Responsible Business Guide: A Toolkit for Winning Companies

RBG
Responsible Business Guide: A Toolkit for Winning Companies
RBF Pillar 6:
Financial Viability and Capitalization
The primary responsibility of a business is to remain profitable. Yet a company can pursue
financial success without necessarily extracting an unfair cost from the environment or
workers by making processes and personnel systems more efficient.
How Investors Define Responsible Business
Perhaps the most reliable touchstone of a company’s financial viability is the market itself.
We can judge the sustainability of a company by the faith investors have in it. The rapid
rise of socially responsible investment (SRI) indexes over a short span of time is a clear
indicator that investors prefer to put their money in responsible companies. In the eight
years since SRIs emerged, social investment has increased twenty times. Additionally, SRI
capital value has increased in proportion, significantly in excess of traditional investments.
It is clear that companies considered responsible are competing effectively against those
considered less so.
Social investing... from $40 billion in 1984
to $825 billion in 1991... in firms that “do
the right thing” rather than divesting of
firms that “do the wrong thing.”
Pamela L. Hall and Robin Rieck in “The Effect of Positive
Corporate Social Actions on Shareholder Wealth”
At the same time, consumer surveys report a
heightened consciousness about fair trade
products, with 100% of young buyers in the UK
expressing a preference for ethically-sourced
products, even if the price is relatively higher.
Sales of products labeled for ethical or
environmentally friendly production have
continued to climb, with more and more
mainstream brands like Nestle adding fair-trade
products to their portfolios.
Where companies are family owned, a combination of traditional factors may define business
success, including repeat business from customers, gaining new customers, and expanding
sales, often in new markets and products. What better measure of a company’s success
than its balance sheet? However, as many family-owned companies are learning, the balance
sheet alone is becoming less preferred as a gauge of overall corporate success. Consumers,
clients, trading partners, investors, even governments and chambers of commerce or trade
bodies are adding emphasis to assessing corporate performance by looking beyond the
balance sheet.
Responsible Business Initiative 47