Ipsos Corporate Reputation

SHARED VALUE: THE CORPORATE IMPERATIVE?

As the demand for businesses to create shared social and environmental value increases, and the climate change doomsday clock counts down, Council members are seeing corporates coming to terms with their role in society. But businesses face significant challenges in closing the say-do gap and meaningfully embedding sustainability in their strategies and business models.

“The need for companies to deliver genuine value, as opposed to tokenistic corporate responsibility policy, that’s built into the company’s core purpose is becoming increasingly pronounced.”

The US Business Roundtable (BRT) last year dropped its commitment to “shareholder primacy”1 in favour of shared value. Accordingly, and by the “modern standard for corporate responsibility,”2 businesses must focus on creating value for all stakeholders, including consumers, employees, supply chains, governments, civil society and the planet, as well as shareholders.

Some commentators treated the BRT’s statement with scepticism – Larry Summers, for example described it as a “rhetorical embrace”3 aimed at warding off real regulatory change.

Or as old news – since at least the 1960s, organisations have had Corporate Social Responsibility (CSR) policies with the broad goal of,“contributing to the well-being of the communities and society they affect and on which they depend.”4

But for many Council members, the BRT’s announcement does signal something real and burgeoning. Shared value is not the same as CSR, it’s argued. While CSR is essentially philanthropic and extrinsic, shared value requires that environmental and social value become functions of business’ operations themselves.

It’s this shift, say members, that poses a major challenge. It raises profound questions about what exactly shared value looks like, and how to measure it? How fundamentally should or can businesses adapt? And how quickly? And how to communicate intrinsic changes in a way that cuts through with stakeholders?

“Companies are trying to figure out the balance between responsibility to shareholders and to society. We were doing positive things before the BRT statement, but it has brought focus.”

“The debate has been going in that direction for the thick end of a decade, at least in terms of talk. So, the reaction is, “yes of course,” and the next question is, “what are you going to do about it?”

THE INCREASING DEMAND FOR MEANINGFUL ACTION

In dropping a credo it’s held since 1997, the BRT is reacting to demand for environmental and social action that is radically increasing. Much of this demand is directed at business.

To complicate matters, it comes from multiple stakeholders across many issues. The UN Sustainable Development Goals, for example, cover 17 areas of sustainable development, from sanitation to gender equality to education. Every one of these to a greater or lesser degree presents a challenge for businesses. Each is a potential lens of scrutiny, with discoveries likely to be amplified and distorted online.

Expectations of corporate citizenship have increased. Last year, more than half of Council members (56%) said that consumers expected them to take a stand on socio-political issues, against only a quarter (23%) who disagreed.5

“I think we live in a new and much more complex world within which it isn’t just shareholder value that means everything. I think corporates are generally aware of their place in society now more than ever.”

For some members, the driving force behind this change is the millennial generation (born around 1980-2000) – which, based on some projections will make up 75% of the global workforce by 2025 – flexing their muscles as citizens, consumers and of course employees.

“You have work forces, in particular the millennial work forces, that are legitimately concerned about sustainability and corporate responsibility in terms of whether they want to work for a company.”

But there’s evidence that the investment community is catching up. Increasingly businesses are evaluated on non-financial, Environmental, Social and Governance (ESG), metrics alongside more traditional financial metrics. BlackRock CEO Larry Fink’s recent letter to investors claims that, “investors are increasingly reckoning with these questions and recognizing that climate risk is investment risk.”6 And BlackRock now claims that, “sustainable investing is the strongest foundation for client portfolios going forward.”7

The factor that really “changes everything,”8 however, that underpins the shift to shared value, is climate change. It is both an existential threat and, “the wickedest kind of problem imaginable: complex, interconnected, and requiring massive collective action.”9 It raises the stakes for what counts as value, and makes demonstrable action and impact a necessity for any organisation. It makes ‘greenwashing’ a threat to reputation rather than an asset. In sum, “climate change has become a defining factor in companies’ long-term prospects.”10

IN THIS WAVE, MORE THAN HALF OF MEMBERS (57%) SAY THAT BUSINESS LEADERS ARE NOW OVERTAKING POLITICIANS AS A FORCE FOR PROGRESSIVE CHANGE IN THE WORLD; WOULD THIS HAVE BEEN THE CASE JUST 10 YEARS AGO?

