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

By Bahar Gidwani

Publicly-traded companies are a big part of world economic activity.  However, most of the world’s goods, services, and jobs are generated by privately held companies (including large, medium-sized, and smaller companies), not-for-profit enterprises (including foundations, schools, and religious institutions), and government organizations (airports, ports, municipal governments, agencies, etc.).  CSRHub’s mission is to provide transparent information on the social performance of all types of enterprises.  This past month, we have begun to offer ratings on a number of private and government organizations.

Why couldn’t we do this before?  The original pressure for revealing social performance data came from investors who wanted to put their money only into companies that had a positive social impact.  These investors supported the work of financial analyst groups, encouraged the rise of reporting systems such as the Global Reporting Initiative, and helped fund not for profit groups like the Carbon Disclosure Project (which has recently re-christened itself “CDP”).  These systems tended to focus on the largest and most widely-held companies—the ones that large investors most wanted to know about.

Competitive pressures—and investor interest in investing in smaller growth companies and public companies in less-developed economies—has caused the coverage universe of financially driven research to expand.  Some of our data partners now claim to track the social performance of 30,000 publicly-traded companies.  At the same time, a growing number of non-public organizations have begun reporting data on their sustainability performance.  For example, we estimate that about 1,800 non-public organizations filed Global Reporting Initiative (GRI) reports in 2012, as did at least a thousand of the 5,000 reports offered via CDP.

Two additional sources of data have emerged on non-public companies over the past few years.  One is crowd source/user contributed data feeds.   Employee opinions about 110,000 companies come from Glassdoor, sustainability-oriented user ratings on 5,000 companies come from GoodGuide/ULE and more than 30,000 products and companies come from WeGreen, data on the brand value of 5,000+ organizations derive from Brand Finance, and 27 measures of risk on 32,800 companies, 7,000 projects, 5,300 NGOs and 4,500 governmental bodies come via RepRisk.  Some of these sources receive fees from investors, some are supported by donors, and some generate revenue from selling services such as job ads or consulting.

The second new source arises from the effort by major companies to improve the sustainability of their supply chains.  Engagement from a company’s supply chain is vital to meet announced sustainability goals (e.g., a 20% reduction in carbon use) or respond to pressure from social groups on water user, treatment of indigenous peoples, child labor, etc.  Using software systems from firms such as Source 44, OneReport, Credit360, Enablon, Eco-Vadis, CSRware, and others, large companies gather huge databases of sustainability data on their own operations and on their suppliers—many of whom are not publicly traded.  Industry organizations (e.g., EICC, The Sustainability Consortium, SEDEX, and Sustainable Packaging Coalition) help by providing standard questionnaires and by allowing their members to share data and supply chain audits.

When we add data from some of these new sources to the information we obtain from other more conventional inputs, we can rate almost 200 non-public companies and organizations.  The initial list includes companies such as Deloitte, PricewaterhouseCoopers, Levi Strauss, S. C. Johnson, and TIAA CREF.  We also have partial ratings on McKinsey & Company, The US Postal Service, and Finnair.  As a group, our non-public companies have a respectable average rating (using our average user profile) of 55.5—seven points above the average for all companies of 48.5.

This good performance makes sense—the first non-public organizations to report are likely to be those who have good social performance and who want others to know about it.  We expect the next wave of smaller organizations and government groups to bring this average down—just as smaller public company scores lag behind those of bigger public companies.  We also expect the number of sources on non-public organizations to converge towards the average for publicly-traded organization of about eight sources.

Would you like to help us further our cause by bringing you more non-public organization information?  If you would, please:

• Reward non-public organizations who report—even if their scores still are not as good as we might like—by giving them your business and your attention.

• Share ratings from non-public organizations with other non-public organizations.  We need to break down the organizational barrier that says “we are private so we don’t talk about these things.”

• Encourage anyone who collects information to allow the groups they collect their data from to control their own data and to have the option of sharing it.  It is unfair for big companies to require their supply chain components to pay to gather and report data, but to not get further value from their work.

Our long term goal is to provide a CSRHub rating for any type of organization—public, private, or governmental—of any size, in any location.  To reach our goal, we need your help to encourage all organizations to report their social performance and to make available more of the data that has already been collected in various sustainability tracking systems.

