It pays for companies to be part of the scenery

Companies like to highlight their commitment to the environment and the communities in which they operate, but it is all too easy for them to forget such commitment under the pressure of cutting costs and keeping shareholders happy. It is a pressure they should resist.

As Thomas Cook discovered last month, prioritising short-term profits over a broader responsibility to society can cause damage to a brand, which may dent those profits in the long run.

The UK tour operator’s search for compensation for earnings lost in the wake of the deaths of two children from carbon monoxide poisoning in a Corfu hotel resulted in strong criticism of the company. Thomas Cook’s chief executive later apologised to the children’s family but the issue is something consumers may not easily forget.

It is unlikely to be the last time a company’s actions end up causing damage to its reputation. From food contamination to banking scandals, headlines frequently offer evidence that business is not always very responsible.

However, there are also signs that many in the corporate sector are committed to minimising their environmental impact and to ensuring the benefits of their activities extend to the broader community.

Celebrating these efforts, the Responsible Business Awards recognise companies for everything from supporting an ageing workforce at home to contributing to emergency relief operations overseas.

Run by Business in the Community (BITC), the UK charity that promotes corporate responsibility, the awards — whose finalists are announced on Tuesday — judge companies on how well they are integrating responsible practices into their businesses in areas that include the environment, education, enterprise, unemployment and workplace diversity.

As the finalists demonstrate, companies increasingly regard such investment less in terms of the charitable use of spare cash and more as an integral part of their business, enhancing their long-term financial success.

Looking at environmental initiatives, the business benefits can be relatively easy to calculate. Cutting carbon emissions reduces expenditure on energy, while generating less waste saves money. Companies participating in Carbon Action, part of the CDP investor engagement initiative (formerly the Carbon Disclosure Project) found that carbon reduction and energy-efficiency investments could generate an average internal rate of return of 33 per cent, delivering a payback in just three years.

Recycling has financial benefits, too. Veolia, the water and waste utility that is an award finalist, derives 19 per cent of its revenue from products once considered waste, but that are now sold and reintroduced into the supply chain.

Of course, when it comes to tackling social issues such as human rights violations or even a simple lack of training for young people, measuring the bottom-line impact of investments is a tougher task. Even so, the cost of neglecting the communities affected by commercial activities is clear. In the extractives industry, for example, research has found that, in large-scale mining operations, community conflicts arising over social and environmental concerns can cost up to $20m a week in lost value.

And even companies that have launched social initiatives for philanthropic reasons are starting to link these to the long-term health of their business operations — whether by lowering absenteeism from supporting employee wellbeing or because staff can acquire skills through their volunteering efforts.

Many people think that enlightened corporate self-interest is an important factor in helping guarantee the long-term sustainability of such initiatives. After all, if they are seen as purely charitable, they may be abandoned in a downturn or when the executive championing them moves on.

Purely charitable initiatives may be abandoned in a downturn

For example, the partnership between Manchester airport, an award finalist, and the Manchester Enterprise Academy to improve school performance is also intended to help build the airport’s pipeline of skilled potential employees.

Similarly, by using its global logistics network to offer humanitarian assistance through its GoHelp programme, DHL, the delivery company and another BITC award finalist, has acquired expertise in contingency planning and gained insights that can be used in building its commercial relationships.

Businesses are looking across their supply chains to drive improvements in environmental sustainability or the economic health of local communities. However, to address global problems, more industry and cross-sector collaboration will be needed. Ultimately, the challenge is to create shifts in entire systems, rather than in individual organisations.

Tackling complex issues such as climate change, deforestation, labour abuses and poor access to healthcare will be possible only when broad teams of players work together.

Given the scale of the environmental and social problems the world faces, the biggest contribution companies can make may lie outside their own four walls.