Consumers increasingly press companies to provide goods and services with a significant commitment to socially responsible sourcing and ethical production practices.
The problem is many customers haven’t been prepared to pay the higher costs associated with these efforts that get passed along to them. That is changing but, in their rush to promote socially responsible credentials, companies must be careful not to alienate both consumers and investors.
The good news is this conundrum is getting easier to address.
On the investor side, there is growing evidence they are linking the attractiveness of an investment with its approach to social responsibility. This contrasts starkly with the jaundiced view held by most professional investors just 10 years ago.
The idea of including an ESG (environmental, social, and corporate governance) analysis of investment initiatives was dismissed as simply a fad or, frequently, as having an insufficiently demanding approach to profitability and shareholder returns.
But that view has changed. Recent surveys show investors increasingly include corporate social responsibility factors when making investment decisions, because they recognize consumers are willing to pay a premium for socially responsible products and services and, importantly, because they view them as being an effective way to mitigate risk.
Customers, however, can be skeptical about a company’s real commitment to corporate responsibility.
Heavy spending on feel-good advertising trumpeting commitments to alternative energy, workplace diversity, ethically sourced materials, or philanthropy may well backfire, particularly if the messages are little more than smoke and mirrors.
Scandals involving companies who claim the moral high ground only to have those claims discredited suffer significant damage to their reputation. Equally concerning is that failing to have appropriate social responsibility policies and the right approach to promoting them could arouse the interest of powerful activist investors, who are quick to question management about wasting corporate resources.
Being a good corporate citizen is good business, but it is important for communicators to make sure their company’s claims about behavior are in line with its business objectives. Ensuring what the company says is credible, coherent, and compelling and balancing the competing interests of customers and shareholders are as important as having a robust CSR program.
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