“All of us can see that the investment community is really much, much more interested now in the way that businesses operate beyond just the financials. Financials stay important but it is about how people do business and we see that all the time in our analyst briefings or when we go out to meet the investment houses.”

“This is how sustainability is moving – from communications to true business. Greenwashing was about communication, now the finance industry thinks of sustainability as financial survival.”

“Because of the actions of Greta Thunberg and the spotlight that Extinction Rebellion has placed on the environment, I think all businesses have got to take responsibility and accountability for sustainability.”

“Investors rate us on our sustainability practices. I think that today everyone has a sustainability imperative.”

THE SAY-DO GAP

A study by Boston Consulting Group and MIT in the US in 2016 found that, while 90% of executives described sustainability as important, only 60% of companies had incorporated it in their strategy, and just 25% had it incorporated in their business models.

Four years on, for many Council members, particularly outside Europe, crossing this chasm from recognition to meaningful action remains a key challenge.

 “I think companies are finding it quite hard after the first wave of enthusiasm for green topics, where they said lots of nice things, to embed that into what they actually do day to day.”

“At present, keywords such as Sustainable Development Goals are flying around in Japan and there is consciousness about instilling social purpose into business purposes, but I think that many companies are wondering how to do it.”

While the majority of Council members consider the shift towards shared value to be a long-term trend, there is much less agreement that a company’s performance on sustainability is currently important in determining valuation.

As these responses reveal, the say-do gap is partly based on a perceived tension between short and long-term priorities. Still, for many businesses, financial and sustainable aims are seen as different in kind. Companies and CEOs are seen to live or die based on financial metrics, and investors care far less about an organisation’s performance on ESG metrics.

The US Business Roundtable, consisting of CEOs from some of the country’s biggest companies, recently issued a statement saying that shareholder value was no longer the overriding corporate priority and that companies should have a broader social purpose and remit.

Some hedge fund managers may be more interested in immediate returns, as opposed to pension funds that want long-term sustainable returns which can only come if a business is planning to be sustainable.”

If your business is run through short-term measures all the time, would you ever put money into doing something that might not return an investment for 5 years, when CEOs are only there for 3 years?”

If economic conditions deteriorate, unless you can show immediate ROI or growth because of the strength of being sustainability-oriented, you’re going to see companies get right back to basics.”

Understood in this way, sustainability and purpose remain a risk and a cost to businesses.

Meanwhile, the Harvard Business Review enumerates the benefits of creating shared value: competitive advantage through stakeholder engagement, improving risk management, fostering innovation, improving financial performance and building customer loyalty.11 And at the same time, there are plenty of warnings about the long-term threats of failing to adapt. For example, the outgoing governor of the Bank of England warned businesses in 2019 that those who don’t move towards zero-carbon emissions will ultimately go bankrupt, “without question.”12

So, what our Council members highlight is that, while there’s a growing long-term business case for focusing on shared value, the shift in mindset required to set this in motion is proving difficult in the short-term.

APPROACHES TO CLOSING THE SAY-DO GAP

Clearly, the scale of this challenge differs by company and industry. In some cases, there appears a fundamental tension between historical business models and sustainability – for example, in extractive industries or ‘fast’ fashion. This inevitably impacts the rate of change. But the lesson from Council members, is that companies that are performing well on sustainability are at least moving towards, “a sustainable approach that is not an add-on but is integral, integrated to their business and their strategy and their purpose.”

EXAMPLES GIVEN BY COUNCIL MEMBERS OF BUSINESSES THAT STAND OUT AS BEING AT THE CUTTING-EDGE OF SUSTAINABILITY TEND TO FALL INTO ONE OR MORE OF FOUR CATEGORIES.

