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

By Jennifer Saunders and Bahar Gidwani

Many aspects of a company’s performance affect its brand value. Marketing spend, distribution strength, and product quality all have proven effects. This study indicates that a company’s perceived sustainability performance may be another important factor.

In 2013, CSRHub showed that its measures of perceived corporate sustainability performance had a 28% correlation with Brand Finance’s Brand Strength Indicator (BSI). CSRHub recently published an update that showed this correlation continues to persist for financial companies. This study extends our analysis to include three other independent brand ranking systems:

• RepTrak Pulse Score.  The Reputation Institute’s RepTrak model examines the relationship between the emotional connection, or “Pulse” score, a “measure of the degree of Admiration, Trust, Good Feeling and Overall Esteem that a company stakeholder holds.”
• Interbrand’s Best Global Brands list.  Interbrand provides an analysis and picture of how your brand is contributing to business results today. Interbrand publishes annually a “Best Global Brands” list of the 100 brands it considers most powerful.
• CoreBrand’s CBI.  Tenet Partners’ CoreBrand Analytics group  generates an annual Corporate Branding Index (CBI) that measures and quantifies the impact of investment in the corporate brand and how brands perform against peers both across and within industries.

We compared data from these sources with CSRHub ratings and brand strength data from our long time data source in the branding area, Brand Finance. CSRHub provides sustainability information on more than 14,000 companies in 127 countries. CSRHub’s ratings and metrics are drawn from more than 380 sustainability data sources.Our research found that the scores from all four leading brand ranking systems correlated with at least one of CSRHub’s sustainability measures. Further, we found consistent results across the four systems that may help brand managers better understand how to coordinate with and support their company’s sustainability programs. In particular, we found a positive correlation between brand and Compensation & Benefits and Environment Policy & Reporting strength. Success in these areas seems tied to better brand rankings.

To see the complete details and next steps, download the full report here.

About the Authors

Jennifer Saunders holds a degree in chemical engineering from Melbourne University, a postgraduate diploma in management from the Melbourne Business School, and certificates in sustainability reporting and stakeholder networks approaches to socio-political risk. She worked for design and manufacturing multinationals for 15 years. Her main focus was on engaging cross-functionally to collect and analyse design performance data, report on sustainability metrics, optimize processes and manage supply chain projects. She recently re-located from Australia to the Pacific Northwest where she has further fostered her career to focus on sustainability working with CSRHub.

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.

About CSRHub

CSRHub provides access to the world’s largest corporate social responsibility and sustainability ratings and information.  It covers over 14,000 companies from 135 industries in 127 countries. By aggregating and normalizing the information from 380 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 improve corporate sustainability performance.

By Bahar Gidwani

Two years ago, CSRHub and Brand Finance collaborated on a study about the relationship between Brand Finance’s Brand Strength Index (BSI) and CSRHub’s corporate social responsibility (CSR) metrics.  We found a correlation of 28% between these factors for a set of more than 1,000 companies from a wide range of industries.

Since then, CSRHub and Brand Finance have each continued to build and expand their data sets and to study the relationship between them.  Brand Finance has recently published the first section of its 2014-15 data set—information on the brand strength for the world’s top 500 financial companies.  CSRHub got early access to this data and compared it against the latest CSRHub data set.  We once again found a strong correlation between brand and sustainability.

Brand Strength for the top 500 Banking Brands

Each year, Brand Finance reviews the brand strength and value of thousands of companies.  Its rankings shift and change as companies compete to build their brands.  The 500 financial companies on this year’s list include 44 new entries.  Unlike CSRHub, which focuses only on parent companies, Brand Finance generates separate measures for each brand a corporationowns.  As a result, 59 companies have more than one entry on this year’s Brand Finance Banking 500 list.

CSRHub tracks the sustainability performance of more than 13,700 companies in 127 countries.  After removing duplicates, CSRHub has 95% coverage of Brand Finance’s Banking 500 (419 of 441 non duplicate names).

CSRHub tracks twelve different measures of sustainability performance.  Our 2013 analysis used only data for companies where CSRHub had all twelve factors available.  After applying this restriction, the number of companies available for this year’s analysis shrank to 284.

A Good Correlation Despite a Small Sample Size

The correlation between Brand Finance’s BSI and CSRHub’s twelve subcategory measures of sustainability was 25%.  This is close to the 28% correlation we saw in 2013 across a data set that was almost four times larger.

The F factor (a measure of the strength of our correlation) was 8.8—indicating there is only a tiny chance that the correlation result was random.  The detailed correlation matrix (below) shows that five of CSRHub’s twelve sustainability factors had a significant relationship with Brand Finance’s BSI.

In our previous study, the strongest relationships between sustainability and brand were for Compensation and Benefits, Diversity and Labor Rights, Training Health and Safety, and Environment Policy and Reporting.  All of these relationships were positive—better performance on these indicators seemed related to higher brand values.

In our current study, Community Development and Philanthropy still shows with a positive coefficient, but Diversity and Labor Rights and Environment Policy and Reporting do not have a similar concurrence.  Training, Health & Safety performance continues to have a strong positive relationship with brand.  Resource Management—a factor that previously had a low correlation—shows up with a strong negative relationship.  This kind of “rotation”—where the strength of relationship between our factors and an output variable change over time—is something we’ve seen in other studies.  We believe it is due to changes in emphasis among stakeholders who are interested in sustainability.  These differences may also be related to industry variations.  Our previous study covered a much broader range of industries than this one.  Finally, the smaller sample size of this study may make it difficult to fully integrate all parts of sustainability into our analysis.

