SRI comments on CR Mag’s Top 100 Corporate Citizens

During March ’11, Corporate Responsibility Magazine thecro.com released its now 12th annual list of the 100 Best Corporate Citizens list.  Please click here–>>100Best pdf.

On the bottom of this article we’ve provided a snapshot of the list (the top 15) courtesy of CR Magazine.  Below, we make a few comments on this newer list given our familiarity with its history.

The most significant observations are below:

  • The process to get onto the list have become more transparent.  This is very important for a magazine that is seeking the same from corporations.  In fact, in years past CR Magazine had been criticized for being a bunch of hypocrites as their Corporate Citizens methodology had not been clear.  I examined both their overall methodology and broad categories (see below) as well as the minutia within these categories.  Essentially, I like what I see for several reasons.  For example, the questions are asked in a way that is not “framed” and the required answers are clear and objective, like True or False.  Such surveying will be useful going forward for historical analysis.
  •  Note well that each broad category has a weighting.  We recommend users focus on the categories that are most useful.  This website, for example, will de-emphasize the “Financial” weighting as it will be conducting independent  financial analysis, which requires significantly more detail and transparency than a simple score that is provided on the list.  SRI website would like to see a higher percentage for Governance than the 7% that’s assigned.
  •  Listed companies that have acted “naughty” are now given “yellow cards“, or “red cards” if they were really bad.  Yellow card companies remain on the list, while red carded ones are excluded from the list for a 3YR period.  (Red carded cos excluded from the 2011 list were: Allergan, Exxon Mobil and Pfizer.)  I am glad this carding has been initiated because most of the companies on the list are large & complex.  Companies, like people, always have “dirt in their closet” depending on how hard you dig.  The carding process allows a first screen, if not, at least an awareness of the above fact.
  • Unfortunately, small companies are now excluded from the list.  CR 2007 list, for example, included non-blues such as: Green Mountain Coffee Roasters, Salesforce.com, Interface, Lam Research, Gaiam Inc., Wainwright Bank & Trust, Chittenden, Energy Conversion Devices, Ormat Tech, WGL Holdings, Bright Horizons, Baldor, Advent Software, Coldwater Creek, etc.  One concern we’ve had lately, has been the fact that most Blue Chips seem to be on these lists.  Just think, if they’re 100 cos on the list, then 20% of the S&P 500 are included.  We also don’t like the fact that ESG has become another cost-center for large companies.  This gives them ESG bragging rights (and aids in marketing efforts) and seems to lack authenticity.  But, yes, it’s true that it is better to have such companies than none at all.
  • We manually cross-referenced CR Magazine’s lists with others.  Here’s what we found.  Several of the CR Top 100 were ranked highly by CSRHub.  This is a website that aggregates ratings from several ESG data contributors.  We screened for CSRHub’s highest rated US-based companies.  These companies typically are rated between 59 and 68, and are thus ranked in the top 5% of the US database.  This compares to the average of 48 in the database.  We then checked this list against CR Magazine’s list.  We found a total of 36 of CSRHub top 5% ranked companies on CR Magazine’s list.  Half were in the Top 50. 
    • Highest ranked companies were within the Technology industry, with the highest rating honor going to Hewlett Packard (a whopping 68 rating!).
    • Other companies with high CSRHub ratings that were also on the (Top 15) list were:
      • Johnson Controls (64 CSRHub rating)
      • IBM (67, and 2nd highest ranked, and tied w/ Intel Corp.)
      • Bristol-Myers Squibb (59)
      • 3M Corp (60)
      • Kimberly-Clarke (60)
      • Nike (61)
      • Gap (62)
      • General Mills (60)
      • Intel (67) and 2nd highest ranked
      • Coca-Cola (60)
      • Pinnacle West (62)
  • In addition, the CR List was cross-checked with Boston College’s (“BC”) “Most Socially Responsible Companies in the U.S. in 2010.”  This list comprises 50 companies, and has a high proportion of companies within the Technology industry.  Hmm, maybe that industry (especially Software cos) have an unfair advantage, No?   We found a total of 22 of BC’s Top 50 in the CR Top 100 list.  A large number (17) of them were in the CR’s highest 50 ranked.  See below for the Top 15 cross-reference with the BC list:
      • Campbell Soup (ranked 16th by BC)
      • 3M Corp (50)
      • Hewlett-Packard (48)
      • General Mills (22)
      • Intel(12)
      • Coca-Cola (36)
      • Avon (28)
      •  * Avon’s 16th rated on the CR list (hence not on the table below)
  •  But what would the Working Mothers (“WM”) of the U.S. say about CR’s Corporate Citizens list ?  Well, we also cross-referenced against WM’s lists.  We examined WM’s list of Best Green Companies for America’s Children, Best Companies for Hourly Workers and their popular 100 Best Companies.  For the 100 list, the Top 10 were checked WM does not rank the companies other than providing a Top 10 list.  Below are the names that appeared both on the CR list and Working Mothers’ lists:
      • Campbell Soup
      • General Mills
      • Intel Corp
      • Johnson &  Johnson
      • Starbucks
      • Clorox
  • Last, but not least, we checked CR’s list against the Companies that Care Honor Roll (2009, 2010).  This list tends to have small, private and lesser known companies so it rarely makes other ESG lists.  Some of the companies we recognized as being on other CR lists from the last 3 years:
      • Baxter International
      • CB Richard Ellis
      • Interface Inc.

