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

Donald Trump’s election has sent the global climate community into a tailspin.

It seems every climate change action supporter is making lists of the awful things he’s planning to do, so I’ll turn to the very succinct one I received in a Sunday morning email from Michael Brune, Executive Director of the Sierra Club:

End of Paris Climate deal. End of the EPA. End of the Clean Power Plan. More drilling. More coal. More pipelines. More lives destroyed. More wildlife bulldozed.

I’d add to Brune’s list of deplorable actions Trump’s choice to lead the EPA transition,  Myron Ebell, who Scientific American calls our “top climate skeptic.”

But we can’t forget what Neal Leary at Dickinson College’s Center for Sustainability Education reminds us in the Huffington Post the scariest fact of all: “Mr. Trump has asserted that climate change is a hoax.”

Leary refuses to give up: “I put my hope and efforts in action at state, local and institutional levels to keep and build momentum toward a clean, low-carbon U.S. energy system.”

Top on my list of Professor Leary’s institutional efforts would be American businesses, especially those that have turned away from fossil fuels and towards renewable energy for the most American of reasons — profit.

With the help of non-profit organizations such as the Carbon Disclosure Project, the Environmental Defense Fund, The Climate Group and the Center for Climate and Energy Solutions which set standards and rate companies’ environmental performance, our businesses are killing demand for coal by making energy efficiency a top priority and solar and wind the energy systems of choice. As eco-consultant Andrew Winston writes, “It’s flat out more profitable” to use renewables.

Another reason: renewable energy reduces a company’s risk.

How can renewable energy mitigate risk? The direct answer is that by installing their own solar power — either by building solar plants, as Google and other firms are doing, or via rooftop solar to supplement the energy they draw from the grid — these companies ensure access to power without the risk of price fluctuations endemic to fossil fuels.

But there are other reasons why renewable energy lowers risk. For one, investors are becoming increasingly concerned with business’ environmental practices as Corporate Social Responsibility (CSR) becomes common practice. Charles Schwab features Socially Responsible Investing (SRI) on its Mutual Funds web page, commenting that it is “emerging as a significant trend in the financial markets” and noting that SRI increased 28% between 2012 and 2014, when total SRI assets topped $4.3 trillion. More investors reduces a company’s cost of borrowing in tough times, when raising money can otherwise be expensive.

But the even greater risk of not participating in environmentally sound policies is the potential damage to the brand. CSRHub, the sponsor of this blog and the world’s largest CSR database, analyzed its CSR ratings against data on brand strength and finds significant correlation.

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How the Correlation between Sustainability and Brand Strength has Changed in the Last Few Years, More Proof that Sustainability Drives Operating Performance

In other words, what a company does for its community, including environmentally, affects the value of its brand. And that means customers are more loyal. And that translates into how much a company can charge for its products and its profitability.

Not everyone is a fan of CSR. But despite some bad actors using CSR to “green-wash” their reputations, the concept is embedded in American business and may provide a bulwark against climate deniers now coming to power. And who knows. If Trump does what he’s said he wants to do, eliminating the Affordable Care Act and drastically reducing social services, he might find himself in need of a boost to his reputation. And what could be more effective than saving the planet.

Photo courtesy of  SCA Svenska Cellulosa Aktiebolaget

Carol Pierson Holding is President and Founder, Holding Associates. Carol serves as Guest Blogger for CSRHub. Her firm has focused on the intersection of brand and social responsibility, working with Cisco Systems, Wilmington Trust, Bankrate.com, the US EPA, Yale University’s School of Environmental Sciences, and various non-profits. Before founding Holding Associates, Carol worked in executive management positions at Siegel & Gale, McCann Erickson, and Citibank. She is a Board Member of AMREF (African Medical and Research Foundation). Carol received her AB from Smith College and her MBA from Harvard University.

CSRHub provides access to corporate social responsibility and sustainability ratings and rankings information on 16,495+ companies from 135 industries in 133 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.

Brand Intelligence Solutions has entered into an Alliance with CSRHub, the world’s most comprehensive non-financial (Brand/CSR/ESG) rating database, to launch the “360° Brand Intelligence Solutions Benchmark Tool.” Using real time data, you can now benchmark your sustainability and brand story against your competitors and industry leaders.

Elisa Turner, founder and CEO of Brand Intelligence Solutions says, “The fabric of business models has changed. In 1935 corporations and brands were valued based solely on their financial assets and performance – today up to 80% of corporate and brand value is based on non-financial asset performance. It is a fact today that companies who manage their non-financial assets as diligently as their financial ones consistently outperform their counterparts. The challenge corporation’s face today is: how to evolve from the 1935 myopic culture to one that is informed and consistently evolving to meet the required attributes for success today.”

