Aligning corporate social responsibility with profitability

by Idris Dosunmu, MBA ‘16

This article was written in response to a seminar given by Mitch Jackson, Vice President of Environmental Affairs & Sustainability with FedEx at Duke University in an EDGE Seminar on Nov. 4, 2015 at Duke University’s Fuqua School of Business. This article voices one student’s perspective and does not necessarily represent the views of either Duke University or the seminar speaker.

Corporate social responsibility has taken many forms, in light of the ever-changing business environment and the impacts that technology advances have had on the activities of businesses in engaging their communities. In recent years, there has been an increase in the amount of attention paid by corporations to environment sustainability efforts. Although thought leaders such as Milton Friedman have asserted that “the social responsibility of business is to increase profits”, the impact of the activities of organizations (both profit and non-profit) on their environments has necessitated the need for business leaders to prioritize sustainability initiatives. In addition to the mission to protect the earth (most popularly advanced by Al Gore’s An Inconvenient Truth), many companies are finding that the pursuit of sustainability goals is driving cost reductions and topline growth.

While speaking at the EDGE Seminar held at Duke on Nov. 4, Mitch Jackson – Vice President of Environmental Affairs and Sustainability at FedEx Corporation – mentioned that the implementation of strategic sustainability initiatives at FedEx has led to significant improvements in operational efficiencies and cost reductions. Specifically, FedEx’s strategic goal of reducing the quantity of jet fuel consumed by cargo planes led to an organization-wide movement to optimize routes, reduce transition delays, and improve delivery times. The attainment of the fuel-reduction goal and the success of related initiatives contributed to revenues of $45.6 billion and operating margins of $3.4 billion in 2014, according to their annual report.

Sustainability lowers risk, volatility

Can similar sustainability initiatives be successfully implemented at companies operating in different industries? A report by the nonprofit environmental disclosure organization CDP provides evidence of a correlation between profitability and leadership on environmental sustainability initiatives. The study focused on the analysis of S&P 500 companies operating in various industries, and found that companies that build sustainability into their core strategies are outperforming those that do not. In addition, sustainability leaders have 50% lower business volatility and are 21% stronger in delivering increased dividends to shareholders, according to the report, and exhibit attributes that are attractive to equity investors.

The crux of the CDP report is that companies that have integrated climate change risk management into their strategic planning processes are more likely to make long-term strategic investments which translate into benefits for the company. On the other hand, short-term gains from myopic investments tend to peter out over a short period of time. Some of the companies at the top of the climate performance list include Google, Apple, Cisco and Walmart. These are businesses that are appreciated by equity investors for the strength of their year-on-year growth.

Emerging markets will follow

Can similar gains be achieved in emerging economies? An exploration of the state of sustainability initiatives in countries like China, Brazil, and Russia indicates that companies are starting to see the benefits in integrating climate change policies into strategic planning. This is due to the benefits accruable from the operational changes forced by the need to reduce emissions and solid waste. Indian conglomerate Tata and South Africa’s mining giant Anglo American are among a growing number of iconic companies in emerging markets that are matching or exceeding sustainability benchmarks set by their western counterparts.

In light of the aforementioned corporate social responsibility developments within and outside the United States, I agree with Mitch Jackson’s assertion that sustainability is not an external part of business anymore. Rather, it is integral and should be prioritized alongside other initiatives which are geared towards increasing profitability for a corporation.

The correlation between strategic sustainability and profitability across companies in many locations around the world indicates that there will be increase in the implementation of sustainability initiatives as more and more companies see benefits. Environmental management efforts will also be integrated in the core strategy development efforts of companies globally. With this in mind, it will be interesting to see how the sustainability adoption trend impacts businesses over time.

—

Aligning corporate social responsibility with profitability

RELATED ARTICLES