Does Corporate Social Responsibility Performance Affect the Quality of Digital Communications?

Is a company that has a strong corporate social responsibility (CSR) reputation more likely to be a better user of digital media? Are its web sites and other digital communications more useful and have better content? We might expect a connection between sustainability performance and the communication of a company’s CSR program. But is there also a broader connection that demonstrates that a company that has a sophisticated digital communications strategy and strong CSR/sustainability programs will have necessarily incorporated communication of their CSR program into their communications strategy?

We compared CSRHub data on perceived CSR performance for 14,441 companies and Investis data on the digital communications performance of 937 companies. We found we could explain 39% of the variation in digital communications quality for 845 overlapping companies. We found that good policies on employee compensation, employee training/health/safety, energy and climate change, and on environment policy were correlated with better digital communications performance. On the other hand, strong human rights and supply chain strategies and resource management programs seemed to be connected to weaker digital communications performance.

These results are consistent with data CSRHub has collected on the correlation between sustainability performance and brand strength or reputational risk. Certain sustainability programs seem to be well understood and accepted by consumers, suppliers, employees and other stakeholders who learn about them. Other programs are not as well understood and may not directly contribute to success in these areas—although they may help with things such as reducing credit costs.

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Table of Contents Does Corporate Social Responsibility Performance Affect the Quality of Digital Communications? .......... 1

Digital Communications Spending Dwarfs CSR Spending ........................................................................ 3

Radically Different Data Sources .............................................................................................................. 3

Table A: Regional Distribution of the Base Data Sets ........................................................................... 4

Table B: Industry Distribution of the Data Sets .................................................................................... 4

A Surprisingly Strong Correlation ............................................................................................................. 4

Table C: Simple Correlation at the Overall Level .................................................................................. 5

Table D: Six Sustainability Factors Seem Related to Digital Communications ..................................... 6

Chart 1: High Correlation Between Investis IQ CR Score and Six CSRHub Sustainability Factors ........ 7

Is There a Causal Relationship between CSRHub’s Ratings and Digital Communications Performance? 8

Table E: Investis CSRHub Score Distribution ........................................................................................ 9

Conclusion and Next Steps ....................................................................................................................... 9

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Digital Communications Spending Dwarfs CSR Spending A 2013 Gartner study indicated that large companies spent about 2.5% of their 2012 revenue on digital marketing. This percentage has probably risen since the date of this study and will continue to rise—especially for brand-driven companies who are shifting spending from traditional advertising areas into digital ones. Much less is spent on corporate social responsibility (CSR) programs. We estimate that the world’s 10,000 largest companies spent less than $50 billion during 2014 on sustainability reporting, supply chain audit, tools and metrics, employee engagement, and sustainability strategy programs. This is much less than 0.5% of combined revenue of these companies.

Advocates of CSR programs have argued that even modest spending on improving a company’s sustainability should have an effect on its operating and financial performance. A company’s CSR reputation could help it recruit good employees, improve employee morale, reduce the chance of regulatory problems, attract consumer support, and improve a company’s relationship with its community. If good communication of CSR programs enhances the digital message, then it could be cost-effective to allocate more budget to promote CSR programs and reputation.

Radically Different Data Sources CSRHub rates the currently perceived corporate social responsibility and sustainability performance of 14,441 companies in more than 100 countries. It uses data from more than 380 sources to track 12 different measures of corporate social responsibility (CSR) and a number of special sustainability issues. CSRHub updates its data sets regularly and has data back to December of 2008.

CSRHub generates its ratings of perceived sustainability performance using a Big Data-driven aggregation engine. Each of the more than 10,000 types of data in the CSRHub system is converted into a 0-100 scores. It is then mapped into one of the 12 measurement areas. Each data item must be normalized to remove source-based biases and then weighted to reflect the strength of the data. These adjustments allow CSRHub to create a broad, uniform set of ratings that include both public and privately-held entities.

In contrast, for its “IQ” analysis, Investis performs a labor-intensive, analyst-based audit of the corporate digital communications performance for each company it studies. It examines 200 separate and binary criteria. Since these are clearly specified and well-defined, there is often relatively little ambiguity about how each criterion should be recorded. However, in some cases, the analyst must make a judgement about the data or look for further clarification or information.

Each criterion is weighted and combined to give a score for 11 different categories. These scores in turn are aggregated to produce an overall rating. Investis updates the ratings for these companies biannually, but the ratings are staggered so new data is released quarterly.

IQ analysis regularly covers publicly-traded companies in 18 major indices, as well as many other companies that are scored on an ad-hoc basis. CSRHub has ratings on 928 of the 937 companies that Investis tracks in these 18

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indices and at least some data on each of the on the remaining nine companies. 21% of the companies in the IQ analysis have US headquarters. All but one of the others are headquartered in Europe. This contrasts with CSRHub’s database, where about 45% of the companies have a North American headquarter, 23% are in Europe, and the remaining 32% are in Asia, Africa, South America, and the Middle East. The companies that Investis covers has a mix of heavy industry and mining, light industries, and services companies that is similar to the mix covered by CSRHub.

