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

I’ve always been clumsy.  There were many broken dishes and glasses in my childhood.  My Mom was always kind about it.  She’d say, “Tears don’t mend broken China.”  She had other similar phrases I remember (e.g., “If you get a load of lemons, it is time to make lemonade!”), but the lesson was always Midwestern positivism.  Don’t sit around moaning about what can’t be fixed—keep moving forward and don’t let your own failures hold you back.

Our recent election broke dishes for those of us in sustainability.  Many of my friends in the field and a number of our clients have asked if US corporate sustainability programs will be put on hold for the next four years.

I’m not as good as my mother was, at mending dishes (or comforting someone who is crying!).  But I do see some reasons for hope:

• Well-run corporations care about profit, reputation, and mission. If their sustainability programs generate a profit, reduce risk, or help them accomplish their longer-range goals, they should continue to pursue them.
• Young folks soon take over. We get requests daily from students around the world who need data for a sustainability study or project.  For every student who majors in CSR there are ten other young people who care passionately about the world’s future.  Unless something dramatically changes how young people view the future, we will continue seeing a generation-driven rise in interest in sustainability.
• US companies trade with the rest of the world—and the rest of the world won’t backtrack on sustainability. If a US company wants to be successful in Europe, Asia, the Middle East, etc. it must adhere to a high standard of ethics, respect indigenous peoples, avoid polluting local water supplies, combat climate change, etc.
• US companies have the same stakeholders they did on November 7. Managers, employees, communities, suppliers, customers, and investors will continue to remind companies about the risks that companies will face if they do not behave responsibly. It will remain important to have a “social license to operate.”
• Momentum matters. Corporations are big ships that turn slowly.  They have put money and time into corporate social responsibility (CSR) programs.  They won’t shift these resources into other things, without good reason and a lengthy analysis process.

What types of changes may occur?  Don’t expect stringent new guidelines from US regulators (e.g., the SEC, the EPA, OSHA, etc.).  Look for more boycotts and “buycotts.”  (Several groups are boycotting Trump-related brands and there seems to be a countervailing push to punish firms that won’t advertise on Breitbart.)  Some companies may offer less-sustainable alternatives in certain product areas.  (E.g., muscle cars, heavily-sugared cereals, and other “retro” products.)  Corporations may put on hold major new green investments until things “settle down.” None of this is long-term stuff.  We can mend these pieces and fix these holes.

We at CSRHub see our data and tools as a way to improve how a company communicates its progress and a means to reduce the cost of and improve the effectiveness of sustainability reporting. My mom once put the lid of a tea pot I’d smashed under my pillow and told me that it would give me sweet dreams.  Let’s remember what we’ve been through and all that we’ve accomplished so far.  Then, let’s move forward and dream again, about a better future.

Photo courtesy of  Ruth Edwards

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 16,800 companies from 135 industries in 133 countries. By aggregating and normalizing the information from 500 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 Cynthia Figge

Companies are under pressure from many stakeholders to report progress towards improved corporate social responsibility (CSR) performance. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act has created a new source of pressure. The 2012 final rule from the U.S. Securities and Exchange Commission (SEC), requires most companies subject to SEC filing rules to report to the SEC by May 31, 2014, if any of their products produced in calendar year 2013 contain conflict minerals. In July, a federal judge ruled against a challenge to the new conflict mineral rules and upheld the law. Even companies headquartered outside of the United States, and those which do not report to the SEC, may be subjected to conflict minerals requests from customers that report to the SEC. The reporting requirements are intended to eliminate an important stream of funding for armed conflict in the Democratic Republic of Congo (DRC) and surrounding countries where much of the world’s supply of conflict minerals is mined.

At CSRHub, we track over 270 sources of ratings data on how companies are performing on environmental, employee, community and governance issues. Our scrutiny includes how companies manage the conflict minerals in their supply chain. Conflict minerals include tin, tantalum, tungsten and gold (often referred to as 3TG). They are found in many products, including TVs, cell phones, electronics, and automotive products.

