Building Your CaseResearch Findings on the Business Case for

Sustainability

09/08/09 1

Dr. John PelozaProfessor of Marketing, Florida State University

NBS Topic Editor

NBS Mission: Change business practice bybridging the gap between industry and academia

ResearchersResearchers ManagersManagersNBSNBS

• Network of 3,500 subscribers• Academic experts at 70+ research centres worldwide• Global cross-sector business leaders• Produce rigorous, executive resources on critical

sustainability topics Anthea Rowe

Business Leaders 17 Leadership Companies 13 Small/Med Companies 12 Industry Associations (30,000 businesses) 1,800 Individual Subscribers

NBS Leadership Council

09/08/09 1

Dr. John PelozaProfessor of Marketing, Florida State University

NBS Topic Editor

Building Your CaseResearch Findings on the Business Case for

Sustainability

The relationship between corporate social and financial performance is U-shaped. In other words: “If you’re gonna do CSR, go all in.”

Valuing Sustainability

Read more: CSR Pays When You Bake it In Or Ignore it Completely

Source: Barnett, M. & Salomon, R. 2012. Does It Pay to Be Really Good? Addressing the Shape of the Relationship between Social and Financial

Performance. Strategic Management Journal, 33, 1304–1320.

3 Sustainability Activities that Pay

1. Green Products2. Corporate Philanthropy3. CSR Reporting

How Green Products Pay

Customers will pay up to

5 to 10% more for responsible products or services if function and quality remain the same.

Read More: Socially Conscious ConsumerismA Systematic Review, NBS 2008

How Do We Get Customers to Buy Green?

Green Products

nbs.net/valuing

Green Products

How to Do it Right

Read more: Consumers Reward Companies for Ethical Production

Source: Trudel, R. & Cotte, J. 2009. Is It Really Worth It? Consumer Response to Ethical and Unethical Practices. MIT/ Sloan Management Review, 50(2): 61-

68.

1. Get third-party certifications to endorse your green products.

In one study, coffee drinkers were willing to pay

16% more per pound for Fair Trade Certified beans.

Read more: The Winning Formula behind Pink-Ribbon Toilet Paper

Source: Koschate-Fischer, N., Stefan, I., & Hoyer, W. 2012. Willingness to Pay for Cause-Related Marketing: The Impact of Donation Amount and Moderating

Effects. Journal of Marketing Research, 49: 910–927.

2. Increase the percentage of product sales going to charity.

Customers will pay more for utilitarian products like toilet paper if 10% of the purchase

price goes to a cause rather than 5%.

Green Products

How to Do it Right

Read more: Successful Marketers Make Buyers Feel Good, Not Guilty

Source: Peloza, J., White, K., & Shang, J. 2013. Good and Guilt-Free: The Role of Self-Accountability in Influencing Preferences for Products with Ethical Attributes. Journal

of Marketing. 77: 104-119.

3. Avoid guilt-inducing marketing that conjures negative feelings.

In a study of ethical consumption, people were more than

twice as likely to choose Fair Trade teas when the marketing

made them feel good about the ethical product rather than guilty about the unethical product.

Green Products

How to Do it Right

4. Offer a discount when functionality is compromised, or when the product is “risky.”

In a study from Ottawa’s Telfer School of Management, customers

demanded discountsfor green products with perceived safety or

functional issues, such as re-treaded tires or cell phones.

Read more: Understand W hen “Green” Means Premium — and When it Requires a Discount

Source: Essoussi, H., Linton, L., & Linton, J. 2010. New or recycled products: How much are consumers willing to pay? Journal of Consumer Marketing, 27(5):

458-468.

Green Products

How to Do it Right

Read more: Are Luxury and CSR Compatible?

Source: Torelli, C.J., Monga, A.B., & Kaikati, A.M. 2012. Doing Poorly by Doing Good: Corporate Social Responsibility and Brand Concepts. Journal of

Consumer Research, 38(5):948-963.

5. Realize CSR means little to luxury brands.

Researchers Carlos Torelli of the University of Minnesota and colleagues found participants

evaluated luxury brands like Rolex less favourably in CSR conditions.

Green Products

How to Do it Right

Questions/

Comments?

nbs.net/valuing

Corporate Philanthropy•How Does My Company Benefit From

Corporate Giving?

