CSR as a Corporate Investment, How Come?

Corporate social responsibility (CSR) has been a trend for the last decade,
but what and why has it become important to INVESTORS?

John Ditchfield, co-owner of Castlefield Advisory Partners, comments: “ CSR is generally used to describe the activities undertaken by companies that reflect their responsibilities to the public and not just shareholders. “So, for example, when an insurance or investment group contributes time or technical support to a charity or non-governmental organization, it is doing so to promote broad social welfare and not just to advance its own interests or those of its shareholders. However, Leon Kamhi, head of responsibility for Hermes Investment Management, believes that there has been a change in the meaning of CSR for investors and practitioners. “Historically, the company’s CSR activities have been about giving and helping local communities in schools, nursing homes, and the communities”.

CSR is becoming more important to investors as they pay more attention to where and how their money is invested”.
Anna Sofat

John David, head of Rathbone Greenbank Investment, also believes that the term CSR has “evolved beyond a strict definition”. John David said, “It is now a general term for all the ways in which companies must pay attention to the impact of profits and losses on the outside world”. “While CSR, for the most part, used to be little more than a great marketing addition to an annual report, the new generation of consumers is demanding something far more authentic.” Mr. David added: “Over the past 20 years we have seen CSR become fully integrated into business strategy – encompassing how business relates to the environment and society at large.” Sandra Crowl, investment committee member at Carmignac, agrees that CSR is more than just a description of a company’s activities.

CSR can mean slightly different things to different investors, as there are nuances in how investors view a company’s CSR activities, but the essence is the same, as explained by Rose Beale, a thematic analyst on the investment team in charge at Columbia Threadneedle Investments. “For us, CSR reflects a program of activities undertaken by companies to demonstrate awareness of, and improve the situation for those affected by, a number of social and environmental issues. “It does not include activities that are delivered to meet company objectives or legal requirements.” Ms. Beale added: “CSR is usually concerned with relationships with external beneficiaries, the wider community, and the environment,

Why is that important?
Mr. David believes CSR – or responsible business culture more broadly – ​​is important in two ways. 1. First, a company with strong CSR values ​​is likely to have a high level of transparency and seek to communicate its CSR efforts to a wider stakeholder base. “Investors love information because it helps us separate the wheat from the chaff, those who talk about a good game, and those who deliver action. 2. Second, the emphasis on developing CSR policies suggests that the senior management team recognizes the materiality of non-financial matters for corporate valuation.” He lists non-financial factors, such as staff morale, environmental efficiency and social license to operate, that can make the difference between a successful business and a failed one.lip service on CSR reporting shows investors that they run high-risk management standards,” added David.

According to Ms. Crowl: “As more investors get used to sustainability issues, we can see companies falling behind and suffering financially as a result. “Inevitably, companies that don’t consider their social responsibility to be a bad investment.” He cited the consumer staples sector, where companies that were once global brand leaders are now shunned for not caring much about the safety of consumer products in their supply chains and have seen valuations drop by as much as 30 percent to 40 percent.

Ms. Crowl added: “Energy companies that are not investing enough in new, renewable sources are also getting resistance from investors. Similarly, with the advent of electric vehicles, we are seeing increased scrutiny of battery companies to provide information about where key ingredients are located. sourced from, given the poor record of child labor violations in the cobalt mines.” It is also becoming more important that more people know about CSR, adds Anna Sofat. Ms. Sofat, founder and managing director of Addidi Wealth, said: “As the demand for transparency increases, the company’s supply chain and its standards are important factors in CSR. “CSR is becoming more important to investors because they care more about where and how their money is invested.”

Doing it right
So what kind of company is doing it right? What should investors interested in investing along the CSR path look out for? Mr. Kamhi stated that positive CSR activities can be found in various sectors and industries, be it consumer goods, finance, or telecommunications giants.

Examples provided include:

  • A telecommunications company that provides fixed and mobile connections to remote areas.
  • Food companies ensure that no child labor is employed among their suppliers.
  • Banks provide customers with the financial products they need.

“This is very important for investors because CSR issues are important for the long-term sustainable value of the company itself.” Ms. Sofat points out that “relationships with local communities and charities are often part of corporate social responsibility programs. Gender and diversity issues are also under the umbrella of CSR”. And he believes it’s getting easier for investors to see who is doing it right, not just those who are doing it wrong. Ms. Sofat explained: “The CSR score is one way to measure the performance of companies paying more attention to them.


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