01. DELIVERING SUSTAINABLE PRODUCTS

For some businesses, sustainability is the key feature of a product. Council members cite Telsa’s electric cars as a good example of this type. Oil companies that are investing in renewable energy also fall into this category, though there is a long way to go before they become providers of a sustainable product. The technology sector may count, as it focuses on offering the technology to underpin sustainability efforts of others.

02. CLEANING UP SUPPLY CHAINS

As the focus on sustainability increases, supply chains continue to be a problem for many companies – sourcing of resources, labour conditions, air miles. Innovation in packaging also falls under this banner, in that by reducing the use of plastics, businesses are aiming to reduce a harmful by-product of distribution. For Council members, Unilever, Nestlé and Coca-Cola are good examples of businesses focusing on this area.

 03. COMMITTING TO OBJECTIVE TARGETS

Several companies identified by Council members have made commitments that align to external standards. Microsoft, for example, has committed to aligning its operations with the UN’s recommended target of 1.5°C global warming by 2030, a commitment certified by the Science Based Target Initiative (SBTi). Danone is aiming to become a B corporation, thus will be legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment.

04. BECOMING CORPORATE ‘ACTIVISTS’

Some companies are conspicuous in supporting particular external causes. Patagonia is a flag-bearer for this approach, committing a percentage of its revenue to support grass roots climate movements. Though clearly it could not do this if it did not also commit to other behaviours (e.g. clean supply chains). Another example would be Coca-Cola, which directly supports the Global Environment and Technology Foundation’s work in Africa to replenish water sources.

 Each of these approaches does something to incorporate sustainability into strategy or business model, and offers established paths for other companies to start to cross the say-do gap towards shared value. And the greatest value, of course, is likely to be delivered through a combination of these approaches.

KEY PRINCIPLES

COUNCIL MEMBERS IDENTIFY SEVERAL PRINCIPLES THAT UNDERPIN ANY OF THESE STRATEGIES:

“Above all, as one Reputation Council member puts it, the future must be ‘action-leadership’, not just ‘thought-leadership.’”

01. MAKE COMMITMENTS THAT INSPIRE

Commitments need to be fundamentally meaningful, credible and inspiring to a range of stakeholders, including governments, customers, employees and investors. Every business needs to assess what issues it is best placed to address and whether these issues are really the important ones for its stakeholders. And all businesses need to make commitments on climate change. To do these things, they must be prepared to innovate.

02. MEASURE SHARED VALUE

There’s an adage: “what gets measured, gets managed.” Measurement of stakeholder opinion should also inform strategy and communications, while helping provide evidence of the effectiveness of a business’ commitments. Council members see ESG-style measurement as key, in that it links directly to the financial performance of businesses and CEOs.

03. EVIDENCE-BASED COMMUNICATIONS

There is broad agreement that greenwashing is finished. Communications should be evidence-based, and tailored to the priorities of different stakeholder groups. Commitments should be embedded in the corporate narrative that companies tell internally and externally.

IN SUMMARY:

  1. Businesses are facing significant challenges in moving from CSR to creating shared value.
  2. While businesses recognise the long-term importance of shared value, there is a tension for some between this and short-term priorities; this tension underpins the say-do gap.
  3. There are existing paradigms to help companies begin to cross this gap: focusing on sustainable products, cleaning up supply chains, making meaningful commitments or engaging in corporate activism.
For references in this article, please see page 21 in the full report.

Amid the uncertainty of the pandemic, the S of ESG is coming under greater scrutiny

Actions on E, S and G in tandem remain essential to corporate reputation

As ESG has surged up the consumer agenda, new Ipsos data shows that improving society is identified as the top priority for multinationals among consumers across the globe – perhaps not surprising given the social implications of the pandemic. While fundamental issues such as safe working conditions are seen as most important here, each company should carefully consider how to adapt its operations to improve sustainable business practice. Companies should continue to pursue actions on all three pillars of ESG though. Not just because E and G remain critical in the public’s eyes, but also as it – as we should all know now – makes good business sense to do so.

