CSRHub Blog Research on ESG metrics and comments on sustainability best practice

The Relationship Between Brand and Sustainability Is Getting Stronger

[fa icon="calendar'] Jun 26, 2013 9:50:30 AM / by Bahar Gidwani

By Bahar Gidwani

Part 4 of our 5-part series.

In the last post in this series, we examined our finding that brand strength and sustainability are correlated.  We found evidence that the relationship we have discovered between Brand Finance’s Brand Strength Index and CSRHub’s corporate social responsibility and sustainability ratings are not due to random chance.  Let’s assume the relationship is real.  How has it changed over time?

Both Brand Finance and CSRHub have used consistent methods to evaluate companies over the past five years, from 2008 through 2012.  Because we wanted to see how the brand-sustainability relationship changed for each year, we included all of the available company pairs for 2012 and then for each year, used only the companies that were also present in the following year.  While the number of companies studied in the earlier years is less than that in the latest data set, all years include more than 350 company data set comparisons.

Five Years of Data

5 year Brand study

The correlation between the BSI and CSRHub’s overall rating averaged about 0.11 for the first four years of our study (2008 through 2011).  The jump to 0.22 in 2012 is quite dramatic.

Brand Strength - CSR Correlation Doubled

The 12 factor analysis for 2011 gives a 0.19 correlation.  This is again lower than the 0.28 correlation we get for the twelve factor analysis in 2012.  This confirms that there has been a strong improvement in the relationship we are studying.

We believe there are several reasons consumers may be increasingly aware of corporate responsibility and sustainability performance:

We would expect this correlation to continue to grow, although there should be a natural limit on how much of brand strength can be driven by social performance factors.  We look forward to repeating our study in 2014, when we have a new year of data from our partners at Brand Finance.

Our next and last step will be to see which parts of sustainability seem most closely related to brand strength.

View:

Part 1 The Tie Between Brand Value and Sustainability is Getting Stronger
Part 2 There is a Strong Link Between Brand Strength and Sustainability
Part 3
Is the Correlation between Brand Strength and Sustainability Due to Random Chance?


Bahar GidwaniBahar 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.

 

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Is The Correlation Between Brand Strength and Sustainability Due to Random Chance?

[fa icon="calendar'] Jun 19, 2013 11:26:40 AM / by Bahar Gidwani

By Bahar Gidwani

Part 3 of a 5-part series

In the previous posts in this series, we showed that there is a strong correlation between brand strength as measured by the Brand Finance Brand Strength Index and sustainability as measured by CSRHub’s metrics engine.  We promised to examine more closely whether or not the correlation we discovered is meaningful.

There are several ways to test the strength of the correlation between two sets of data.  The easiest is to estimate the probability that an observed correlation is actually zero (no correlation).  This probability is expressed via an “F” value.  An F value equal to one would indicate that the chance that the observed correlation is zero is the same as the chance that it is non-zero.  Given the ~1,000 data points we have, an F value above 4 would indicate only a 5% chance that the observed correlation is zero.  The “F” value for our simple brand value versus CSR correlation is 289.9—for our correlation of all CSR factors against brand value the F value is 31.8.  Both results suggest a vanishingly small chance that there is no correlation between the data sets.

Statistics for Brand Strength Index vs CSRHub Overall Rating

Another test is to see if splitting a data set randomly into two groups causes any change in the observed correlation.  This simple test often reveals that a correlation comes from the combined effect of a few outliers or some other artifact of the data.  We used a random number generator to divide our scores in half.  Of course, splitting the data set reduces the total number of data elements in each sample.  However, over several trials, our correlation coefficient remained between 0.21 and 0.23.

Is the Relationship Spurious?

Could we be seeing only a spurious relationship between our data sets that is caused by them both being correlated with a third factor?  It is impossible to rule out this type of problem—there are too many possible third factors to consider.  However, we can at least test a couple reasonable alternate explanations.

For instance, could both brand strength and sustainability be positively correlated with enterprise value?  We have tested this idea and see that while there is a fairly strong correlation between BSI and enterprise value, there is only a weak correlation for CSRHub’s ratings.

Comparison of Correlation With Enterprise Value for BSI and CSRHub Rating

If we include enterprise value in our regression, the correlation coefficient between enterprise value plus CSRHub score and the Brand Strength Index rises to 0.39.  The T statistics for both the CSRHub rating and enterprise value dependent variables are highly significant--well above the 3.3 needed to support a 99.9% confidence that these correlations are non-zero.  From this, we can conclude that enterprise value could explain a portion of the relationship between brand strength and sustainability, but not all of it.

