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November 25, 2009

Report Maps the Attitudes and Influence of Stakeholders on Corporate Social Responsibility
    by Robert Kropp

Although mainstream investors are identified as resistant to corporate citizenship activities in many countries, a report from the Boston College Center for Corporate Citizenship sees the influence of socially responsible investors to be growing. -- Stakeholder theory, first articulated by R. Edward Freeman in 1984, "begins with the assumption that values are necessarily and explicitly a part of doing business," according to a paper co-authored by Freeman in 2004. Now, a quarter century later, a new report from the Boston College Center for Corporate Citizenship (BCCCC) seeks to map the national stakeholder landscapes in nine countries.

The report, entitled Mapping Stakeholder Landscapes: The influence and impact of global stakeholders, identifies stakeholder groups as "investors, employees, consumers, governments, media, communities and NGOs, among others." Among the ways in which stakeholders are making their voices heard include "the growing number of shareholder resolutions in areas of corporate governance, social responsibility and environmental affairs," as well as "stronger consumer and employee preferences to buy from and work for socially responsible businesses, heightened public expectations of more transparency from companies and reporting on social performance, and the ever present threat of protest or boycotts."

The report maps the overall attitude toward corporate citizenship, and the influence on corporate citizenship practices, of key stakeholders in Chile, China, Germany, Italy, Mexico, Philippines, South Africa, the United Kingdom, and the United States. It found that globally, governments ranked high in influence on, as well as mid-to-positive in attitude toward, corporate citizenship.

Interestingly for socially responsible investing (SRI) practitioners, while mainstream investors were also found to exert high influence, their attitude toward corporate citizenship practices was, in general, negative. The authors concluded from such a finding that "mainstream investors do not yet appreciate or understand the financial value of corporate citizenship."

In opposition to the negative attitude of mainstream investors, socially responsible investors represent a growing positive influence on the evolution of corporate citizenship. Defining sustainable and responsible investors as those who are concerned with long-term investment, and who believe that environmental, social, and governance (ESG) issues are important criteria in determining long-term investment performance, the report notes the growth of sustainable indices in many countries, and observes that "Many companies are beginning to make great efforts to be included in these indices, including revising current practices and investing in annual CSR/sustainability reporting."

The report cites research indicating that as of the end of 2007, SRI assets under management totaled $6.94 trillion globally, only eight percent of which was located outside Europe and the US. In Europe, SRI assets under management totaled $3.7 trillion, and $2.71 trillion in the US. The report found that as the business case for sustainable development continues to grow, and regulatory and market pressures increase, the influence of SRI practice on mainstream investor attitudes toward corporate citizenship should increase as well, although more research on the financial results of the SRI approach needs to be done.

To support its contention that the influence upon corporate behavior of SRI is expected to grow, the report cites a global survey of CFOs, investment professionals, and corporate social responsibility and sustainability professionals, which the BCCC released earlier in 2009. That report, entitled How Virtue Creates Value for Business and Society, found that CFOs and investment professionals believe ESG efforts create financial value. A likely result of such a finding, according to the report, is that "more and more investors will begin to consider corporate citizenship as a value driver."

The report thus detects a gradual shift away from a position of resistance on the part of investors, finding that most now see short-term benefits to shareowners in good corporate governance and environmental sustainability, mostly through cost savings. When a longer-term investment horizon in taken into account, however, the great majority of investors "sees significant financial benefits in investments in social performance."

"Ironically," the report observes, "It may be that there is more resistance to investing in social performance within the finance groups of companies than in the shareholders they purport to serve." Nevertheless, as the SRI movement continues to grow in strength, it "is beginning to sway mainstream investors in several countries," according to the report.

The report identifies the key stakeholders driving corporate citizenship in the US to be employees, consumers, academic and nonprofit business networks, the SRI community, and non-governmental organizations (NGOs). In large part because calls for corporate social responsibility (CSR) "are drowned out by demands from the financial sector for short-term profits and growth," corporate citizenship in the US has yet to be institutionalized. Before it can be, the report asserts, the national government of the US, which "has not been a major driving force behind corporate citizenship in the past 40 years," must act aggressively on environmental legislation and otherwise promote corporate citizenship.

The report holds up the UK as a country where CSR has almost a mainstream following, due in part to government support, networks of NGOs and business organizations, and activist employees. Institutional investors are also highly influential in the UK, and in general exhibit more support for corporate citizenship than do their counterparts in the US.

Despite its status as a developing nation, South Africa is cited by the report as a country where "business has made enormous strides in corporate citizenship." Business in South Africa has played a key role in redressing historical imbalances and in nation building. However, institutional investors there are significantly resistant; "there is significant cynicism among traditional shareholders toward attempts at responsible business," the report found.

The report concludes with the observation that stakeholder mapping is becoming an increasingly important tool of corporate planning, citing efforts by such companies as Wal-mart, IBM, and GE to involve their stakeholders in the development of CSR strategies. By partnering with and otherwise empowering its stakeholders, companies can more flexibly respond to calls for corporate citizenship that may vary in detail from country to country.

© SRI World Group, Inc. All Rights Reserved.

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