Companies’ role in creating shared value

Companies are increasingly assessed on the extent to which they bring ‘net benefits’ to society. Especially among the financial community and the media there is a focus on ESG: companies’ performance on Environmental, Social and Governance (ESG) issues that come with doing business. Not just because you ultimately shoot yourself in the foot if you run out of the natural resources you need, treat your staff unfairly, or become wound up in corruption scandals. No, also because doing the right thing has BECOME a source of value creation. Not least, this is because we – ‘the public’, consumers and employees – pay more attention to what companies do or stand for than we did a decade ago – be that their efforts to increase staff diversity & inclusion, meeting net zero goals, or paying their fair share of taxes.

In March 2021 Ipsos asked consumers across 28 markets to rank ESG priorities for multinationals. While all three aspects, ‘E’, ‘S’ and ‘G’, were seen as important, improving society (S) came out as the top priority, with 41% of the votes globally. Protecting the environment (E) followed at 31%, almost on equal footing with practicing good governance (G, 28%).

In 22 out of the 28 countries surveyed, improving society received the most picks as the top priority, with a majority of the vote share in Spain (54%), Poland (52%), Japan (52%) and Korea (50%).

These findings are not surprising in the context of COVID-19. Health & safety precautions in the workplace, as well as a desire for job security amid economic uncertainty, have, for many, become necessary concerns.

How should companies engage with the ‘S’?

Given the increased focus on the role of companies to contribute socially, where should they focus their efforts on the ‘S’ pillar of ESG?

Looking at which societal issues people want multinationals to address, our survey shows that improving working conditions and worker health & safety come top. This is true across all regions, from Europe to APAC, to Middle East-Africa, to LATAM through to North America. Potentially contributing here are new COVID-related concerns about ventilation, social distancing, face masks at work etc., on top of existing issues.   

Despite ample attention across (social) media for issues around gender equality and diversity, these topics came out lower down the list. Again, this holds true when looking in detail at the answers from people across different parts of the world. 

It’s impossible to give a blank slate answer to how companies can best create shared value on ‘S’. The priorities in the eyes of consumers listed above, give an idea. But what that means for each individual business is something that needs careful consideration. That’s why it’s so important for companies to engage with their stakeholders on these issues. Employees who feel their employer looks after them, will be more willing to go the extra mile: a ‘give’ for the ‘get’. Local communities who see that companies take their interests at heart, will be more open to dialogue and working together to create mutual benefits. Etcetera.

Ipsos advises businesses on how they should address ESG challenges and helps them to define, manage and communicate their priorities. A relevant example to multinationals is our advice on how to frame “benefits” of ESG strategies to consumers. As people aren’t driven by sustainability claims alone to take action (as they often feel they are doing enough already), it is most effective to couple these to an extra incentive personal to them. So instead of saying: “switch to renewable energy to reduce your carbon footprint” position this as “switch to renewable energy will save you money AND help you reduce your footprint”.

Finally, what’s left to say is that, as I have said before, investments in ESG issues should be financially responsible and prudent in their own right, giving shareholders a return on investment. Ultimately, genuine progress on ESG will help to protect companies’ social licence to operate and bolster their reputation.

For more information please contact:

Marloes Klop
Research Director, Corporate Reputation

Marloes.Klop@ipsos.com

Technical details about the survey

These are the results of a 28-market online survey conducted by Ipsos on its Global Advisor platform. Ipsos interviewed a total of 14,000 adults aged 18-74 in the United States, Canada, Malaysia, South Africa and Turkey, and 16-74 in 23 other markets. The survey was fielded between 19 February and 5 March 2021.

The sample consists of approximately 500 individuals in each of Argentina, Australia, Belgium, Brazil, Canada, China (mainland), Chile, Colombia, France, Germany, Great Britain, Hungary, India, Italy, Japan, Malaysia, Mexico, the Netherlands, Poland, Peru, Russia, Saudi Arabia, South Africa, South Korea, Spain, Sweden, Turkey, and the US.

The samples in Argentina, Australia, Belgium, Canada, France, Germany, Great Britain, Hungary, Italy, Japan, the Netherlands, Poland, South Korea, Spain, Sweden and the US can be taken as representative of their general adult population under the age of 75.

