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

By Bahar Gidwani

I recently attended my first National Association of Environmental Managers (NAEM) conference.  It was fabulous!  Good content and a nice mix of sustainability practitioners from both large companies, small companies, and various types of advisors.  I especially liked the fact that practically everyone I met was on the “front line”—measuring results, setting out strategies, and reporting progress.

One of things I noticed was that a number of the people at the conference had a job title I’d not seen before.  Instead of “Manager of EHS” or “Vice President, EHS” (the “EHS” acronym stands for “Environment Health and Safety”) the new title was “EHS and S.”

Apparently a lot of companies have realized that their environment, health, and safety experts know a lot about another “S”—“Sustainability.”  We at CSRHub have divided sustainability into four areas:  Community, Employees, Environment, and Governance.  I was told that many EHS managers (who had dealt in the past mostly with the Employees and Environment areas) were now being asked to also help with Community relations and with the sustainability reporting aspects of Governance.

This change makes a lot of sense to me.  EHS professionals (NAEM has members who work at 800 different companies) have firmly established their roles within their companies.  They are hands on and tied directly into daily operations.  Their reports often end up on the desk of their company’s CEO—because CEOs increasingly recognize that their company’s success depends on having a clean environmental record and on ensuring that their employees are safe and healthy.  EHS professionals have traditionally had a technical or engineering background.  This makes them comfortable with designing and implementing software-based tracking and reporting systems.  They are used to organizing and rationalizing processes that had not been looked at before, from a fact-based, statistical approach.

It seems that the new “S” role is often the result of collecting together programs that had previously been scattered across various areas.  Employee engagement programs, charitable giving, and product improvement processes are now being tied to and can contribute to the success of traditional EHS programs.

I suspect this shift may relate to the trend towards integrated reporting.  EHS professionals are used to submitting information to government regulators.  They understand how important it is to have data that is both accurate and auditable by outside third parties.  Integrated reporting is driving the “soft” parts of sustainability management toward greater accuracy and exposing them to scrutiny by both internal auditors and outside stakeholders such as investors and non-governmental organizations.

Next time you come to an NAEM conference, look at the cards you get.  I’m sure you’ll see many that sport an extra “S.”  Ask the question I did—“Does that extra letter mean you got another 1/3 added to your budget?”  I’m sure those you ask will laugh as hard as those did, as most have neither gotten more budget—or a raise—despite the extra burdens they’ve accepted.

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. He plays bridge, races sailboats, and is based in New York City.

CSRHub® provides access to the world’s largest corporate social responsibility and sustainability ratings and information.  It covers over 15,000 companies from 135 industries in 132 countries. By aggregating and normalizing the information from 400 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 improve corporate sustainability performance.

By: Bahar Gidwani

Part 2 of a 2-part series.

In our last post, we set the stage describing a new study conducted by CSRHub and Tennaxia investigating the correlation between a company’s sustainability performance and its use of specialized data management software. To continue, the results from our study are outlined below.

Hypothesis A Confirmed:  Strong Overlap

Tennaxia supplied CSRHub with the names of fourteen of its customers.  We can assume then that the companies we were given are ones who have used Tennaxia software for a while and who are satisfied with its performance.  We found that CSRHub had data on thirteen and enough data to rate ten of these fourteen companies.

(Note: CSRHub had full ratings on Emerson, but no separate ratings on its Moteurs Leroy Somer subsidiary.)

CSRHub has at least some data on 140,000 companies and other entities, but has only so far been able to rate about 10,000 of these.  As we can rate only about 7% of our universe, the 10/14 coverage for Tennaxia’s customer set is a higher than average proportion.  About 70% of CSRHub’s ratings are complete.  For these companies we can rate social performance in all four major sustainability areas:  Community, Employees, Environment, and Governance.  We had full ratings on eight of the ten Tennaxia companies we rated—80%.

Hypothesis B Confirmed:  Good Overall Ratings

As we expected, the average percentile rank of the six Tennaxia companies that CSRHub fully rates was well above average.

The percentile rank compared to all CSRHub rated companies ranged from 74% to 99%--with an average of 88%.  These high relative scores were not due just to a focus on certain high-sustainability industries.  The average rank for Tennaxia’s customers versus other companies in their industry was 85^th percentile.  While the eight companies involved are larger-than average, we have found that company size by itself has little effect on CSRHub’s ratings.

Hypothesis C Confirmed:  Special Strength In Software-Related Areas

CSRHub tracks sustainability performance in twelve different areas.  The average ratings across these areas were strong for the ten Tennaxia clients for whom we had multiple rated areas.

