Can social and environmental practices be classed as marketing tools?
A recent study analysed whether Corporate Social Responsibility (CSR) practices in European companies (both those CSR practices that relate to marketing-based strategies and those that do not) create value. The creation of value is based on two variables - reputation and shareholder value creation.
The study’s findings showed that all CSR practices, especially those linked to enhancing a company's image, have a positive effect on shareholder value creation, given that investors are able to detect the level of corporate commitment to sustainable development. On the other hand, none of the types of CSR practices undertaken have a relevant influence on corporate reputation.
As such, managers should design their CSR strategies around increasing corporate reputation through large investments in CSR, thus preventing imitation by direct rivals and competitors.
The triple bottom line
The triple bottom line (TBL) has it that, in addition to being interested in economic issues, stakeholders may also be concerned with other topics, related to social and/or environmental issues. Stakeholders may be concerned about whether a company is following a socially responsible path or whether a company is acting in an environmentally friendly way, for instance.
Some studies criticise this because the TBL paradigm may be a rhetorical resource with scarce substance, and may distract managers and investors when they disclose and analyse social and environmental reports. Therefore, in a context in which companies are making a more specific, verifiable commitment to CSR and sustainability, some consider this to be the incorrect approach. In the same vein, from the triple bottom line CSR relates to complex issues such as environmental protection, human resources management, health and safety at work, relations with local communication media, and relations with suppliers and consumers.
CSR for value creation or CSR as a marketing tool?
The study’s findings showed that all CSR practices (both those undertaken with the purpose of enhancing reputation, and those which are not) have a positive effect on shareholder value creation, so that investors are able to detect the level of corporate commitment to sustainable development.
These results are in accordance with the findings of previous studies, whose evidence supports a positive and significant relationship between certain CSR practices and market measures related to value creation for shareholders.
On the other hand, our results that link to shareholder value creation are opposed to those of a 2009 study, which found that there was an inverse relationship between market measures and the increase in CSR practices.
As for our findings in terms of corporate reputation, none of the types of CSR practices analysed showed a relevant and significant influence on reputation. This finding seems to suggest some degree of scepticism regarding these issues on the part of different interest groups, perhaps due to their inability to differentiate between real CSR practices or marketing-based CSR practices. In this sense, our findings are in line with the 2009 study, that stated that the reputation index is not significant, thereby highlighting either errors in their empirical model or a combination of internal weighting factors.
“Managers should consider that, in order to obtain competitive advantages from these strategies, firms could increase their investment in CSR significantly as compared to their competitors, so that the latter will be unable to imitate them.”
The social and environmental effects of companies' practices
In the present climate, there is an increasing and greater concern about the social and environmental effects of company practice. In this vein, the triple bottom line can be used to capture the whole set of values, issues and processes that companies must address in order to minimise any harm resulting from their practices, and to create economic, social and environmental value.
The creation of value beyond that of the strictly economic has changed the debate in current corporations. They may undertake socially responsible practices in order just to reinforce their reputations or indeed to create real value for shareholders. Consequently, many corporations could well use CSR practices as a marketing tool or for PR purposes.
CSR as a value driver
This study has attempted to provide some insights into whether CSR as a marketing tool oriented to enhance firms' image can be considered as a value driver. Taking into consideration that the understanding of CSR should be extended to an examination of the strategic use of CSR practices, especially in a context in which companies engage in CSR strategically on the basis of the RBV theory.
The effect of CSR practices on reputation and shareholder value was analysed, with the purpose of identifying whether CSR practices - both those CSR practices related to marketing-based strategies and those that are not – generate the same value creation. We have developed a variable that identifies whether companies' social behaviour has increased above their industries' average or not over the 2006-2008 period.
We studied the effect of CSR practices on a sample of the 120 largest European firms. We found that all CSR practices, especially those related to marketing purposes - that is, those linked to enhancing a company's image and that we have denominated CSR marketing since it identifies the practices of firms that improve their behaviour above the average of the industry they operate in and determines which companies are making larger investments in CSR - have a positive effect on shareholder value creation. This is so that investors are able to detect the level of corporate commitment to sustainable development.
These CSR practices would be assimilated to CSR strategies oriented towards marketing, which enable them to differentiate themselves from competitors, since different stakeholders – and, especially, customers - are able to identify them. However, none of the types of CSR practices analysed displayed an apparent relevant and significant influence on that reputation.
The importance of CSR in society is not a passing fad, and its profile is not likely to decrease any time soon.
Managers at companies that engage in CSR need to consider what the implications of the policy are for the organization itself, and what it implies about the company itself in terms of external perceptions around reputation.
Managers should consider that, in order to obtain competitive advantages from these strategies, firms could increase their investment in CSR significantly as compared to their competitors, so that the latter will be unable to imitate them. These situations could lead different stakeholders - clients, investors, etc. – to be able to appreciate the behaviour of a sustainable company, in comparison with the remaining companies, which can create added value.
This is a shortened version of “Are social and environmental practices a marketing tool? Empirical evidence for the biggest European companies”, which originally appeared in Management Decision, Volume 48, Number 10, 2010.
The authors are Isabel Gallego-Álvarez, José-Manuel Prado-Lorenzo, Luis Rodríguez-Domínguez, and Isabel-María García-Sánchez.