The CSRHub team recently examined ratings published by The Enough Project in 2012 that compared the conflict minerals performance of 24 companies in the electronics industry. Enough Project has been ranking these companies since 2010, as they have built systems for managing the new supply chain conflict minerals requirements. Their 2012 report showed that many companies have made significant improvements, with Intel receiving the top score of 60. Of course, there have been some notable laggards, such as Nintendo which received a score of 0.

CSRHub compared Enough Project’s 24 ratings with the governance, environment, employee and community ratings for these same companies on CSRHub. We found a 35% correlation between the Conflict Minerals performance ratings and CSRHub’s governance ratings and a 16% correlation between the Conflict Minerals ratings and CSRHub’s employee ratings. There was almost no correlation between Enough Project’s ratings and the CSRHub community or environment ratings.

Our data shows that companies that are good at governance are probably also good at managing their conflict mineral programs. Their Boards have become involved in the process, their leaders understand the ethical need to care about conflict mineral issues, and they have the necessary commitment to transparency and reporting infrastructure needed to correctly handle the SEC’s new requirements.  The connection to employee treatment may come from the fact that there are health, safety and training issues involved with improving conflict material supply chain management.  Companies with good programs in this area may get a step ahead of those that have not invested as much.

These results are the latest of CSRHub’s research efforts.  Because we now have data on more than 8,000 companies in 104 countries, and because our data set includes input from more than 270 different sources of sustainability information, we are able to find broad connections between operating issues and CSR.  For instance, in June CSRHub unveiled some research that proves the relationship between brand and CSR is even more profound than we thought — around the world, across industry type, and company size. We ran five years of our data against the data of Brand Finance, the global brand analyst headquartered in London. With our overlapping datasets, we analyzed over 1,000 companies, and for 2012 we got a 0.28 correlation between brand strength and CSR. Most astonishing to us was our analysis over time. When we looked back over five years of data, we found that Brand strength to CSR correlation has suddenly strengthened in the last year, doubling in 2012 over 2011. The relationship stayed relatively constant over the previous 4 years. Then in 2012 that correlation more than doubled.

We hope soon to reveal research that will show the relationship between reputation and CSR and between operating returns and CSR.  We believe that connections such as these are necessary, if we want to make CSR and sustainability programs breakthrough platforms  for building strategic advantage.  We hope that the SEC’s conflict minerals requirement will be a major factor in the right direction for the estimated 6,000 companies that will need to tighten up their supply chains.

Cynthia Figge is a forerunner and thought leader in the corporate sustainability movement. She is COO and Cofounder of CSRHub, the world’s largest database that aggregates and organizes data and knowledge on the social, environmental, and governance performance of 8,400 companies to provide sustainability ratings to the marketplace. In 1996 she co-founded EKOS International, one of the first consultancies integrating sustainability and corporate strategy. Prior to founding EKOS, she was an officer of LIN Broadcasting / McCaw Cellular, and led new businesses and services with Weyerhaeuser, New York Daily News; and with New Ventures. Cynthia is Board Director of the Compassionate Action Network International. Cynthia received her bachelor's degree in Economics and an MBA from the Harvard Business School. She lives in the Seattle area.

 By Carol Pierson Holding

While the EU charges ahead with carbon trading, stricter environmental laws and better enforcement, we here in America hang our heads in shame. Our Federal government is in environmental denial and the media cries Cassandra. Al Gore goes to a highly-publicized meeting with President Obama to lobby for climate change mitigation, while Obama has still not honored his promise to reinstall solar panels on the White House roof. Businesses beg for definitive rulings on issues such as carbon pricing and environmental social governance (ESG) reporting requirements, while the legislature clamors (successfully) “drill baby drill” and accuses environmentalists of favoring spotted owls over jobs. Our leaders’ attitude seems to be climate change has to wait until the economy has turned around.

But civil servants are having remarkable success. In living up to their duty to protect the health and wealth of U.S. citizens, the EPA and the SEC are remarkably focused, even strident, about green. In fact, the EPA has had a number of amazing wins.

Last year, the EPA required that companies report their greenhouse gas emissions  (GHG) data. The reporting deadline has been extended to September 30, 2011, but the agency is clearly going to enforce the requirement. The funny thing was that the US Senate, showing unfettered support for business, attempted to stop the EPA from regulating GHG. But investors, the ultimate owners of the businesses lobbying for Senate action, blocked their efforts. In the end, the issue went to the Supreme Court, where the EPA finally won.

