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Building Your Case Research Findings on the Business Case for Sustainability

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  1. Building Your CaseResearch Findings on the Business Case for Sustainability Dr. John Peloza Professor of Marketing, Florida State University NBS Topic Editor 09/08/09 1

  2. NBS Mission: Change business practice bybridging the gap between industry and academia Researchers NBS Managers • 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

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

  4. Building Your CaseResearch Findings on the Business Case for Sustainability Dr. John Peloza Professor of Marketing, Florida State University NBS Topic Editor 09/08/09 1

  5. 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.

  6. 3 Sustainability Activities that Pay • Green Products • Corporate Philanthropy • CSR Reporting

  7. Customers will pay up to 5 to 10% more for responsible products or services if function and quality remain the same. How Green Products Pay Read More: Socially Conscious Consumerism A Systematic Review, NBS 2008

  8. How Do We Get Customers to Buy Green? Green Products nbs.net/valuing

  9. 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. Green ProductsHow 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.

  10. Green ProductsHow 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 Cause-Related Marketing: The Impact of Donation Amount and Moderating Effects. Journal of Marketing Research, 49: 910–927.

  11. Green ProductsHow 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 Self-Accountability in Influencing Preferences for Products with Ethical Attributes. Journal of Marketing. 77: 104-119.

  12. 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. Green ProductsHow to Do it Right 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.

  13. Green ProductsHow 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 favourablyin 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.

  14. Questions/Comments? nbs.net/valuing

  15. Corporate Philanthropy • How Does My Company Benefit From Corporate Giving? • Will Philanthropy Fix Our Damaged Reputation?

  16. Companies in retail and financial services saw increases of $6 in sales for every $1 donated through corporate charity. How Philanthropy Pays 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.

  17. How Does My Company Benefit From Corporate Giving? Corporate Giving …Customer Loyalty.

  18. Corporate GivingHow 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.

  19. Corporate GivingHow 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.

  20. Corporate GivingHow 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.

  21. Corporate GivingHow to Do it Right 3a. Don’t dabble in corporate philanthropy. In a study of 537 large UK firms, those who performed theworst financially hadaverage 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.

  22. Corporate GivingHow 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.

  23. Will Philanthropy Fix Our Damaged Reputation? Corporate Giving …Don’t Hold Your Breath.

  24. Corporate GivingHow 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: 911-929.

  25. Corporate GivingHow 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.

  26. Corporate GivingHow 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% less than socially irresponsible firms. 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.

  27. Questions/Comments? nbs.net/valuing

  28. CSR Reporting • Why Should I Report CSR Activities? • What Activities Should I Report?

  29. 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. 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.

  30. Why Should I Report on CSR Activities? CSR Reporting …Because Stakeholders Care.

  31. CSR ReportingHow 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..

  32. CSR ReportingHow 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. .

  33. 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.

  34. What Activities Should I Report ? CSR Reporting …Results, Not Goals.

  35. CSR ReportingHow 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

  36. 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

  37. CSR ReportingHow 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.

  38. Questions/Comments? nbs.net/valuing