•Will Philanthropy Fix Our Damaged

Reputation?

How Philanthropy Pays

Companies in retail and financial services saw increases of

$6 in sales for every $1 donated through corporate charity.

Read more: Use Corporate Philanthropy to Grow Your Top — and Bottom — Line

Source: Lev, B., Petrovits, C., & Radhakrishnan, S. 2010. Is doing good good for you? How corporate charitable contributions enhance revenue growth. Strategic

Management Journal, 31: 182-200.

How Does My Company Benefit From Corporate Giving?

…Customer Loyalty.

Corporate Giving

Read more: Use Corporate Philanthropy to Grow Your Top — and Bottom — Line

Source: Lev, B., Petrovits, C., & Radhakrishnan, S. 2010. Is doing good good for you? How corporate charitable contributions enhance revenue growth. Strategic

Management Journal, 31: 182-200.

1. Consumer satisfaction is key to the success of corporate donations.

A study of 251 firms on the Taft Corporate Giving Directory showed

those in consumer-focused industries performed best financially following their

donations.

Corporate Giving

How to Do it Right

Read More: The Perils of Excessive Corporate Philanthropy

Source: Wang, H., Choi, J., & Li, J. 2008. Too little or too much? Untangling the relationship between corporate philanthropy and firm financial performance.

Organization Science, 19(1): 143-159.

2. Donate to maintain competitive edge in a dynamic or unstable industry.

In a study of 817 companies on the Taft Corporate Giving Directory, firms in dynamic environments

who donated

benefited most financiallydue to greater stakeholder support.

Corporate Giving

How to Do it Right

Read more: CSR Pays When You Bake it In Or Ignore it Completely

Source: Barnett, M. & Salomon, R. 2012. Does It Pay to Be Really Good? Addressing the Shape of the Relationship between Social and Financial

Performance. Strategic Management Journal, 33, 1304–1320.

3. Give generously, or not at all.

A study of 1, 214 firms showed the relationship between financial and social performance is U-

shaped: firms that either gave nothing or gave generously had higher net income and

ROA than those in the middle.

Corporate Giving

How to Do it Right

Read More: Strong Financial Results Linked to Very High or Very Low Corporate Giving

Source: Brammer, S. & Millington, A. 2008. Does it pay to be different? An analysis of the relationship between corporate social and financial

performance. Strategic Management Journal, 29(12): 1325-1343.

3a. Don’t dabble in corporate philanthropy.

In a study of 537 large UK firms, those who

performed the worst financially had average levels of corporate giving.

Corporate Giving

How to Do it Right

3b. Know how much is too much.

Corporate Giving

How to Do it Right

Read More: The Perils of Excessive Corporate Philanthropy

Source: Wang, H., Choi, J., & Li, J. 2008. Too little or too much? Untangling the relationship between corporate philanthropy and firm financial performance.

Organization Science, 19(1): 143-159.

Data from Taft Corporate Giving Directories showed donations

stopped “paying off” past a certain point: eventually direct costs of

philanthropy

outweighed financial return.

Will Philanthropy Fix Our Damaged Reputation?

…Don’t Hold Your Breath.

Corporate Giving

Read more: Philanthropy is Not a Quick Fix for a Damaged Reputation

Source: Muller, A. & Kraussl, R. 2011. Doing Good Deeds in Times of Need: A Strategic Perspective on Corporate Disaster Donations. Strategic

Management Journal 32: 911-929.

1. Recognize corporate giving does not excuse past social irresponsibility.

In a study of Fortune 500 firms, companies with bad reputations that donated to Hurricane Katrina

experienced no significant stock price returns or reputational improvements.

Corporate Giving

How to Do it Right

2. Manage crises effectively before spending on charity.

In the same study, firms saw better financial return when they used money to manage their own hardships in difficult economic times rather

than donating to others.

Read more: Philanthropy is Not a Quick Fix for a Damaged Reputation

Source: Muller, A. & Kraussl, R. 2011. Doing Good Deeds in Times of Need: A Strategic Perspective on Corporate Disaster Donations. Strategic

Management Journal 32: 911-929.