Note that all three employee subcategories had above average scores—one of the areas we expected to see strength.  The Tennaxia-using companies also did well in our three Environment subcategories—an area where software tools should be helpful.  The two weakest areas were places where EHS and CSR Data tools would not be expected to play a role.  Community development and philanthropy are functions that may be managed by groups outside of the corporate social responsibility (CSR) function in many companies.  Board quality and procedures are also outside the scope of most sustainability software tools.

Summary

This study used a small group of companies.  We had the support of only one software vendor.  We did not conduct supporting interviews or study outliers to look for specific examples of best or worst practice.  However, the general tone of our results is consistent with our hypotheses and is consistent with the feedback we’ve received from working with the more than 14,000 corporate sustainability professionals who use CSRHub.  We believe that commercial software tools will become an increasingly important part of managing CSR and sustainability programs and that they can help companies improve their social and business performance.  We thank Tennaxia and Rescore for their support of this study and hope that other software firms will step forward to do similar work to help substantiate the value they claim for their products.

About CSRHub and Tennaxia

CSRHub provides access to corporate social responsibility and sustainability ratings and information on 13,700+ companies from 135 industries in 104 countries. By aggregating and normalizing the information from 360 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.

Tennaxia provides customized cloud-based software and services to help companies manage EHS Compliance and Sustainability Data.  Over 5,000 locations, in 70 countries across multiple languages, rely on Tennaxia to streamline business processes, reducing costs and risks. Configurable to any framework or KPI, Tennaxia’s turnkey solution achieves nearly 100% client retention. With 13 years track record advancing European corporations, Tennaxia is now pleased to offer its customizable solutions to U.S. customers.  For more information including case studies:

http://www.trianagroup.com/tennaxia/

http://www.sustainablebrands.com/news_and_views/ict_big_data/millie_lapidario/us_companies_can_do_more_excel_csr_data

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.

By: Bahar Gidwani

Part 1 of a 2-part series.

Many companies use manual systems to collect data on and manage their sustainability programs.  However, a growing number are using software tools that were professionally-developed for this purpose.  In this study, CSRHub partnered with French software company Tennaxia, to study the perceived sustainability performance for fourteen of its customers.

Tennaxia offers a wide range of employee health and safety (EHS), environmental tracking and reporting (ETR), and corporate social responsibility (CSR) reporting solutions to hundreds of corporations.  Its clients operate in 70 countries.  CSRHub provides sustainability information on more than 13,000 companies in 104 countries.  CSRHub’s ratings and metrics are drawn from more than 360 sustainability data sources.

We believed there could be a correlation between a company’s sustainability performance and its use of specialized data management software.  We hypothesized that:

A. CSRHub should be able to rate the sustainability performance of most of Tennaxia’s customers.  CSRHub includes data from sources such as Wall Street analyst firms, non-governmental organizations, government agencies, and crowd-driven ratings groups.  It seemed reasonable that companies who were willing to invest in installing and operating Tennaxia software would share the data they gathered with our sources—who in turn would share their views of the data with us.

B. Tennaxia’s customers would have generally high sustainability ratings.  Again, it seemed reasonable to assume that companies who are interested in collecting and analyzing their sustainability information would also take steps to improve their social performance.  We have no way of knowing which companies use external tools to help manage their sustainability data.  If a company does buy external tools, we don’t know which vendor they buy from.  This data is normally not disclosed by vendors or by their customers.  However, we do believe that a large majority of the 10,000 companies we currently track in CSRHub’s system do not have formal software tools in place.

C. The strongest ratings areas for Tennaxia’s customers would be those where its software collects and manages data.  Tennaxia’s product suite includes programs for managing suppliers, tracking employee issues such as health, safety, and diversity, and reporting on environment, social, and governance-related metrics.  These are areas that are often reported, externally through government filings, CSR reports, or frameworks such as CDP, GRI, and the UN Global Compact.

Background

A recent survey by Rescore (Effective CSR Data Management) found that 78% of major organizations currently have or plan to add EHS and CSR-tracking software.

Organizations Currently or

Planning to Track CSR/EHS Data

Source: ReScore Surveys & Interviews

Despite this intention to use software, a majority of the 50 companies Rescore surveyed use Excel spreadsheets to track their data.  This situation has not changed much, over the past three years.