Well, that all folks!  We, at the SRI website, hope these rankings help investors and other stakeholders in their initial screenings.  It helped us, as Interface Inc. was extensively written upon on this site after noting it was on a past CR list.

      French SRI: European and French CSR Regulations

      Part II

      European (and French) CSR regulation:
      The French have been particularly interested in following the United Nations Principles for Responsible Investment (UNPRI) http://www.unpri.org/.  Since it was released five years ago, the number of signatories have increased to 800, representing 48 countries managing total assets of $25 trillion.

       
      Source: unpri.org

      During the fall of 2001, amidst the aftermath of September 11, the European Commission (“EC”) shed a more peaceful light with its publishing of a green paper, entitled Promoting a European Framework for CSR (“Corporate Social Responsibility”).  The paper’s purpose was to act as a launchpad for CSR debate throughout the member states. 

      The EC also published a paper entitled “Implementing the Partnership for Growth and Jobs: Making Europe a pole of excellence on CSR” in March 2006.  The significance of this paper was to unify European member states’ CSR initiatives.  The report also noted that while CSR was not a substitute for public policy, there were several benefits including:

        • more rational use of natural resources (e.g., environmental aspect of ESG)
        • innovation
        • poverty reduction (e.g, social aspect of ESG)
        • and greater respect for human rights (e.g. social aspect of ESG)

      Drilling down within the EU, there have now been eight countries that have specific national SRI regulations that cover their pension systems.  The UK wrote regulation in 1999, and enacted them on July 2000.  This regulation called for asset managers to release information on their SRI initiatives.  This regulation was enacted by both the desire to enhance consumer protection and to clarify the legality of SRI-oriented pension investment policies.  (Note, the US still needs to clarify the Prudent Man Rule of ERISA regarding how SRI fits into pension management.)  Note that this regulation deals with pensions and not the actual CSR initiatives of companies.   According to Belsif (Belgium Sustainable and Socially Responsible Investment Forum) both the transparency effect and the enforcement of the above regulation has been “rather weak.”

      The French were inspired by the United Kingdom’s pension fund regulation.  In 2001, the French passed a law requiring that employee savings plans specify their rules for ESG.   A similar law closely followed that same year.  This law requires the Retirement Reserve Fund (which supports the French pension system) disclose how its investment policy guidelines take into account ESG.

      In May 2001, French firms became required to report on ESG issues, initiatives, etc. in their annual reports.  Required firms are those that are publicly traded or regulated.  Please refer to Belsif’s website and this link for the actual rule.French legislation.

      On July 24, 2009 several French signatories agreed to the “Principles for Socially Responsible Investing”PDF file.  This document included several guidelines for Paris financial market participants and continued the work done by Paris Europlace and Forum on Increasing the Contribution of Finance to Sustainable Development, which was co-chaired by French President Nicolas Sarkozy.

      The report gave the following recommendations:

      1. facilitate the inclusion of ESG criteria in investors’ decision-making processes
      2. clarify and increase discussions with companies so that they’re encouraged to release qualitative (nonfinancial) information to the public
      3. and develop accounting standards complementary with the above.

      As the reader can easily determine, ESG/SRI rules and regulations are fairly “light-weight” and inconsistent within Europe and between Europe and the United States.  This website will keep readers updated with any significant new developments.

      Sources:  Belsfi, Novethic, Social Investment Forum, Eurosif, Paris Europlace

      French SRI: Vive la France !

      Part I

      EVERY DAY ONE HEARS THE UNENDING MARCH OF THE CHINESE ECONOMY.  China is large, powerful and growing quickly.

      However, it will be a long time coming before it leads in Socially Responsible Investing.  For now, the baton remains in Europe, particularly Northern Europe, which controls the largest amounts of SRI assets.  However, when it comes to the spirit & soul of SRI, the French are second-to-none.

