Companies should stop complaining that financial analysts are ignoring their corporate responsibility initiatives, argues Roger Cowe
I am beginning to tire of complaints that financial analysts still fail to take corporate social responsibility seriously. Not because I think the City is switched on, but because this is a pretty lame excuse for companies not doing enough.
Of course it would be nice if CSR moved share prices, but that is not going to happen – at least not in the same way as an announcement of a major order, redundancy programme or takeover bid.
Share prices are determined by the prospects for profits. That is as it should be, since shares represent rights to financial returns. So analysts, who are paid primarily to judge whether shares are appropriately rated, want to know about sales and profits and the factors that will affect them in the near future.
Those factors include corporate strategies and management quality, which is where aspects of CSR might come in. And they include risk, where it certainly should. But I think financial analysts should be worried by a company presentation that focuses on CSR. (I am talking about mainstream analysts here, not SRI specialists, who have a direct interest in such matters.)
Think of analogies with other aspects of management. Companies would not bang on to analysts about their quality programmes, their human resource policies, or their latest approach to planning and budgeting – unless the City had specific concerns caused by a significant failure in these areas.
Companies need to talk to the City in terms that are relevant to investors. If there is some aspect of CSR that will significantly boost sales or cut costs, provide competitive advantage, address serious risk or clearly demonstrate quality of management, then it should be part of any communication about those key elements of analysis. Analysts can then make judgements about the share price, and those who ignore significant facts should soon be out of a job.
But if such issues are not likely to have a sufficiently clear or significant impact on profits, companies should consign them to the huge basket of other issues they just get on with, and not bother the City with them.
This does not mean that CSR is peripheral, or that there are no business benefits. It means the benefits may not be specific or significant enough in the short term to fit the financial frameworks the City has to use.
In which case companies just have to get on with it, rather than blaming the City for not factoring these things into the share price.
Roger Cowe writes for the Financial Times and The Guardian