CSR Data Management Tools

Used: 2011, 2014

Source: Accenture (2011) and ReScore Surveys &

Interviews (2014)

It seems likely either that:

• Corporate sustainability managers are not convinced about the value of EHS and CSR Data management systems; or
• Sustainability managers have not been able to convince senior management of theircompanies of this software’s value.

While more than 20 software companies produce EHS and CSR Data systems, none of them dominate these markets.  Only about half of the installed systems have been integrated with overall corporate management systems.

Share of Specialized Systems

that have the Ability to Integrate with

Other Corporate Systems

Source: ReScore Benchmarking Research

One argument for investing in EHS and CSR Data software, and for integrating it into overall corporate management systems, would be that doing so would improve a company’s perceived sustainability performance.  Our study is a first step towards demonstrating this connection.

The results from our study will continue in our next post.

About CSRHub and Tennaxia

CSRHub provides access to corporate social responsibility and sustainability ratings and information on 13,700+ companies from 135 industries in 104 countries. By aggregating and normalizing the information from 360 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.

Tennaxia provides customized cloud-based software and services to help companies manage EHS Compliance and Sustainability Data.  Over 5,000 locations, in 70 countries across multiple languages, rely on Tennaxia to streamline business processes, reducing costs and risks. Configurable to any framework or KPI, Tennaxia’s turnkey solution achieves nearly 100% client retention. With 13 years track record advancing European corporations, Tennaxia is now pleased to offer its customizable solutions to U.S. customers.  For more information including case studies:

http://www.trianagroup.com/tennaxia/

http://www.sustainablebrands.com/news_and_views/ict_big_data/millie_lapidario/us_companies_can_do_more_excel_csr_data

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.

The following is part 1 of a 3-part series on “Big Data.”

By Bahar Gidwani

“Big Data” is a useful tool for rating corporate social responsibility (CSR) and sustainability performance.  We believe that the Big Data system that CSRHub has developed is one answer to dealing with the rise in new ratings systems (it seems there is a new one announced each month) and with the disparities in scores that occur among these different systems.

In 2001, Doug Laney (currently an analyst for Gartner), foresaw that users of data were facing problems handling the Volume of data they were gathering, the Variety of data in their systems, and the Velocity with which data elements changed.  These “three Vs” are now part of most definitions of the “Big Data” area.

Ratings in the CSR space appear to be a candidate for a big data solution to its three “V” problems.

• Volume:  There are many sources of ratings.  CSRHub currently tracks more than 330 sources of CSR information and plans to add at least another 30 sources over the next six months.  Our system already contains more than 55,000,000 pieces of data from these sources that touch more than 140,000 companies.  We hope eventually to expand our coverage to include several million companies.
• Variety:  Each of these 330 sources uses different criteria to measure corporate sustainability and social performance.  A number of comprehensive sustainability measurement approaches have been created.  Unfortunately, each new entrant into the area seems compelled to create yet another system.
• Velocity:  With hundreds of thousands of companies to measure and at least 330 different measurement systems, the perceived sustainability performance of companies constantly changes.  Many of the available ratings systems track these changes only on a quarterly or annual basis.

Most systems for measuring the CSR and sustainability performance of corporations rely on human-based analysis.  A researcher selects a set of companies to study, determines the criteria he or she wishes to use to evaluate their performance, and then collects the data needed to support the study.  When the researcher can’t find a required data item in a company’s sustainability report or press releases, he or she may try to contact the company to get the data.

Some research firms try to streamline this process by sending out a questionnaire that covers all the things they want to know.  Then, they follow up to encourage companies to answer their questions and follow up again after they receive the answers, to check the facts and be sure their questions were answered consistently.  An NAEM survey showed that its members were seeing an average of more than ten of these results in 2011, and some large companies say they receive as many as 300 survey requests per year.

NAEM Green Metrics That Matter Report—2012 for 35 members.

Both the direct and survey-driven approaches to data gathering are reasonable and can lead to sound ratings and valuable insights.  However, both are limited in several important ways:

• The studied companies are the primary source of the data used to evaluate them.  While analysts can question and probe, they have no way to determine how accurately a company has responded.
• Different areas of a company may respond differently to analyst questions.  It’s hard to determine objectively from the outside, which area of a company has the right perspective and which answer is correct.
• When companies get too many surveys and requests for data, they stop responding to them.  This “survey fatigue” leads to gaps in the data collected.  Note that only a few thousand large companies have full-time staff available to answer researcher questions.
• Often analysts cannot financially justify studying smaller companies.  There is little interest in smaller companies from the investor clients who pay for most CSR data collection.  As a result, most analyst-driven research covers a subset of the world’s 5,000 largest companies.  There are only a few data sets bigger than this, and they cover only limited subject areas.  There is very little coverage for private companies, public organizations, or companies based in emerging markets.

