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

CSRHub’s co-founder, Bahar Gidwani, has been invited to speak in New York at the Summer in the City 2^nd Annual CSR Investing Summit. This all-day conference offers participants the opportunity to discuss experiences and viewpoints on how to define, manage, and measure responsible investing.  The conference will include expert practitioners from the following groups: plan sponsors, endowments, consultants, academics, non-governmental organizations, the “sell side,” and media.  Attire is informal and networking is encouraged.

Bahar will be leading a presentation on Measuring Social and Governance Performance for Nonpublic and Emerging Market Companies at 2pm. Bahar will be joined by Christina Alfonso of Madeira Global and Rekha Unnithan of TIAA-CREF. Over the past few years, Bahar has been gathering data on nonpublic and emerging company social performance while Christina has been leading and managing investments in these firms. Rekha is a key player in the sustainability reporting process of one of the world’s largest NGOs. Their discussion should give a broad overview of how this sector has behaved in the past and what types of measurement and reporting we may expect to see, in the future.

CSRHub members can receive a more than 50% discount of $200 on the $395 price for the event by entering the following code when registering for the summit: CSRCOOP. Learn more and register here.

Summer in the City 2nd Annual CSR Investing Summit
hosted by S-Network Global Indexes, Inc.
Thomson Reuters Building (3 Times Square-30^th floor)
July 22, 2014

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 102 countries. By aggregating and normalizing the information from 325 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

In January, I fought through piles of snow to get to Providence, Rhode Island, to join a group of accountants and valuation experts.  The goal was to discuss how sustainability-related intangibles could be included in company valuation processes.  The meeting was arranged by Joy Pettirossi-Poland of Building Bridges.  She was supported by XPX Boston and RISCPA and R. Paul Hermann was also there to share insights from the great work he does at HIP Investor.

Although I’m a CFA and I’ve done a fair amount of company valuation work, I didn’t feel qualified to jump into the meeting’s core discussion.  (I believe Joy intends to expand her program and that she will host further meetings on the same subject in other venues in the Northeast.  Contact her or me if you want to know more about these plans.)  My assigned task was to give the participants a sense for how much sustainability data might be available for companies in the area—specifically those in Rhode Island, Connecticut and Massachusetts.  After all, if few or no companies are collecting data on their sustainability performance, it would be impossible to bring these factors into a valuation study.

I found that our CSRHub database has ratings for 287 companies in these three states.  While this is a small fraction of all companies in the region (there are at least 300,000 companies in Connecticut, alone), it is a high percentage of larger, listed companies.  For instance, there are 131 publicly-traded companies in Connecticut and we have ratings on 77 of them, or about 60%.  We had enough rated companies for all three states to show that the average perceived sustainability performance of companies in the three states was pretty similar.

The data we had on these companies came from ESG (environmental, social and governance) raters (we aggregate data from eight of these investor-serving firms), non-governmental organizations (NGOS), and various media and crowd sources.  We use data from 308 different resources in our ratings.  However, I feel that there are four voluntary forms of reporting that are good indicators of whether or not a company is producing information for its own internal use.  They are CDP (formerly known as Carbon Disclosure Program), GRI (Global Reporting Initiative), UNGC (UN Global Compact), and the presence or absence of a corporate social responsibility (CSR) area on a company’s web site.  (Every company we studied had a corporate web site.)  This table shows that only relatively few of the companies in the region did any of these reports—with the highest percentage of self-reporting coming via a company web area (73 out of 287 companies, or 25%).

Unfortunately, if only 25% of big companies are gathering sustainability information, the percentage of all companies in the region who are both gathering and publicly reporting CSR data is likely to be miniscule.  The only thing we could offer to offset this bad news was evidence that more disclosure does seem tied to a better perception of a company’s social performance.  As you can see, companies that do two or three reports from the CDP/GRI/UNGC area get much better CSRHub sustainability scores than those who do no or only one report.

CDP, GRI, UNGC Reports

An analogous pattern is present for those who have a CSR web area versus those who do not.

This result is consistent with other studies we’ve done across the full list of 8,900 companies that we rate.  Companies who create sustainability-related information about themselves are perceived to have better social performance.  Our audience of valuation and accounting experts seemed to appreciate that this better social performance could create a boost to the value of a company.  They also seemed to agree that they would use data that fits into a standard structure and schema, if they wanted to include sustainability factors in their valuation work.

An article in the March 2014 edition of The CPA Journal by one of the other speakers, at the event, Providence College professor, Michael Kraten, reviewed and summarized our discussion.  If they had the data, I think the accounting and valuation profession would start to include sustainability factors in their valuation work.  If they did, it could encourage more companies to gather and report information on their social performance.

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

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 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”.