By Sunny Lewis
AMES, Iowa, February 23, 2016 (Maximpact.com News) – The combination of skillful marketing and corporate social responsibility can yield a 3.5 percent gain in stock returns for a company’s shareholders, a new study by U.S. and Canadian researchers shows.
The study is useful because regardless of the positive effects for society of corporate social responsibility (CSR), there remains an extensive debate regarding its consequences for shareholders.
“A lot of firms question the benefit of corporate social responsibility activities, because they are often viewed as more of a cost. Firms may not always see the benefit because they have to make an investment,” said co-author Sachin Modi, an associate professor in Iowa State University’s College of Business.
“What we want to show is that if a firm is good and has some complimentary capabilities, it can gain a lot from CSR activities,” Modi said.
The researchers defined CSR as “discretionary firm activities aimed at enhancing societal well-being.”
The study, published in the “Journal of Marketing,” analyzed six different types of CSR – environment, products, diversity, corporate governance, employees and community to determine whether marketing of these efforts increased long-term firm value and stock price.
Walmart’s company-wide goal is to create zero waste. Corrugated cardboard is bundled into bales and sent to paper mills to be recycled into new paper products. But do consumers buy more at Walmart as a result? Not if the company’s marketing doesn’t dramatize and promote its corporate social responsibility, the study finds.
Co-author Saurabh Mishra, an associate professor at McGill University with a PhD in Marketing, says there is a “direct and measurable link” between corporate social responsibility initiatives and financial performance.
The analysis conducted by Modi and Mishra utilized secondary information for a large sample of 1,725 firms for the years 2000-2009.
The findings demonstrate that the effects of overall CSR efforts on stock returns and risk are not significant on their own but only become significant in the presence of superior marketing capability.
Firms benefited from five of the six types of CSR efforts studied, with the exception of charitable giving and philanthropy.
Many companies engage in CSR activities, but do the shareholders benefit?
Hasbro, Inc., the U.S. playtime giant, specializing in toys and games, television programming, motion pictures and digital gaming, last December announced the purchase of enough wind power to equal growing 164,767 trees for 10 years.
Hasbro’s renewable energy purchase qualifies the company for the U.S. Environmental Protection Agency’s Green Power Leadership Club, a distinction given to organizations that have significantly exceeded the U.S. EPA’s minimum purchase requirements.
“We are pleased to be among leading businesses partnering with the U.S. EPA as we continue on our sustainability journey,” said Brian Goldner, chairman, president, and CEO. “Hasbro’s decision to use green power is an important choice in advancing our energy conservation efforts in support of a low carbon economy.”
“Hasbro should be congratulated for its purchase of clean, renewable green power,” said James Critchfield, director of EPA’s Green Power Partnership. “Hasbro’s green power purchase and leadership is something its employees can feel empowered by, the community can stand behind, and its customers can take notice of.”
The purchase of renewable energy benefits the climate and the environment generally, but will the shareholders and customers take notice?
Modi said, “As firms pick what initiatives to get involved with for the community and for charitable giving, they might want to focus on those which are more easily verifiable by consumers. They don’t necessarily have to advertise it, consumers just come to know this firm does a lot for a particular charity.”
“It is very important to give from a community and charity standpoint. And it may be a more true form of giving, because it doesn’t always give the firm value in return,” he said.
The biggest payoff comes from letting shareholders know about a firm’s efforts to improve products, be environmentally friendly, create a diverse workplace and use sustainable resources.
But Modi says it’s important to note this return is not a guarantee for all firms. It depends on effectively communicating and executing a strong marketing strategy. A weak marketing department can translate to weaker returns or payoffs.
Firms must also recognize that some efforts to be more socially responsible can backfire. As an example, Modi asks the question, “Would you buy a recycled toothbrush?”
While most consumers are supportive of and applaud recycling efforts, this is a product few would be likely to buy.
Fans of Sun Chips may also remember another example, when the company created a biodegradable bag for its chips.
It was a good move for the environment, but Modi says the bag made a loud crinkling sound at the slightest touch and irritated consumers complained about the noise.
Not all efforts will be a win-win, but that should not be a deterrent for firms, he said.
“Our hope is that firms see it is important to be socially responsible. It’s not a choice of one versus the other. Firms have to do multiple aspects of being socially responsible,” Modi said. “Different types of CSR will have different benefits for firms. Some will be more critical and some will give firms more bang for their buck.”
Award-winning journalist Sunny Lewis is founding editor in chief of the Environment News Service (ENS), the original daily wire service of the environment, publishing since 1990.