Then the EPA brought transparency to chemicals deemed harmful in more than 100 health and safety studies that industry had claimed were "confidential,” releasing these studies to the public. Another example: the EPA is limiting releases of heavy metals and tightening controls on sulphur, nitrogen oxides and particulate matter emissions from electricity generators.

These are all meaningful changes. But equally important are the SEC’s moves to incorporate CSR factors into financial reports. Fortunately for the environment, capitalism operates through the grace of consumers, whose first priority will always be the health of their families, and investors, who need full information about both return and risk. The SEC’s responsibility is to protect investors by reducing their risk, including environmental risks from potential EPA fines and liability from harm caused.

That’s why last year, the SEC clarified what publicly-traded companies need to disclose to investors in terms of climate-related ‘material’ effects on business operations, both positive and negative. The lack of specific guidance until now has resulted in weak and inconsistent climate-related disclosure by public companies. Leading investors, managers of over $1 trillion in assets, demanded full corporate disclosure, in 2007, 2008 and 2009, and finally got results in 2010.

It’s a wonderfully self-reinforcing cycle between government, business and investors. The EPA institutes regulations at the request of businesses wanting to limit their uncertainty, then measures performance and collects fines to punish any offenders.  The SEC, pushed by investors, recognizes that fines and liability suits that often follow an EPA ruling constitute material risk to investors and requires that financial reports include data on environmental risks. Once the rules are in place, American financial analysts quantify and integrate this into investment analysis. Financial markets then demand clearer targets and better enforcement information.

And where investment leads, policy, even in the U.S. Congress, should follow.

Carol Pierson Holding is a writer and an environmentalist; her articles on CSR can be found on her website.

 Inset photos courtesy of chucklepix and mccready (CC). 

By Bahar Gidwani

This post is the latest in Crowds of Ratings, a series originally published through Triple Pundit.

In theory, governments know a lot about company social and sustainability performance.  Around the world, companies are asked (forced?) by governments to report on their own behavior.  Companies generate tax info; data on employment, salaries, and employee benefits; information about the water and waste that they produce; and reports on consumer complaints, product defects, and safety tests.

Unfortunately, most of this data seems to end up buried deep in the back offices of various bureaucracies.  As a result, there are relatively few government sources that can be used in a CSR ratings engine like CSRHUB—and those that do exist are hard to use or incomplete.  For instance:

• The US Department of Defense publishes a list of its top contractors.  The list is more complete than it used to be—it used to only give the top 100 names.  Still, many other companies besides these sell to the DOD and it is quite possible that a company you are interested in has a small division that makes weapons or provides services to the Pentagon.  Other country defense departments don’t offer more—the folks at SIPRI put a lot of effort into creating their list of top world military contractors.

• Pollution information should be easy to get, right?  The EPA gets reports on toxic spills, emissions, and lots of other interesting things.  But the only data we’ve been able to find that is publicly available, easily accessible, and in a format that is easily “ingested”, is a list set up using EPA data by the University of Massachusetts—the PERI Toxic 100 list.

• What about bad behavior by company executives?  Shouldn’t the SEC and the Department of Justice have a long list of CEOs, CFOs, and company board members who have been convicted of insider trading, embezzlement, and other crimes?  Nope.  The only thing we’ve found like this is a list from the SEC of companies that it found had back-dated options.

• The UN has one organization that does a super job—the group that supports the UN Global Compact.  They have been encouraging corporations, not for profits, and public bodies to study and report their internal processes for more than five years.  Somewhere around 6,000 organizations have stated some level of commitment to the principals that are embodied in the Compact.  This data is published via a database and is starting to be hooked up with other systems.

To be fair, many government agencies sponsor or produce useful reports, hold hearings, or otherwise reveal both good and bad corporate behavior.  However, a lack of sophistication, poor transparency and coding mistakes, and an inability to sustain consistent data collection over time make most of the data governments gather pretty useless for rating CSR performance.  We need mandated, publicly-disclosed “dual reporting” of social issues alongside financial issues.  Until this happens, most government data will remain out of reach and effectively secret.

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.