Corporate Giving

How to Do it Right

Read more: How to Manage Your Com pany ’s Reputation Through a Crisis and Come Out on Top

Source: Janney, J. & Gove, S. 2011. Reputation and Corporate Social Responsibility Aberrations, Trends, and Hypocrisy: Reactions to Firm Choices in the Stock Option

Backdating Scandal. Journal of Management Studies 48:7.

3. Build a good reputation in the first place.

In a sample of 108 firms involved in the U.S. stock options backdating scandal, those with socially

responsible reputations saw price drops of 1.3% less

than socially irresponsible firms.

Corporate Giving

How to Do it Right

Questions/

Comments?

nbs.net/valuing

CSR Reporting•Why Should I Report CSR Activities?

•What Activities Should I Report?

How CSR Reporting Pays

Read more: How Third-Party CSR Ratings Impact Your Share Price

Source: Doh, J.P., Horton, S.D., Horton, S.W. & Siegel, D.S. (2010). Does the market respond to an endorsement of social responsibility? The role of institutions,

information and legitimacy. Journal of Management, 36, 1461–1485.

Being added to a social index doesn't increase a company’s share price—but when a company is removed,

its stock takes a hit.

Why Should I Report on CSR Activities?

…Because Stakeholders Care.

CSR Reporting

1. Be transparent to boost stakeholder engagement.

In a study of 180 firms, those that integrated environmental and social activities into financial

reporting experienced lower stock price volatility than less sustainable peers.

CSR Reporting

How to Do it Right

Read more: The 5 Traits of Firms that Create Sustainability ROI

Source: Eccles, R.G., Ioannou, I., & Serafeim, G. 2011. The Impact of a Culture of Corporate Sustainability on Corporate Behavior and Performance. Working paper 12-

035, Harvard Business School..

Read more: Two Truths of How Social Performance Pays

Source: Wang, H. & Choi, J. 2013. A New Look at the Corporate Social-Financial Performance Relationship: The Moderating Roles of Temporal and Interdomain Consistency in Corporate Social Performance. Journal of Management. 39-2:

416–41. .

2. Report CSR activities consistently to strengthen market value.

In a study of 622 firms from S&P 500, DSI 400 or both, even firms with low but consistent levels of

CSR had

higher market values than firms with occasional spikes in CSR.

CSR Reporting

How to Do it Right

3. Report CSR activities for competitive edge in industries where product differentiation is difficult.

A multinational phone company that actively

sought CSR publicity saw improved brand integrity and employee willingness to pay

a premium.

CSR Reporting

How to Do it Right

Read more: Three Ways to Reap Value from CSR Initiatives

Source: Husted, B. & Allen, D. 2007. Strategic Corporate Social Responsibility and Value Creation Among Large Firms: Lessons from the Spanish Experience. Long

Range Planning, 40: 594-610.

What Activities Should I Report ?

…Results, Not Goals.

CSR Reporting

Read more: Investors Reward Environmental Results, Not Targets

Source: Busch, T. & Hoffmann, V. 2011. How Hot is Your Bottom Line? Linking Carbon and Financial Performance. Business & Society 50(2) 233-265

1. Report on results you have achieved.

In a study of 174 energy-intensive companies, firms that had achieved emission reductions had

higher Tobin’s q scores than their carbon-emitting peers.

CSR Reporting

How to Do it Right

2. Realize environmental targets mean little to investors.

In the same study, firms that just reported on emission targets had

lower ROE and Tobin’s q scores than companies who had achieved goals.

CSR Reporting

How to Do it Right

Read more: Investors Reward Environmental Results, Not Targets

Source: Busch, T. & Hoffmann, V. 2011. How Hot is Your Bottom Line? Linking Carbon and Financial Performance. Business & Society 50(2) 233-265

3. Disclose your mistakes.

Firms that voluntarily disclosed their involvement in the 2006 backdating scandal experienced stock

price declines of 2.7% compared to 3.5% for firms that were exposed by others.

CSR Reporting

How to Do it Right

Read more: How to Manage Your Company’s Reputation Through a Crisis and Come Out on Top

Source: Janney, J. & Gove, S. 2011. Reputation and Corporate Social Responsibility Aberrations, Trends, and Hypocrisy: Reactions to Firm Choices in the Stock Option

Backdating Scandal. Journal of Management Studies 48:7.

Questions/

Comments?

nbs.net/valuing