While the related issues of socially responsible investing (RI) and corporate social responsibility (CSR) are those I have addressed in the past, I was reminded about just how important they are when I reviewed a compelling contribution on the subject by Ron Robins1, Founder & Analyst, Investing for the Soul (May 12, 2011).
Company performance and profitability
My interest in the matter is not inspired exclusively by a sense of idealism, but by the hard-nosed recognition that CSR can measurably improve company performance and profitability. Increasing numbers of corporate executives accept that, as Mr. Robins observes:
‘CSR can promote respect for their company in the marketplace which can result in higher sales, enhance employee loyalty and attract better personnel to the firm. Also, CSR activities focusing on sustainability issues may lower costs and improve efficiencies as well.’
My own convictions about CSR go deeper even than that. While I look for investment opportunities wherever and whenever I can find them – in so-called traditional as well as socially responsible categories – I recognize the considerable strides that CSR-related investments have made in recent years.
The 2016 Canadian Responsible Investment Trends Report
To put the issue into broader context, RI and CSR refer, of course, to the acceptance of environmental, social, and corporate governance factors into the selection of investments.
Interestingly, The 2016 Canadian Responsible Investment Trends Report2(the most recent year for which compiled data is available) offers an exceptionally upbeat overview of the major trends driving the category:
- $1.5 trillion in RI assets under management, a 49% increase in two years.
- RI represents 38% of the Canadian investment industry.
- Individual investors’ RI assets are up 91% in two years.
- Pension fund assets make up 75% of RI industry’s growth, increasing by $374 billion, or 45%, in two years.
An added advantage for public companies is that aggressive CSR activities may help them gain a possible listing in the FTSE4Good – a set of indexes that measure the performance of companies that meet globally recognized corporate responsibility standards – or Dow Jones Sustainability Indexes, or other similar indices.
This may enhance the company’s stock price, making executives’ stock and stock options more profitable, and shareholders happier.
Conclusion: Let’s get technical
The study of CSR and its relation to corporate profits is growing. A meta-analysis on CSR and its link to profits won the famed socially responsible investing, Moskowitz Prize in 2004.
The study, Corporate Social and Financial Performance: A Meta-Analysis3, compiled by researchers Marc Orlitzky, Frank L. Schmidt and Sara L. Rynes, yielded encouraging data suggesting a positive link between CSR and increased profits.
In other words, it’s beginning to look like it can pay to be good.
Dave Ritcey, The Ritcey Team, Scotia Wealth Management