71. Is Good Corporate Citizenship Also Good for the Bottom Line?

A new study says that yes, it is -- but try telling that to the United Nations officials who are preaching sustainability practices.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Stephen J. Dubner?

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• 0:43Stephen J. Dubner?

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• 1:26Stephen J. Dubner?

  Well, PNC Bank did since its inception, proving time and again that the best banking strategy isn't the exciting type, but the steady, reliable, definitely not YOLO type. PNC Bank. Brilliantly boring since 1865. Brilliantly boring since 1865 is a registered mark of the PNC Financial Services Group, Inc. PNC Bank, National Association, Member FDIC. Freakonomics Radio is sponsored by ChatGPT. ChatGPT work is a new way to work in ChatGPT. ChatGPT work can pull info from across your apps and connect to your tools to help you create finished work.

• 2:07Stephen J. Dubner?

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• 2:31Speaker 01

  From APM, American Public Media and WNYC, this is Freakonomics Radio on Marketplace. Here's the host of Marketplace, Kai Rizdal.

• 2:46Speaker 02

  Time now for a little Freakonomics Radio. It's that moment every couple of weeks where we talk to Stephen Dubner, the co-author of the books and the blog of the same name. It's the hidden side of, wait, what is it? Yes? Everything. Dubner, good to have you back.

• 2:58Stephen J. Dubner?

  Hey, Kai, good to be back. I bring to you today the topic of good citizenship, good corporate citizenship, to be precise. I bet you have heard this kind of thing a million times before.

• 3:08Speaker 03

  In my particular job, I'm trying to have the biggest impact in terms of reductions of greenhouse gases. And so I get to think of places that have nothing to do with Google's core business, but where we can really have a big impact in reducing greenhouse gases.

• 3:19Speaker 02

  Yeah, okay, not really. Haven't heard that, but okay.

• 3:22Stephen J. Dubner?

  Well, that's a Google promotional video, the kind of thing that you see more and more these days, and where firms talk about their high level of corporate social responsibility, or CSR, which I'm guessing you have heard of, yeah?

• 3:33Speaker 02

  Oh, yes, sustainability. Come on, that's what we do.

• 3:35Stephen J. Dubner?

  There you go. So I'm here to tell you today, Kai, that some companies who tout their high CSR are not being 100% sincere all the time.

• 3:43Speaker 02

  I am shocked, shocked to find out there's gambling going on.

• 3:46Stephen J. Dubner?

  Now, I want you to listen to Georg Kell, who is Executive Director of the United Nations' Global Compact, which promotes good corporate citizenship, particularly sustainability.

• 3:56Speaker 02

  Very well.

• 3:57Speaker 04

  Well, if you were to ask me, the global 1,000 corporations, you know, how many of them are sincere and seriously about sustainability and long-term value creation? Our own implementation survey and others done by other leading think tanks will probably suggest we are probably at 15%.

• 4:15Speaker 02

  No, come on, that's scandalous. 15%.

• 4:18Stephen J. Dubner?

  It's not a high number, yeah. So the way it works, Kell's group signed up about 7,000 companies, and the UN's list of good corporate behaviors includes not only sustainability, but practicing human rights, good human rights, and fighting corruption. Here's Kell again.

• 4:35Speaker 04

  And it's by and large working, except that roughly half of our participants who joined actually don't live up to that. So either they lose the focus, or they don't have the dedication to continue that pathway, and unfortunately, we have to expel them.

• 4:51Speaker 02

  Wow, they throw them out.

• 4:53Stephen J. Dubner?

  They expel them. Now, you can get back on. And to be fair, sticking to your CSR promise is a little bit reminds me of sticking to a diet. You know, even if the spirit is willing, the flesh can be weak. It is a lot of work. So getting a high CSR score means that you have to not only pollute less, but you also have to treat your employees and your customers ethically. You have to set long-term goals that may not necessarily help your quarterly earnings, which is what the street cares about. And of course, you have to take time to constantly report your progress to places like the UN.

• 5:25Speaker 02

  Yeah, but wait a second. What does all that do for your bottom line, right? Because companies are in business to make money and shareholder value and all that stuff. And does this pay off?

• 5:34Stephen J. Dubner?

  It sounds like it'd be a bad bet for the bottom line, doesn't it, Kai? Isn't that what you're thinking?

• 5:37Speaker 02

  That's where I'm going, yes.

• 5:39Stephen J. Dubner?

  Unfortunately, you're a little bit off on this. The good news is that...

• 5:42Speaker 02

  Again, I'm wrong with Stephen Dubner.

