Reputation & Sustainability Matter: Linking Sustainability & Reputation to Financial and Behavioral Performance

© 2012, Dix & Eaton Incorporated

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Reputation & Sustainability Matter:Linking Sustainability & Reputation to Financial and Behavioral Performance

Pamela Cohen, Ph.D.

Chicago and Cleveland

Corporate Sustainability Network

February 24, 2012

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What Is Behavioral Economics?

Traditional economics teaches that people act rationally in ways that

maximize their well-being.

Behavioral economics embraces the idea that people possess

“bounded rationality” (Simon, 1957) meaning that they make biased

decisions that sometimes run counter to their best interests.

Even most traditional economists acknowledge that some people are

not fully rational.

However, traditionalists and behaviorists disagree whether bounded

rationality significantly impacts the market.

Many decisions are made subconsciously and automatically on the

basis of information that our conscious, rational brains are rarely aware.


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What Is Behavioral Economics?

Behavioral economists, as stated succinctly by Dan Ariely, argue

that we are not as much in control of our decisions as we would like

to think.

There are many factors that subconsciously influence the

choices we make.

Behavioral economics draws from the knowledge and research of

many disciplines: economics, psychology, sociology, anthropology,

and other social sciences.


Hot Intangibles

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1990s 2000 2005 2007 2011

Trust Image Intellectual Property Leadership

Social Responsibility Sustainability


Regarding Attitudes, Behaviors and Sustainability….

We know from numerous long- and short-term studies in sociology

and psychology that attitudes do not correlate with or predict

behavior well.

Researchers have also found that pro-environmental attitudes are

poor predictors of pro-environmental behaviors.

There are a lot of reasons given for this lack of linkage. Some

barriers include the social context as well as cognitive factors such

as perceived behavioral control and efficacy.

However, environmental attitudes can serve as powerful predictors

of behaviors in certain situations.

5© 2012, Dix & Eaton Incorporated

Regarding Attitudes, Behaviors and Sustainability….

While people generally express a strong inclination and motivation

to act in a manner that fosters sustainability, it is usually not a

predictor of actual behavior.

Sustainability is not yet considered the social norm, and people tend

to conform to social norms, while not readily embracing new norms.


Corporations Are Often Reluctant to Discuss Sustainability Efforts

Corporations and institutions are often concerned about perceptions

of green washing or green blushing.

Some of this reluctance comes from increased transparency of

efforts on the Internet.

Difficulty in knowing what to highlight and what to leave alone.

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Press releasesPitching

reporters

Special events

Search engines

Buzz

Web 2.0

Citizen journalism

MySpace

Social Media

Promotions

Media relations

IR

Branding

Viral marketing

Social networking

Metaverses

Folksonomy

Content optimization

Online outreach

Syndication

Flickr

CSR

Consumer-generated contentPublic affairs

Third party outreach

Grassroots outreach

Advergaming

YouTube

Employeecommunications

RSSBlogs

Tagging

Podcasting Wireless

Facebook

Wikipedia

Investor Relations

StakeholderRelationsSustainability

Efforts

Management

Finance

Recruitment, RetentionMessaging

Twitter

Strategy Execution

Innovation

Complex Set of Relationships Exists in Current Society

Developed at CCW8© 2012, Dix & Eaton Incorporated


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Valuing Reputation

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Linking Reputation and Performance

What the reputation model does:

Calculates the actual impact of reputation on financial and behavioral performance outcomes.

Identifies the key drivers that influence corporate/institutional reputation.

Measures the current impact of each driver on reputation, and on financial and behavioral performance outcomes.

Measures the potential impact of reputational improvement on aspects of performance.

Measures the potential risk, or cost of reputational damage, on aspects of performance.


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Many Interested Parties


http://www.ballyfitness.com/home.aspx

http://www.shopping.hp.com/webapp/shopping/computer_can_series.do?storeName=computer_store&category=notebooks&a1=Brand&v1=Compaq+Presario&series_name=CQ60Z_series&a1=Brand&v1=Compaq+Presario&jumpid=re_r602_cpq_home_b_find_retailers_shop_at_compaq

http://www.forestcity.net/

http://www.swiss.com/

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Methodology in Print

“…Few Wall Street analysts, for example, have tried to assess how much damage Wal-Mart's reputation for poor labor and environmental practices did to the stock price. But New York's Communications Consulting Worldwide (), which studies issues such as reputation, puts it in stark dollars and cents. calculates that if

Wal-Mart had a reputation like that of rival Target Corp. (TGT), its stock would be worth 8.4% more, adding $16 billion in market capitalization.”