The first step in addressing this challenge is awareness and knowledge of: what is material, industry leader benchmarks, where you rate against the leaders, what are your risks, brand reputation amongst stakeholders and evolving regulations and stakeholder expectations.

Brand intelligence is the aligned management of non-financial assets.

Brand Intelligence is the quality of a company’s non-financial asset awareness engagement, performance, and communication. These assets include; brand reputation, environmental, social, human, product, supply-chain and governance.

Brand Intelligence touches every aspect of your business and brand today. A 360° holistic view of your non-financial asset performance in critical to managing in today’s economy.

For the first time – it is available!

With this tool for the first time, you have a real-time data based 360° holistic view of your non-financial performance from external stakeholders and the ability to benchmark that against industry leaders and competitors. Brand Intelligence Solutions and CSRHub will provide corporations with their external "Brand Intelligence Scores."

The 360° Brand Intelligence Solutions Benchmark Tool is a game changer – for the first time the links between sustainability, brand, communications, and profit are visible and can be measured. This means they can now be managed and in quantifiable terms, just like you do financial ones.

Brand Intelligence Solutions has also entered into an Alliance with FigBytes, a global leader, next generation non-financial management system to launch the “360° Brand Intelligence Solutions Benchmark Tool.”

About Brand Intelligence Solutions

Brand Intelligence is an independent consulting firm, globally recognized as a leader in the area of sustainable business systems and sustainable brands. Founded by Elisa Turner, a trailblazer in sustainable business for 15 years – prior to this she spent 10 years working in the C-Suite of some of the world's most recognized retail brands.

The Brand Intelligence© framework - is a systemized approach developed over 15 years for companies to build, operationalize and manage Brand Intelligence©. For more information about Brand Intelligence Solutions, go to http://www.brandintelligence.solutions/. Please contact Brand Intelligence anytime for more information at elisa@brandintelligence.solutions.

About CSRHub 

CSRHub provides access to the world’s largest corporate social responsibility and sustainability ratings and information, covering on 16,500 companies from 135 industries in 133 countries. By aggregating and normalizing the information from 469 data sources, CSRHub has created a broad, consistent rating system and a searchable database that links millions of rating elements back to their source. Managers, researchers and academics use CSRHub for sustainability intelligence to benchmark company performance, learn how stakeholders evaluate company CSR practices, and seek ways to improve corporate sustainability performance.

CSRHub is a B Corporation, an Organizational Stakeholder (OS) with the Global Reporting Initiative (GRI), a silver partner with CDP (Carbon Disclosure Project), and a Research and Insight Partner of Sustainability Accounting Standards Board (SASB).

By Bahar Gidwani

Part 5 of our 5-part series

In the previous posts in this series, we have described the relationship between Brand Finance’s Brand Strength Index and CSRHub’s sustainability rating.  The overall correlation between these large sets of data is strong—and it has been growing stronger.  We will now look at how each of the twelve individual components in CSRHub’s metric system relate to brand strength.

CSRHub ingests sustainability information from 230 sources that each have their own way of measuring and rating corporate social performance.  In order to make sense of these different measures (we have more than 9,000 different indicators in our system), CSRHub has mapped each indicator from each source into one of twelve “subcategories.”  (You can see a description of this schema here.)  These subcategories are then grouped into four categories (with three subcategories in each category).

The ratings for each subcategory are forced into a curve that has a central tendency (around 50 on a scale from 0 = low to 100 = high).  There is a natural tendency for subcategory scores to be correlated (i.e., a company who is good on one measure of sustainability tends to be better on all of the others), the correlation between subcategories is generally between 0.25 and 0.5 for subcategories that are in the same category (e.g., Energy & Climate Change vs Resource Management) and between 0.1 and 0.25 for subcategories that are in different categories (e.g., Product and Board).

To understand which subcategories may be more important for brand strength, we performed a multivariate analysis between the twelve CSRHub subcategory scores and the Brand Finance Brand Strength Index.  The results of the regression mentioned show that eleven of the twelve CSRHub’s subcategories have meaningful individual correlation statistics.  Only our Human Rights & Supply Chain measure seems to have no correlation with brand value.

Correlation Between BSI and Each of Twelve CSR Factors

We performed a similar analysis on our 2011 data set—using 921 sets of data.  Both the coefficients for the multivariate regression and the relative strengths of the correlations between each subcategory and brand strength were similar.  The extent of correlation was less at all levels for the 2011 data.

