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

By Bahar Gidwani

After an eighteen month break, Newsweek has re-launched its Green Rankings.  On June 5, it issued new ratings for the 809 companies that are on either the US 500 or Global 500 lists. The Green Rankings list is likely to continue to draw attention to corporate social responsibility performance and we are glad to have it back. We hope that Newsweek will continue to publish and promote work in this area.

Over the past few years, Newsweek’s Green Rankings had become one of the best known corporate CSR rating metrics partly because of its simplicity (everyone likes a top to bottom ranking) and because Newsweek’s large circulation put it in front of millions of ordinary consumers.

For several reasons we explain below, the Newsweek Rankings may not be a good benchmarking or best practices discovery tool for the sustainability professional.  In fact, as in past years, the new rankings are likely to continue to generate anxiety and confusion, as we all try to puzzle out and decode the signals they offer on how the world’s largest companies are performing. 

Newsweek’s methodology for calculating the ratings has changed several times.  This year’s revamp is pretty radical.  The initial data set for the 2014 list was supplied by Bloomberg and RepRisk.  Bloomberg captures a wide range of environment, social, and governance (ESG) from company financial disclosures, sustainability reports, and other public documents.  Bloomberg also ingests data from CDP—formerly the Carbon Disclosure Project—on carbon and water-related issues.  RepRisk has one of the world’s largest databases of corporate risk information.  Newsweek arranged for Corporate Knights, a well-respected Canadian research firm, to review these data sets.  It also sent a survey to 775 of the 809 companies. It is interesting that they could only find contact info for 95% of these very large companies—and that only 363 of them or 45% of the sample set responded.  Corporate Knights may also have consulted some of the other data sources it has available, such as MSCI’s Intangible Value Assessment (IVA) and Thomson Reuters Asset4 databases.

The 2012 Newsweek list included data from Sustainalytics—a full service ESG ratings firm—and Trucost—one of the leading suppliers of carbon, water, and other environmental information.  The 2012 list dropped an interesting and deep source of CSR data that was in the 2011 list—expert opinions on CSR performance that had been gathered by Corporate Register. The 2012 list had a strong emphasis on environmental performance, driven perhaps by a desire to make the list a “Green” ranking.  For the 2014 list, Corporate Knights decided to explicitly include corporate risk, board involvement, management compensation, and credit for outside assurance to its criteria.

We have ingested most of the sources from both years’ methodologies into our database, including RepRisk, Trucost, Asset4, CDP, and MCSI’s IVA.  As do many of the 300+ sources we studied, Corporate Knights studied the publicly-disclosed information that Bloomberg collects.  So, we would expect to see a fairly high correlation between our ratings (which measure the overall perceived sustainability performance of companies) and Newsweek’s scores.  The chart below shows that we had a 35% correlation between our scores and the Green Ranking scores, for the 2014 US data.

Interestingly, this year’s ratings for the US 500 seem somewhat less correlated with our overall ratings than they were in the past.

We believe these factors may have driven this shift:

• The old index gave more weight to environmental issues than the new one does.  Environment is probably the most/best studied area within corporate social responsibility.  As a result, there is less variation among expert opinions within the environmental area than with other parts of CSR such as employee, community, or governance performance.  There was a 55% correlation between the 2012 Newsweek rating (based on an average of their four reported subcategories) and our Environment category rating (which includes climate change, transparency/reporting, and resource management issues).  There was only a 25% correlation between Newsweek’s ratings and our Environment category in 2014.

• The new ratings methodology includes a penalty for “disclosure.” Rather than trying to fill in missing items, Corporate Knights decided in 2014 to penalize companies that fail to disclose a required item.  CSRHub has so much data that it is generally able to automatically fill data gaps. This methodological difference may have introduced a new source of variation between our ratings and reduced the correlation between them.

• The CSRHub database has grown substantially since 2012.  We currently have 53 million data points and cover 9,000 companies in 102 countries.  In 2012, we had only 13 million data points and covered only 6,500 companies in 83 countries.  As we add more information to our system, it is natural that our correlation with any individual and more limited data source, will drop.

As with any rating system, we could find fault with some of the individual results within the Newsweek Green Rankings.  For instance, Campbell Soup has a 67 overall rating in CSRHub.  This puts it third in the list of 216 food companies that we track.  Campbell supports BCCCC, CECP, and the Sustainable Packaging Coalition.  It was on Corporate Knight’s own Global 100 list in both 2013 and 2014.  But, Campbell gets only a 39.6% score in the Green Rankings system.

Inconsistencies between rating systems reinforce the need for corporate sustainability managers to focus on broad measures of performance that are stable across industries, geographies and time. Again, we applaud Newsweek for raising awareness of sustainability across a wide audience. Professionals in the field should feel free to use CSRHub data dating back to 2008 to get an independent perspective on the hundreds of sustainability metrics that are produced each year.

