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Dec 15, 2010 Bahar Gidwani

Crowds of Ratings: The Financial Folks

By Bahar Gidwani

The best-known and best-established sources of information on corporate social responsibility (CSR) performance are probably socially responsible investment (SRI) researchers. These firms are also called ESG (environment, social, and governance) analysts.  At CSRHUB, we use data from six major SRI houses, including ASSET4, GovernanceMetrics International, IW Financial, MSCI, Trucost, and Vigeo.  Other well-known sources in this area include EIRIS, SAM, and SIRIS.

SRI firms primarily serve investors—mutual fund managers, investment advisors, brokerage houses, etc.  They try to help them:

  1. Make money.  SRI firms hope either they or their clients will discover connections between CSR-related factors and stock performance.
  2. Create and maintain special mutual funds.  Around $6 trillion has been invested so far into mutual funds that have a social theme or purpose.  Most of the major fund groups are now involved, including Calvert (one of the first movers in this area), Parnassus, Van Eck, T. Rowe Price, and Vanguard.
  3. Measure their performance.  Investors want to know if their investment manager or mutual fund is doing a good job.  The easiest way to find out is to compare the return from a particular investment strategy against that of an index such as the Dow Jones Sustainability Index, the FTSE for Good, or the NASDAQ OMX Global Sustainability Index.

Do CSR-oriented investors do better or worse than those who don’t care about the social behavior of the companies they invest in?  Many studies have probed this question, but there is still no definite answer.  You can follow the discussion on Lloyd Kurtz’s SRI Studies site and form your own opinion.

SRI data is not cheap.  The annual fee for a data feed from one of these firms can run from $20,000 per year to over $100,000 per year.  Some firms specialize in certain areas (e.g., Trucost offers data on carbon and water use, GovernanceMetrics tracks corporate governance) and some firms offer more than one approach to measuring social performance (MSCI offers data under the KLD, IVA/Innovest, and Global Compact+, and RiskMetrics Carbon Beta brands).  Some firms sell individual reports or industry reports—but these prices are also high (between $200 and $2,000 per company).

Recently, the SRI area has consolidated.  Thomson Reuters bought ASSET4, MSCI bought RiskMetrics (which in turn had bought both Innovest and KLD), and The Corporate Library and Audit Integrity merged with GovernanceMetrics.  Several forces may be driving this trend.  Investment firms cut back on all types of costs—including research and data feeds—during the recent downturn.  New entrants such as Bloomberg have encouraged players in the broader market for trading data and indices (such as Thompson and MSCI) to enter the CSR area.  It takes a big capital base to support the high-speed infrastructure and programming dollars involved in creating and maintaining indices.

Many SRI participants and many of their customers are worried that our society could lose some of the strength, diversity, and richness of the data that SRI firms produce.  CSRHUB shares this concern and we hope that our site will introduce these wonderful data resources to many new users.  Our next post in this series will look at the organizations who are trying to improve ESG/CSR reporting.


Bahar Gidwani is a Cofounder and CEO of CSRHUB. Formerly, he was the CEO of New York-based Index Stock Imagery, Inc, from 1991 through its sale in 2006. He has built and run large technology-based businesses and has experience building a multi-million visitor Web site. Bahar holds a CFA, was a partner at Kidder, Peabody & Co., and worked at McKinsey & Co. Bahar has consulted to both large companies such as Citibank, GE, and Acxiom and a number of smaller software and Web-based companies. He has an MBA (Baker Scholar) from Harvard Business School and a BS in Astronomy and Physics (magna cum laude) from Amherst College. Bahar races sailboats, plays competitive bridge, and is based in New York City.

Published by Bahar Gidwani December 15, 2010