By Tim Wilson, Editor & Writer, Boston College Center

In this breakout session I had the chance to hear researchers from McKinsey & Company and the Boston College Center share some of what they learned in their partnership that assessed the link between corporate citizenship and value creation.

Their research was based on 135 interviews with executives from the areas of CSR, sustainability, human resources, environment, strategy, finance and investor relations in 20 companies from 11 industries. This culminated in a report from the Boston College Center, “How Virtue Creates Value for Business and Society”.

Sheila Bonini from McKinsey summarized the key findings for session attendees:

1. Environmental, social and governance (ESG) activities, or corporate citizenship, create value along four areas valued by the market: growth, return on capital, risk management and management quality.
2. Investors and CFOs believe ESG creates value but they are not fully taking it into account.
3. Many companies create real value from ESG activities, but most do not measure that value and even fewer communicate that value.
4. There is a real opportunity for ESG professionals to fill this gap and filling this gap will enable organizations to understand where these activities fit.

Of course, the trick is coming up with the metrics to provide the numbers that demonstrate the value. Kevin Thompson of IBM, one of the participating companies, noted that there are100-plus surveys that CSR practitioners fill out each year to be evaluated and ranked on their CSR programs. “Not one survey asks about value creation,” he said. “They all ask about risk management.” This puts the company in a defensive position when telling about its activities.

Thompson reminded us of the lessons from the campaign trail that Clinton and Obama campaign adviser David Wilhelm passed on at the conference’s opening dinner. Wilhelm told us that CSR practitioners, like candidates, must always be the aggressor to avoid being put in a defensive position that leads to losing. In light of that advice Thompson asked, “If you’ve got five or six people in your CSR program, do you want two of them always playing defense?”

Bonini acknowledged that “it is a huge challenge trying to put metrics around social value. But huge progress can be made by doing it.” CSR professionals are the most positive of those surveyed that ESG adds to shareholder value. But according to Bonini and the Center’s Phil Mirvis, most say they are not able to put a number on it.

While the search for appropriate metrics can be daunting, we heard some impressive numbers that surfaced in the company interviews and demonstrated that ESG or CSR activities created measurable value in those areas valued by the market.

In terms of growth, Novo Nordisk’s work in China on diabetes education led to a 70 percent market share in that emerging market.

Dow demonstrated impressive returns on capital from its efforts to cut energy consumption. Spending $1 billion over 10 years to realize that cut in consumption brought savings of $7 billion in 5 years.

Intel’s Community Needs Assessment program contributed to risk management by engaging local stakeholders in a responsive way. This pro-active approach helped avoid zoning delays and fines, and helped the company with tax incentives.

At IBM, the Corporate Service Corps enhanced management quality through development of emerging leaders who were sent to emerging markets to help with economic growth. This led to improved global leadership skills, cultural intelligence, global awareness, and employee retention and commitment to IBM.

These are just some examples of the value that McKinsey and the Center found is created through the practices of these and other companies. Check out the full report on the Center web site for more details on creating metrics and the value they demonstrate, along with the 10 best practices necessary to create strategic and financially valuable ESG activities.

Tags: 2009 Conference, How Virtue Creates Value, McKinsey
This entry was posted by Tim Wilson, Editor & Writer, Boston College Center on Thursday, April 2nd, 2009 at 3:49 PM, and is filed under Center News & Features. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.