• 5:44Stephen J. Dubner?

  The good news is there is an upside, apparently. So George Seraphim at the Harvard Business School has just finished an analysis of 180 US companies over the course of 20 years to measure the effect, if any, that being a good corporate citizen has on a company's bottom line. Now, he did this by comparing the financial performance of firms that exhibited high sustainability behavior versus low sustainability firms.

• 6:09Speaker 05

  We found that the high sustainability group outperforms the low sustainability group in terms of stock market performance. And also, we found that the high sustainability groups outperforms the low sustainability groups in terms of operating performance as well. Whether you look at the return on assets or return on equity, you find strong outperformance.

• 6:31Speaker 02

  All right, so you spend the money, you make more money. So is the lesson here that all you got to do is hire a chief sustainability person? And bang, you're going to do it?

• 6:39Stephen J. Dubner?

  No, no. No more than if I buy a scale, I start to lose weight automatically, right? In fact, you have to be careful interpreting the findings of Seraphim's study. It may be that being a good corporate citizen is good for business in the long run. Or it may be that the kind of company that's more likely to be a good citizen in the first place is also more likely to be a profitable company. Whichever direction the arrow is pointing, however, which we don't really know yet, it does look like at least one truism in the business world is actually true, which is that you really can do well by doing good.

• 7:14Speaker 02

  There you go. Stephen Dubner, Freakonomics.com is the website. We'll see you in a couple of weeks.

• 7:18Stephen J. Dubner?

  Thanks, Kai.

• 7:19Speaker 02

  Amen.

• 7:32Stephen J. Dubner?

  Hey, podcast listeners. We need your help. We are working on an episode about retail etiquette. We want your horror stories as a customer, but we also want to know when you've been treated incredibly well. So the idea comes from our producer, Susie Lechtenberg, who is originally from Kansas. She's been in New York about a year and a half now, and that's all it took for her to become a total grouch. So, Susie, how do you feel about being treated as a customer?

• 7:56Speaker 06

  I just don't like it when they're too nice. It just feels phony.

• 7:59Stephen J. Dubner?

  So if I say, "Thank you for shopping here today..."

• 8:01Speaker 06

  That's fine. But if you repeat my name when you're making a coffee?

• 8:04Stephen J. Dubner?

  Right.

• 8:05Speaker 06

  And you say, "How's your day going, Susie?"

• 8:07Stephen J. Dubner?

  Uh huh.

• 8:07Speaker 06

  And then you repeat it again, "Your coffee's ready, Susie. Thank you very much, Susie." That, to me, they read that in a manual.

• 8:14Stephen J. Dubner?

  I hear you. So, thank you, Susie, for participating today, Susie. We really appreciate you being here, Susan.

• 8:18Speaker 06

  You're welcome, Stephen.

• 8:18Stephen J. Dubner?

  So, the misanthropic Susie Lechtenberg, she's probably past our help, but we want to hear your stories from both sides of the counter. So, go to Freakonomics.com/radio and click on the Talk Back box in the right-hand column. And next week on the podcast, could a no-lose lottery be the solution to America's savings problem? And how do you get doctors to wash their hands?

• 8:51Stephen J. Dubner?

  Freakonomics Radio is sponsored by EverPure. Is the value of AI not living up to the promise? The problem is probably your data, not your AI models. When it's scattered across different systems, getting your data AI-ready is a challenge. You keep your AI waiting, and everything slows down. EverPure unifies your data, so you can see it, understand it, and control it all from one simple place and get it AI-ready fast. Unlock the true value of your AI at everpuredata.com.

• 9:24Stephen J. Dubner?

  Freakonomics Radio is sponsored by Ozempic. Innovation happens through rethinking what's possible. And when it comes to GLP-1s, Ozempic pill does just that. Learn more about Ozempic semaglutide tablets, 4 and 9mg, by calling 1-833-OZEMPIC or visit Ozempic.com to view the medication guide and ask your doctor what's possible with FDA-approved Ozempic pill. Freakonomics Radio is sponsored by Southern Company. The world and its energy needs are always changing. Southern Company's commitment to meeting this demand stays the same. That's because Southern Company believes energy is more than a utility, it's what powers possibilities.

• 10:08Stephen J. Dubner?

  So they are looking ahead and investing $80 billion in infrastructure upgrades and are committed to fueling growth in ways that benefit all customers so that reliable and affordable energy is accessible for generations to come. Go to southerncompany.com to learn more. Southern Company, building the future of energy.

• 10:32Speaker 07

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