Strong sustainability track record can account for 11% of a company's value

A new report released at the Commit Forum shows that on average, one third of a company’s name value can come from good corporate citizenship

How much is a good reputation worth? Volkswagen recently demonstrated the cost of a bad one: in the two days after its emissions scandal broke, its share price plummeted, wiping out almost almost $28bn in market value. 

On Wednesday, the broader cost of that scandal became clear when the carmaker announced a loss of $3.86bn, its first quarterly loss in 15 years. But, while VW’s crisis was a striking demonstration of the high price of a tainted reputation, it didn’t speak to the value of a good reputation.

At last week’s Commit Forum, held in New York, the authors of a recent study, Project ROI, claimed that a top level corporate reputation for responsibility and sustainability can account for 11% of a firm’s value. “The majority of the academic research finds that an average of 33% of a company’s value can be attributed to its name,” Steve Rochlin, CEO of advisory firm IO Sustainability and one of the study’s co-authors, told the Guardian. “Up to one third of that name value can come from good corporate citizenship.”

The result of a partnership between Babson College and IO Sustainability, Project ROI drew its conclusions from a survey of over 300 studies and reports, supported by interviews with corporate executives and corporate responsibility practitioners. It primarily focused on large, publicly-traded companies, whose financials are more transparent. However, its authors said, its lessons are transferable to smaller, privately held companies.

The study said that the effect of a strong reputation for corporate responsibility and sustainability is perhaps most noticeable in the market. On average, Project ROI found a company with a reputation as a sustainability leader can expect up to a 20% increase in revenue and can ask customers to pay up to a 20% premium for its products.

A strong reputation for corporate social responsibility also yields dividends to companies when it comes time for hiring. According to Project ROI, these companies can expect up to 13% greater worker productivity, a reduction of up to 50% in their turnover rate and up to a 3.5% reduction in the annual quit rate.

The Cost of a Bad Reputation, another study released at the Commit Forum by sponsor CR Magazine, explored the link between CSR and worker productivity. Its findings – derived from 1,012 phone interviews conducted in 2015 – suggest that companies with good corporate reputations can often attract the best talent, for less money, than their competitors.

Their survey found that, while 67% of workers would leave their current jobs to go to companies with poor corporate reputations, they would require – on average – a 57% raise. By comparison, 92% would leave their current job to work for a company with a strong corporate reputation. And they would do so for less: men, on average, would require a 34% raise, while women would require a 28% salary increase.

Speaking at the conference, Elliot Clark, CEO of SharedXpertise, which publishes CR Magazine, pointed out that this has a major effect on the bottom line. “The salary differential that you’d have to pay to get someone to go to work for a company with a bad reputation dwarfs the millions in recruiting costs to literally billions in salary,” he said.

Among the unemployed, these numbers are even more stark: 77% of respondents said that, if they were unemployed, they would be “unlikely” or “not at all likely” to accept a job with a company that had a bad reputation. Those statistics have been consistent since 2012, the first year the survey was conducted. “What this tells you is that they will take any other job opportunity that is available to them to avoid taking one with a company with a bad reputation,” Clark said.

One roadblock, Rochlin said at the conference, is the fear that some companies have of being ostracized for an excessive commitment to corporate social responsibility. He recounted a conversation with a CEO from a Fortune 10 company, who said that, ideally, he’d like to be ranked number 26 on a list of the 100 best corporate businesses, because “that puts me near the top, but not so far up that I’ll be noticed”.

The trouble with that strategy, Rochlin said, is that the benefits from a strong corporate social responsibility reputation largely accrue to leading companies that are truly committed to being a sustainable enterprise. “This is one of those cases when the tallest poppy not only doesn’t get cut, but actually gets the majority of the water,” he told the Guardian.

Companies that dabble in sustainability, he said, get the worst of both worlds. “Externally, they’re criticized by their stakeholders for not doing enough,” he added. “Internally, they’re criticized by their shareholders who don’t understand the value of their sustainability efforts.”

-theguardian