Beyond The Green Corporation

“….a more sophisticated understanding of the power of perception is starting to take hold among savvy corporations. More and more are finding that the way in which the outside world expects a company to behave and perform can be its most important asset.”

“And while the value of a reputation is vastly less tangible than property, revenue, or cash, more experts are arguing it is possible not only to quantify it but even predict how image changes in specific areas will harm or hurt the share price.”

Developed by Pam Cohen at CBI, Predictiv, and CCW© 2012, Dix & Eaton Incorporated

Developed by Pam Cohen at CCW 13© 2012, Dix & Eaton Incorporated

Process Flow Chart

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Identify critical

performance outcomes

Collect data (multiple

sources) for analysis

Analyze data to form groups

that define drivers of reputation

Assign labels to reputation drivers based on definition

Run model to assess causal relationships

between drivers, index and outcomes

Simultaneously control for industry specific

variables

Model produces awareness ratings and opportunities for each driver of performance

outcomes


Sample Models with Scores and Impacts


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Sample Matrix Showing Messages Deserving FocusP

ote

nti

al I

mp

act

Current Score

MAINTAINOBSERVE

PROTECTFOCUSLow Score, High Impact

Low Score, Low Impact High Score, Low Impact

High Score, High Impact

Innovation

Product QualityPrestige

Sustainability

Pricing

Product Design

CEO

Customer Relations



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Case Study:

Major U.S. Beverage Company

*Opportunity = the change in market value in millions of dollars as a result of a 10-point positive or negative change in any score

Global Beverage Company Reputation Model – Market Value

Market Value$225.5bn

ImpactIndexTM

52.21

+$1.62bn

-$1.98bn

Human Resources 64.88

Innovation 76.05

Investment Potential 82.65

Overall Brand 79.02

Responsible Marketing 71.71

Environmental Responsibility 69.74

Local Community 72.66

Well-Being 62.73

$316M-$365M

$222M-$248M

$207M-$232.M

$554M-$620M

$240M-$280M

$1,236M-$1,377M

$483M-$662M

$576M-$645M

10-point change

Awareness Opportunity Performance Messages About: Message Awareness: Increase in Impact IndexTM Outcome

from 10-point change in Message Awareness:


Model Diagram Focusing on Water Drivers of Value

Market Value

Stock IndexCountry of

Origin

Sustainability Index

Institutional Data/

Actual Measures

Publicly Available Data

Media

Water Use

Water Source

Water Quality

Water Extraction

Water Volume


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Global Beverage Company Market Value – Backcast Model 2007 – 2010

1 40 79 1181571962352743133523914304695085475866256647037427818208598989379760.700000000000004

0.800000000000004

0.900000000000004

1

1.1

1.2

1.3

c/d.1

predicted

Number of Trading Days 2007 – 2010

Pe

rfo

rma

nc

e R

ela

tiv

e t

o D

ow

R2= .87



Case Study

National Real Estate Developer

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Project Scope

Assist real estate developer in achieving its stated goal of

understanding and enhancing the impact of sustainability on key

identified performance outcomes.

Determine primary sustainability drivers and whether these impact

bottom-line performance.

Determine rank ordering of sustainability drivers in terms of potential

impact on bottom-line performance.

Link Company’s sustainability efforts to an overall Reputation Index

and then to selected performance outcomes.


Project Methodology

Estimates and expected degrees of linkages were calculated using

both means and the differences in stated satisfaction levels in post-

occupancy evaluations (POE) of green versus non-green buildings

in available studies.

The model also drew from LEED’s rating system structure in

assessments. This consists of five categories: sustainable sites,

water efficiency, energy and atmosphere, materials and resources,

and indoor environmental quality (IEQ).

Comfort, air quality, lighting, acoustics, cleaning and maintenance,

overall satisfaction with building and overall satisfaction with

workspace were included in these assessments.


