By Bahar Gidwani
Part 2 of a 5 part series
In a previous post, we laid the foundation for comparing a huge database on brand strength with the world’s largest database on corporate sustainability. Our analysis follows for a strong correlation between the Brand Finance Brand Strength Index (BSI) and CSRHub’s overall sustainability performance rating (using the profile of the average CSRHub user). The chart below shows this correlation for 1,079 companies. It appears that about 22% of the variation in BSI can be explained by changes in perceived CSR performance.
CSRHub’s rating relies on four category ratings that in turn are based on twelve subcategory ratings. When we perform a multivariate regression between the BSI and the twelve CSRHub subcategories, we get an even stronger correlation of 28%.
This level of correlation is much higher than those cited in previous studies. There are three potential explanations for this correlation:
- One measure does not affect the other. They just appear to due to random variation.
- Brand value and CSR performance could both be correlated with some other factor such as market capitalization. As a result, they appear to be correlated with each other, but in fact just share a common driver.
- Brand value and sustainability are related and a company that seeks to do well in one area should consider also investing in the other. As Edward Tufte has put it, "Correlation is not causation but it sure is a hint."
Our next post will probe to determine which of these explanations is most likely to be true.
Bahar Gidwani is CEO and Co-founder of CSRHub. He has built and run large technology-based businesses for many years. Bahar holds a CFA, worked on Wall Street with Kidder, Peabody, and with McKinsey & Co. Bahar has consulted to a number of major companies and currently serves on the board of several software and Web companies. He has an MBA from Harvard Business School and an undergraduate degree in physics and astronomy. Bahar is a member of the SASB Advisory Board. He plays bridge, races sailboats, and is based in New York City.
CSRHub provides access to corporate social responsibility and sustainability ratings and information on 7,300+ companies from 135 industries in 93 countries. By aggregating and normalizing the information from 230 data sources, CSRHub has created a broad, consistent rating system and a searchable database that links millions of rating elements back to their source. Managers, researchers and activists use CSRHub to benchmark company performance, learn how stakeholders evaluate company CSR practices and seek ways to change the world.