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

Recently graduate students from Columbia University SIPA participated in a Capstone research project in collaboration with CSRHub. The purpose of this project was to further explore the relationship between perceived corporate sustainability performance and operational performance, represented by cost of debt. Through use of a set of corporate social responsibility factors from the CSRHub database and data on the cost of corporate debt from the Bloomberg database, the Capstone team was able to investigate the relationship between the two. The team found that CSRHub’s 12-subcategory model for sustainability explained 9.3% of the variance in the cost of debt, or an estimated $343.4 billion in interest expenses for a group of 1,625 companies.

“The sustainability factors that had the most effect on debt varied by industry category and for those companies that had higher interest rates compared to those with lower ones. In general, better Board and Compensation & Benefits scores decreased debt cost. Strong Product and Energy & Climate Change scores can potentially enable companies with higher cost of debt to decrease their interest expenses. Companies with average and below average cost of debt in service and heavy industries benefited from strong Environmental Policy & Reporting and Resource Management practices, while those in light industries were helped by stronger Human Rights & Supply Chain performance.”

To see the outcome of the group’s research, click here or download below.

About CSRHub
CSRHub provides access to corporate social responsibility and sustainability ratings and information on 15,000+ companies from 135 industries in 132 countries. By using the world’s most comprehensive CSR metrics database and analysis tools, managers, researchers and activists can benchmark company performance, learn how stakeholders evaluate company CSR practices and improve a company’s sustainability.

By Bahar Gidwani

One of our board members sent us a link to a great Harvard Business School article about how green ratings sources have failed to properly measure News Corporation’s social and environmental performance. The authors point out that News Corporation has set a goal to be “zero carbon” and therefore climate neutral.  But at the same time, the editorial side of News Corporation’s media properties has taken an anti-climate-change stance.

The authors describe a few of the ways in which a large company such as News Corporation could have actively pushed for positive change. They ask why ratings firms (including some who are our partners) don’t include “corporate activism” as one of the ways they measure corporate social responsibility (CSR).

It may sound smug, but we agree with this article and hope that our CSRHub ratings do make this adjustment. As a starting point, we would offer our ratings for News Corporation:

(Note: All ratings in this article are based on our CSRHub average user profile.  Our site’s users can adjust the ratings on our site to suit their personal opinions and values.)

As you can see, we show News Corporation as average within its industry and well below average on employee and community issues. Interestingly, at the subcategory level (we report 12 detailed ratings subcategories, as well), News Corporation is fairly good on Energy & Climate Change and Environment Policy & Reporting (a 58 on both or about 10^th out of 57 Broadcasting & Advertising companies we follow).  However, it is weak on Resource Management (a relatively poor score of 45 that suggests the company does not control its actual use of resources well) and a weak 47 on Leadership Ethics (confirming that it may have inconsistent internal policies).  We certainly don’t put News Corporation at the top of its industry and we show fairly clearly that the company’s recent focus has been primarily on environment and governance issues, rather than on achieving broader social goals.

One reason our ratings are more tempered in their praise is probably that our base of data is very broad.  We have 2,944 data elements in our system for News Corporation, drawn from 23 sources.  Our sources each do their own independent research, so we have 23 opportunities to detect inconsistencies and a lack of commitment. We have another 115+ sources who don’t comment on News Corporation. The absence of their approval (or criticism) also informs our system.

For instance, unlike other major global companies, News Corporation is not a member of Business for Social Responsibility (BSR), Ceres, or the Committee Encouraging Corporate Philanthropy (CECP). The company did not endorse the Copenhagen Communique on climate change issues, did not participate in the Environmental Defense Fund’s Climate Corps, adopt the Equator Principles, commit to using the Global Reporting Initiative (GRI) reporting standards, issue a CSR report, commit to support the UN Global Compact (UNGC), or join the US Climate Action Partnership (USCAP).

We believe it is possible to avoid the kind of ratings failure that the HBS authors point out—or at least to gather enough data to predict and indicate that it may be occurring.  A company that doesn’t join, support, and interact with groups who support positive change, is probably not fully committed to change.

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.

This post is the 2nd in the 3-part series, Expanding Sustainability Data. 

By Bahar Gidwani

The biggest and best sources for sustainability data at present are the Socially Responsible Investment (SRI) firms.  Their dedicated researchers have taken a variety of approaches to gathering and distributing company sustainability data.  We have had the privilege of seeing data so far from ten of these firms—more than a million pieces of information.

It was hard to match up these ten data sets.  One problem is that each firm has its own approach to recording, displaying, and abbreviating the names of the companies they follow.  As a result, it is necessary to store name variants for each SRI firm and research whether Company A from one firm is really the same as Company B at another firm, etc.  A more substantive problem is that each firm uses a different “schema” for organizing its data and different definitions for the behavior it measures.  One source says that a company’s board is diverse, another may say that 10% of the company’s directors are women, and the third source may say that the company has a board diversity policy.  We had to correlate and harmonize all of these different measures.

We were able to do this work for all ten of the sources we studied.  We found that as a group they cover only 7,545 of the world’s companies.  Further, of this list, 43% (more than 3,000 companies) are studied by only one or two of the firms.  To produce a good rating, we need data from several sources.

On the other hand, 39% of the companies tracked by SRI firms get 6 or more ratings from them.  This is more data than we really need to have, to measure how these companies perform.

Why is there a focus on a relatively small number of companies?  SRI research firms primarily serve socially responsible investors and investment firms.  These investors are primarily interested in larger companies—those that have enough liquid stock available to be suitable investments under the rules of most pension plan and regulatory guidelines.  As a result, we estimate that fewer than 20% of the companies studied by SRI firms have less than $1 billion in revenue.

Further, social investors generally prefer to invest in companies that are traded on major stock exchanges. Most of these companies are based in developed economies. The result is that only about 10% of SRI research is on companies in less developed and emerging economies.

Of course, SRI research firms and their investment clients are not the only ones that have this bias.  We studied the 10,000+ examples we could find where not-for-profit groups, publications, and other activist groups gave awards or recognition to companies.  Of these, more than 50% went to the same few percent of the world’s public companies that get SRI community attention.

If we want to have universal coverage of the sustainability performance of even the world’s 30,000 publicly traded companies, we need to look beyond the base provided by the existing rating groups and look for new sources.  Our next post will look at some of these opportunities.