We would expect that product sustainability, leadership ethics, and a company’s environment policy and reporting would be tied to brand strength.  These are areas that companies actively invest in and communicate about.  The weaker ties to board performance, transparency and reporting, energy and climate change, and resource management may be due to the fact that consumers have few means to connect these areas with the products they buy.  The most surprising results are the weak relationship between brand and human rights and supply chain issues, the modest effect of community development and philanthropy, and that how companies treat their employees is important to their brand strength.

We have some thoughts to offer on these last three points:

• Human rights and supply chain.  Our rating in this area goes up when a company is more transparent about its behavior.  It also goes up when a company has few “incidents” with its supply chain and when it takes steps to enforce socially positive policies (such as diversity, fair pay, and workplace safety) on its suppliers.  We suspect that consumers may not understand the complexity of the issues companies face in this area.  They may distrust company communications in this area or dismiss them as “window dressing.”  More communication and transparency may indicate that a company has problems in the area, without making it clear that the company has solved some or all of them.
• Community development and philanthropy.  Many companies assume their investments in these areas will support their brands.  However, it is hard for a company to brag about its good deeds without appearing to be “paying for love.”  Further, an investment in one community may not pay off with brand benefits in other/all communities.
• Employee treatment.  Many studies have shown that consumer brand impressions are heavily influence by the behavior of a company’s employees.  Polite, knowledgeable service people; employees who actively serve in community organizations; and personal contact between employees and customers can directly affect how a brand is perceived.

Conclusion and Next Steps

If corporate social responsibility performance drives brand strength, companies have yet another reason to care about their social performance.  We do not advocate cutting expenditures on human rights and supply chain improvements.  We believe that consumer awareness in this area will grow rapidly—spurred partly by news coverage of events such as the recent collapse of a factory in Bangladesh.  However, we hope that our results show companies that investing in better treatment of their employees may also increase the strength of their brands.  Our results also suggest that brand managers may expect to see broad benefits on their brand strength from promoting and leveraging their company’s good social responsibility performance.

We plan to repeat our study using Brand Finance’s next annual BSI data set (due to be released in March 2014).  We are also reaching out to other groups who have brand data and digging into the indicators and data we have from our 230 other data sources.  We intend to study the performance of “outliers”—companies whose brand and sustainability performance run counter to the general trend we have described.  We invite any company or group who is interested in this area to contact us regarding this work.  We will need detailed information and input from the management of both brand-driven and non-brand driven companies, if we want to understand best practice in this area.

View:

Part 1 The Tie Between Brand Value and Sustainability is Getting Stronger
Part 2 There is a Strong Link Between Brand Strength and Sustainability
Part 3 Is the Correlation between Brand Strength and Sustainability Due to Random Chance?
Part 4 The Relationship Between Brand and Sustainability is Getting Stronger

Bahar Gidwani is CEO and Co-founder of CSRHub. He has built and run large technology-based businesses for many years. Bahar holds a CFA, worked on Wall Street with Kidder, Peabody, and with McKinsey & Co. Bahar has consulted to a number of major companies and currently serves on the board of several software and Web companies. He has an MBA from Harvard Business School and an undergraduate degree in physics and astronomy. Bahar is a member of the SASB Advisory Board. He plays bridge, races sailboats, and is based in New York City.

CSRHub provides access to corporate social responsibility and sustainability ratings and information on 7,300+ companies from 135 industries in 93 countries. By aggregating and normalizing the information from 230 data sources, CSRHub has created a broad, consistent rating system and a searchable database that links millions of rating elements back to their source. 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

Part 4 of our 5-part series.

In the last post in this series, we examined our finding that brand strength and sustainability are correlated.  We found evidence that the relationship we have discovered between Brand Finance’s Brand Strength Index and CSRHub’s corporate social responsibility and sustainability ratings are not due to random chance.  Let’s assume the relationship is real.  How has it changed over time?

Both Brand Finance and CSRHub have used consistent methods to evaluate companies over the past five years, from 2008 through 2012.  Because we wanted to see how the brand-sustainability relationship changed for each year, we included all of the available company pairs for 2012 and then for each year, used only the companies that were also present in the following year.  While the number of companies studied in the earlier years is less than that in the latest data set, all years include more than 350 company data set comparisons.

Five Years of Data

The correlation between the BSI and CSRHub’s overall rating averaged about 0.11 for the first four years of our study (2008 through 2011).  The jump to 0.22 in 2012 is quite dramatic.

The 12 factor analysis for 2011 gives a 0.19 correlation.  This is again lower than the 0.28 correlation we get for the twelve factor analysis in 2012.  This confirms that there has been a strong improvement in the relationship we are studying.