Correlation Between BSI and Both Enterprise Value and CSRHub Overall Rating

Could the correlation we have discovered exist only for companies in “branded” industries and not true for other areas?  We split our sample and examined the correlation for each type of company.  As you can see, there appears to be relatively little difference in the correlation by industry type.

Comparison of Correlation for Brand-Focused and Non-Brand Focused Companies

As we noted in our previous post, correlation is not a proof, but it can be a “hint.”  We believe that we have shown strong evidence that brand and sustainability are connected.  We will next look at how that relationship has changed over time.

View:

Part 1 The Tie Between Brand Value and Sustainability is Getting Stronger
Part 2 There is a Strong Link Between Brand Strength and Sustainability


Bahar GidwaniBahar 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.

 

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There is a Strong Link Between Brand Strength and Sustainability

[fa icon="calendar'] Jun 18, 2013 10:32:03 AM / by Bahar Gidwani

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.

Brand vs. CSR for 2012


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%.

2013 BSI vs. 12 CSRHub Factors


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.

View:

Part 1  The Tie Between Brand Value and Sustainability is Getting Stronger


Bahar GidwaniBahar 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.

 

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The Tie Between Brand Value and Sustainability Is Getting Stronger

[fa icon="calendar'] Jun 13, 2013 9:57:42 AM / by Bahar Gidwani

By Bahar Gidwani

Part 1 in a 5 part series

Does a company that invests in sustainability increase its brand value?  What parts of sustainability performance seem to drive brand?  This is the first of five posts about a new, broad, multi-year study that shows that the connection between sustainability performance and brand value has increased dramatically during the past year.  The study has also revealed that some aspects of sustainability are more closely related to brand, than others.

Several groups have published studies that purport to prove a connection between sustainability and brand.  These studies are widely cited by both branding experts and sustainability professionals.  For instance, The Conference Board has published a three part series of Director Notes on the relationship between “real” ESG (environmental, social, and governance) performance and “perceived” performance as measured via a brand strength indicator.

These and other past studies have tended to focus on a few hundred top companies and on industries that are perceived to be brand-driven such as consumer products and business services.  Because most sustainability performance data sets were created to serve investors, they tend to cover only large public companies in developed countries.  There are few data sets that cover more than 3,000 companies or that extend back in time more than five years.

A New Study Using New Sources

We were recently able to combine data drawn from two unique sources that have never before been combined.  Brand Finance uses a proprietary methodology to calculate the brand value of more than 5,000 leading global companies. Brand value is driven by the size of the company and the strength of its brand.  Brand Finance’s Brand Strength Index (BSI) measures this strength factor and allows investigations of the relationship between brand and sustainability that strip out the size of company factor.  The Brand Finance data set extends back to 2005.  CSRHub currently rates the sustainability performance of 7,300 companies in 93 countries.  It uses data from more than 230 sources to track twelve different measures of corporate social responsibility (CSR) and a number of special sustainability issues.  The CSRHub data set is updated monthly and extends back to December of 2008.

Both companies have used consistent methods to evaluate companies over the period studied—2008 through 2012.  1,094 of the companies tracked by Brand Finance in its most recent report are also tracked by CSRHub.  As a result, we have been able to compare brand value and sustainability performance across 97 industries in 16 industry groups (see table) and 54 countries in 10 regions (see map and table).  While the study has a bias towards larger companies and those that are publicly traded, we have been able to include at least some smaller companies in our data set (see chart).

The Study Covered 16 Industry Groups

CSR Brand study

The Study Covered Companies In 57 Countries

CSR Brand study 57 countries

Europe, Asia, and the US Were All Well-Represented

Asia, Europe, US well represented

Brand Enterprise Values

Our next post will look at what we discovered when we compared these two data sets.


Bahar GidwaniBahar 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.

 

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Is This the “Era of CSR”?

[fa icon="calendar'] Jun 11, 2013 9:42:30 AM / by Carol Pierson Holding

By Carol Pierson Holding

This week, Cynthia Figge, Co-founder and COO of CSRHub (full disclosure: CSRHub is my sponsor), reported at Sustainable Brands that the correlation between CSR and brand strength has reached .28. (A perfect correlation is 1.0)

This number is truly remarkable!