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 8,900 companies from 135 industries in 102 countries. By aggregating and normalizing the information from 325+ 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.

This is the final post in a 3-part series on expanding sustainability data. 

By Bahar Gidwani

One often-cited approach to broadening the availability of corporate social responsibility (CSR) information is via “reporting groups.”  Three examples of these organizations are the Global Reporting Initiative (GRI), the UN Global Compact (UNGC), and the Corporate Register.  (Note, CSRHUB is an Organizational Stakeholder of the GRI, works closely with the UNGC, and refers its users to the Corporate Library for copies of company CSR reports.)  GRI helps companies organize their social reporting.  UNGC encourages conformance to a small set of social principles. Corporate Register stores and organizes corporate CSR reports. The work of all three groups encourages both public and private organizations to publicly disclose various aspects of their social and sustainability performance.

Even after years of patient effort, these three organizations have only induced about 11,000 companies to reveal information.  Only about 6,000 companies participate in two of the three programs and only about 1,000 are in all three.  Yet, without a lot of data (at least all of the information that all three of these bodies might receive), it is hard to generate a rating of a company’s performance.

Further, when one examines the 1,000 organizations that are in all three programs, many have already been rated by the SRI community.  We estimate that only about 600 ratings could be added using the data these three groups have collected.  As a result, we won’t find the answer to our rating needs just through the efforts of the reporting community.

Fortunately, some new ratings sources are emerging that show promise of rising from the grass roots and filling in the lawn.  They include companies we’ve spoken about before such as:

• GoodGuide:  Using independent test methodologies and direct samples of consumer opinion, GoodGuide has been able to estimate the social impact of thousands of products.  Many of these products come from private or otherwise un-rated companies.  GoodGuide has invested the necessary time and energy to dig out data on these companies and produce its own ratings of them.  It now covers 100,000 products from more than a thousand companies.
• Glassdoor:  When employees want to look for a new opportunity, they turn to the company ratings on Glassdoor. These ratings have been created by aggregating employee opinions about companies. Like TripAdvisor for travel or Yelp for services offerings, Glassdoor has used the power of the crowd to discover how employees feel about their employer.  It now covers 110,000 companies.
• WikiPositive: Volunteer contributors have built profiles on the social performance of more than 900 smaller companies. Using wiki-style shared editing, each contributor’s view is ingested and added to a page. Editors review the data and ask for help refining and improving it.

Doing external research—either directly via a paid staff, via crowd source collection of comments, or using a group of wiki contributors—is time consuming and expensive.  The data gathered is useful for the particular need of the researcher, but may not cover the broad range of issues that are included in sustainability.

Other groups are seeking to address these issues by providing new self-driven ratings opportunities. Some of these are verified by a third party—some are not. Most allow contributed data to be kept private, but reward companies and organizations for agreeing to make some or all of it public.  Three examples are:

• B Corporation: More than 400 companies have self-administered the B Corporation certification process (including CSRHUB!). B-Corporations commit to being socially responsible on a variety of dimensions. Recently, B Corporation has integrated its system with that of the Global Impact Investing Rating System (GIIRS).  This system is intended to help both investors and companies better understand the impact of their operations and investments.
• Underwriters Laboratories Environment (ULE): With its many years of experience certifying product safety and quality, Underwriters Laboratories (UL) is a natural candidate to provide help with sustainability ratings.  The Environment branch of UL has launched several product certification efforts. ULE is developing a company certification process that will measure and verify many aspects of environmental and social performance.
• The Sustainability Consortium (TSC): TSC was launched by WalMart, and is now jointly administered by Arizona State University and the University of Arkansas. Its 75 members are trying to expose the social performance of the companies in various supply chains, and more accurately quantify and communicate the sustainability of products. For example, the Consortium works with the Carbon Disclosure Project (CDP) and uses the CDP’s methodology for measuring carbon. Those who participate in the Consortium disclose the carbon content of their products privately to CDP.

We hope these new sources can eventually fill in the data we need to complete our ratings matrix.  It appears to us that the most progress at first will be in the US—we know of few bottoms-up approaches being pioneered in Europe or Asia. However, all of these efforts are closely tied to Web-based technology and therefore all should be easily moved into other economic areas.

It is hard to estimate the time needed to complete this process. Ten years?  Progress may move quickly if and when countries make environmental and social reporting mandatory. There may not be an initial economic benefit for participating in rating systems, but companies and organizations who spend time and money completing the rating process will likely uncover new business opportunities and insights into their brands and markets.

