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Top CSR Companies. Or Not.

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Top CSR Companies. Or Not.

Corporate social and environmental performance is all the rage in today’s investment environment. With increasing frequency, analysts are monitoring, evaluating, and ranking that performance. Corporate social responsibility (CSR) lists – ranging from Corporate Knight’s Global 100 to Ethisphere Institute’s Most Ethical Companies and Corporate Responsibility magazine’s 100 Best Corporate Citizens – grow more plentiful and visible each day. Publishers now vie to position their lists as strategic holy grails for corporations making the cut, and Wall Street has taken notice. Nearly one out of every nine dollars of professionally managed assets in the United States – valued at an estimated $2.71 trillion – has been invested in companies that perform well in CSR rankings.

“Company stakeholders from investors to customers to employees to regulators watch the 100 Best Corporate Citizens List closely, and are using it now more than ever to make important decisions,” said Corporate Responsibility magazine publisher Jay Whitehead in a recent press release. “As a result, making the List is worth millions or even billions in increased shareholder and brand value.”

This should be good news for Citigroup, Goldman Sachs, ExxonMobil, Chevron and Monsanto which, despite their notoriety, have been counted as “Best Citizens” by Corporate Responsibility numerous times. “When someone asks you to define corporate transparency, show them this list,” touts the magazine. But to an increasing number of observers, the transparency seems elusive – as does a clear indication of what the CSR industry stands for.

“Corporate Responsibility magazine’s so-called transparency only extends one layer deep,” observes Sea Change Media executive director Bill Baue. “We can see the categories and weightings, but we can’t see the rationale behind the decisions on actual scoring of company performance.” Baue notes that organizations including Corporate Responsibility collect data from business executives whose names and positions are not revealed, leaving questions about a company’s true impact on society unanswered. “Input from external stakeholders would make the methodology much more robust and credible,” he says.

Baue isn’t the only one questioning the value of CSR performance rankings. As evidenced by blogs and discussion boards across the web, a growing number of people are frustrated by CSR industry lists and the manner in which they are constructed. Some even perceive a pattern of favoritism. “Unlike programs like the Nobel prizes, Macarthur Fellowships, or Economist Innovation awards, the companies that run CSR awards and lists often have an incentive to fix the results,” says Martin Smith, founder and CEO of CSR industry website Just Means. “For instance, Corporate Responsibility magazine makes money from the companies that it rates in its annual list (through sponsorship, registration fees for events, and brand licensing arrangements). This, in any industry, would be seen as a conflict of interest, but in the realm of CSR and business ethics it is purely hypocritical.”

The backlash against CSR industry lists is nothing new. Last year, financial news site 24/7 Wall Street warned global equity investors to take Ethisphere’s results with a grain of salt, indicating: “the basis on which [the list] was put together is a bit naive and it appears to be troubled by several conflicts of interest.” In 2005, green business writer Joel Makower criticized Corporate Knight’s approach, saying: “The rankings only go so far. The whole exercise raises as many questions as it answers.” And when Corporate Responsibility magazine (previously called Business Ethics) first released its list, green media company AlterNet complained: “When one looks at this list, it is easy to be baffled at the real meaning of CSR. It is riddled with companies that have significant blemishes on their record when it comes to environmental matters, labor practices or treatment of customers. The likes of Wal-Mart and Big Oil have not yet made the cut, but that may be only a matter of time.”

Clearly the time has come, as many of the world’s most profitable oil, food, agriculture, pharmaceutical and retail companies are featured on the latest “most ethical,” “best citizen,” “greenest,” and “most sustainable” company lists. Given this fact, one has to wonder: Is the CSR industry completely missing the point? And if so, then so what?

Critics see several downsides to the muddle. “CSR is often too hard for the average consumer to grasp when making a purchasing decision, so companies use lists as stamps of approval,” says Smith. “But unfortunately, not only are the lists misleading for consumers, they actually bring an overall lack of credibility to the entire field of sustainable business.”

Given the importance of sustainable business practices to the future of the planet and its people, this lost credibility is a real concern. “The most vital CSR issue to measure is whether a company is operating sustainably, in the scientific sense,” says Baue. “Environmentally, for example, is the company using natural resources at a rate that allows for the planet to regenerate them sufficiently to provide for future generations?  Unfortunately, almost no companies [on the lists] fully integrate sustainability into their business models, and almost no CSR industry lists consider the sustainability context.”