First, look at it in absolute terms. In 2006, I organized the first study that proved a relationship between CSR and brand existed at all.  That study was considered such a breakthrough that I was invited to present the results at all the major sustainability conferences, from the Conference Board to SRI (Socially Responsible Investing) in the Rockies to the Wharton Sustainability Conference. All that excitement over a small, but significant relationship – a .05 correlation.

That 2006 study – conducted just six years before the CSRHub study – barely qualified for statistical significance. So the fact that the CSR/brand correlation reached .28 so fast is a very big deal. Of course, we used different databases back then. CSR outside the US wasn’t being tracked by US firms so our numbers were domestic only. The CSRHub study combined global data from Brand Finance, the UK brand value company, and CSRHub’s aggregated global information. Still, the rise was extraordinary.

In fact, so unbelievable that CSRHub’s CEO Bahar Gidwani, a self-admitted geek with degrees in physics and astronomy and a Harvard MBA, tested every permutation of statistical error. The numbers hold.

Look at the above chart again. 2012 jumps one and one half times over 2011. This is after years of languishing. Was 2012 the tipping point? If so, why?

After waffling around during the grim days of recession and climate change denying, something pushed us into a new age of CSR.

Maybe it’s just that CSR has finally traversed the natural path of innovation. The numbers from 2006 to 2012 form an almost perfect hockey stick-shaped graph of innovation adoption, starting from the 20 years or so before 2006 with consistently low level of “innovators,” increasing over five years through the “early adopter” phase and now blasting into the “mainstream.” But why now?

Figge reported on the subcategories that carried the higher correlation. As expected, environmental factors had robust correlation due to the ubiquity of sustainability reports and environmental crises. But employee issues exerted an even stronger influence. Social media accelerated the impact of greater employee engagement and the accompanying word-of-mouth.

The relationship between social media and the growing influence of CSR on brand is underscored in a recent study from Cone Communications titled “Social: Where CSR Brand Leadership Is Won Or Lost” which says —

“Social media is transforming the CSR landscape… Citizens are universally taking to social channels to learn more about issues, share positive and negative information and influence their personal networks.”

They call this conversion of CSR and social media “The Era of CSR.”

I would argue that something else is also at play: a shift in culture from one tilted towards competition and force to one based on co-operation and kindness. Thanks to the environmental movement, our perspective is becoming longer-term and focused on preserving the commons, or the natural resources that we all share, rather than competing for them.

Evidence of the shift is most apparent in the younger cohort. We’ve seen acts of violence drop by half since 1994 among 10-24 year olds. GenY is showing a preference for the “sharing economy” in industries from cars to hotels to homes. David Brooks wrote last week about a young hedge fund trader who lives on a grad school budget and sends the rest off to Africa to find a cure for malaria.

Shifts in older cohort culture are also becoming apparent. In a much-praised book called “The Athena Doctrine: How Women (and the Men Who Think Like Them) Will Rule the Future,” author John Gerzema concludes that “…the only way to succeed when everyone knows your business is to act in an empathetic, patient, humane, and scrupulously ethical way” — traits he ascribes to being “like women.”

Even Apple, once the poster child for a winner-take-all American corporation and the one activists loved to hate, has undergone a dramatic shift. As reported in this week’s Fortune, “Ma Jun, the noted Chinese environmental activist, says Apple has gone in a short period of time from being the most uncooperative of electronics companies to ‘one of the most proactive IT suppliers’ of all.”

[csrhubwidget company="Apple-Inc" size="650x100" hash="c9c0f7"]

Surely “The Era of CSR” is upon us.


Carol Pierson HoldingCarol Pierson Holding writes on environmental issues and social responsibility for policy and news publications, including the Carnegie Council's Policy Innovations, Harvard Business Review, San Francisco Chronicle, India Time, The Huffington Post and many other web sites. Her articles on corporate social responsibility can be found on CSRHub.com, a website that provides sustainability ratings data on 7,300 companies worldwide. Carol holds degrees from Smith College and Harvard University.

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.

 

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[fa icon="comment"] 1 Comment posted in Apple, Bahar Gidwani, CSR, Cynthia Figge, Ma Jun, sharing economy, sustainability reports, Sustainable Brands, Uncategorized, Brand Finance, Brand strength, Carol Pierson Holding, CSR/brand correlation, David Brooks, employee engagement, environmental crisis, John Gerzema, The Athena Doctrine

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