At some point, a tilt will occur and it will become costly not to participate. From that point on, we believe the quality and depth of ratings data will grow rapidly. At least the frameworks we have built so far will become the basis for this future system.  Therefore, we who are pushing this area now should hope to benefit from the investments we have made and will continue to make.

By Bahar Gidwani

This post originally appeared in Triple Pundit.

In a previous post, we described the trove of corporate social responsibility (CSR) data that is available from finance-related researchers.  One of the main places these firms get their data is from company-written CSR reports.  Corporate Register offers links to more than 6,000 of these reports—from all types of companies and organizations.

How do companies decide what to report and how to report it?  Since CSR and sustainability reporting are fairly new areas, most companies look outside of their accounting and management teams for guidance and standards.  They get help from organizations such as:

Global Reporting Initiative (GRI): One of the first and most-widely used reporting standards bodies, GRI launched in the late 1990s with support from a who’s who of sustainability pioneers and backing from UNEP.  Thanks to untold hours of work from stakeholders, technical advisors, and national organizations, GRI has defined and guided CSR reporting for more than 2,500 companies and organizations.  The latest GRI standard (called G3) includes more than 160 areas for measurement and disclosure.  GRI is now working to encourage mandatory dual reporting (where companies must report both their fiscal and social performance) by 2020.

International Standards Organization (ISO): We have all benefited for years from ISO standards for product quality, health, and safety.  Now, ISO has created a standard for internal tracking and reporting social responsibility performance called ISO 26000.  This massive project has benefited from input from 450 participating experts, 210 observers, and 42 liaison organizations.  ISO26000 data can generally be “mapped” into the formats needed for other standards (such as GRI) so companies can use their internal data for external reporting.  ISO also offers the ISO 14000 standard for environmental management.  This standard helps companies track and improve their environmental performance.

Social Accountability International (SAI): The SA8000 standard is based on the UN Universal Declaration of Human Rights, Convention on the Rights of the Child and various International Labour Organization (ILO) conventions.  It applies at the facility level—so companies may have only gone through the SA8000 process on some of their plants or offices.  As of September of 2010, more than 2,300 facilities in 62 companies have received SAI certification—and many other facilities are at various stages in the process.  Of course, many of the materials gathered during this type of certification can feed into an organization’s CSR report.

Impact Reporting and Investment Standards (IRIS): The Global Impact Investing Rating System (GIIRS) was launched to give company ratings to impact investors (those who want to use their investments to generate positive change).  As part of this ambitious effort, GIIRS has helped to develop IRIS—an independent set of standards that would help mission-driven businesses measure and report their social impact.  The current IRIS taxonomy includes five spreadsheets of measurement processes and more than 90 definitions.

UL Environment: There are several emerging efforts underway to give companies a voluntary standard way of rating themselves, and obtaining third party verification. These include an exciting project by UL Environment, in partnership with Greener World Media, which is developing an organization-wide sustainability standard that will be used to assess corporate policies and practices, known as the ULE 880.

B Corporation (B Corp): More than 360 companies (including CSRHUB) have now completed the B Corp assessment process.  We answered a long list of questions about our social behavior and then were quizzed about various aspects of our performance.  We got a passing grade—plus good reminders about the social side of our mission and management approach.  B Corp reveals a list of the companies that have completed the assessment, but does not yet share most of the data it gathers.

In general, there is a gap between the data companies gather and the data that they reveal, via CSR reports, regulatory filings, and other communication activities.  There may also be a gap between the data companies report and their true performance.  Most CSR standards allow for “third party verification.”  However, in many cases, the only groups with the necessary training and experience to serve as verifiers are CSR and sustainability consulting groups—with the fees for their reviews paid by the companies they are reviewing.  This leads to charges such as “greenwashing” and to a lack of the uniform reporting and transparency required to prove the effectiveness and credibility of these standards.  CSR standards groups are doing worthy and necessary work—but they need more regulatory and marketplace support to force companies and organizations to comply with both the spirit and the letter of their standards.

Bahar Gidwani is Cofounder and CEO of CSRHUB. 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, worked on Wall Street with Kidder, Peabody, and with McKinsey. Bahar has consulted to companies including Citibank, Banco Portuguese do Atlantico, Crane Co., Sperry, GE, General Dynamics, Computer Associates, Oracle, Microsoft, Computer Sciences, EDS, Cerner, and Acxiom. He has an MBA from Harvard Business School. Bahar is based in New York City.

CSRHUB is a corporate social responsibility ratings tool that allows managers, researchers, consultants, academics and individual activists to track the CSR performance of major companies. We aggregate data from more than 90 sources to provide our users with a comprehensive source of CSR information about 5000+ publicly traded companies in 62 countries. Browse our ratings at www.csrhub.com.