What Next?

If inclusion on a CSR list translates to “millions or even billions in shareholder and brand value” as Corporate Responsibility magazine indicates, then it stands to reason that some investor and consumer wealth is being channeled in the wrong direction – toward companies that, to Baue’s point, may invest a few pennies in CSR, but make millions or billions of dollars in profits by selling things in ways that take a huge toll on society. This isn’t right. But are CSR industry lists entirely wrong? Not according to some profiled companies.

Dave Stangis, vice president of CSR and sustainability at Campbell Soup Company (which ranked number 12 on Corporate Responsibility magazine’s 2010 list) sees both an underlying purpose and a path forward. “No matter how bad a list is, there is something inherently useful about it,” he says. “It is easy to look at a list and poke holes in it, but what I’m trying to do is use the methodology and questions asked to determine what strategic elements I need to improve inside my company.”

Corporate Responsibility’s analysis, conducted by investment firm IW Financial, assesses 360 data points of public information across seven categories, including human rights, philanthropy and environment. But unfortunately, the same breadth of field that helps companies like Campbell’s to identify strategic weaknesses allows controversial companies to slip through the cracks. “People were up in arms this year, wondering how an oil company like Hess could be considered the tenth best corporate citizen,” says Stangis.  “But in terms of the questions IW Financial asks, such as: Does the company measure its carbon footprint? What violations occurred? How many people were injured? Hess fared well, since they got credit on the disclosures.”

Disclosures aside, many are wondering when CSR industry lists will get around to rewarding companies for creating positive value rather than merely mitigating risk. “These lists should showcase companies that are helping us innovative away from industries like oil, vertically integrated agriculture, and so forth,” Smith says. Stangis agrees: “I think the lists of the future are going to have to better address the issue of strategic opportunity. The real question is: can we finally come up with a list that rewards companies for producing products and services that meet unmet [social and environmental] needs, rather than just minimizing potential damage?”

Surely, that would be something worth recognizing.

  1. The idea of lists in the broad category of sustainability is fundamentally flawed as is the narrower sub-category of “green.” Absent certification and regulation, it has been made perfectly clear that many very large corporations pursued profits at all costs with the result of environmental degradation that thirty years ago would have been beyond our wildest imagination. The exceptions are those companies who seek out and obtain certification from reputable certifying organizations. Any other lists are in the category of self aggrandizement and open the door to values-washing and misleading our citizens. The question for me is to what extent will the marketing and CSR professionals participate in green and values washing, possibly unwittingly?

  2. If taken in isolation then some of the CSR lists are at best tokenistic, and at worst severely detrimental to the ’cause’.

    Whilst I can understand Dave Stangis’ point on discovering internal benefits through engaging in the individual application processes, these are far outweighed by some external damage created by a number of obviously hypocritical organisations attempting manipulate a wider public audeince with far less awareness.

    In essence I love rankings. Anything that encourages healthy competition in striving for higher ethical corporate standards is fine by me, but games are being played and not everybody knows it.

    The main problem is that in today’s time poor society we take far too much at face value, and to be fair we have to, we don’t all have time to analyse a companies responsbility credentials before we make a purchasing decision.

    Is integrity becoming a commodity?

  3. christine arena says:

    Thanks for your comments. Ruth Ann, with respect to the extent to which CSR and marketing professionals unwittingly contribute to greenwash, please see my post: http://bit.ly/5ZrofZ

    Dave, I love rankings, too. More than anything, they give a sense of what mainstream business considers “best in class.” This can be very revealing. Though I suppose it is easier for us to sit here and criticize than it is to run an organization like Exxon or Monsanto, which constantly has to balance growth and profitability with efforts to mitigate potential damage (and perhaps do good). A complicated tightrope, to be sure.

    I hope that going forward more people will refuse to take these rankings at face value. Tomorrow depends on questioning the system today.

  4. Hi Christine,

    Good piece. Like it.