The samples in Brazil, Chile, mainland China, Colombia, India, Malaysia, Mexico, Peru, Russia, Saudi Arabia, South Africa, and Turkey are more urban, more educated, and/or more affluent than the general population. The survey results for these markets should be viewed as reflecting the views of the more “connected” segment of their population.

The data is weighted so that each country’s sample composition best reflects the demographic profile of the adult population according to the most recent census data.

Where results do not sum to 100 or the ‘difference’ appears to be +/-1 more/less than the actual, this may be due to rounding, multiple responses, or the exclusion of “don’t know” or not stated responses.

The precision of Ipsos online polls are calculated using a credibility interval with a poll of 500 accurate to +/- 4.8 percentage points. For more information on the Ipsos use of credibility intervals, please visit the Ipsos website.

The tech sector always bets that product quality will override privacy concerns

Probably the most common criticism levelled at the tech sector is the one about privacy – the sense that the tech sector, or government enabled by the tech sector, are collecting far more data on individuals than they should, and that the data is then being sold or used for unclear purposes. While the tech sector sticks closely to its cherished, and well-proven, ideology that positive user experience nearly always mitigates these concerns in practice, it is also true that the concerns of pro-privacy groups within society, and government, are getting louder and more prominent.

Stark evidence of this can be seen across two, relatively recent, product launches. Both of which have attracted major criticisms from privacy and digital rights campaigners, while at the same time being major commercial success stories.

Concerns around business and government use of personal information is high on a global scale

Let’s look at those concerns first – the 2020 Ipsos Global Trends survey[1] shows in stark detail the level of concern that exists around the world about what is being done by companies and governments using the personal data being collected from people when they go online.

A rise in private sector surveillance

So, bearing such concerns in mind, let’s examine the news coverage of Amazon’s Ring product line over the last few weeks. Ring is a video doorbell system, which seems innocuous, but with millions sold what you end up with is a potential surveillance network the size of which has never been seen before, and all in the hands of Amazon. And what has Amazon done with it? For one it initially entered into partnership with a large number of law enforcement agencies in the US that allowed them access to the videos it records without a warrant being required[2]. To quote from the Guardian, because of Ring “law enforcement are given a backdoor entry into private video recordings of people in residential and public space that would otherwise be protected under the fourth amendment”. While Amazon has recently extended its moratorium on sharing its facial recognition software with police, a ban it says that will stay in place until Congress creates the appropriate safeguards, it is puzzling why a similar approach to sharing data with law enforcement has not been adopted with Ring. Especially given the high-profile critique of the product by former Amazon software engineer Max Eliaser;

“The deployment of connected home security cameras that allow footage to be queried centrally are simply not compatible with a free society. The privacy issues are not fixable with regulation and there is no balance that can be struck. Ring should be shut down immediately and not brought back[3]

Now Amazon can certainly say that they are following the law as it exists and that the capabilities and requirements of the Ring product are all made available to the consumer at the point of sale. Amazon has acknowledged some of this controversy and has consequentially changed how police ask for video content, now requiring the police to ask for footage via the Ring Neighbors app, allowing local users to comment or assist as they judge best[4]. However, to a background of high consumer concern about how personal data is being used and with Ring cameras being described as “a threat to privacy at best and a danger to society and democracy at worst[5]”, critics may accuse Amazon of not thinking product features through a bit more carefully. That said, when they have a product that has shifted many millions of units in the US alone it is clear that, as ever, product utility quashes privacy concerns at point of purchase. A fact underlined by the 4.6 rating the Ring 3 has on Amazon.com, a rating based on 33,000+ reviews.

From surveillance to tracking

Enough with Amazon, I hear the tech fans cry, that’s just one of the major brands. Well, let's turn to Apple and its brand-new gadget - the AirTag. A device sold as the means to find things you have lost, via a Bluetooth signal that alerts sympathetic devices that are web-enabled. Perfect for finding your luggage, your car, or, as has been pointed out by a wide range of news agencies, the person you are stalking.

