Cone. She can be reached at firstname.lastname@example.org.
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