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

By Carol Pierson Holding

In the early 1980s, Daniel Yankelovich, the master market researcher, gave a presentation to ad agency staff about coming demographic trends. His analysis came to the conclusion that the growing income gap would produce an increasingly angry underclass, a boiling cauldron that would one day explode. He showed us the future through demographics. I was hooked and subscribed to the magazine American Demographics.

So, 25 years later, when I saw the name of its founder, renowned demographer Peter Francese, in the e-newsletter Ad Age, I eagerly read his article. The piece “The Need for a New Baby Boom” proposes that two demographics, which taken together, could help with the U.S. economic recovery: The top 5% of baby boomer earners could lift consumer spending by $3-400 billion if they could be induced to spend another 10% of their incomes. By reversing the decline in birth rates, Francese argues, we would create grandchildren that boomers would lavish that extra cash on. The chart he uses to illustrate his point shows birth rates declining in every age group except the 40-44 year-olds – a small segment.

The comments that followed the article mostly excoriated poor Mr. Francese. Only one conceded that it might be a joke, but even giving Francese that license, what modern man in his right mind would suggest that women having babies is a solution to economic woes? Especially when his primary audience, ad industry employees, is 70% women. Even a kindly gent pining for grandchildren will get no quarter in this era of Mad Men-induced hypersensitivity to sexism in the ad industry, where women are still only 7-13% of top management

But an equal number of comments pointed out that Francese’s recommendations were far more dangerous: the environmental ramifications of promoting population growth are lethal. As we near the date in October when the UN projects global population will reach 7 billion (ahead of original projections), the conversation is already jumping ahead 72 years to when the UN projects population will hit ten billion globally and 483 million in the U.S. A population pressure that will likely result in mass species extinction and put “extreme pressure on food production, water and non-renewable resources.”

I do not have to enumerate to this audience what human activity is doing to our environment or why promoting higher birth rates is such a bad idea. In fact, Francese’s chart seems to be a good sign, rather than a problem that needs to be fixed.

These issues – birth rates, income and environmentalism – came together again on Saturday in Charles Blow’s NY Times column, albeit in a different way altogether. Blow highlights the fact that nearly one in four children in the U.S. go hungry and links child poverty to the 50% increase in unwanted pregnancies as Congress continues to enact laws that restrict abortion.

Maybe Francese is tone-deaf on the issue of too many pregnancies and child poverty because his own state, New Hampshire, has so many retirees, who moved there to take advantage of its lack of state sales tax. Accordingly, New Hampshire’s proportion of hungry children, 15.6%, is second to last in the U.S. (Only South Dakota has a lower rate; in Washington DC, the highest, 32.3% of children are hungry.)

Francese hears the numbers talking — there is a relationship between income and birth rates — but he allows the appeal of grandchildren to get in the way of what could be a real solution. I’d love to see him examine the inverse: What is the relationship between increasing poverty and environmental degradation? How would increasing birth rates worsen those factors?

Maybe he’d come up with a prescription that would still encourage baby boomers to spend 10% more, but on solutions to these closely linked problems: Sponsoring a hungry child? Adopting an unwanted baby? Buying an electric car? Retrofitting houses with insulation and Energy Star appliances? What about buying a tiny jewel of a house that’s totally self-sustaining? That would be almost as smart a move economically as moving to New Hampshire.

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

By Cynthia Figge

At a recent sustainability conference, I spoke with the COO of a major manufacturing company who remarked that his company would not publish a sustainability report given the lack of specificity of the term, its implied breadth and seeming non-attainability. Instead, his company is focused on metrics for integrating their environmental work into their core business strategy and publishing an “environmental report”. I’ve heard this sentiment before (for the past 15 years). Many companies struggle with the challenge of defining sustainability precisely enough to drive the collection of metrics, and a shared accountability for “hitting the numbers.”

What is a clear definition of the term “sustainability”? There is the Merriam Webster definition (“of or relating to a lifestyle involving the use of sustainable methods”) and the succinct sentence on Wikipedia (“the capacity to endure”). Wikipedia also adds “For humans, sustainability is the potential for long-term maintenance of well being, which has environmental, economic, and social dimensions.” 

