While the first wave of corporate social responsibility (CSR) reporting was driven by a desire to mitigate risks and bolster reputations among investors, the rapid growth in the number of CSR reports has been driven by a realisation that they can deliver numerous business benefits. But what are these benefits, how do you maximise them and, just as importantly, how do you measure them and prove they exist?

According to Paul Burke at consultancy Acona, one of the overarching benefits of high-quality CSR reporting is that it allows an organisation to take stock of itself, while at the same time informing its audience of its performance. "CSR reporting provides businesses with a good opportunity to look in the mirror and reflect this image back to stakeholders, demonstrating that they have responsible control over their organisations," he says.

It is a view shared by Jennie Gibbons, international sustainability manager at British American Tobacco, who argues that a good CSR report delivers as many benefits for the company producing it as its eventual audience. "CSR is an opportunity, a way of identifying where you can add value to your shareholders as well as meeting your stakeholders' expectations around sustainability," she says.

It is this shift in the understanding of CSR reporting, away from being a means of mitgating risk and towards being a management tool for creating business value that has led to its increased profile in recent years. There is growing acceptance that as well as helping to address reputational risks, CSR reports can now help deliver improved financial performance; improved stakeholder performance; improved risk management; improved investor relations and improved access to new markets.

This opportunity approach is also emphasised by Storebrand, a Norwegian financial institution, which argues that CSR reports have a key role to play in ensuring a company is well positioned to survive the inevitable impact of climate change and other societal threats. "For business to be part of the solution, we have to spend time analysing how global challenges such as climate change will affect our industry," explains Elin M Myrmel-Johansen, executive vice president for corporate responsibility. "Then, we must use this understanding in our search for business opportunities."

For growing numbers of companies, CSR reports are at the root of new market opportunities, particularly in the field of green product opportunities.

For example, Akzo Nobel, a chemicals company based in the Netherlands, has identified three major, long-term challenges through its CSR processes – population growth, resource scarcity, and the economics of climate change – and used them to shape its operations, including the development of a range of green products which now account for 18 per cent of the company's sales. "We are convinced that managing sustainability issues is key to our financial success," says Andre Veneman, director of sustainability at the company.

A key principle of this bottom-line perspective is remembering that regardless of your industry, there are essentially two ways to create business value: increase revenue or reduce cost. Calculating the business value of a CSR or sustainability programme is, then, the degree to which it contributes to either of these outcomes. It is clear that CSR can generate top-line revenues for a company. It can inspire innovation, support new product development, open new markets, acquire customers and enhance brand and reputation. Equally, it can reduce costs by improving staff recruitment, productivity and retention, reducing commercial risks, and cutting energy use or waste.

However, many within the sector remain sceptical that the benefits of CSR can ever be accurately monetised. But while organisations struggle to grapple with the return on investment calculations that arise from CSR, the majority are quick to add that CSR initiatives provide clear benefits. Wider studies have confirmed that these benefits exist.

A report published by NGO Business in the Community (BITC) last October examined the relationship between total shareholder return and the management of environmental and social impacts in 33 FTSE companies that have measured and managed their CSR activities using the organisation's Corporate Responsibility Index. The results revealed that FTSE companies that actively managed and measured corporate responsibility issues outperformed the FTSE 350 on total shareholder return by between 3.3 and 7.7 per cent throughout the period 2002-2007.

Similarly, the Dow Jones Sustainability Index 2008 report affirmed a positive, strategically significant correlation between corporate sustainability and financial performance.

This correlation is driven by a growing awareness among investors that a well-produced CSR report gives an excellent oversight of many of the risks a business faces. "It is increasingly understood that financial statements capture less than 20 per cent of corporate risks and value-creation potential, with the balance deriving from intangible factors such as human capital and resource efficiency," says Matt Christensen, executive director of the European Social Investment Forum. "The CSR function helps to explain these intangibles – environmental, social and governance data is relevant, material information that investors should have and increasingly want as a means to better gauge longer-term risks."

In such a scenario, which the studies into the relationship between shareholder value and CSR suggest could already be upon us, the value of CSR might remain difficult to quantify, but it could not be more tangible. Ultimately, perhaps the most effective measure of a CSR reports' success should be the share price.

Jonathan Ballantine, BusinessGreen, 26 Mar 2009