We believe there are several reasons consumers may be increasingly aware of corporate responsibility and sustainability performance:

• More coverage of sustainability in the popular press;
• Outreach and advocacy from a wide range of non-governmental and governmental organizations;
• Inclusion of CSR issues in MBA and other educational programs;
• The growth of informational web sites such as TriplePundit, Greenbiz, JustMeans, 3BL Media, SustainableBrands, EnvironmentalLeader, 2DegreesNetwork, and of course, CSRHub.

We would expect this correlation to continue to grow, although there should be a natural limit on how much of brand strength can be driven by social performance factors.  We look forward to repeating our study in 2014, when we have a new year of data from our partners at Brand Finance.

Our next and last step will be to see which parts of sustainability seem most closely related to brand strength.

View:

By Bahar Gidwani

Part 3 of a 5-part series

In the previous posts in this series, we showed that there is a strong correlation between brand strength as measured by the Brand Finance Brand Strength Index and sustainability as measured by CSRHub’s metrics engine.  We promised to examine more closely whether or not the correlation we discovered is meaningful.

There are several ways to test the strength of the correlation between two sets of data.  The easiest is to estimate the probability that an observed correlation is actually zero (no correlation).  This probability is expressed via an “F” value.  An F value equal to one would indicate that the chance that the observed correlation is zero is the same as the chance that it is non-zero.  Given the ~1,000 data points we have, an F value above 4 would indicate only a 5% chance that the observed correlation is zero.  The “F” value for our simple brand value versus CSR correlation is 289.9—for our correlation of all CSR factors against brand value the F value is 31.8.  Both results suggest a vanishingly small chance that there is no correlation between the data sets.

Statistics for Brand Strength Index vs CSRHub Overall Rating

Another test is to see if splitting a data set randomly into two groups causes any change in the observed correlation.  This simple test often reveals that a correlation comes from the combined effect of a few outliers or some other artifact of the data.  We used a random number generator to divide our scores in half.  Of course, splitting the data set reduces the total number of data elements in each sample.  However, over several trials, our correlation coefficient remained between 0.21 and 0.23.

Is the Relationship Spurious?

Could we be seeing only a spurious relationship between our data sets that is caused by them both being correlated with a third factor?  It is impossible to rule out this type of problem—there are too many possible third factors to consider.  However, we can at least test a couple reasonable alternate explanations.

For instance, could both brand strength and sustainability be positively correlated with enterprise value?  We have tested this idea and see that while there is a fairly strong correlation between BSI and enterprise value, there is only a weak correlation for CSRHub’s ratings.

Comparison of Correlation With Enterprise Value for BSI and CSRHub Rating

If we include enterprise value in our regression, the correlation coefficient between enterprise value plus CSRHub score and the Brand Strength Index rises to 0.39.  The T statistics for both the CSRHub rating and enterprise value dependent variables are highly significant--well above the 3.3 needed to support a 99.9% confidence that these correlations are non-zero.  From this, we can conclude that enterprise value could explain a portion of the relationship between brand strength and sustainability, but not all of it.

Correlation Between BSI and Both Enterprise Value and CSRHub Overall Rating

Could the correlation we have discovered exist only for companies in “branded” industries and not true for other areas?  We split our sample and examined the correlation for each type of company.  As you can see, there appears to be relatively little difference in the correlation by industry type.

Comparison of Correlation for Brand-Focused and Non-Brand Focused Companies

As we noted in our previous post, correlation is not a proof, but it can be a “hint.”  We believe that we have shown strong evidence that brand and sustainability are connected.  We will next look at how that relationship has changed over time.

View:

Part 1 The Tie Between Brand Value and Sustainability is Getting Stronger
Part 2 There is a Strong Link Between Brand Strength and Sustainability

Bahar Gidwani is CEO and Co-founder of CSRHub. He has built and run large technology-based businesses for many years. Bahar holds a CFA, worked on Wall Street with Kidder, Peabody, and with McKinsey & Co. Bahar has consulted to a number of major companies and currently serves on the board of several software and Web companies. He has an MBA from Harvard Business School and an undergraduate degree in physics and astronomy. Bahar is a member of the SASB Advisory Board. He plays bridge, races sailboats, and is based in New York City.

CSRHub provides access to corporate social responsibility and sustainability ratings and information on 7,300+ companies from 135 industries in 93 countries. By aggregating and normalizing the information from 230 data sources, CSRHub has created a broad, consistent rating system and a searchable database that links millions of rating elements back to their source. Managers, researchers and activists use CSRHub to benchmark company performance, learn how stakeholders evaluate company CSR practices and seek ways to change the world.