September 24 ,2014 | by Thiago Kiwi
Corporate social responsibility adds to corporate value, says KPMG report
A report from KPMG has highlighted the importance of corporate social responsibility in adding and maintaining business value.
Businesses have often been tempted to see corporate social responsibility as little more than a public relations stunt. Intended to win over the public, activities that are aimed at adding value to communities rather than directly benefiting the companies themselves can all too easily be treated like vanity projects.
But as a recent KPMG report found, businesses need a better understanding of how they contribute to society at large in order to create corporate value of their own. So how are firm’s corporate and societal value linked?
Shrinking the divide
The gap between the creation of corporate and societal value is closing slowly but surely, according to the report. That comes as the result of three key significant factors: new regulations and standards are being introduced to encourage socially responsible behaviour; stakeholders are gaining more direct influence on business operations; and markets themselves are changing as economic, environmental and social forces play on a fast-moving landscape.
Traditionally, external factors haven’t had much to do with the performance of businesses, so they haven’t been considered when it comes to evaluating corporate value. But as companies are increasingly judged on their ability to contribute meaningfully to the world outside the office, every business is now having to consider its social contribution as an integral part of its operations.
To KPMG, that means being aware of the firm’s “externalities” – the positive and negative impacts it has on the wider community – to ensure that value is being created. Understanding issues such as environmental impact and
“Externalities are now part of every company’s value creation story,” says Adrian King, global head of KPMG’s climate change and sustainability practice. “Business leaders and their investors need to be aware of these new dynamics in order to unlock value creation opportunities and manage risks.”
If firms are to manage this effectively, leaders will need to begin to see societal value as an important element in reshaping business models and boosting the prospects of their companies. That means that investors need to appreciate the connection between corporate and societal value and look more favourably on those who are working hard to improve their externalities.
To do this they will need to take a fresh approach, KPMG says. Investors, business leaders and policymakers need to work together to change the way company value is measured and perceived. However, they are being held back in many ways by the existing financial system, which encourages short-term thinking to guarantee return on investment.
Steps for change
KPMG has identified six key areas that businesses, policymakers and investors needed to focus on if they are to bring corporate and societal value closer together in corporate operations:
- investors need to make clear exactly what is involved in fiduciary duty
- business leaders and investors need to show leadership and take real action to get firms paying closer attention to externalities
- governments need to create the right environment for change through enabling policies
- incentives need to be change to encourage socially responsible behaviour
- data quality needs to be improved so that value creation can be better understood
- all parties need to understand how corporate and societal value creation are connected to each other.
Thiago is the LSBF Blog Editor who manages news and features content on the site, and writes about business, finance, technology, education and careers.
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