    We’ve always argued that these lists are just nonsense. You cannot compare Campbell’s Soup with Hess. The whole of idea of doing so is like comparing a horse with a butterfly.

    That’s why we’ve never ‘done’ lists, unless by sector with measurable performance results (not policies) on areas such as health and safety, or customer complaints year on year, I am not sure how anyone could think they are useful.

    We ARE doing some awards, but these don’t pretend to be scientific, purely subjective rewards for good performance according to our judges. That’s about as far as one can take it, in my view.

    http://www.ethicalcorp.com/awards/

    Here’s the way to do rankings, on specific subject matter: http://www.chaspi.info-exchange.com/ (in my view, at least:)

    Toby

  5. Good post, Christine. I’m not sure I agree with Toby that the rankings should be done away with, although after trying to figure out whether we could do a credible “green” ranking at FORTUNE, we decided not to do one at all. One fundamental problem is that, as he says, comparing companies in different industries is all but impossible to do well. Another is that we can’t agree on what is “green” and so how do you deal with a nuclear power company or one that makes genetically-engineered foods. I wrote about those issues here. http://bit.ly/ct16rh

    Maybe subjective awards is the best way to go. They can recognize leaders who will be inevitably flawed, generate healthy debate and ideally spur a race to the top.

  6. That 88 of the companies on the Corporate Responsibility list are listed on the NYSE Euronext exchange can be attributed at least in part to the fact that companies on the exchange have access to ESG benchmarking data provided by ASSET4 (since purchased by Thomson Reuters). Here’s an article I wrote on the collaboration:

    http://www.socialfunds.com/news/article.cgi/2706.html

    It may be of interest to those who follow lists of this sort that other lists of top sustainable companies have been published this year, using ESG research data from a variety of analysts:

    http://www.socialfunds.com/news/article.cgi/2888.html

  7. Great article. Personally, I think rankings are part of the progress. The rankings put a spotlight on companies, which opens them up to scrutiny by critics. Quite comparable to the UN Global Compact and the critics of that. I wrote a full response here (http://whowalksthedog.com/?p=28), but the pingback was not acting as I expected ;)

  8. Great article Christine!

    At the core, it seems like the issue here is with varying or arbitrary definitions of Corporate Social Responsibility. I recently started working for a new eCommerce startup called MARCs Movement, which exclusively sells products from Moral and Responsible Companies (MARCs). We go out and research these companies, run them through our in-house rating system, and place them into sub-categories as an Eco-Friendly, Humanitarian, Community Conscious, and/or Ethical company. In addition, 5% of every purchase made on the site is donated to the charity of the customer’s choice upon checkout.

    I think ultimately, creating a universal definition for corporate social responsibility is too difficult, too broad, and as this post discusses, lends itself to favoritism and bias. Instead, we should create our own definitions on what makes a company socially responsible, while also exploring the different areas of corporate social responsibility.

    Perhaps the next step is re-investigating the individual efforts of so called socially responsible companies, and determining not only if whether or not they are making a positive difference, but also if they are making a positive difference that lines up with their for profit efforts.

    -Danny

  9. You can count me in for a Digg. Thanks for posting this on your website!

  10. It is scary that Jon Stewart is the most hard hitting, balanced political “journalist” in the country. See Obama interview. Great job!

  11. Great article Christine!

    At the core, it seems like the issue here is with varying or arbitrary definitions of Corporate Social Responsibility. I recently started working for a new eCommerce startup called MARCs Movement, which exclusively sells products from Moral and Responsible Companies (MARCs). We go out and research these companies, run them through our in-house rating system, and place them into sub-categories as an Eco-Friendly, Humanitarian, Community Conscious, and/or Ethical company. In addition, 5% of every purchase made on the site is donated to the charity of the customer’s choice upon checkout.

    I think ultimately, creating a universal definition for corporate social responsibility is too difficult, too broad, and as this post discusses, lends itself to favoritism and bias. Instead, we should create our own definitions on what makes a company socially responsible, while also exploring the different areas of corporate social responsibility.

    Perhaps the next step is re-investigating the individual efforts of so called socially responsible companies, and determining not only if whether or not they are making a positive difference, but also if they are making a positive difference that lines up with their for profit efforts.

    -Danny

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