Lindsey works with certification bodies to improve the effectiveness of ethical sourcing as well as to facilitate collaboration amongst labeling brands. Lindsey’s years of field experience include ethical supply chain development with tea in India and Tanzania, coffee in Kenya and Uganda, Gold and Diamonds in the DR Congo as well as multiple other projects. Currently, Lindsey is organizing the f...
Can you quantify the value of CSR initiatives?
Constant debate surrounds the real marketing and monetary benefits of CSR initiatives. Over nachos in Noe Valley (San Francisco) last night I mused with the U.S. operations director at AlterEco, Jeanne Cloutier, about the plethora of ethical certifications crowding the labels of the products we buy. Like many others at the crossroads of sustainability and marketing, we wondered how much this "Christmas tree" of ornamental labels really makes a difference to the consumer.
Luckily, there is one measure that can put a numeric value on the otherwise intangible benefits of CSR. The price-to- earnings ratio (p/e ratio) is a measure of a company's current share price compared to its per-share earnings. A high multiple of stock compared to earnings means that investors believe more in the stock (signified by the fact that it's valued above its earning potential). The magic behind this ratio is that the unknown factor or 'belief' in stock offers a numerical expression of a company's feel good effect - or a reflection of its successful CSR strategy.
Costco is a perfect example of this effect. With an average p/e ratio of 24, Costco's ratio is nearly 50% higher than competitors such as Walmart (with an average of about 16). In this way, the p/e ratio proves that social responsibility and treating your employees right is a long term strategy which facilitates consumer confidence and can improve the value of a company.
When Walmart came out with its sustainability Index in 2008 it was hyped to mythical proportions and purported to be "audacious beyond words" and to "shake the world." Two years later, Walmart has little to show for this initiative apart from increasing consumer skepticism and a relatively low p/e ratio.
In contrast, Costco has reliably, and more humbly, incorporated CSR into its core operations though initiatives such as ethically sourced coffee (Kirkland brand Fair Trade) and jewelry (compliant with the No Dirty Gold campaign). Impressively, Costco has also managed to maintain an unusually sustainable poultry sourcing method. While providing over 200 million pounds of chicken to customers, Costco upholds a long-term relationship with Foster Farms (a farm with above-market animal care standards and lowest employee turnover rate (10%) in the industry). These are just a few examples on a laundry list of initiatives that have provided Costco with a high p/e ratio and a strong relationship with consumers.
In the end, another label on your bottle declaring 'bird friendly' or 'carbon lite' is neither likely to improve your company's relationship with consumers nor add to its value. However, a consistent ethos of social responsibility as demonstrated by companies like Costco and AlterEco will ultimately be rewarding.
For more information about this topic join the illuminati of the ethical sourcing and certification movements at the first international conference on ethical certification, Certification, Consumption and Change on September 29, 2010. Grab your tickets at www.theinsource.com