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 7,000+ companies from 135 industries in 91 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 Ashley Coale

Are you an in-aisle label reader? How often have you chosen a product because it has post-consumer packaging or because it lacks sulfates and phosphates? What about seeking out local alternatives to carbon-intensive products from far away? While this behavior may have been quite unique a decade ago, it is no longer. We are witnessing the rise of the conscious consumer. 

According to a 2011 study by OgilvyEarth of US consumers, about 16 percent of those surveyed are deeply committed to purchasing green and think of themselves as sustainability-oriented. Facilitating the green consumer’s purchasing decisions, the rise in online transparency tools, like GoodGuide, is helping a consumer quickly understand and rate a company’s health, environmental and social practices and impacts. Similarly, CSRHub allows users to view corporate ratings in light of a certain activity or practice with its Special Issues feature. Interested in knowing if that company is involved in nuclear power? What about animal testing? Look no more.

That there are consumers who purchase with these issues in mind means that 70 million adults in the United States are defined by their shared values rather than just traditional demographic data. According to the Unleashed report by BBMG, these consumers are “twice as likely to try new things, share their opinions online and reward (or punish) brands based on corporate practices.” And, they are even willing to pay more for a sustainable product.

We expect that this trend will only continue to grow. The super green market is key not just because it is deeply committed to certain values, but also because it has the potential to be quite influential. These are consumers that are willing to advocate for their favorite brands and the values behind them. Purchasing decisions based on values run deep, and there is a distinct potential in capturing this market and helping take it to scale.

As the same OgilvyEarth study points out, we have a “green gap” to conquer. In addition to those deeply committed 16 percent, there is another 66 percent of consumers that have good green intentions, but lack a consistent track record of purchasing with a purpose. This is a significant opportunity that will require changes in branding, communication and price points. As marketers and brands understand how to communicate and reach this green gap, we will see a continued rise in sustainability-committed consumers and the continued power of making change with where you spend your dollar.

Image courtesy of jason.kaechler 

Ashley Coale has a long-standing passion for business sustainability and the impact that strong, effective communications campaigns can have in catalyzing change. As the Social Media Editor, Ashley manages social media and communications outreach at CSRHub. She is responsible for crafting and implementing content and strategy. Her communications experience includes a wide range of causes including international development, human rights, and federal and municipal sustainability policy. She holds a bachelors degree from Wellesley College and a Masters degree from the London School of Economics. A native of Portland, Oregon, she now makes her home in Brooklyn.

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

The folks at BigRoom have worked for a couple of years on a side project (their main goal is to launch an  .ECO suffix for the Internet).  They are trying to capture, document, and categorize the various green, eco, and sustainability-oriented certification programs.  So far, they’ve found more than 300.

Some are pretty well known.  For instance, the Department of Energy and the EPA combined in 1992 to launch their Energy Star ratings.  They now put Energy Star ratings on appliances, building supplies, and homes.  Underwriters Laboratories—which is famous for its hugely-respected safety ratings—also offers UL Environment (ULE) certificates.  The Forest Stewardship Council has gotten a lot of wood and paper manufacturers to make the changes needed to earn its FSC certificate.  And buildings that conform to the US Building Council’s LEED standard get a lot of attention both from their owners and from those who work in the buildings—and seem to enjoy them.

Certification is also becoming part of supply chain management.  Manufacturers (like Procter & Gamble and Seventh Generation) want to ensure that their suppliers are well-behaved.  Retailers (like WalMart and Home Depot) need to be sure that the products they sell are socially responsible.  These companies are sending out surveys and asking for data on carbon use, chemical emissions, and labor practices.  Suppliers are hoping that getting approved in one program will turn into a credential they can use to get passes from other programs.

Of course, it is hard to know how far to trust certificates.  How can a consumer know whether or not the wood in a chair really came from a sustainably harvested tree?  How can we know that the chair wasn’t made using child labor or that the varnish on it didn’t pollute the water in the community where it was made?  How do we know that the drivers who transported our chair were properly trained and that their pensions and health care are adequate?  Can we be sure that the store we bought the chair in didn’t just stick a fake certificate on it?

The fact that most certification programs rely on self-reported data can make things worse.  Some suggest that a third party, like a consultant or an accounting firm, verify this data.  But there is obvious pressure on these third parties to give favorable rulings.  In most certification programs, there is no central repository of the data that has been collected.  Thus, there is no easy way to cross check the data, either at a top level or in detail.

