Smart for business,
smart for society - and the world

Smart for business,
smart for society - and the world


More and more companies are turning to socially responsible strategies that contribute to performance as well as to the communities and world we live in. Here’s why.

More and more companies
are turning to socially responsible
strategies that contribute to
performance as well as to
the communities and world we
live in. Here’s why.

WP BrandStudio and Bank of America are partnering on a Responsible Growth Series, examining what it means to be a responsible company today and how that leads to both long-term corporate success and sustainable economic growth. Here`s how—and why—responsible growth is emerging as a core business strategy.

It used to be that to win in the marketplace companies had to have a single focus: grow short-term profit. Doing good in the community was a gesture designed to boost the public’s good will, not business results.

A December 2016 report from BofA Merrill Lynch Global Research shows that this way of thinking is a thing of the past—and, in fact, that businesses may find environmental, social and governance (ESG) considerations “too costly to ignore.” The report found that companies with the highest environmental and social scores were more likely to outperform lower-rated ones, with less future earnings volatility and risk, and fewer price declines and bankruptcies.  What’s more, the report predicts that the move toward responsible corporate practices will only gain momentum.

Many large companies have already seen the wisdom of initiatives that help both the world and their business. Last year, for example, the Coca-Cola Company reached its goal of replenishing 100 percent of the water it uses—four years ahead of schedule. Soft drinks are made up of between 89 and 99 percent water, so you can’t run a beverage-maker if the planet’s water resources are depleted.

Similarly, by 2015 an effort called Project Nurture, a partnership among Coca-Cola, the Bill and Melinda Gates Foundation and TechnoServe, had succeeded in more than doubling the income of 50,000 mango and passion fruit farmers in Kenya and Uganda. This was a win-win for Coca Cola, because by ensuring a thriving local fruit-production industry, the company can save money by purchasing raw materials locally while also supporting the local economy.

“We are a global company, but a very local business, and we know economic growth is critical for community well-being,” said Bea Perez, chief sustainability officer and vice president at Coca-Cola. “Our business depends on the well-being of these communities just like the communities depend on our business. We constantly seek opportunities to develop programs and insert ourselves where we can impact change.”

Bank of America and Coca-Cola are among the growing number of companies recognizing that prioritizing long-term viability over short-term results, strengthening communities, adopting employee-friendly workplace policies and even addressing economic inequality must be factored into a company’s strategic decision-making. Indeed, those goals are critical to sustainable success.

The theme of this month’s World Economic Forum in Davos, Switzerland, is Responsive and Responsible Leadership, a theme that fits well with Bank of America chairman and CEO Brian Moynihan’s strategy. Moynihan is a co-chair of this year’s forum. “We call it ‘responsible growth,’” Moynihan said. “We know we have to grow, and we are. But we’re doing it with a customer-driven focus that reduces risk. Just as important: Growth has to be sustainable over time, which comes from how we support our teammates, what we do for the communities we serve, and our governance practices.”

We know we have to grow, and we are. But we’re doing it with a customer-driven focus that reduces risk. Just as important: Growth has to be sustainable over time, which comes from how we support our teammates, what we do for the communities we serve, and our governance practices.

Brian Moynihan, chairman and CEO, Bank of America

Responding to communities and consumers

The shift is driven in large part by today’s hyper-informed, more socially conscious public. Millennials in particular increasingly expect the companies they invest in and the businesses they buy from to reflect their values. Of all age groups, millennials have the highest proportion of their assets in environmental and socially-oriented investments, according to the BofA Merrill Lynch Global Research report. The trend is hardly limited to young people, though: A 2015 Nielsen poll of 30,000 consumers in 60 countries found 66 percent of respondents willing to pay more for sustainable brands—and that brands with a demonstrated commitment to sustainability grew at an annual pace of 4 percent globally, while those without grew less than 1 percent.

Consider Cabot Creamery, now the third-largest cheese manufacturer in its category. Cabot is a farmer-owned co-op based in New England and upstate New York. Thirty years ago, Cabot had revenues under $34 million; last year, it saw $600 million in sales.

“Consumers continue to base more of their buying decisions not only on item quality, but the incorporated quality of the company as a whole,” said Ed Townley, chief executive officer of Agri-Mark, the cooperative that produces Cabot products. “What does this company stand for? Are positive business practices embedded into this company’s DNA? Our cooperative way of doing business is aligned with those interests. Our support of people, natural resources and returning profits back to our farm family owners allows for those consumers to connect with Cabot on a deeper level.”