Data Sources: External

Center for the Built Environment, University of California

Berkeley

U.S. General Services Administration

University of San Diego + CB Richard Ellis (CBRE)

U.S. Green Building Council

Journal of Sustainable Real Estate

LEED (criteria)

Urban Land Institute


Aggregated Average Sustainability Ratings

Levels of Satisfaction, Green Building Means Versus

National Average*

*calculated using existing data from sources previously cited

Satisfaction Green (%) Non-Green (%)

Air Quality 68 46

Cleanliness 86 62

Thermal 47 39

Acoustic 47 38

Lighting 75 75

Productivity Benefits 87 71

Overall Building 94 53


Proxies for Occupant Experience in Green Buildings

Market Cap $2.33 BImpactIndex

Average

Thermal Comfort (47%)

Air Quality (68%)

Productivity Benefits (87%)

Overall Building (94%)

Lighting (75%)

Acoustics (47%)

Cleanliness (86%)

63*

$221m*

*Based on average reported ROI from increased occupancy of 7.38% from studies included

Note that margin of error is wider due to lack of internal data; amount estimated to vary byup to +/-20% (e.g., effect of one-point increase in Impact Index by $177m - $265m)

$35m*

$90m*

$18m*

$20m*

$53m*

$49m*

$35m*

Drivers Satisfaction Level Impact of Impact Performance Outcome

1 percentage IndexTM

point increase


Proxies for Occupant Experience in Green Buildings

Rank Ordering Opportunity* Score Impact

Air Quality Medium High

Overall Building High High

Cleanliness High High

Productivity Benefits High High

Lighting High High

Acoustic Low Low

Thermal Low Low

*Determined as a function of score and impact, where lower score and higher impact are considered to yield the greatest ROI with the least effort invested. Such scores tend to be easier to move than high scores that have reached a point where it is hard to gain more satisfaction.



Case Study

Major University

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Reputation and Sustainability

Showing that Sustainability Matters…

Background and genesis of this work:

… there is a need to show clear linkages to desired outcomes in order to persuade people that any effort should matter to them. The same holds true for universities and colleges…

This is especially true in organizations when there is a necessity to show linkages to bottom-line performance in addition to building stakeholder value.


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Benefits of a Measurement ModelSupporting the Mission: Connect sustainability initiatives to broader University

outcomes.

Demonstrating returns helps key stakeholders within the University – leadership, alumni, faculty, staff, students – understand both the need and the positive impact of the undertaking.

Creates an informed awareness of how best to allocate budget toward sustainability efforts.

Helps justify the budget toward increased sustainability. Allows for cross-time measurement and management of efforts.


