CSRHub Blog Research on ESG metrics and comments on sustainability best practice

By Bahar Gidwani

Our friends at Agrion organized a Sustainability Summit last week.  About 250 people gathered in New York to discuss various aspects of corporate social responsibility (CSR) and sustainability practice.  I had the opportunity to lead an all-star panel on materiality in sustainability reporting.  (Our panel included speakers from NASDAQ, Bloomberg, Rockefeller, and the CFA Institute.)

When we met ahead of the meeting, our group expressed a collective fear that we’d put our audience to sleep!  Materiality can be a pretty technical subject.  Here’s a quick definition of the word, in case you need it: Materiality is a measure of the estimated effect that the presence or absence of an item of information may have on the accuracy or validity of a statement.

We discovered that our panel of experts disagreed about exactly how materiality should be used in sustainability reporting.  One camp felt that sustainability reporting should be centered around a legal/regulatory view of materiality.  This perspective was well expressed in a recent SASB/Harvard article:

“…the courts and the SEC have generally defined information sufficiently “material” to require reporting as information that would be useful to “reasonable” investors considering a “total mix” of information in their decision making…the SEC has an obligation to require sustainability disclosure if a substantial portion of the investment community considers this information material…”

The other group felt that sustainability reporting should focus on what matters to a company’s stakeholder groups.  A recent CSR report from Electrolux put forth this view:

“In the context of sustainability, materiality relates to identifying the issues most relevant to conducting business responsibly and well. These issues can either potentially affect our performance, or the development of our business.”

Our audience initially agreed with the second (stakeholder) view.  After hearing the arguments in favor of the legal/regulatory view, almost the whole audience changed its opinion to agree that both perspectives should be considered, when doing sustainability reporting.

Although our panelists disagreed initially on this definition issue, they agreed on many other points.  For instance they all felt:

• More companies are releasing more data, and some of it is becoming more material.  But we still get a lot of lousy data and smaller companies lag behind.

• Stakeholders have different views of what data should be provided and whether or not it is sufficiently material.

•  It would be great if we could consolidate all the competing materiality standards into a single set, but this is unlikely to happen.

We spent a lot of time on the question of standards.  It was obvious that our audience (mostly corporate sustainability managers) felt strongly that the standards environment was confusing and counterproductive.  Most of the audience had a favorable view of the work that has been done by the GRI (Global Reporting Initiative) and there was a lot of enthusiasm for the ISO26000 framework.  Fewer people knew about SASB’s initiative and those who did expressed concern that it would distract from the standards that were already known and in place.

I resisted dropping the Rodney King line (“Why can’t we all get along”) and instead appealed to our audience to be aware of and actively participate in the standards-setting process.  Our panelists offered similar closing remarks and reminded the audience that materiality discussions should lead to better understanding of the business opportunities (and risks) that come from sustainability 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.

CSRHub provides access to corporate social responsibility and sustainability ratings and information on nearly 7,000 companies from 135 industries in 82 countries. Managers, researchers and activists use CSRHub to benchmark company performance, learn how stakeholders evaluate company CSR practices and seek ways to change the world.

By Bahar Gidwani

Recently, Agrion offered me the opportunity to present a webinar on Company involvement in sustainable cities.  The seminar was moderated by Agrion’s Josh Soble and included input from Andrew Watterson, a Brown Flynn senior consultant who previously served as the Chief of Sustainability for the City of Cleveland and Julie Marth, who runs the Office for a Healthy Environment at the world-famous Cleveland Clinic.

In my role as CSRHub’s CEO, I mostly work with corporate sustainability professionals and their advisors.  We provide data on corporate social responsibility and sustainability performance, and involvement with the community (e.g., the cities that companies live in) is only one of the four major categories we rate.  However, I wondered if our huge database of company information could be combined with measures of city sustainability to at least show a connection between the two. Our research described below found that there does seem to be a connection that suggests that by working together, cities and companies may end up with happier and healthier citizens and employees.

I started my part of the talk by pointing out that most large companies have sustainability programs.  A good way to prove this is to use our proprietary tracking of company CSR website areas.  More than 3,000 of the 5,000 companies we rate (across 65 countries and 135 industries) have a CSR area on their site.  About 58% of US companies share sustainability information in this way.

