CSR, ESG, SRI and Why All Companies Should Care

By: Doug Miller

By: Doug Miller

If you do much reading about Corporate Social Responsibility (CSR), undoubtedly you have also seen articles about Environmental, Social and Governance (ESG), as well as Sustainable, Responsible and Impact Investing (SRI).  What are the similarities, differences, and why should they matter to every business leader?

Let’s start with a simple explanation of the terms.  “CSR” describes a company’s commitment to stakeholders and socially responsible practices.  “ESG,” used by investors and lenders, are the criteria that evaluate a company’s practices; sometimes ESG and “sustainability” are used interchangeably, however the latter is more commonly used by companies; there are subtle nuances, but both encompass the environmental, social and governance considerations that can impact a company’s ability to execute its business strategy and create value (Nasdaq).  Lastly, “SRI” relates to an actual investment strategy, where one’s focus is on socially responsible companies (this is where CSR and ESG reporting come into play).

CSR, ESG and SRI have garnered ever-increasing attention in the business world due to how a company’s behaviors are now being monitored by investors, financial institutions, employees, customers, public interest groups, the government, the media, and more.  The attention has grown because of the impact the topic has on performance.  Nasdaq reports that research has found that CSR / ESG / SRI impact a number of key business drivers, including:

  • Access to capital
  • Cost savings and productivity
  • Risk management
  • Revenue growth and market access
  • Brand value and reputation
  • License to operate
  • Human capital management
  • Employee retention and recruitment
  • Mergers and acquisitions
  • New product and service innovation

Additional evidence of the topic’s importance is the percent of corporations now issuing CSR/ESG reports.  The Governance & Accountability Institute reported that 82% of the S&P 500 companies published Corporate Sustainability Reports in 2016.  That number speaks volumes.

Other research validates the importance of a commitment to, and reporting on, being a good corporate citizen:

  • Impact on Business Performance
    • 81% of multifamily executives believe CSR impacts employee retention, resident retention, company’s performance (ManagInc, 2018 Multifamily CSR Benchmark Study).
    • The Q1 2018 ManagInc Financial Impact Report compared ManagInc client employee and resident turnover rates to industry averages reported by NAA; the findings revealed that company’s focused on stakeholders experience $2 - $6.4 million dollar lower turnover costs (based on 5,000 unit portfolio).
  • Impact on Employment Decisions
    • Up to 63% of millennials reported that job decisions were impacted by a prospective employer’s cause work (Forbes).
    • 80% of prospective employees rely on employer reviews before making a career move (Jobsoid).
  • Impact on Purchase Decisions
    • 67% of consumers surveyed said they buy from companies supporting good causes (Edelman Goodpurpose Study).
    • 79% of Millennials expect businesses to continue improving CSR efforts (2017 Cone Communication CSR Study).
  • SRI Investments
    • Sustainable, responsible and impact investing in the U.S. rose 33% between 2014-2016 to $8.72 trillion (Forum for Sustainable and Responsible Investment - "2016 Report on U.S. Sustainable, Responsible, and Impact Investing Trends").

While CSR, ESG and SRI are different, they are also interrelated.

  • Corporate Social Responsibility (CSR)
    • CSR refers to a corporation’s initiatives to evaluate and accept responsibility for their effect on all stakeholders.
    • CSR goes beyond the law; it is about self-regulation, and reveals itself in a company’s guiding principles, operating philosophy, and behaviors towards all stakeholders; the goal is to ensure a company’s actions positively impact all stakeholders.
    • CSR includes the programs, policies and practices that relate to:
      • Employees: Policies, programs and practices that address the needs of employees, from compensation and benefits, to education, career development, company programs, respect shown to employees, company leadership and more.
      • Suppliers: Policies and practices that relate to the treatment of suppliers, such as honoring contracts, speed of payments, treatment of supplier employees, ease of communicating and resolving problems.
      • Customers: Programs, policies and practices that relate to the customer experience; as it relates to apartment residents, this includes the living experience, services, amenities, the condition of one’s apartment and the property, safety, and more.
      • Society: Company programs to support society and the communities they do business within; this includes community service, charitable giving, environmental stewardship and more.
    • The return on investment for CSR is the positive impact a focus on stakeholders can have on the retention, loyalty and recruitment of employees and customers, due to its effect on reputation; this delivers strong returns due to reducing the costs associated with employee and customer turnover on bottom line performance.
  • Environmental, Social and Governance (ESG) Criteria
    • While CSR refers to the behaviors of a socially responsible company, ESG relates to the criteria used to evaluate a company’s commitment to the principles of CSR.
    • Criteria relate to factors investors, lenders and other sources of capital now use to evaluate a firm's practices: environmental (how a company performs as a steward of the environment); social (how a company manages relationships with its stakeholders); and, governance (company’s leadership, audits, internal controls such as regarding diversity and sexual harassment in the workplace, and more).
    • ESG criteria are now being incorporated into investment and banking community decision-making due to recognizing that the business landscape has changed, and that the long term sustainability of a company’s performance is tied to good corporate citizenship, as well as employment and purchasing decisions (especially those of Millennials).
    • The benefit of managing and reporting ESG relates to its impact on accessibility to capital (such as for property acquisitions or refi’s), and the cost of capital (cost can drop due to performance risks being lower for socially responsible companies).
  • Sustainable, Responsible and Impact Investing (SRI)
    • CSR are the desired behaviors of a socially responsible company, and ESG are the criteria used to measure a company’s commitment to CSR; SRI is the discipline that considers ESG criteria to make investment decisions.
    • SRI refers to evaluating the long term sustainability of a company’s performance due to the evolving importance of good corporate citizenship on business drivers such as reputation, employment and purchasing decisions, and more.
    • A SRI investment strategy is based on the belief that a commitment to the principles of CSR generates long-term competitive financial returns as well as positively impacts society; for investors and lenders, reducing the risks associated with the sustainability of performance is immensely important.

More evidence on why this topic should matter to all companies is the “Warning Letter to CEO’s” sent this year by Larry Fink, CEO of BlackRock (the world’s largest asset manager; over $6 trillion in assets managed).  Mr. Fink states:

  • Seize the mantle of leadership in making the world a better place, beyond simply delivering profits.
  • Start accounting for the societal impact of your companies, or risk disappointing the largest asset manager in the world.
  • Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.

Due to the importance of corporate social responsibility to your current and prospective employees and residents, adopting and reporting on your company’s socially responsible practices can reap enormous rewards in terms of its impact on reputation, the retention and recruitment of employees and residents, the reduction of business risks, as well as access to capital and the cost of capital.

Company performance and being socially responsible are not mutually exclusive, and thus being socially responsible provides a foundation for sustained long term success.  What is your company doing to evaluate, measure, manage, and enhance its commitment to corporate social responsibility?

If you want to learn about the multifamily industry’s adoption of CSR’s best practices, click here to download the ManagInc 2018 Multifamily CSR Benchmark Study.

The ManagInc Team can help you continue on your CSR journey to evaluate, improve and report on your socially responsible practices. Contact Doug at dmiller@managinc.com.