CSR and mainstream investing – a new match? An analysis of how companies and investors perceive the value of Corporate Social Responsibility (CSR)

Kristina Præstbro Nielsen & Rikke Winther Nørgaard

Student thesis: Master thesis

Abstract

Based on the underlying assumption that Corporate Social Responsibility (CSR) is valued differently by companies and investors respectively, the thesis empirically analyzes how CSR is valued by the two parties by investigating current trends, as well as the perception of the business case for CSR. From the analysis it is found that companies report on their CSR performance as never before, however it is only few who report systematically using performance indicators. Companies that have a strategic approach to CSR can link their CSR performance to financial performance and long-term shareholder value. It is learned that Socially Responsible Investment (SRI) is a growing phenomenon, yet SRIs only make up a small amount of asset under management. The initial assumption is validated as investor do not integrate Environmental, Social and Governance (ESG) factors into their investment analysis due to several barriers, mainly related to short-termism and lack of proof that it is valuable. A theoretical analysis shows that companies and investors perceive the value of CSR differently, as companies working strategically with CSR can obtain a competitive advantage and long-term value, which is currently not realized by investors due to a lack of methods to sufficiently include ESG factors in an evaluation of the company. The current ESG methods of investors are identified using Schaltegger‟s theory to be a „single decision model‟ where only financial data is valued, and the „dual decision model‟ where both financial data and ESG factors are considered. As these models turnout insufficient, an „integrated decision model‟ is suggested. The new model should pursue a single objective and integrate financial data and ESG factor but should not be based on existing valuation methods. Analyzing the findings using Novozymes as a case study it is found that in practice each group of investors value ESG data differently. The arising attention towards ESG factors in the mainstream investor community is mostly based on „gut feelings‟. Mainstream investors have no ideas on concrete methods to overcome barriers, expect from a group named „integrative investors‟. These investors implicitly integrate ESG factors into a valuation that is very long-term focused, wherein considerable value stems from ESG factors. The investigation shows that a transition is underway in the mainstream investor community, as CSR continuously will increase its importance in the future. Novozymes is thus recommended to continue to provide the investor community with CSR information, as a company working strategically with CSR will be able to extend the benefits of working with sustainability, and at the same time continuously gain economic success.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2009
Number of pages161