How to Quantify Corporate Social Responsibility

Making CSR business-worthy.

By Sean Stein Smith

The environmental impact of business has arguably never been more examined than in the current business environment.

From the Gulf oil spill to carbon footprint, alternative energy, sustainability and the ubiquitous triple bottom line, the impact that business has on the communities it operates in, and the world at large, is worth examining.

Regulators, NGOs and governmental organizations have begun to request quantifiable information regarding both the impact that business operations have on the wider environment, and the measures that organizations are taking to mitigate negative impacts.

The increasing interest and pressure brought to bear on firms has helped lead to the development of a reporting paradigm known as corporate social responsibility (CSR). What CSR is, in essence, is a metric that helps gauge how environmentally and socially friendly a business is.

While this may sound like somewhat of a “soft” definition, there is significant institutional support behind this initiative. Investors have formed “green” investing groups, green ETFs have been formed, and reporting frameworks like the Global Reporting Initiative (GRI) have also led to wide adoption of CSR reporting.

An underlying issue with regard to CSR items, however, is how to quantify the costs and benefits of instituting such initiatives. Organizations that operate in business need to produce more resources than they consume in order to stay in business, and being able to quantify any cost savings or reduced input costs as a result of CSR programs would provide organizations with invaluable information.

Financial professionals are well positioned to take a leading role in this area: The continuing education requirements that are already mandatory play a key role in keeping individuals current.

Combining the continuing education that financial professionals must complete on an annual basis with the inherent analytic abilities possessed by such professionals, the result is a potent combination for evaluating such initiatives as CSR programs.

As stakeholder groups, supported by institutional support as well as investment dollars, demand more detailed information with regard to these types of initiatives, the need for quantifiable metrics is great.

A few metrics and items that financial professionals can use to help organizations develop more effective and transparent CSR reporting are as follows:

1) How much would a firm save if they increased recycling of raw materials by 5%?
2) Would instituting a water reclamation project reduce input costs?
3) Is it cost-efficient to install solar panels on the roofs of all locations?

These are just a few of the CSR initiatives that could be quantified, and that would deliver bottom line results.