Inclusion of Social Media Data in Addition to Traditional Metrics Is Critical

just started her senior year at Central York High School. She has been stressed out by so many A.P. classes and is looking forward to go to college to continue her education. She has been studying Science and Industry for the past three years, and has a particular interest in Information Systems and other related technology. She is also on the varsity field hockey team and wants to continue playing throughout college. enjoys playing piano, painting, and attending football games. She especially enjoys watching the Penn State football games with her parents. Being a Penn State football fan, is also extremely interested in participating in the student section during games.has been thinking about applying for colleges soon, and Penn State is one of the top choices on her list. She really hopes that Penn State can provide many activities for her to become involved with. She did some research using the “Choosing a College” domain and found out that Penn State has a unique Information Systems and Technology Program which involves project-based learning rather than the traditional textbook-and-exam style learning. She also learned that Penn State offers such a broad variety of programs and activities that she would not have any problem doing everything that she wants. also discovered that most students have access to Penn State football games for a discounted price. All of this information was easily accessible through the “Choosing a College” domain.Bob and Susan, parents, noticed that she had been researching about Penn State as a potential and likely college. is their first and only child to attend college, so they both don’t really know what to expect of the costs, financial aid, housing, and services. Feeling lost, they decided to use the “Choosing a College” domain, which had recommended to find more information about Penn State. Bob and Susan went to their computer and searched in the “Choosing a College” domain for pricing information. They had an idea of how much they wanted to spend per year, which was under 25 thousand. Through the “Choosing a College” domain, they were able to compare prices with other similar universities. They found that Penn State is less than what they were willing to pay per year. They also found that financial aid is available based on academics and financial need. Bob and Susan were also interested in the housing that is available and different services which are provided to help the student adjust to university life. They found that on-campus housing is required for first-year students, but is not guaranteed after the first year. However, off-campus housing is available close to campus. The “Choosing a College” domain provided Bob and Susan with all the information that they were looking for.Since is just starting out her senior year in high school, she is confused about the application process and requirements for Penn State University. The next day, she went to see Jessica, her guidance counselor. brought up issues regarding minimum GPA requirements, SAT score requirements, as well as A.P. credit transfers. Jessica got on her computer and went straight to the “Choosing a College” domain to look for more information. She clicked on the parents/advisors link and easily navigated to her areas of interest. She found that the average high school GPA of the accepted is 3.5 and that the average SAT score is 1175. She also found out that most of A.P. credits will be easily transferred if she scores above the requirements. Jessica saw that exceeds the requirements on every level and is a possible candidate for the Schreyer Honors College. She found a brief summary describing the Schreyer Honors College and printed it for is intrigued and decides to apply to Penn State, as well as the Schreyer Honors College. completed her application and submitted it for review with the help of information found on the “Choosing a College” domain.Gertrude is an admissions officer at Penn State. Three weeks after Sally submitted her application, Gertrude finds it on her desk waiting for review. She decides to finish her Cheetos before opening the envelope. After eating her fourth pack of Cheetos, she licks her fingers clean and opens the envelope. Gertrude’s way of determining acceptance into Penn State is to compare the raw numbers. She wipes her greasy hands on her jeans and gets on the “Choosing a College” domain. Using this domain, she acquired the average GPA and SAT score of the accepted students at Penn State. Sally’s scores blew them out of the water and Gertrude immediately stamped ACCEPTED on her application. She then proceeded to open another bag of Cheetos. The application process was streamlined by the use of the “Choosing a College” domain. Jessica is Sally’s high school counselor. She has been a counselor for 30 years and has been assisting students in finding suitable colleges for most of her life. Jessica graduated from Penn State in 1976 and she still remembers how much fun she had there. Jessica is helping Sally in her college application process. She needs to check requirements and recommendations for applying for Penn State and then relay the information to Sally. She knows that Sally is a bright girl, and possibly may be a candidate for the Schreyer Honors College, but she needs to find out more details about that program. Gertrude is a college admissions officer at Penn State University. Her job requires for her to review applications and determine whether a student is qualified enough to attend Penn State University. She is the one who will be reviewing application. Gertrude’s particular areas of interest are mean SAT scores and GPA of undergraduate acceptants

www.studentsreview.com/college_rankings.

Dynamic University & College Rankings

OFFICIAL Rankings

The Top 50 The Top IVY Top Creative

Biggest Reputation ALL RANKINGS

New! Perceptual Rankings -- You Vote on

the Best! [beta]

Just Added Comment:“I came here based upon the advice of a

friend, he said that it is a fairly good school with a huge chance to get

involved in social activities. come t...”

RateMyProfessor.com,

PassCollege.com,

ProfessorPerformance.com,

RatingsOnline.com, Reviewum.com


Data Tracking + Analysis


3333

Primary Components of Reputation


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Primary Components of SustainabilitySTRENGTH OF CURRENT MESSAGING

MESSAGES ABOUT:

POTENTIALIMPACTS

REPUTATION IMPACT INDEX

PERFORMANCE OUTCOMES

65

73

65

78

61

57

80

82

75

80

2.00

0.62

0.12

1.20

1.80

1.00

1.20

1.24

0.85

0.85

Leadership

Mitigating CampusEffects

Governance Over System

Climate Planning

Cost to Implement

Advancing Knowledge

Social Responsibility

Building Constituencies

Campus Visibility

Communication

.035

.086

.012

.170

.056

70

67

72

70

70

Revenue

Mitigating CampusEffects

Yield

Extramural Funding

Alumni Support

Predicted Performance

Impacts of 1 pt Impact Index

Change

75


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Contact

Pamela Cohen

Behavioral Economist

Dix & Eaton, Cleveland

University of Chicago Graham School, Sustainability Program

phone: 734-276-1237

email: [email protected]

[email protected]



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Reputation & Sustainability Matter:Linking Sustainability & Reputation to Financial and Behavioral Performance

Pamela Cohen, Ph.D., Behavioral Economist

Chicago and Cleveland

Corporate Sustainability Network

February 24, 2012

Business

Reputation & Sustainability Matter: Linking Sustainability & Reputation to Financial and Behavioral Performance