Table A: Regional Distribution of the Base Data Sets

Table B: Industry Distribution of the Data Sets

A Surprisingly Strong Correlation Given that CSRHub and Investis follow different data collection approaches and given that they seek to measure different aspects of corporate behavior, we were surprised to see that the overall ratings from the two measures were strongly correlated. The simple correlation between overall CSRHub rating and the Investis Overall IQ Score was 25%. The F statistic for this correlation was 287, an indication that there was virtually no chance the relationship was due to random chance.

Region Investis CSRHubAfrica 313Asia 1,990Caribbean 136Europe 732 3,313Middle East 1 269North America 204 6,498Pacific 650South America 487South Asia 365Southeast Asia 390Total 937 14,411

Sector Investis CSRHubHeavy 27% 26%Light 25% 28%Services 48% 45%

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Table C: Simple Correlation at the Overall Level

When we looked at how each of CSRHub’s twelve sustainability areas connected with the overall Investis IQ score, the correlation improved to 39%. As the table below shows, only six of CSRHub’s twelve sectors seemed to be related to the overall IQ score.

Regression Statistics Multiple R 0.504R Square 0.254Adjusted R Square 0.253Standard Error 9.6Observations 845

ANOVAdf SS MS F Significance F

Regression 1 26,413 26,413 287.4 1.08E-55Residual 843 77,472 91.9Total 844 103,885

CoefficientsStandard

Error t Stat P-valueIntercept -0.943 3.056 -0.309 0.758CSRHub Overall Rating 0.900 0.053 16.953 0.000

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Table D: Six Sustainability Factors Seem Related to Digital Communications

Four of the measures were positively correlated. A company that is perceived as doing well in these areas would be predicted to have a strong digital communications performance. Two measures were negatively correlated. Companies that have strong programs in these two areas would be expected to have weaker digital communications performance. Six factors don’t seem related to digital communications strength.

• Positive relationships. Good Compensation and Benefits programs build a happy and productive workforce. Digital communications professionals can translate these employee attitudes and the good service to customers that can result into positive stories about the company. Attention to Employee Training, Health and Safety should reduce instances where a company is embarrassed by accidents and other bad events. Energy and Climate Change issues are currently hot topics of high interest to many

Regression StatisticsMultiple R 0.629R Square 0.396Adjusted R Square 0.387Standard Error 8.7Observations 845

ANOVAdf SS MS F

Regression 12 41,156 3,430 45.5Residual 832 62,729 75.4Total 844 103,885

CSRHub Subcategory CoefficientsStandard

Error t Stat P-valueIntercept 2.072 3.142 0.660 0.510Community: Community Dev & Philant -0.097 0.058 -1.675 0.094Community: Human Rights & Supply C -0.174 0.058 -2.984 0.003Community: Product 0.047 0.043 1.088 0.277Employees: Compensation & Benefits 0.243 0.049 5.004 0.000Employees: Diversity & Labor Rights -0.005 0.058 -0.089 0.929Employees: Training, Health & Safety 0.115 0.057 2.006 0.045Environment: Energy & Climate Chang 0.418 0.065 6.464 0.000Environment: Environment Policy & Re 0.310 0.070 4.427 0.000Environment: Resource Management -0.293 0.072 -4.089 0.000Governance: Board 0.210 0.049 4.262 0.000Governance: Leadership Ethics -0.084 0.073 -1.148 0.251Governance: Transparency & Reportin 0.103 0.072 1.434 0.152

Better CSR performance relates to better digital communications performanceBetter CSR performance relates to poorer digital communications performanceNo strong correlation

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stakeholders. A company’s progress in this area will get good attention from these audiences as will supporting information about a company’s Environment Policy and Reporting programs.

• Negative relationships. Strong Human Rights and Supply Chain programs may have been put in place because a company had problems in the past in these areas. Digital communications about these issues could reawaken interest in these past problems. The same is true for Resource Management programs, by reminding audiences about spills, toxic waste problems, and other resource-related issues. We hope that further research can determine best practice for coordinating sustainability programs and digital communications in these areas.

• Un-related factors. The six factors that do not seem correlated with digital communications include several that have not been well communicated or may not be well received by digital audiences. These include Board, Leadership Ethics, the social benefits of its Products, Philanthropy and Community Development, Diversity and Labor Relations policies. Transparency and Reporting is a technical area of sustainability practice that most digital audiences are unlikely to understand. Companies that score poorly in digital IQ may be communicating this information, but there is no correlation with CSR strength.

Investis calculates a sub-score on just Corporate Responsibility digital communications performance. The correlation between CSRHub’s factors—specifically the six mentioned above—and the IQ CR rating was 44%. The chart below shows how closely the two data sets align, at this detail level.