      France is the world’s 4th largest economy, and its influence is even larger; as it has the second largest number of diplomatic missions in the world.  Its Revolution inspired motto is: Liberté, Égalité, Fraternité.  In plain English, the “jist” of this motto is having one’s citizen’s treated fairly, with freedoms as we have in the States, and that one looks out for the common good.  Ah, could this be the roots of modern SRI?



      France is the 14th ranked on the Human_Development_Index.  Countries in this index tend to also have the most advanced SRI initiatives.  The Netherlands is ranked even higher (number 7).  It also happens to manage one of the highest levels of SRI assets in Europe, at EUR 130 billion.

      Size & Growth of French SRI:
      French involvement in Socially Responsible Investing is large, at EUR 50.7bn, and growing quickly. SRI assets grew 70% in 2009 (latest available data) on top of 37% growth in 2008.  The 2008 growth, while smaller is spectacular considering it occurred in the midst of the global Financial Crises.   This data is sourced from Novethic.com (which is part of the French pension system).  While 2010 data is yet to be published, we expect another double-digit growth number given recent trends.

      Source: Novethic SRI Research Center

      By Asset Type:
      Drilling down, the largest growth came from Mutual Funds, which Novethic labels Collective Management.  Within Mutual Funds, the largest growth area was to Retail investors.  Employee Savings was also a very large contributor.  This includes 401K type plans.  Note that while the Retail Investor grew rapidly, Institutional Investors still dominate the French SRI market (69% vs 31% for retail investors).


      Employee Savings examined:
      SRI employee savings benefited from the conversion of bond and money market funds, with those assets nearly doubling.  The proportion, or share, of employee savings funds in SRI rose from 8% to 13%.  As US readers probably already noticed, few United States savings plans offer such options.

      Given that capital markets were so strong in 2009, one wonders whether the sharp growth was due to strong markets.  Well, Novethic has broken this down too!  According to their study, most of the growth came from fund conversions, inflows, and lastly (least significant) being performance & gains from the stock and bond markets.

      Source: Novethic

      Drilling down again..within these two, the growth in Retail investors was attributed to the growing awareness of SRI in the retail banking network.  Secondly, the growth was attributed to popularity in employee savings plans.

      Breakdown of Investments:
      A big surprise was the huge amount of money invested in non-equities.  SRI is typically thought of as stocks/equities in the United States.  However, given the nature of European investing (and the older demographic profile) it makes sense that most monies are invested in non-equities.  These include Bonds and Money Market accounts.  There were several money-market accounts that converted into SRI type funds.

      Source: Novethic

      Investing Approach:
      ESG Screening, or what’s called Positive Screening on this website, was the most popular approach in French SRI.  I consider this true socially responsible investing.  So readers, please take note…Though Negative Screening was also utilized by several asset managers.  This is far less popular in the States where asset managers are drawn towards ESG Screening/positive screening and Engagement/Shareholder Activism.  In the US, shareholder activism amounted to $1.5 trillion, or about 50% of the total monies invested in SRI ($3.1 trillion). The Shareholder Activism style seems to fit well with the US’s “cowboy” culture.

      French SRI versus U.S.
      There are some key differences between how US asset managers invest in socially responsible companies, and those of our friends across the pond.

      • the French are ardent believers of Positive Investing
      • we, on the other hand, are focused on Shareholder Activism (see above) 
      • the French aren’t really convinced that SRI will bring extra-positive (“high Alpha”) returns to their portfolios, but are convinced it’s the right thing to do.
      • on the other hand, Americans usually tout that such investing brings higher returns.  In fact, there are now Hedge Funds –> link that employ quantitative  SRI techniques to earn extra-returns on their investments.  Some HF/asset managers don’t even care about it being the ethical thing to do, so long that returns are good.
      • the French have huge amounts of Euros behind the SRI strategy
      • in America, SRI, while in the trillions of $$, hasn’t yet reached mainstream, though it’s catching on quickly.
      • French SRI, while grass-roots oriented, has also been motivated by the UN Principles for Responsible Investment, as well as the French government.
      • American SRI is, of course, “laissez faire” – the American-way; and free from state/government intervention.
      • the French aren’t too keen on “green investing
      • the opposite’s true on the streets of America, where people sometimes think that “green investing” is SRI.  In fact, green investing has grown rapidly as its easily understood and can be marketed via exchange-traded (ETFs) and sector funds.  (We will be publishing a piece/list on all of the ETFs available to both US and overseas investors.)