The Cabot cooperative means that small, multigenerational family farmers can stay in business as independents but compete with large manufacturers. Some member farms win awards for their humane treatment of cattle, others for protection of land; several farms generate electricity from cow manure or agricultural waste.

Failing to meet the public’s expectations can do more than just harm a company’s public image. Institutional investors from sovereign wealth funds to universities are pulling their money out of companies involved in fossil fuels, deforestation or violating workers’ rights. More than 1,600 investment and asset management companies, representing $60 trillion in assets, have signed on to the United Nations-backed Principles for Responsible Investment initiative.

No wonder C-suite executives are now thinking about things like how to better invest in their employees, diversify their boards, reduce greenhouse gas emissions and bring low-income communities more fully into the economy.

Sustainability impacts purchase decisions

A 2015 Nielsen poll of 30,000 consumers in 60 countries found 66 percent of respondents were willing to pay more for sustainable brands.

30,000 CONSUMERS IN 60 COUNTRIES

66%

Willing to pay more for sustainable brands.

Source: Nielsen.com

Doing good for the bottom line

A growing body of evidence indicates that responsible practices pay off—both for individual business and on a broader level in driving economic growth.

The BofA Merrill Lynch Global Research report projects that in the next two to three decades, companies that prioritize ESG factors are likely to attract as much as $20 trillion in investment. A 2012 analysis of more than 100 academic studies concluded that companies with higher ESG ratings had superior financial performance. A 2016 survey by the Forum for Sustainable and Responsible Investment found that among fund managers who incorporate ESG factors in their decision making, 80 percent believe doing so yields higher returns.

“It’s about finding a win-win, where businesses adapt what they’re doing so that there are operational benefits as well as social benefits,” said Mary Margaret Frank, academic director of the Institute for Business in Society at The University of Virginia Darden School of Business. By improving the energy efficiency of its manufacturing processes, for example, a major chemical manufacturer not only drastically cut its greenhouse gas emissions but, in doing so, also saved $400 million from 2005 through 2013.

The movement is growing. When Thomson Reuters saw responsible investing becoming central to the strategies of major investors globally, the financial-information giant launched a service providing data on the ESG and sustainability performance of over 6,000 global companies, Last year, according to the Governance and Accountability Institute, 81 percent of all S&P 500 companies published sustainability or responsibility reports—up from just 20 percent in 2011. And just last month, a group of high-profile investors, including several well-known socially conscious celebrities, announced the launch of a $2 billion social impact fund, perhaps the biggest yet. It will focus on investments in education, health care, and clean energy in the U.S., and microlending and housing in the developing world.

“Historically, these efforts were just considered something nice to do,” said Anne M. Finucane, vice chairman of Bank of America. “Today they’re becoming embedded in the culture of more and more companies.”

It’s about finding a win-win, where businesses adapt what they’re doing so that there are operational benefits as well as social benefits

Mary Margaret Frank, academic director of the Institute for Business in Society at The University of Virginia Darden School of Business

Diverse strategies for a diverse world

The ways businesses pursue sustainability can vary widely, even within a single company.

For Bank of America, it means earmarking $125 billion toward loans and investments in renewable energy and other fast-growing “green” industries. It also means ensuring that products and services are transparent, easy to understand and help customers better understand their money—one reason the company has heavily invested in its mobile banking app, providing greater real-time access to customers while lowering operating costs, which frees up capital to be reinvested in future growth. The bank has also invested more than $1 billion with community development financial institutions so that these local loan centers can provide loans to support small businesses and non-profit organizations in low-income neighborhoods that might not otherwise have access to capital—a boost to those communities that also strengthens local economies.

Responsibility-minded corporations also ensure their workers are treated well, not only by offering child care, elder care and other benefits, but also by giving staff a meaningful voice in decision-making—all of which can make it easier to recruit talent and reduce turnover. Bank of America has steadily increased the wages for its lowest paid workers since Moynihan became CEO, crossing the $15-per-hour threshold early in 2017. “We want to be the best place to work for our employees,” said Moynihan.

Diversity is another critical aspect in responsible governance, which not only helps with recruiting and retaining employees, but also introduces different perspectives that help companies better understand the many communities they serve. A McKinsey study found that companies ranking in the top quartile for executive board diversity saw a return on equity 53 percent higher, on average, than companies in the bottom quartile.

It’s becoming increasingly clear that “doing well by doing good” is no longer just a nice aspiration. More than ever, those two imperatives are seen as symbiotic; to meet the demands of customers, shareholders, employees and the planet, corporations can no longer afford to have one without the other.