Large Companies Get Heavy ESG Attention

• A human-driven process will always involve a certain amount of interpretation of the data.  This in turn can lead to biases that are hard to detect and remove.
• Each human-driven result is based on its own schema and therefore they are hard to compare.  Companies do not understand why their rating varies from one system to the next and this reduces their confidence in all ratings systems.

It may be useful to take a look at some details of one company’s approach to a “Big Data” based analysis of CSR ratings. Our next post explains how CSRHub applies its methodology to address “Big Data” problems while also noting that every system has some limitations.

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 9,200+ companies from 135 industries in 106 countries. By aggregating and normalizing the information from 348 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.

The following is part 1 of a 3-part series on "Big Data."

By Bahar Gidwani

“Big Data” should be a useful tool for rating corporate social responsibility (CSR) and sustainability performance.  It may be the answer to dealing with the rise in new ratings systems (it seems there is a new one announced each month) and with the disparities in scores that occur among these different systems.

In 2001, Doug Laney (currently an analyst for Gartner), foresaw that users of data were facing problems handling the Volume of data they were gathering, the Variety of data in their systems, and the Velocity with which data elements changed.  These “three Vs” are now part of most definitions of the “Big Data” area.

Ratings in the CSR space appear to be a candidate for a big data solution to its three “V” problems.

• Volume:  There are many sources of ratings.  CSRHub currently tracks more than 175 sources of CSR information and plans to add at least another 30 sources over the next six months.  Our system already contains more than 13,000,000 pieces of data from these sources that touch more than 80,000 companies.  We hope eventually to expand our coverage to include several million companies.
• Variety:  Each of these 175 sources uses different criteria to measure corporate sustainability and social performance.  A number of comprehensive sustainability measurement approaches have been created.  Unfortunately, each new entrant into the area seems compelled to create yet another system.
• Velocity:  With hundreds of thousands of companies to measure and at least 175 different measurement systems, the perceived sustainability performance of companies constantly changes.  Many of the available ratings systems track these changes only on a quarterly or annual basis.

Most systems for measuring the CSR and sustainability performance of corporations rely on human-based analysis.  A researcher selects a set of companies to study, determines the criteria he or she wishes to use to evaluate their performance, and then collects the data needed to support the study.  When the researcher can’t find a required data item in a company’s sustainability report or press releases, he or she may try to contact the company to get the data.

Some research firms try to streamline this process by sending out a questionnaire that covers all the things they want to know.  Then, they follow up to encourage companies to answer their questions and follow up again after they receive the answers, to check the facts and be sure their questions were answered consistently.  An NAEM survey showed that its members were seeing an average of more than ten of these results in 2011, and some large companies say they receive as many as 300 survey requests per year.

NAEM Green Metrics That Matter Report—2012 for 35 members.

Both the direct and survey-driven approaches to data gathering are reasonable and can lead to sound ratings and valuable insights.  However, both are limited in several important ways:

• The studied companies are the primary source of the data used to evaluate them.  While analysts can question and probe, they have no way to determine how accurately a company has responded.
• Different areas of a company may respond differently to analyst questions.  It’s hard to determine objectively from the outside, which area of a company has the right perspective and which answer is correct.
• When companies get too many surveys and requests for data, they stop responding to them.  This “survey fatigue” leads to gaps in the data collected.  Note that only a few thousand large companies have full-time staff available to answer researcher questions.
• Often analysts cannot financially justify studying smaller companies.  There is little interest in smaller companies from the investor clients who pay for most CSR data collection.  As a result, most analyst-driven research covers a subset of the world’s 3,000 largest companies.  There are only a few data sets bigger than this, and they cover only limited subject areas.  There is very little coverage for private companies, public organizations, or companies based in emerging markets.
• A human-driven process will always involve a certain amount of interpretation of the data.  This in turn can lead to biases that are hard to detect and remove.
• Each human-driven result is based on its own schema and therefore they are hard to compare.  Companies do not understand why their rating varies from one system to the next and this reduces their confidence in all ratings systems.

It may be useful to take a look at some details of one company’s approach to a “Big Data” based analysis of CSR ratings. Our next post explains how CSRHub applies its methodology to address “Big Data” problems while also noting that every system has some limitations.