The best way for a company to make a lasting impression and build customer relationships? Giving back to the community and the environment with sustainable practices. These days, the give and take is all about the give.
Consumers today are looking for more from businesses. It’s just as important for them to know what a company is all about as it is to understand their products and services. Does a business make an effort to help protect the environment? What is its policy on equality in the workplace? Does it make an effort to help the local community?
Questions like these are influencing how people view companies and whether they make the decision to become repeat buyers and loyal customers. In recent years, we’ve been seeing a rise in corporate social responsibility and sustainability efforts among global corporations. But what does this mean exactly, and how do companies make social responsibility a part of their daily operations?
Corporate social responsibility is a wide-ranging topic that can include many different areas – volunteering professional services, donations, green initiatives – depending on a particular company or industry, according to Investopedia. Often philanthropy and volunteer support are cited by companies as ways they are benefiting society. Just think about the powerful and far-reaching impact McDonald’s has with its Ronald McDonald House Charities, which provide accommodations for families of seriously ill children in treatment. The fast-food chain is more than its Happy Meals and indoor play structures.
Social responsibility programs not only build a company’s brand, they can also help make employees feel a stronger connection between their work and the world around them. You’ve got to think that working for TOMS, for example, must feel pretty great. The California company started out in 2006 with matching every pair of shoes (made with recycled polyester, organic cotton and natural hemp) bought with a pair of new shoes for a child in need. Now it’s expanded to eyewear and coffee. With every bag of coffee purchased, TOMS provides a person with a week of clean water. The company has given more than 35 million pairs of new shoes to kids and helped restore sight to over 250,000 people.
In fact, the concept of social responsibility has gained so much mainstream momentum that according to the Huffington Post, more than 85 percent of companies on the S&P 500 now issue a Corporate Social Responsibility report or CSR. Reporting today is clearly going beyond just the financial details of a company and examining how businesses are making things better in social and environmental ways.
But what do companies include in their reports and how do they arrive at their results?
Sustainability reports present the economic, environmental and social impacts produced by a company’s everyday activities. The report also clearly shows how a company’s values and strategies are making the world a better place.
If done well, sustainability reporting can help measure, understand and communicate a company’s economic, environmental, social and governance performance, and help it set future goals. Starbucks does an amazing job of publicizing its intentions for coffee sustainability (99 percent ethically sourced), greener retail (fully recyclable and compostable hot cups) and community engagement, and evaluating them in its annual global responsibility report. The coffee giant, for example, has pledged to eliminate single-use plastic straws from its stores by 2020 and to have 10,000 greener stores by 2025, a move that will encompass both new stores and renovations.
A term that is connected to this sustainability reporting is called “triple bottom line reporting,” which is an accounting framework that combines social, environmental and financial reporting.
Another guide that has help shaped the way companies think about sustainability is the United Nations’ “Sustainable Development Goals” developed in 2015, with a target to achieve them by 2030. These goals, adopted by all United Nations members, cover 17 interconnected areas including eradicating poverty, improving gender equality, responsible consumption and production, and climate action. Some companies have also incorporated some of these goals into their operations.
The Huffington Post produced a series on companies that are trying to incorporate these UN goals. One example is Novozymes, a global clean-tech company located in Denmark. As part of integrating sustainability into its operations, the company modified its long-term strategy to “make biological solutions for better lives in a growing world.” From there, the company began incorporating solutions that held the most promise for better quality of life on the planet into its development pipeline.
Specifically, two of the goals in the UN’s guide are eliminating billions of tons of CO2 and ensuring sustainable energy for all. Novozymes is working with partners to find bioenergy solutions that both reduce CO2 and provide greater energy security solutions that do not rely on oil.
While these are all important goals and great ways for companies to make a positive impact, what about the average person on the street? Do consumers really care how sustainable or socially conscious a company is? And does it matter to them if a product has sustainability principles behind it? The answer to both of these is a resounding yes!
Research by Nielsen, one of the world’s top analytics companies (and yes, the company that provides the ratings for our favourite TV shows), looked at the impact of companies that took a sustainable approach to their production and how consumers felt about that approach. They looked at three different product categories – chocolate, bath products and coffee – and compared rates of growth between the traditional versions of the products and products that had sustainability claims behind them.
Across the board, all the sales of the products with sustainability claims grew by as much as twice the rate as the traditional products. The study revealed that these results could be replicated across many consumer goods categories – and it was very telling that consumers will purchase products that are sustainably produced.
When looking more closely at the chocolate category, products that could make environmental claims such as using renewable energy and being carbon neutral actually grew at more than four times the rate of chocolate products without a sustainability claim. In addition, those chocolate products that made claims of social responsibility such as fair trade were out-pacing the category to the tune of five times more unit sales.
And, when it comes to the impact of sustainability practices on a company’s performance, there is also evidence that good things come from doing the right thing. In 2015, Morgan Stanley research found that companies that worked to reduce waste and use natural resources efficiently were able to better reduce their operational costs. The study also found that companies with a workforce that was more engaged tended to have lower turnover and more motivated employees. In fact, among 14 countries, companies that were on the “Best Companies to Work For” list saw better returns than companies that were not on the list. This, in turn, resulted in higher profits.
From there, you might be able to guess the result: higher profits that make investors happy produced higher returns in the market. For example, the MSCI KLD Social Index, which tracks firms with strong social, environmental and governance standards, out-performed the S&P 500 (which tracks traditional companies that do not necessarily meet these standards). And all of this may actually be just the beginning of a much bigger trend, as more and more people are taking a closer look at companies when they make their purchasing decisions.
Nielsen research also pointed out that nearly three out of four millennials were willing to pay more for products that are considered sustainable. And even more important from a long-term view, Generation Z, which follows the millennials, is just as willing to spend more on sustainable products.
So there is a real opportunity for companies build up their reputation among current and future consumers while doing good things for the planet. Sounds like the ultimate win-win.