Ethical Performance
inside intelligence for responsible business


Study links CR Index firms to better share returns

December 2008

Companies that regularly take part in the UK’s annual Corporate Responsibility Index appear to show a better return for their shareholders than those that do not, according to new research.

A study conducted for Business in the Community, which runs the index, found that the total shareholder returns of the 33 FTSE companies that have measured and managed their corporate responsibility through the index in each of its six years outperformed those in the FTSE 350 by between 3.3 and 7.7 per cent a year throughout the period 2002–2007.

The research, which was paid for by Legal & General and undertaken by Ipsos MORI, also found that the same companies exhibited less volatility in their stock prices, but that there was no significant difference in the level of dividends they paid.

The 33 companies in the survey were those that have participated in the CR Index each year and are listed on the London Stock Exchange. They included Cadbury Schweppes, Go-Ahead Group, J Sainsbury, National Grid, Pearson, Reed Elsevier, Rolls Royce and Tesco.

In all six years the CR Index companies outperformed FTSE 350 companies in terms of total shareholder return, which combines share price appreciation and dividends paid.

The same trend was visible when compared with the wider FTSE All-Share index, with the range of outperformance between three per cent and eight per cent over the same period. However, the survey found there was no statistically significant correlation between dividend yield and CR Index participants. Although the 33 companies outperformed the FTSE All-Share and the FTSE 350 by dividend yield in five of the six years measured, only in one year (2003) was the difference large enough (above five per cent) to be statistically meaningful.

On stock price volatility, which was calculated by compiling the average 12-month volatility of the 33 businesses in each year, there was a clear positive statistical difference with the FTSE350.

Bitc said this showed that the 33 were essentially safer investments and would therefore be more likely to be able to access capital at a significantly lower cost.

However, others have warned against the dangers of drawing too much from the study. Rory Sullivan, head of responsible investment at fund manager Insight Investment, told EP: ‘While the results appear encouraging, one should be careful not to overstate their significance. There are two reasons for this: firstly, the existence of a correlation does not mean there is a causal link, and secondly the total shareholder return findings do not stand up to statistical significance tests.’

Corporate Responsibility Index | UK & NI Ireland | Performance Indicators

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