        Then, where are the similarities?
        Surprisingly, despite cultural differences, and several shades of gray in the definition of SRI, the United States and France have similar definitions of SRI.  Please review our SRI trends articles for background information.  Overall, we both strive to invest in companies that are doing good, either for their employees or their larger communities.  We also agree on the various categories of SRI (e.g., Best in Class/Positive Screening) though each country tends to favor one category over another.

        French SRI versus European ESG:
        Thanks to Eurosif (in partnership with Novethic) 251 European investors were surveyed for the first time on their use of Environmental, Social and Governance (ESG) criteria into asset management.  Eurosif (the European Sustainable Investment Forum) is a think tank whose mission is to develop Sustainability through European financial markets.  Note that we are using SRI and ESG interchangeably, though ESG in this context/survey is a tad more broader, and less strict (the methodology is used more on a case-by-case basis than SRI which is more regimented).

        Eurosif’s survey spanned nine countries during 2010 (totaling EUR 7.5trillion), with the largest being Denmark with huge SRI related assets of EUR 144bn.  For comparison, the US market totals about $3.1 trillion (or about EUR 2.3 trillion).  See our Update on SRI for additional information. Based on Eurosif’s survey, below are the key differences (and similarities):

        • Both France and pan Europe overall have a strong understanding and definitions of what it means to invest for ESG.  More than 90% of the asset owners surveyed believe that Positive/Best in Class Screening is SRI.
        • France (along with Belgium) was the only country that didn’t associate ESG with investing in green companies/”clean tech.”
        Source: ESG Perceptions and Integration Practices, Eurosif, Novethic
        •  About 84% of asset owners believe that there is no contradiction between integration of ESG criteria and their fiduciary responsibility.  France, like most European countries has changed considerably in this area versus 5 years earlier, due to the release of the United Nations Principles for Responsible Investmentwebsite and due to government regulations.
          • For comparison, in the US, we are still trying to figure out if SRI fits under ERISA’s Prudent Man Rule
          • I am not aware of any case law regarding SRI and (complimenting) the Prudent Man Rule.
              • Click here for an interesting article on Fiduciary duties to pension funds and SRI.
        • Most European asset owners surveyed believed that integrating ESG into their management contributes to long-term performance.  The French don’t believe this, or invest for improved performance.
        Source: ESG Perceptions, Eurosif, Novethic
        • The French way of SRI was, as said earlier, investing in ESG positive screening, rather than Shareholder Engagement, which was more popular among Northern European investors.
        •  In terms of total Euros going to SRI, France was about in the middle of the pack compared to the other countries, led by Denmark.  The Northern European countries dominated SRI assets, while southern countries such as Italy had smaller amounts of assets (EUR 13Bn)

          Sources:  Belsfi, Novethic, Social Investment Forum, Eurosif, Paris Europlace

          CANADA: Directory of Socially Responsible Companies

          As a writer based out of the United States, I, the author, may be potentially biased towards local U.S. based companies.  Consequently, below is provided a list of 50 Socially Responsible Companies.  This directory of companies was chosen, and written by Maclean’s.

          Maclean’s is Canada’s only national weekly current affairs magazine. Maclean’s enlightens, engages and entertains 2.4 million readers with strong investigative reporting and exclusive stories from leading journalists in the fields of international affairs, social issues, national politics, business and culture.

          SRI Directory (SRI cos with a Canadian exposure)


          Adidas Group
          Ballard Power Systems Inc.
          BCE Inc.
          BMO Bank of Montreal
          BMW
          Brookfield Properties Corp.
          Cascades Inc.
          Catalyst Paper
          CIBC
          Dell Inc.
          Direct Energy
          Enbridge Inc.
          Gap Inc.
          General Mills Inc.
          Gildan Activewear Inc.
          H.J. Heinz Company
          Honda
          Hewlett-Packard Company
          HSBC
          IBM Corp.
          ING Group
          Intel Corp.
          JPMorgan Chase & Co.
          Kinross Gold Corp.
          Loblaw Companies Ltd.
          L’Oreal
          Manulife Financial.
          McDonald’s Corp.
          Nexen Inc. .
          Nike Inc.
          Nokia
          Oracle Corp.
          Puma
          RBC
          Rio Tinto-Alcan
          Scotiabank
          Sony Corp.
          Stantec Inc.
          Starbucks Corp.
          State Street Corp.
          Sun Life Financial
          Suncor Energy Inc.
          Talisman Energy Inc.
          TELUS Corp,
          TD Bank Financial Group
          TransAlta Corp.
          Transcontinental Inc.
          Volkswagen
          Westport Innovations Inc.
          Xerox Corp.

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