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.
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