Page 189 - Performance Leadership

178 • Part III Principles from the Values and Social Dimensions

of looking at the relationship between CSR and financial performance:
there should be none. Using CSR as an important part of risk man-
agement allows organizations to avoid negative financial impact. It is
desirable not to have a link. Also, the ultimate CSR is about having a
sustainable business model itself. Singling out CSR as a separate con-
tributor to financial performance defies the ultimate goal of CSR, to
be inextricably connected to doing business.
There are indirect links between CSR and financial performance
though. First, investors evaluate not only a company, but also its strat-
egy and the capabilities of its management. A management team that
has a strong vision of CSR that is embedded in the company most likely
has a balanced decision-making process, indicating a highly conscious
way of managing the business. Second, having a multiple-stakeholder
approach and a balanced decision-making process may lead to less
volatility in the value of the company. This reduces the odds of maxi-
mizing growth in the short term (perhaps by extracting value from the
stakeholder environment), but it also reduces the chance of the com-
pany’s value spiraling downward because it mitigates essential risks.
Third, many pension funds weigh the management ethics and social
responsibilities of corporations before making their investments. As the
former chief investment officer of ABP, one of the largest pension funds
in the world, stated: “There is a growing body of evidence that com-
panies which manage environmental, social, and governance risks most
effectively tend to deliver better risk-adjusted financial performance
than their industry peers. Moreover, all three of these sets of issues are
likely to have an even greater impact on companies’ competitiveness
and financial performance in the future.” 19
Also, various CSR-driven financial indexes have emerged, such as the
Dow Jones Sustainability Index, Ethibel, SERM, and FTSE4GOOD.
In assessing the various organizations, these indexes look at a broad
20
range of aspects. They look first at the traditional economic measures
of success. They evaluate the environmental policies of the company,
how it reports on environmental impact, and if the firm monitors its sup-
pliers as well. The indexes typically also track social-external and social-
internal aspects, evaluating how the organization consults various
stakeholders in decision-making processes, enforces equal opportunities
for staff, fosters human capital development, minds health and safety