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September 21, 2007
Big Bosses Embrace Corporate Responsibility
    by Anne Moore Odell

A new survey of executives finds many companies are increasing their spending on environmental, social, and governance issues, in spite of a decline in business confidence.


Having environmental policies in place is more than just good public relations, a majority of executives responded in a survey conducted for global accounting firm Grant Thornton . Three-quarters of respondents likewise agreed that corporate responsibility could increase profits.

The belief that corporate responsibility can increase a company's bottom-line will lead to a swell in spending for corporate responsibility issues in the immediate future, the executives predicted. This increase in spending is especially noteworthy, as it is occurring during an all time low in business confidence Grant Thornton reported,

"Corporate responsibility has begun to move from a defensive to an offensive position," said Jack Katz, managing partner of Grant Thornton's Financial Services industry practice. "It is not simply about complying with government regulations. It's about reducing costs, marketing products and services, raising capital, and winning talent."

BusinessWeek Research Services conducted the survey for Grant Thornton. Alongside the online interview of 500 plus executives, ten business leaders were interviewed in-depth on corporation responsibility. The executives were from large and midsize companies who are members of the BusinessWeek Market Advisory Board, an online panel of more than 18,000 business leaders and executives.

Executives' notions that having corporate responsibility policies in place is profitable are backed up by research released earlier this year from the international investment bank Goldman Sachs. In a broad study across six sectors, Goldman Sachs found that companies that have environmental, social and governance (ESG) policies in place have outperformed the general stock market by 25% since August 2005.

The environment is the biggest winner for an increase in business spending. Over 75% of executives responded that their companies are planning to spend more on environmental programs.

"If we look at sustainability initiatives, setting targets for reducing a company's environmental footprint can not only lower its operating costs--whether it's lowering an energy bill or reducing travel costs-- it can also result in innovation and re-engineered processes that have an even greater impact," Katz told SocialFunds.com.

Executives pointed to a number of reasons for the increased environmental spending, including tax incentives and new technologies. They also said that consumers are helping push companies to invest more in the environment.

Grant Thornton conducts a semi-annual survey that measures businesses' "optimism" outlook. When the Grant Thornton Business Optimism Index was completed last in summer 2007, businesses leaders' forecasts were the lowest since Grant Thornton started its research. However, even with the "Business Optimism" index at a record low, Grant Thornton's new corporate responsibility survey has companies spending more money on ESG programs.

"This was one of the reasons we found the results so interesting. Despite the fact that business optimism was at an all-time low, executives were saying they expected spending to go up. This was especially true for environmental initiatives," commented Katz.

Although 68% of executives said that they expect environmental responsibility reporting to be mandatory within the next three to five years, only 45% say they have plans to do some kind of environmental reporting. This closely mirrors the 70% of those surveyed who think that there will be an increase in governmental regulation on the environment within the next five years.

Half of those surveyed said that social responsibility programs would see more money, and just under half (45%) of executives said that governance programs would be funded at a higher rate.

Almost a fifth of companies have appointed an individual to be responsible for all of their corporate responsibility programs. Sixty-four percent thought that social programs are the domains of human resource departments, while half responded environmental programs should be under the charge of the company's operation division. Finance should spearhead economic responsibility programs 57% responded.

Besides responding to consumer and investor demands for more corporate responsibility, executives also felt that their employees benefited from these policies, helping companies recruit and keep talented staff.

Focusing on short-term goals like quarterly earnings is one of the largest problems companies face when trying to create corporate responsibility programs. Other stumbling blocks to implementing corporate responsibility programs are the costs of the programs, measuring the return on corporate responsibility investments and "a non-supportive corporate culture," as the Grant Thornton phrased it.

Consumers have the loudest voices in pressuring companies to enact corporate responsibility initiatives, executives responded. However, shareholders are also a force to be reckoned with.

"One out of five respondents believed the investment community was the group with the greatest power to pressure companies to pursue corporate responsibility initiatives" Katz said. "This is higher than the percentage that selected the government as the most important pressure group."

 

 
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