Gideon Fidelzeid: How has CSR most notably evolved to where it is today?
Geoffrey Heal: I go back to 1997 to find the first clearly CSR-related event I can recall – the boycott of Nike for having put child labor in their supply chain. That had a real impact on the company. According to their 10K SEC filing, Nike’s profits dropped significantly as a result. The event shook up Nike along with so many other corporations who realized that if something like that could impact Nike so profoundly, it could do the same to them.
Perhaps a better illustration takes us back to the 1989 Exxon Valdez oil spill in Alaska. Several million barrels of oil spilled into a very pristine environment. Thousands of marine animals killed. Tourism and fishing industries devastated. What happened to the stock price? Nothing.
Fast forward to the 2010 Deepwater Horizon oil spill in the Gulf of Mexico. Within hours, BP’s share price started dropping. Within a week, it lost $30 billion in market capitalization. It’s still trying to recover.
The difference is clear. In the late ‘80s and early ‘90s, the stock market was essentially indifferent to environmental performance. That has changed dramatically.
Another major change is in how people are behaving. In the ‘70s and ‘80s, people had values and causes of import to them, but you didn’t bring it into your commercial life. Today, people look to use their commercial involvement to promote the causes that matter to them. Furthermore, consumers are using their shopping carts to change society. They are also investing their values. People are increasingly thinking about how their pension funds are invested and whether or not their money is in companies that are consistent with their values.
Fidelzeid: Name a brand or two that does well on the CSR front?
Heal: Though neither is perfect, I look to Nike and Apple.
I mentioned Nike’s supply chain issues earlier. After initially being quite unresponsive, they have since been very proactive in trying to improve conditions.
Its CSR report is actually one of the more informative ones, as it offers details on all the factories to which it subcontracts work all over the world, along with ratings of those factories. It is even quite frank about certain factories that are not particularly satisfactory. They explain why they continue to use them and how they’ve been trying to improve conditions there.
Apple is much the same. It, too, has supply chain issues in Southeast Asia. It has joined the Fair Labor Association, the first non-clothing manufacturer to do so. It even invited the group to inspect all of its factories and publish the results of their findings. That openness is key.
Fidelzeid: Where do brand image and CSR intersect?
Heal: The value of the brand is overwhelming for most American companies these days. Apple’s market cap is $750 billion, but the physical value of its assets is less than $100 billion. That’s $650 billion of intangible value and a lot of it is the brand.
The physical value of Starbucks’ assets is probably close to zero relative to its market capitalization, which basically reflects the value of its brand, its image.
The value of a brand certainly depends on product functionality, but it also very much depends on whether people think the company is a positive force in society. CSR is front and center in that equation. And to underscore the importance of this, when you think about many of the Fortune 500 companies, brand value is the biggest asset they have.
Fidelzeid: Speaking of Starbucks, what are your thoughts on the controversy surrounding its Race Together program?
Heal: The Race Together campaign was an attempt to make it seem relevant to what’s going on in the US at the moment and to some of the issues that would concern its customers. Unfortunately, it seems to have handled it inappropriately. That said, Starbucks has a good track record in many respects.
A good CSR campaign addresses the issues a consumer would associate with your company that are generated by its operations. Obviously, Starbucks is a huge coffee consumer. People who work on coffee plantations are grossly underpaid and work under generally appalling conditions.
Starbucks has actually done a lot to try to improve these working conditions. It pays a premium for its coffee so that the people who supply it get more than the standard market rate. It further insists on some standard of treatment for the workers. In fact, it has gone out of its way on this front, having partnered with several NGOs, many of whom have given credit to the company.
Starbucks has legitimately invested not just in the image of being a caring company, but in the reality of being a compassionate one, too.
Fidelzeid: You’ve been quoted as saying that many company’s CSR reports are missed opportunities. As such, what would you deem to be the most important elements companies must include in them?
Heal: First off, you want to be very clear whom you are writing them for. These are not being written for consumers. CSR reports are for journalists looking for newsworthy items. They are for NGOs, who can be a hostile audience. If you have a potentially damaging environmental footprint or a complicated supply chain somewhere in the world, NGOs are incredibly mindful of that.
In such cases, it’s very helpful to include scientific evidence to back your actions when applicable, especially when NGOs challenge you. In the environmental area, there often is a lot of scientific evidence to be found.
Fidelzeid: And what of the investment community?
Heal: Of course they are a huge audience for CSR reports. Numerous studies have come out to show a strong correlation between high environmental performance and high stock-market valuation. There’s reason to believe there is a causal relationship there.
In addition, about 15% of all institutionally managed money in the US goes to SRI (socially responsible investing) funds. A lot of big public-sector funds are being managed along SRI lines. In truth, about 25% of the stock market is SRI. If you speak to CFOs, many actually like having sustainable investors because they tend to buy and hold.
Overall, the audience for your CSR reports is usually very intelligent and well informed. It is beyond prudent to be open, honest, and factual.
Fidelzeid: Studies have come out indicating that consumers are willing to pay more for products from companies that are good corporate citizens. Is there hard evidence to support this?
Heal: In fact there is. There was a fascinating experiment carried out a few years ago by two Harvard researchers at ABC Carpet & Home in Manhattan. All towels sold there are made of organic cotton and under Fair Trade conditions, though they had never been labeled as such.
The towels were divided into two sections. Half were labeled as organic and Fair Trade, the others were not. Sales of the labeled towels went up 25% over the course of a month. After the prices on the labeled towels were raised 10%, sales continued higher. When prices were raised 20%, sales dropped a bit, but still notably outpaced the unlabeled towels.
In 2011, Columbia University researcher Ray Fisman did another experiment with eBay. He accumulated hundreds of thousands of data points on products that had been sold on the site with and without a charity tie-in. On average, he found those with the tie-in sold between 5% and 10% more. And they sold significantly faster. Everyone uses eBay, so that might be a more telling sign of just how much consumers truly consider CSR when making purchases.
Fidelzeid: What are some interesting CSR perspectives you are picking up from your students?
Heal: Since roughly the beginning of the 21st century, I’ve seen students get much more interested in CSR issues. I’ve been teaching a course on CSR since 2005. When I first offered it, I had about 15 or 16 students and I had to work hard to find them. Now the course is capped out at around 60 students. If I offered two sessions, I’m sure I’d fill them both.
Another interesting factor is that a typical class now comprises students from all over the globe. No part of the world is that remote to them. You truly get the sense how connected the world is and that the concerns of other regions are very much these students’ concerns.
In turn, as brands sell to these consumers, they have to realize how important issues in other parts of the world are to them. That significantly changes their attitude.