There are a few independent organizations that  do their own testing and rating of products.  For instance, the Eco Index is tracking 377 eco labels in 211 countries and trying to put together a supply-side view of product sustainability.  ULE is working on an ambitious plan to integrate rigorous third party review of sustainability information into a standard called ULE880.  We are also seeing people use our ratings as a high-level way to test whether or not a company is likely to be telling the truth, when it claims to be performing responsibly and sustainably. 

In the end, certification systems need the same kind of independent audit process that financial statements receive—plus the same external review and criticism that financial statements are supposed to get from investors and analysts.  We hope that our CSRHUB ratings may eventually become part of this feedback loop.

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.

Photo inset: Creative Commons licensed by joiseeshowaa.

By Cynthia Figge

Unfortunately, there's no playbook for the successful corporate merger of sustainability, growth and employee engagement. But there are living examples to help C-level executives navigate corporate sustainability.

Speaking at the recent GreenBiz Forum in San Francisco, Don Knauss, CEO of Clorox, explained how Clorox's 2007 introduction of its Green Works line successfully merged the three. Clorox wanted to grow into the green area and its employees became really engaged in the process. The line quickly grew to $100 million in sales in one year – although sales dropped in the recession to follow. The repositioning of Brita and acquisition of Burt’s Bees also contributed to growth, and enhanced Clorox’s reputation for producing sustainable products.

Clorox’s ethnographic research found that consumers want to get chemicals away from their kids and out  of the home (and then secondarily the planet). In addition to the movement toward sustainable products, Clorox committed to four goals: reduce production of solid waste, and reduce use of carbon, energy and water. These goals are now part of the Clorox executive scorecard and how executives are compensated, and part of its Board obligations.

Knauss seemed pleased that this push on water, energy and carbon reductions may save Clorox $25 million per year. He stressed that consumer product executives must get out of their comfort zone and talk and listen to people they wouldn’t normally. For example, Don asked Carl Pope at the Sierra Club to put the Green Works products through a rigorous testing program. Clorox also worked with Greenpeace to move their bleach plants away from chlorine—a transition they began 18 months ago. Because they are making these initiatives part of their incentive systems, Knauss says “Sustainability is becoming part of the DNA.”

I also noted last week that Clorox has become the first in its industry to offer expanded disclosure on the ingredients found in its cleaning products.  This disclosure includes information on preservatives, dyes and fragrances. As part of their Ingredients Inside program, the company publishes this information for customers on its corporate social responsibility website.

I was anxious to compare the Clorox rating on CSRHUB with the one on GoodGuide. CSRHUB rates broad performance at the corporate level, while GoodGuide provides a corporate number and also detailed ratings at the product level.  The CSRHUB rating is just average on Clorox (50), with a fairly low rating of 41 (on a scale of 0-100) for transparency in reporting. This may be because Clorox only published their first CSR report several months ago. However, Clorox does get a 65 for its Board subcategory score, which may reflect the fact that they have ten independent board members, of whom three are women and two are Latino. Also, of the CEO’s seven direct reports, three are women.

GoodGuide rates 349 of Clorox products.  Within these, the top ratings go to Burt’s Bees and Green Works products and the lowest ratings go to Liquid Plumr Foaming Pipe Snake Clog Remover and several disinfecting sprays scoring around 5 (on a 10 point scale).

Many in the sustainability area may be surprised to see these ratings and to hear Clorox’s CEO talking so passionately about making his company more sustainable. Congratulations to Don Knauss for his leadership, and to Clorox for publishing its first CSR report, going public with its ingredients list, and planning to improve another chunk of its product line to improve the health and environmental benefits. This is truly the virtuous circle at work.

Cynthia Figge, Cofounder and COO of CSRHUB is a forerunner and thought leader in the corporate sustainability movement. In 1996 she co-founded EKOS International, one of the first consultancies integrating sustainability and corporate strategy. Cynthia has worked with major organizations including BNSF, Boeing, Coca-Cola, Dow Jones, and REI to help craft sustainability strategy integrated with business. She was an Officer of LIN Broadcasting/McCaw Cellular leading new services development, and started a new “Greenfield” mill with Weyerhaeuser. She serves as Advisor to media and technology companies, and served as President of the Board of Sustainable Seattle. Cynthia has an MBA from Harvard Business School. Cynthia is based in the Seattle area.

Inset Photo: mag3737