Perhaps the most widely quoted definition of sustainability and sustainable development, is that of the Brundtland Commission of the United Nations, published on March 20, 1987-- “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

My consulting firm, EKOS International, defines sustainability as economic development that creates value for customers, shareholders, stakeholders, and society by designing and operating business in a way that aligns with ecosystems, in service of human prosperity, today and in the future.

Although these definitions may not be precise, I believe that they are mental models which can transform thinking. EKOS was the first consultancy to draw the definition of big “S” as sustainability with three overlapping circles of ecological capital, human capital, and financial or manufactured capital whereby sustainability is achieved by optimizing business operations at the nexus of these systems. The importance of this definition is not its precision, but  the breakthrough idea that sustainability is not a trade-off of competing systems, or three bottom lines, but rather the true integration of the natural (N or ecosystem), human (H or social) and manufactured (M or industrial) systems.

For some people, sustainability primarily refers to the environment. For others it’s all encompassing,  like the term CSR (corporate social responsibility). As I’ve written before, the trend seems to be using CSR and sustainability interchangeably.

Each company should go through the process of defining sustainability for its own firm, because the mental model drives the work necessary to achieve the goal of a sustainable company, industrial system, and a sustainable world. 

Inset photo courtesy of loop_oh.

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.

The United Nations Development Program (UNDP) has been publishing an independent Human Development Report (HDR) for almost twenty years.  Its associated Human Development Index (HDI) is well-respected, broad (182 countries), and widely read (they translate it into a dozen languages).  In contrast, our CSRHUB ratings system has just recently launched and is not nearly as well known.  While we cover more companies (more than 5,500) and countries (66) than any other source of corporate social responsibility information, we can’t claim the same level of authority or readership as the HDI.

Further, our ratings describe company behavior—the HDI talks about countries.  Should there be a connection between these two data sets?  One could hypothesize either that countries with a good HDI score produce socially positive companies or that socially positive companies help foster a business climate in their countries that addresses human development.  Either way, we could see a correlation between our average Community rating (which contains information about community development, philanthropy, human rights, supply chain issues, and product quality) and the HDI.

We only have enough data to match up 52 of the 66 countries we cover, with the HDI information.  Still, a 50+ point data set should be enough to reveal if there is a meaningful relationship between two sets of data.  When we graph our 0 to 100 country score against the HDI’s 0.0 to 1.0 range, we see only a 3% correlation.  This suggests they may be no relationship between company behavior and country norms.

Notice the cluster of data points to the right and the long tail of points that stretches to the left?  Most of the points on the right (with good HDI values) are for developed economies.  The tail to the left includes smaller, less developed countries.  Many of the less-developed countries have only a few major publicly-traded companies.  The social standards set within these major companies may not be representative of the general level of social performance of companies in those countries.

If we remove countries where we have a small number (fewer than 20) of companies and exclude the still-developing economies of India and South Africa, we find a much stronger (27%) relationship between our community rating and the HDI.

The connection between these data sets is still not perfect.  For instance, our top three countries on the Community score within this set are France, the Netherlands, and the UK.  The top HDI scores for this set of countries are for Australia, Norway, and Canada.  We need to have more data points over a longer baseline (our site has only been up for about six months) before we can claim to have proven a relationship.  Still, it is encouraging to see signs of a connection between companies and their countries.

What about that tail of developing and smaller companies?  The Community scores in our system were generally better than the formula from the developed-company correlation would predict.  This suggests that the top companies in these countries have standards for their social performance that exceed what we might otherwise expect.  Perhaps this is due to these companies being exposed to pressure from overseas customers and investors, to perform better on human issues?  Many of these companies are listed on foreign stock exchanges and some have already started producing CSR reports.  (50% of the companies we cover in South Africa have done CSR reports, but only 10% of those in India.)

If companies follow the standards of their country—and improve as their countries improve—we should see the gap between the HDI score and our score close up, over time.  If countries follow the example set by their leading companies, we might see company scores continue to improve and the HDI/CSRHUB Community score gap stay the same.  We will try to revisit this analysis a year from now, and see how things have changed.