Apple has attempted to build in safeguards to prevent “unwanted tracking” but the slew of media coverage over the last few weeks that point out how ineffective those safeguards are in practice probably shows how little thought the designers of this product put into thinking about the downsides of this product compared to the potential upsides. The warning sound that alerts the user to unwanted tracking is easily missed, and while people with an iPhone might be able to find unwanted AirTags those with Android phones cannot (right now).

While plenty of apps, charmingly called “stalkerware”, exist to help one person track another, and there are other products similar to AirTags where the manufacturers have put far less effort into stopping them from being used for nefarious purposes than Apple has. However, part of the surprise here is that, as The Washington Post articulates well “AirTags show how even Apple, a company known for emphasizing security and privacy, can struggle to understand all the risks involved in creating tech that puts everyday things online[6]. This disconnect between a company that is often praised for its firm stance on personal privacy and the potential misuse of this product is vast and easily fixed with little effort. As Wired suggests “Apple leadership needs to give abuse survivors and experts a central place in its development process, incorporating their feedback from the start. Otherwise, the company will continue to make products that endanger people more than they help[7]”.

Responding to this wave of criticism[8] Apple has announced some changes – reducing the amount of time before an AirTag starts beeping once it is away from its owner's iPhone and promising an Android application as well. Just like Amazon with Ring its good to see Apple responding to the issue, but it again raises the question of how a product like this got to market with these issues when Apple usually takes these issues so seriously. That said, just as with Amazon’s Ring it is highly likely that this product will sell incredibly well despite any privacy concerns due to its sheer usefulness. In fact one industry analyst in Forbes[9] confidently predicts its success, and possible billion dollar revenue for Apple, due to the vast number of devices the product can connect to and the popularity of the Find My app among Apple product users.

Consumers value privacy – as well as products that make their lives easier

Ultimately the tech sector knows its customers very, very well and knows that while there are people who may not buy these products because of privacy issues there are far more people who will ignore those concerns and buy them anyway. Negative media coverage of the like described above will have very little impact on the level of individual customers. That said, increased media focus on perceived privacy issues reinforces some of the negative reputational themes that affect the tech sector and the brands within it and are currently fuelling many of the debates that are ongoing around the world among legislators thinking of new regulation. Innovative new products that skirt the edge of what is appropriate, or legal, when it comes to privacy is one thing, as long as they are profitable, but fuelling the fires of regulation is another. The tech sector may want to ponder this.

Article links

[1] Markets: Argentina, Albania, Australia, Belgium, Brazil, Canada, China, Chile, Colombia, Denmark, France, Germany, Great Britain, India, Indonesia, Italy, Japan, Mexico, Peru, Poland, Russia, Romania, Serbia, Saudi Arabia, South Africa, South Korea, Spain, Sweden, Turkey, and the United States. 

Method The survey for the 2020 edition was carried out online using the Ipsos Online Panel, and face to-face interviewing in Albania, Montenegro and Serbia. The results are weighted to ensure that the sample’s composition reflects that of the adult population according to the most recent country census data. Total global data has not been weighted by population size, but are simply a country average.

Fieldwork dates June-July 2019

[2] https://www.theguardian.com/commentisfree/2021/may/18/amazon-ring-largest-civilian-surveillance-network-us

[3] https://amazonemployees4climatejustice.medium.com/amazon-employees-share-our-views-on-company-business-f5abcdea849

[4] https://www.cnet.com/home/security/rings-police-problem-didnt-go-away-it-just-got-more-transparent/

[5] https://thenextweb.com/news/amazon-engineer-ring-should-be-shut-down-immediately-and-not-brought-back

[6] https://www.washingtonpost.com/technology/2021/05/05/apple-airtags-stalking/

[7] https://www.wired.com/story/opinion-apples-air-tags-are-a-gift-to-stalkers/

[8] https://www.bbc.co.uk/news/technology-57351554

[9] https://www.forbes.com/sites/timbajarin/2021/04/20/airtags-are-apples-next-billion-dollar-business/?sh=4f60c605d187

For more information please contact:

Carl Phillips
Director & Global Stakeholder Research Lead, Corporate Reputation

Carl.Phillips@ipsos.com