Building Your Case
Research Findings on the Business Case for Sustainability
Dr. John Peloza
Professor of Marketing, Florida State University
NBS Topic Editor
09/08/09
1
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Building Your Case
Research Findings on the Business Case for Sustainability
Dr. John Peloza
Professor of Marketing, Florida State University
NBS Topic Editor
09/08/09
1
Valuing Sustainability
The relationship between corporate social and financial
performance is U-shaped. In other words: “If you’re gonna do CSR,
go all in.”
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 Products
2. Corporate Philanthropy
3. 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 Consumerism
A Systematic Review, NBS 2008
Green Products
How Do We Get Customers to Buy
Green?
nbs.net/valuing
Green Products
How to Do it Right
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: 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.
Green Products
How to Do it Right
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%.
Read more: The Winning Formula behind Pink-Ribbon Toilet Paper
Source: Koschate-Fischer, N., Stefan, I., & Hoyer, W. 2012. Willingness to Pay for CauseRelated Marketing: The Impact of Donation Amount and Moderating Effects. Journal of
Marketing Research, 49: 910–927.
Green Products
How to Do it Right
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.
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 SelfAccountability in Influencing Preferences for Products with Ethical Attributes. Journal of
Marketing. 77: 104-119.
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 discounts
for green products with perceived safety or functional
issues, such as re-treaded tires or cell phones.
Read more: Understand When “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
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.
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.
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.
Corporate Giving
How Does My Company Benefit From
Corporate Giving?
…Customer Loyalty.
Corporate Giving
How to Do it Right
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.
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.
Corporate Giving
How to Do it Right
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 financially
due to greater stakeholder support.
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.
Corporate Giving
How to Do it Right
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.
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.
Corporate Giving
How to Do it Right
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.
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.
Corporate Giving
How to Do it Right
3b. Know how much is too much.
Data from Taft Corporate Giving
Directories showed donations stopped
“paying off” past a certain point:
eventually direct costs of philanthropy
outweighed financial return.
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.
Corporate Giving
Will Philanthropy Fix Our Damaged
Reputation?
…Don’t Hold Your Breath.
Corporate Giving
How to Do it Right
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.
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: 911929.
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: 911929.
Corporate Giving
How to Do it Right
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%
than socially irresponsible firms.
less
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
CSR Reporting
• Why Should I Report CSR Activities?
• What Activities Should I Report?
How CSR Reporting Pays
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.
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.
CSR Reporting
Why Should I Report on CSR
Activities?
…Because Stakeholders Care.
CSR Reporting
How to Do it Right
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.
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..
CSR Reporting
How to Do it Right
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.
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. .
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.
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.
CSR Reporting
What Activities Should I Report ?
…Results, Not Goals.
CSR Reporting
How to Do it Right
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.
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
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.
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
CSR Reporting
How to Do it Right
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.
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