Corporate Social Responsibility Issues in Investor Communications

In the earlier post about my presentation at the Academy of Management conference in Montreal, Canada, I talked about the fact that the issue of corporate social responsibility occupies a very minor place in communications between investors and investor relations officers. In fact, IROs rate such information as the least important for investors and the least important for properly understanding the company’s business. But are they correct? Do investors and financial analysts really not care about CSR?

Ernst & Young tried to find an answer to this question by conducting a study called Measures That Matter. In the study Ernst & Young analyzed sell-side reports, conducted a survey of buy-side, and even performed an experiment with different financial scenarios. The result: corporate environmental and social policies were ranked number 37 out of total 39 categories by the investors and financial analysts labeling this category among the least important.

On one hand, it means that IROs do in fact know what investors want (or do not want in this case). On the other hand, it means nobody cares about corporate social responsibility despite all this noise about CSR in the media!

Now, I should mention that Ernst & Young study dates back to 1997. A lot changed since then: from new regulations to new environmental and social disasters. It would be quite interesting to do an update to the study and measure what is happening in the industry now. However, when I contacted CFA Institute to request permission to survey their members financial analysts, they declined; when I contacted Security Traders Association to request permission to survey their members representing buy-side, they also declined. I do not know how Ernst & Young did it!

One of the changes I would expect to find is the appearance of people at buy-side and sell-side who specifically target so-called green investments. Information about CSR may not still be important for your regular financial analyst (unless somebody is suing you for a CSR issue!), but the same sell-side firm might employ a financial analysts who specializes in CSR investments and that analyst might be writing a different report for different investment audiences about your company as well.