The Effects of CSR on Market Capitalization

Published on September 7th, 2011 | by

To what extent do socially and environmentally positive initiatives in the private sector boost a [public] company’s value? And is the downside greater for those that that do not engage in CSR activities or worse flout environmental or social concerns? We know that significant events such as the BP oil spill will go a long way to destroying a company’s value, but according to a study done by MIT Sloan School of Management Lecturer and author, Caroline Flammer, there can be a significant impact based on even less significant issues.

Flammer conducted a study of numerous publicly traded companies between 1980 and 2009 based on positive and negative environmental activity and contrasted these activities with the company’s stock price. And she found some interesting results. Interesting particularly for those cynics (Milton Friedman among them) who believe CSR initiatives provide little long- term value for companies. However, Flammer found that shareholders are concerned about these issues and react accordingly.

Findings showed that stock prices rose about .84% on good news and decreased about .65% on bad news. Interestingly, over the past 30 years, poor environmental news has been increasingly punished, now up to about -1.12% in the 2000s while positive news has actually led to a decrease (still positive) in return over the time period. At first glance this seems kind of negative. After all, people are not rewarding companies for good behavior, however this could point to a long-term positive trend. That is that people are no longer settling for basic, run of the mill CSR policies and actions rather they are demanding more from public companies and this could ultimately become a good thing.

Flammer cites recycling programs as a good example. While it is entirely possible that 20-30 years ago, recycling was cutting edge environmental policy and was something to be rewarded, now most people would be shocked if a company did not have a recycling policy in place. Hence the larger emphasis on the downside and smaller movement on the upside. As environmental and social actions by businesses become more and more mainstream savvy investors will continue to demand more of the companies they invest in. Of course there is always a flipside in that some of the companies that do the best/most CSR work are the most scrutinized and receive the greatest amount of press about how they could be doing things better (from this writer in particular). Regardless, it’s clear that over the last quarter century, investors have taken notices and this bodes well for CSR pushing further into the mainstream.

Image Credit by Leeds Media via Flickr under a CC license


About the Author

Jonathan has worked in both journalism and various facets of small business development over the past eight years. Most recently, he graduated from the Monterey Institute of International Studies (graduate school of Middlebury College) in 2010 with an MBA and an MA in International Development Policy. His interests include SME development and its role in economic growth, particularly in Sub-Saharan Africa as well as how CSR/Sustainability measures impact both business operations and the communities in which businesses operate. While at MIIS he worked as a summer fellow involved in small business consulting in Accra, Ghana and was an active member of the MIIS Net Impact chapter. As a life long traveler, Jonathan has been fortunate to have lived in, worked in or visited over 20 countries on 5 continents and he truly hopes that he will be able to continue this trend.
  • chejay59

    Speaking of recycling, I created a recycling center database that lists over 10,000 recycling centers. I plan to list all recycling centers in the US within the next year. Check it out below:

    Recycling Centers