Companies' Green Claims Count More than Actions
/A recent study concludes that companies' messages about environmental actions have a more positive effect on market value than do positive actions themselves. Or, as one article put it, "...greenwashing is better than being green."
The study, "Do Actions Speak Louder than Words? The Case of Corporate Social Responsibility (CSR)," analyzed data from 2,261 firms in 43 countries from 2002 to 2008. Authors from Fuqua School of Business and the London Business School explored the conditions under which CSR (corporate social responsibility) affects financial performance. According to Environmental Leader, the study found the following:
"The authors found symbolic actions have a higher impact on market value than substantive actions, when the company has higher CSR-based assets. The study also concluded that a larger gap between symbolic and substantive actions has a higher positive impact on firm performance; and the more companies engage in both symbolic and substantive actions, the higher the value accumulates to the company."
The Environmental Leader further describes the distinction between "symbolic" and "substantive" actions:
"Symbolic actions include any ceremonial conformity or compliance: for example, a company announcing plans to form a sustainability or corporate ethics committee to provide the appearance of an action, without necessarily having any substance. Symbolic actions can be more generally described as 'window dressing' or greenwashing – essentially anything designed to give an appearance of an action while allowing business to proceed as usual.
"Substantive actions are the real actions taken by an organization to meet certain expectations and often require changes in core practices, long-term commitments and investments in corporate culture."
The paper is consistent with a Deloitte report that companies' communication about CSR practices impacts the bottom line.
Discussion Starters:
- What's your view of greenwashing for the purpose of improvement corporate financial performance? Is it ethical? Why or why not?
- If you were the CEO of a Fortune 500 company, how, if at all, would you use the results of this study?