It's widely accepted that firms that adopt CSR actions generally have better financial performance. But how do CSR activities influence financial performance?
A new study shows that CSR activities are associated with higher financial performance in part through their impact on employees. Researchers Magali Delmas and Sanja Pekovic found an astounding 16 percent boost in employee productivity in firms that had voluntarily adopted sustainable practices, specifically environmental management systems.
Delmas and Pekovic have been named as the inaugural winners of the Research Impact on Practice Award, sponsored by NBS and the Organizations and the Natural Environment (ONE) Division of the Academy of Management, a professional organization for sustainability researchers. Their study, "Environmental Standards and Labor Productivity: Understanding the Mechanisms That Sustain Sustainability," was published in the Journal of Organizational Behaviour.
How CSR affects employees
Some explanations for how CSR increases financial performance already existed. For example, reducing waste saves money, and studies suggest that corporate giving increases consumer goodwill. But employees weren't thought to be a critical step in the CSR-financial performance relationship.
"We saw a gap in the literature, and an opportunity with the data, to look at whether green practice had an impact on employee behavior," says Delmas.
Delmas and Pekovic found that environmental management systems (EMS) are associated with high productivity because they result in more employee training and connections across the company. EMSs are structured ways of managing an organization's environmental affairs; training and collaboration are core elements. These activities, in turn, increase employee engagement and commitment. The findings are based on research conducted with more than 5,000 French firms and 10,000 participants.
Delmas herself hardly anticipated the magnitude of the finding: "There's truly a big difference between firms that have adopted these practices and firms that haven't. ... I expected a contrast, but not such a strong difference in productivity."
Lessons for business
These findings provide additional incentive for businesses to adopt green practices. With EMSs, companies can manage processes more efficiently and draw new customers; they will also strengthen their workforce.
Green companies also attract highly talented new employees, Delmas says. At clothing manufacturer Patagonia, known for its environmental programs: "Each time there is a job opening they get 900 applicants. And you can bet they are quality employees."
Payoff is not usually immediate, Delmas says. Companies must be patient. The financial benefits of going green are long-term.
Lessons for future research
Greater insight into CSR's value to firms will come from observational research, Delmas says. Researchers need to see how people in companies actually behave. Currently, researchers rely primarily on people's descriptions of their behavior, which are collected via survey or interview and are often less complete. A challenge for such research is that it requires companies to provide access; businesses often aren't open to having their employees studied so directly.
Delmas also calls for future research to identify how different practices come together to create financial benefit. Firms that are leaders in sustainability often possess a very special suite of qualities. Examining how green practices interact with other management practices, such as providing training or fostering interpersonal relationships, will enable researchers to have a better understanding of what sets green firms apart from their peers.
Valuing research that impacts practice
Although green activities sometimes may yield intangible benefits, Delmas' work provides incentive for academics and businesses alike to examine the critical CSR-employee link -- and further uncover new evidence that greening is a worthy investment.
The Research Impact on Practice Award will be given annually to recognize research that provides such actionable insights. While academics produce high-quality research, much of it remains in publications and conferences targeted at other academics. This award seeks to celebrate and share research that has the opportunity to change business.
Response to this article has been extremely satisfying, says Delmas: "If I can have an impact on business and the adoption of green practices, if I could change the opinion of even a couple of managers regarding environmental performance, I would be happy."
Reprinted from Network for Business Sustainability.
Raised hands image by bikeriderlondon via Shutterstock.