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

By Bahar Gidwani

At a meeting earlier this week, The Sustainability Accounting Standards Board (SASB) announced that it was launching what it calls its “Corporate Roundtable.”  It hopes to get ten large companies to join the Roundtable over the next few months.  These companies will then use the materiality standards that SASB has developed to upgrade their public disclosure documents.

The first company to join the program is NASDAQ OMX.  As part of running one of the world’s largest stock exchanges, NASDAQ employs 3,000+ people and operates at least eleven facilities.  It will be fascinating to see SASB’s guidance tested in real life by a company that is deeply involved in a host of regulatory and reporting activities.

The International Integrated Reporting Committee (IIRC) started its pilot program in 2011.  We track the companies in this program (and the companies who have supported SASB by joining its working groups).  We were pleased to see that the average ratings for both the IIRC pilot companies (61) and for the SASB working group companies (57) were well above the average for all CSRHub-rated companies (51).  This confirms our view that companies who are actively engaged in understanding and implementing integrated reporting are “ahead of the curve” overall in their sustainability performance.

Let us know if you think your company might be interested in joining the Corporate Roundtable.  SASB is actively recruiting new participants and seems willing to provide workshops and other types of training support, to help its pilot companies through the implementation process.

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 103 countries. By aggregating and normalizing the information from 300+ 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.

By Bahar Gidwani

The best-known and best-established sources of information on corporate social responsibility (CSR) performance are probably socially responsible investment (SRI) researchers. These firms are also called ESG (environment, social, and governance) analysts.  At CSRHUB, we use data from six major SRI houses, including ASSET4, GovernanceMetrics International, IW Financial, MSCI, Trucost, and Vigeo.  Other well-known sources in this area include EIRIS, SAM, and SIRIS.

SRI firms primarily serve investors—mutual fund managers, investment advisors, brokerage houses, etc.  They try to help them:

1. Make money.  SRI firms hope either they or their clients will discover connections between CSR-related factors and stock performance.
2. Create and maintain special mutual funds.  Around $6 trillion has been invested so far into mutual funds that have a social theme or purpose.  Most of the major fund groups are now involved, including Calvert (one of the first movers in this area), Parnassus, Van Eck, T. Rowe Price, and Vanguard.
3. Measure their performance.  Investors want to know if their investment manager or mutual fund is doing a good job.  The easiest way to find out is to compare the return from a particular investment strategy against that of an index such as the Dow Jones Sustainability Index, the FTSE for Good, or the NASDAQ OMX Global Sustainability Index.

Do CSR-oriented investors do better or worse than those who don’t care about the social behavior of the companies they invest in?  Many studies have probed this question, but there is still no definite answer.  You can follow the discussion on Lloyd Kurtz’s SRI Studies site and form your own opinion.

SRI data is not cheap.  The annual fee for a data feed from one of these firms can run from $20,000 per year to over $100,000 per year.  Some firms specialize in certain areas (e.g., Trucost offers data on carbon and water use, GovernanceMetrics tracks corporate governance) and some firms offer more than one approach to measuring social performance (MSCI offers data under the KLD, IVA/Innovest, and Global Compact+, and RiskMetrics Carbon Beta brands).  Some firms sell individual reports or industry reports—but these prices are also high (between $200 and $2,000 per company).

Recently, the SRI area has consolidated.  Thomson Reuters bought ASSET4, MSCI bought RiskMetrics (which in turn had bought both Innovest and KLD), and The Corporate Library and Audit Integrity merged with GovernanceMetrics.  Several forces may be driving this trend.  Investment firms cut back on all types of costs—including research and data feeds—during the recent downturn.  New entrants such as Bloomberg have encouraged players in the broader market for trading data and indices (such as Thompson and MSCI) to enter the CSR area.  It takes a big capital base to support the high-speed infrastructure and programming dollars involved in creating and maintaining indices.

Many SRI participants and many of their customers are worried that our society could lose some of the strength, diversity, and richness of the data that SRI firms produce.  CSRHUB shares this concern and we hope that our site will introduce these wonderful data resources to many new users.  Our next post in this series will look at the organizations who are trying to improve ESG/CSR reporting.

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.