Conclusion and Next Steps

We believe we have shown that the relationship we demonstrated two years ago between sustainability metrics and brand strength continues to persist.  While we cannot claim that there is a causal connection—that sustainability performance directly enhances brand strength the persistence of this relationship over time strengthens our belief that investments in sustainability could help drive positive changes in brand value.

The release of Brand Finance’s Banking 500 results will be followed by further data from Brand Finance on thousands of other top brands.  As we receive these results, we intend to integrate them with what we have discerned about the Banking 500.  We hope to continue improving our understanding of how brand managers and sustainability managers can collaborate to achieve mutually beneficial goals.

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 the world’s largest corporate social responsibility and sustainability ratings and information, covering over 13,000 companies from 135 industries in 104 countries. By aggregating and normalizing the information from 370 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 improve corporate sustainability performance.

CSRHub is a B Corporation, an Organizational Stakeholder (OS) with the Global Reporting Initiative (GRI), a silver partner with CDP (Carbon Disclosure Project), and an Advisory Council Member of Sustainability Accounting Standards Board (SASB).

By Bahar Gidwani

Part 5 of our 5-part series

In the previous posts in this series, we have described the relationship between Brand Finance’s Brand Strength Index and CSRHub’s sustainability rating.  The overall correlation between these large sets of data is strong—and it has been growing stronger.  We will now look at how each of the twelve individual components in CSRHub’s metric system relate to brand strength.

CSRHub ingests sustainability information from 230 sources that each have their own way of measuring and rating corporate social performance.  In order to make sense of these different measures (we have more than 9,000 different indicators in our system), CSRHub has mapped each indicator from each source into one of twelve “subcategories.”  (You can see a description of this schema here.)  These subcategories are then grouped into four categories (with three subcategories in each category).

The ratings for each subcategory are forced into a curve that has a central tendency (around 50 on a scale from 0 = low to 100 = high).  There is a natural tendency for subcategory scores to be correlated (i.e., a company who is good on one measure of sustainability tends to be better on all of the others), the correlation between subcategories is generally between 0.25 and 0.5 for subcategories that are in the same category (e.g., Energy & Climate Change vs Resource Management) and between 0.1 and 0.25 for subcategories that are in different categories (e.g., Product and Board).

To understand which subcategories may be more important for brand strength, we performed a multivariate analysis between the twelve CSRHub subcategory scores and the Brand Finance Brand Strength Index.  The results of the regression mentioned show that eleven of the twelve CSRHub’s subcategories have meaningful individual correlation statistics.  Only our Human Rights & Supply Chain measure seems to have no correlation with brand value.

Correlation Between BSI and Each of Twelve CSR Factors

We performed a similar analysis on our 2011 data set—using 921 sets of data.  Both the coefficients for the multivariate regression and the relative strengths of the correlations between each subcategory and brand strength were similar.  The extent of correlation was less at all levels for the 2011 data.

We would expect that product sustainability, leadership ethics, and a company’s environment policy and reporting would be tied to brand strength.  These are areas that companies actively invest in and communicate about.  The weaker ties to board performance, transparency and reporting, energy and climate change, and resource management may be due to the fact that consumers have few means to connect these areas with the products they buy.  The most surprising results are the weak relationship between brand and human rights and supply chain issues, the modest effect of community development and philanthropy, and that how companies treat their employees is important to their brand strength.

We have some thoughts to offer on these last three points:

• Human rights and supply chain.  Our rating in this area goes up when a company is more transparent about its behavior.  It also goes up when a company has few “incidents” with its supply chain and when it takes steps to enforce socially positive policies (such as diversity, fair pay, and workplace safety) on its suppliers.  We suspect that consumers may not understand the complexity of the issues companies face in this area.  They may distrust company communications in this area or dismiss them as “window dressing.”  More communication and transparency may indicate that a company has problems in the area, without making it clear that the company has solved some or all of them.
• Community development and philanthropy.  Many companies assume their investments in these areas will support their brands.  However, it is hard for a company to brag about its good deeds without appearing to be “paying for love.”  Further, an investment in one community may not pay off with brand benefits in other/all communities.
• Employee treatment.  Many studies have shown that consumer brand impressions are heavily influence by the behavior of a company’s employees.  Polite, knowledgeable service people; employees who actively serve in community organizations; and personal contact between employees and customers can directly affect how a brand is perceived.

Conclusion and Next Steps

If corporate social responsibility performance drives brand strength, companies have yet another reason to care about their social performance.  We do not advocate cutting expenditures on human rights and supply chain improvements.  We believe that consumer awareness in this area will grow rapidly—spurred partly by news coverage of events such as the recent collapse of a factory in Bangladesh.  However, we hope that our results show companies that investing in better treatment of their employees may also increase the strength of their brands.  Our results also suggest that brand managers may expect to see broad benefits on their brand strength from promoting and leveraging their company’s good social responsibility performance.

We plan to repeat our study using Brand Finance’s next annual BSI data set (due to be released in March 2014).  We are also reaching out to other groups who have brand data and digging into the indicators and data we have from our 230 other data sources.  We intend to study the performance of “outliers”—companies whose brand and sustainability performance run counter to the general trend we have described.  We invite any company or group who is interested in this area to contact us regarding this work.  We will need detailed information and input from the management of both brand-driven and non-brand driven companies, if we want to understand best practice in this area.

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?
Part 4 The Relationship Between Brand and Sustainability is Getting Stronger

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.

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

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.

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:

• More coverage of sustainability in the popular press;
• Outreach and advocacy from a wide range of non-governmental and governmental organizations;
• Inclusion of CSR issues in MBA and other educational programs;
• The growth of informational web sites such as TriplePundit, Greenbiz, JustMeans, 3BL Media, SustainableBrands, EnvironmentalLeader, 2DegreesNetwork, and of course, CSRHub.

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:

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 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.