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

Our firm, CSRHUB, recently decided to become a B Corporation.  We filled out a survey, went through several rounds of review, and thought deeply about some of the issues the process exposed.  We always believed we were a positive and progressive company.  We were pleased that our values fit well with those set out by this widely-respected and well-tested standard.

B Corps use the power of business to solve social and environmental problems.  Unlike traditional corporations, B Corps agree to meet social and environmental performance standards, disclose their performance so that it is transparent, and include consideration of all stakeholder interests in their legal structure.

Now that we have been through the B Corp process, I wanted to offer anyone who is thinking about it, three reasons for becoming a B Corp:

1. The power of reporting.  If you report it, you can measure it.  If you can measure it, you can improve it.  All businesses need to build a feedback loop that helps them improve their long term value.  We could never have built our tool if we did not have thousands of self-reported reports from the companies we rate, to work with.  Our society is based on the sharing of ideas and information.  Be a part of it and make your fair contribution.
2. You benefit from using a tested process.  When you run a business, you get immersed in its day to day issues.  You can lose sight of what is important—the reasons you started it and have worked so hard to build it.  The B Corp interview was a check list—like making sure the engines on a plane can hit full throttle and that the rudder moves, before you start down the runway.  You want your plane to climb high and fly fast—and you need to be sure your engines are hitting on all cylinders and nothing is stuck in the tail, before you leave the ground.
3. You get to take a stand.  Our profile system requires people to make decisions about how they feel about issues.  Are they against involvement in Burma?  In favor of nuclear power?  What is most important, good governance or good labor practices?  By becoming a B Corp, I felt we were publicly committing to the principle that businesses can both do well and be an agent for positive change.  (See a previous post on the concept of the “virtuous quadrant.”)  The B Corp community now includes 353 companies.  You can be proud to belong to this group.

It is easier not to report, not to examine one’s own prejudices and practices, and not to state one’s views publicly.  However, the issues addressed by the B Corp process—and by the whole area of CSR and sustainability practice and theory—can’t be avoided.  We are part of a community that intends to change the world and we need to show that we have whole-hearted dedication to our cause.  How could we or any other business who believes as we do, not want to engage in this process?

By Cynthia Figge

A recent article in the Harvard Business Review by David Lubin and Daniel Esty should bring cheer to anyone who has been concerned about how slowly corporations seem to be adopting sustainability strategies.  The article titled “The Sustainability Imperative” argues persuasively that incorporating sustainability practices into corporate behavior is a “mega trend”.

A section titled “Reporting and communication” made me especially happy.  The authors say, “Developing metrics that allow companies to measure benefits and understand costs is essential to adapting and refining their strategy, as well as communicating results.”  Companies need an external measure of their sustainability progress —and they need benchmarks that compare them to their competitors, so they know how much further they need to go.  We have spent two years developing a measurement instrument we call CSRHUB—a tool we hope can provide this type of broad and uniform metric.

The authors go on to point out something I and my partners at EKOS International have seen in many of the companies we have worked with.  “When the assessments were based only on publicly available information and a company’s external reporting, we got scores that were almost always lower, and often significantly so, than scores developed in consultation with the company and with full inside information.”  In other words, many companies may be doing better on sustainability issues—and on their corporate social responsibility performance in general—than is publicly known.

For example, if you look at the default ratings on the CSRHUB site for Wal-mart and Costco, you will find Wal-mart gets a score of 56 and Costco gets a 48 (on a scale of 0 to 100).  As a Costco customer I hope that this difference may be overstated, but it’s difficult to know. Some of the difference our sources perceive between these two companies may be driven by their varying policies of disclosure. One explanation for the rating difference is that it’s the penalty for lack of transparency.   Costco is followed by fewer data sources:  Only twelve sources report on Costco compared to seventeen for Wal-mart. Wal-mart has expanded its website coverage of CSR, while Costco has only recently published a first report on sustainability.

If you are a subscriber to our system, you can see more of the picture.  Subscribers will see that Costco gets a 39 on its corporate transparency and reporting compared to 52 for Wal-mart, and 45 on its environmental policy and reporting compared to 63 for Wal-mart.  In contrast, we show closer ratings for a more fundamental element—environmental resource management (Costco gets a 51 rating while Wal-mart gets a 59).

I hope more companies come to understand both points this HBR article makes regarding communication. First, companies need to develop metrics that enable them to track their own progress.  Second, companies should contribute to the metric-forming process by revealing their policies and practices.  Doing both will strengthen transparency, and give good-performing companies credit where due for the improvements they have made, and hopefully serve as a catalyst to “manage sustainability as a business megatrend”.