Chart 1: High Correlation Between Investis IQ CR Score and Six CSRHub Sustainability Factors

R² = 0.4456

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44% Correlation Between Investis IQ CR Score and Six CSRHub Factors

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Is There a Causal Relationship between CSRHub’s Ratings and Digital Communications Performance? A 44% correlation between a set of sustainability factors and an estimate of digital communications performance strongly suggests there is a connection between these factors. However, as Edward Tufte has put it, "Correlation is not causation but it sure is a hint." We do not know which of the following is true:

• Perceived CSR performance could be unrelated to digital communications performance. Despite the statistics cited above, it is possible that our result is due to random variation and there is no connection in these factors. We hope others will test our conclusions using these data sets or ideally, using other similar measures of social performance and communications effectiveness.

• Digital communications and CSR performance could both be correlated with some other factor. For instance, Investis’ work focuses on larger companies who are active communicators. These companies are also actively engaged in sustainability issues (as seen by the high percentage that have CSRHub ratings). However, CSRHub ratings are not correlated with factors such as market capitalization, revenue, and industry group. It is hard to think of some other factor that could be causing an autocorrelation effect.

• Digital communications and perceived sustainability performance are related. It seems reasonable to believe that companies that have good sustainability programs care about how they are viewed by their employees, suppliers, community, government regulators, shareholders, and other stakeholder groups. This involvement and understanding of outside opinion may lead to stronger, more consistent digital communications programs. Similarly, companies who have strong digital communications programs may be better able to explain their sustainability programs and policies and convince their stakeholders that they are behaving responsibly.

While the average sustainability performance score for the studied companies is close to the overall average for the 14,000 companies CSRHub studies, there is a “bulge” of high performing companies. Some of this is probably due to the over-weighting of European companies in the Investis data set. There is no obvious reason to accept a conclusion other than that there is a true correlation between our data sets.

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Table E: Investis CSRHub Score Distribution

Conclusion and Next Steps We believe we have shown that companies who have better perceived sustainability performance also have better digital communications performance. If this connection is real, a company that seeks to improve its digital communications performance could choose to take one or more of the following actions:

• Increase investments in the four sustainability areas that are positively correlated with digital communications performance: employee compensation and benefits; employee training, health and safety; energy and climate change programs; and environment policy and reporting programs – and communicate these digitally. In addition, companies may get additional long-term benefits from lowering risk, improving brand strength, reducing their credit costs, etc.

• Carefully examine how the company presents its human rights and supply chain and resource management efforts in its digital communications. Past methods for handling digital communication in these areas may not have been received by the audience as one would expect.

• Improve collaboration between digital communications and sustainability programs on areas such as product, diversity and labor rights, board quality, leadership ethics, or overall transparency and reporting. These programs may have been communicated, but are not correlated with a strong digital communications strategy yet.

Regulatory and societal pressures are likely to force companies to increase their reporting disclosures. See CSRHub’s recent articles on the effect of the Sustainability Accounting Standards Board (SASB) for a discussion of these trends. Digital communications managers will need to carefully harmonize their work, to ensure that they

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do not create a compliance problem for their company. Sustainability managers should be helpful in these areas, as well. There is also evidence that institutional investors will increasingly demand more information about companies’ approaches to CSR to help them evaluate and justify their investment decisions. See Investis’ recent blogs on How Sustainability is Changing Corporate Governance.

CSRHub has not compared its ratings against the other 10 Investis lower level IQ scores. We have also not investigated other digital communications ranking systems (although we have looked at a number of other brand rating systems). We hope CSR professionals and researchers will help us continue our research and further support the idea that sustainability programs can help cut corporate risk.

About CSRHub and Investis About the Authors

By Bahar Gidwani, in collaboration with Marcus Fergusson of Investis. Bahar Gidwani is CEO and Co-founder of CSRHub. He has built and run large technology-based businesses for many years. Bahar holds a CFA, worked on Wall Street with Kidder, Peabody, and with McKinsey & Co. Bahar has consulted to a number of major companies and currently serves on the board of several software and Web companies. He has an MBA from Harvard Business School and an undergraduate degree in physics and astronomy. Bahar is a member of the SASB Advisory Board. He plays bridge, races sailboats, and is based in New York City. Marcus Fergusson is the Research Director at Investis. He runs a 20-strong team of business analysts, conducting and publishing research on global digital trends in corporate communications and benchmarking the corporate digital performance of the world’s leading publicly listed companies. He previously worked for Demos, Britain’s leading cross-party think tank, and in ethical brand strategy. He has a BA in Modern History from the University of Oxford.

About CSRHub

CSRHub provides access to the world’s largest corporate social responsibility and sustainability ratings and information. It covers over 14,000 companies from 135 industries in 127 countries. By aggregating and normalizing the information from 380 data sources, CSRHub has created a broad, consistent rating system and a searchable database that links millions of rating elements back to their source. Managers, researchers and activists use CSRHub to benchmark company performance, learn how stakeholders evaluate company CSR practices, and seek ways to improve corporate sustainability performance.

About Investis

Investis is an international digital corporate communications and investor relations company, which works with approximately 2,000 clients from offices in five countries. The companies it serves include more than 70% of the constituents of the FTSE 100 and more than 150 US clients. Founded in 2000, Investis helps clients manage their corporate communications and investor relations through corporate websites, IR webhosting, social media, apps & mobile, video and webcasting, website tools and online reporting.

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