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CSR and the Investment Market:coming together

Preparing for investor engagement

ICA, the leading corporate access specialist, has combinedwith Smithfield, the leading financial communicationsconsultancy, and Burson-Marsteller the leading publicrelations and communications agency, in a survey of investment analysts working within 27 institutions. Theaudience was asked to consider whether CSR policieswere currently important to investment decisions, howthis position could change in the medium term and whichspecific areas of policy were and would be influential.

The majority of responses (72%) considered current CSRpolicies as either playing a small part or no part at all intheir view of investment potential. Most commented thatCSR was important from a risk-management point of viewand was pivotal in determining the non-investmentperception of the company. However, only 28%suggested that they consider CSR policies play animportant role in the investment case.

This position altered materially when the audience wasasked to consider the importance of CSR policies tomedium-term investor perceptions. 63% of responseshighlighted that this area was likely to be increasinglyimportant or very important. Critically, only 9%suggested that CSR was unlikely to be important in thiscontext. This change from current views is based onexpectations of further development of social mediawithin sales and marketing functions and the need todemonstrate commitments to key areas within CSR whenmoving into new markets. The need to not only behaveappropriately but be seen to do so was regularly

highlighted as a pre-requirement in these two areas.Asked to rank a series of specific CSR policies which could be increasingly important, responses clearly favouredthose areas which directly impact operational and financialperformance. 59% of respondents stated that employeerelations were critical, a reflection that good employerstatus has gained considerable traction within a range of marketing activities while the maintenance of strongindustrial relations was also highlighted given a more cost-conscious

economic environment. Environmental sustainability wasalso highlighted as important with several respondentscommenting that regulation was likely to get tougher andoperate on a multi-national basis. Finally, supply chainmanagement is seen as an essential area for CSR policiesto operate. The experience of several high profile brandsand the nature of their outsourced product manufacturewas commented upon.

Finally, there were some comments which appear toindicate that CSR in general should combine withcorporate governance. Executive pay was seen as a keyarea of development despite not being within the currentremit of traditional CSR. Given the current topicality of this subject and moves to redefine shareholder powers,the research may indicate that this is also an area for CSRprofessionals to consider.

It is clear that measurement of general or specific risks toperformance is important. Within this, the commitmentto CSR policies and initiatives is likely to grow in impor-tance. However, for it to play this part in the investmentperceptions of companies, CSR must move away from itscurrent status as risk mitigation and onto a proactivegrowth basis.

The results of this survey suggest that there is an appetitefor greater communication with the investment commu-nity on CSR policies and actions. This must be placed,however, in the context of the wider corporate invest-ment case; demonstrating why and how these policies can

assist a company in developing its key performance met-rics. CSR initiatives should be placed alongside key mar-keting, product development and other strategic actionswhen describing performance and prospects.

From this research, CSR professionals should prepare toplay a greater role in the communication with investmentaudiences.

Scott Fulton, Head of Investor Relations, Smithfield Consultants

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Corporate Social Responsibility and the Investment Market

The Findings

Smithfield Consultants canvassed investment (sell-side) analystsworking for 27 different investment banks and brokers. Thesurvey posed three specific questions designed to elicit thisgroups views on CSR policies and their impact on the invest-ment perception of companies.

1: When considering a companys investmentstory, with which of the following statements doyou agree?

There was general agreement that CSR policies in general play apart within the investment story. While the majority agreedthat this was a small role, an important 28% of the surveyagreed that CSR policies play an important part in theinvestment markets views on companies. Commenting on thisquestion, the following points are of interest:

Sustainability of the business model is key and depends oncorporate governance and on what the company does to preserveand improve its socio-economic environment.

I expect companies to be more than merely compliant withrelevant safety regulations.

Most CSR policies are related to how the company behaveswithin its chosen markets which is important but more from arisk control basis than investment case.

In general, respondents clearly feel that CSR policies are thereto ensure that the company complies with key regulations or isprotecting its position with regard to employees and markets.There were no comments highlighting that CSR policies providea competitive advantage or were part of companies wider salesand marketing functions.

2: Considering the next two years, what is yourview of CSRs importance to investment percep-tions?

Smithfield believes that the survey shows a growing acceptanceof CSR aligned with corporate purpose within investment deci-sions. The majority of respondents believe that CSR policieswill become more important to investment perceptions of com-panies. Half of the survey views them as increasingly important,while 13% view them as very important. Although over a thirdof the survey believe that CSR policies are likely to be onlyslightly or not likely to be important, Smithfield believes thatthe survey shows a growing acceptance of this area within in-vestment considerations.

This question attracted a range of comments, the highlights of which are shown below:

Social responsible investment will be more and more importantdue to the emergence of social networks and consciousness of consumers.

CSR policies are more likely to have an impact on my invest-ment perception when they go wrong think clothing retailersand labour practices.

The first thing that comes to mind is environmental sustain-ability. This is important, but on a global rather than a spe-cific investment basis.

CSR policies appear to be driven by the media agenda. In my experience, they are better at generating headlines than they are investment returns.

The whole area of corporate responsibility is going to becomemore important but I have yet to see any company show this asa positive advantage. Yet there will come a time, sooner rather than later with the growth of social media, when the promotionof these policies will have an impact on sales and margins.

I see the growth of brands like Apple as signalling a changehere. Consumers want to associate with good companies notthose who behave badly.

CSR policies playno part

9%

CSR policies playa small part

63%

CSR policies playan important part

28%

Not likely to beimportant

9%

Likely to beslightly

important28%

Increasinglyimportant

50%

Increasinglyvery important

13%

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