We base our ratings on data from more than 170 sources of sustainability information.  Many of these sources get data from local communities—so there is good input from this “stakeholder” group.  When we compare our sustainability ratings for US companies against a measure of company sustainability like the “Our Green Cities Livability Score,” we find a reasonably good connection.

This data is only on 52 cities and 734 companies—and is only for US companies and cities.  We’d like to replicate the work for other countries, and hope some of our readers can offer us similar “livability” standards for other regions.  We’d also like to see if there is a relationship between the sustainability performance of companies and other aspects of city performance.  For instance, the Sperling’s Stressful Cities study gave us scores on Unemployment and Divorce rates for 47 cities that we could connect with our sustainability scores for 716 companies.  Here are the results:

Our usual “chicken and egg” caveat applies to this work.  It is possible that more sustainable companies are attracted to and locate in more sustainable cities, or it could be that sustainable cities encourage their local companies to improve their social performance and contribute to the cities they live in.  Either way, there does seem to be a connection that suggests that by working together, cities and companies may end up with happier and healthier citizens and employees.

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.

CSRHub has launched a new special issue: Involvement in Iran. We have tagged 42 of the approximately 5,000 companies we rate on sustainability.

Iran’s actions have been a major foreign policy problem for the U.S. for a long time. The U.S. has recently pressed its allies to tighten the sanctions that have been placed on Iran. These sanctions are intended to force Iran to drop any programs that might lead to it developing a nuclear weapon. This Federal effort has now been joined by state initiatives: both Florida and California have passed laws that seek to prevent their citizens from investing in companies who are involved in Iran.

Registered users and subscribers to our site can now incorporate their view on Iran involvement into their personal profile. When they include this factor, the overall ratings for 42 companies we’ve tagged with this special issue will either move up—if our user believes involvement in Iran is positive—or down if our user believes it is negative.

We decided to treat involvement in Iran as a special issue for three reasons:

1. A number of groups and experts advocate “engagement” instead of sanctions, as the way to deal with difficult regimes. We wanted to give them room to express this view—as we do with the companies who are involved in Burma and the Sudan.

2. The U.S. perspective on Iran is not shared by a number of other countries. Since more than half of our users are outside the U.S., we did not believe we should mandate a “U.S.-centric” view on Iran.

3. The available data on involvement is not broad and deep enough to be definitive. We found four publicly-available sources on Iran Involvement. Together, they mentioned 304 of the companies we rate. However, only 42 of those companies were mentioned in at least two sources. By only tagging these companies, we were able to offer a “middle path” for those interested in this issue. Users who have a stronger view can find all 304 companies if they wish, using our search methods. And, everyone on both sides of the issue can inspect each of our sources.

We will be interested to see how our users react. We can track the aggregate attitudes of our users towards each special issue—and towards each of the four categories that are part of our profile system. We have already shared some of this data in a previous post.

In April, we launched the special issue of companies involved in fracking. We have also added three new sources to our list of companies involved in fracking, to give us a total of nine sources. Our sources identify 91 of the companies we rate and in 51 cases, we have found enough overlap to feel confident that a company is involved in fracking.

Please feel free to suggest new special issues and new sources for our existing issues via info@csrhub.com.

By the way, CSRHub CEO Bahar Gidwani is hosting an Agrion seminar tomorrow (Tuesday, July 24, at 11:00 EDT) on Company Involvement in Sustainable Cities. Please join us if you are interested. And, we are sponsoring and look forward to participating in the Commit!Forum in New York on October 2^nd and 3^rd. We got a special discount on the registration fee for our users. Contact us at info@csrhub.com for more information.

Photo courtesy of indigoprime (Flickr CC).

CSRHub provides access to corporate social responsibility and sustainability ratings and information on nearly 5,000 companies from 135 industries in 65 countries. Managers, researchers and activists use CSRHub to benchmark company performance, learn how stakeholders evaluate company CSR practices and seek ways to change the world.

CSRHub rates 12 indicators of employee, environment, community and governance performance and flags many special issues. We offer subscribers immediate access to millions of detailed data points from our 150-plus data sources. Our data comes from six socially responsible investing firms, well-known indexes, publications, “best of” or “worst of” lists, NGOs, crowd sources and government agencies. By aggregating and normalizing the information from these sources, CSRHub has created a broad, consistent rating system and a searchable database that links each rating point back to its source.