Sustainability Strategy

Researchers look at how firms get involved with CSR, not just why.

Making Commitments Compatible with Business Competencies

Committing to sustainability isn’t always an easy decision. And even once you’ve committed, there are more decisions ahead.

The way in which a corporation – or even an SME – pursues social responsibility is as important as the commitment in the first place.

So what are the different ways to engage with sustainability or corporate social responsibility (CSR)? What effect will these various forms have on the bottom line?

If you manage sustainability in your company, you need initiatives that will meet environmental or social targets while contributing to profitability. This is no different in a corporation than it is for a small business or a social enterprise. As researchers Erik Simanis and Duncan Duke point out, “[A] profitable business stands a better chance of being able to increase its scale and impact.”

But given limited resources and capacity, how do you know if your initiatives will maximize financial returns?

These are the types of questions Zhi Tang, Clyde Eiríkur Hull and Sandra Rothenberg asked in their recent study, How Corporate Social Responsibility Engagement Strategy Moderates the CSR-Financial Performance Relationship. The three researchers from the Saunders College of Business at Rochester Institute of Technology looked at how firms get involved with CSR, not just why.

Stick to What You Know

The authors first suggest that firms should implement initiatives where the need is aligned with business competencies. In doing so, the firm can create a greater impact while also learning from these projects to further hone such competencies.

For example, if a firm is strong in environmental resource management then working with a group that restores wetlands is a better idea than working to promote literacy.

The research argues that the path to profitability lies in the potential for the firm to learn from its experiences. When a firm engages in initiatives aligned with its business competencies, that learning enhances such competencies.

Wegmans, a privately-held grocery store known for its high quality food, for example, has supported local food banks for decades, contributing 16.5 million pounds of food in 2013 alone. By sending day-old bread and not-quite perfect produce to food banks, they find good uses for good food while maintaining the quality of what they sell.

Another key perspective from the study pertains to reputation.

Much of the existing research on relationships between sustainability and profitability explains that profit results from enhanced relationships with stakeholders. In other words, getting involved with social campaigns creates positive relationships with employees and communities.

But the findings from Tang, Hull, and Rothenberg suggest that profit need not rely solely on reputational capital. The study presents advice for firms wanting to launch successful corporate social responsibility campaigns that benefit the firm in more ways than just a better reputation.

Four Steps to Positive and Profitable Sustainability Initiatives

1. Focus resources. Firms that are more focused in their efforts are more profitable. Evidence shows that investing in multiple dimensions of sustainability leads to lower profitability than a concentrated approach. For example, a focus on environmental protection requires expertise in innovation and process implementation. Human rights initiatives require knowledge in identity politics and lobbying. Firms can be overwhelmed if they go in too many directions at once.

Instead of spreading investment thin, Toyota invests in environmental technology during product development, through its supply chain and via internal recycling programs. This three-pronged approach helps Toyota optimize its investment in environmental technology.

2. Be consistent. When firms integrate knowledge in a steady fashion, learning increases. Firms that continually start and stop initiatives do not accumulate through the organization. Consistency also makes it easier to earmark resources for sustainability initiatives.

McDonald’s has supported its Ronald McDonald House Charities for almost four decades. The efforts have been so successful that they have sprouted new organizations like the Red Shoe Society, which gives young community leaders new opportunities to participate in fundraising often reserved for mature professionals and philanthropists.

3. Work from the inside out. Firms can either look outside the organization to see where sustainability opportunities lie, perhaps responding to stakeholder pressure, or they can look inward, assess their resources and match those resources to a sustainability strategy.

Working with internal stakeholders like front-line employees is often more efficient and effective because it leverages existing relationships and networks. Taking advantage of these efficiencies early in the process can pay huge dividends later.

CIBC, a financial services firm, works with breast cancer charities, in part, because its employees are particularly passionate about the cause. After becoming involved with the run in 1997, CIBC helped expand the program from 10 locations to 17 – to achieve greater levels of impact.

4. Jump right in. Theory would predict that a slower, measured pace of sustainability or CSR implementation would lead to higher profits. For example, if a firm decides to work with inner city youth, a small pilot project could eventually be replicated and scaled in different regions.

But the popular belief that a measured approach is the best approach – allowing firms time to fully absorb new skills and knowledge – is not actually mandated or validated by the research.

The Rochester researchers find no difference between firms that implement sustainability or CSR quickly compared to those firms that move more slowly. In sum, go for it!

Strategize toward Sustainability

Adopting a sustainability or CSR mandate can be an intimidating process, which is one of the barriers preventing more organizations from making such commitments.

However, research asserts there are nuanced ways firms can create strategic campaigns and structures – ultimately creating mutually beneficially relationships and successful initiatives.

Tang, Z., Hull, C. E. and Rothenberg, S. 2012. “How Corporate Social Responsibility Engagement Strategy Moderates the CSR–Financial Performance Relationship.” Journal of Management Studies. 49: 1274–1303.

Simanis, E. and Duke, D. 2014. “Profits at the Bottom of the Pyramid.” Harvard Business Review.