More companies are choosing to hold out their records on everything from labor issues to their use of environmentally correct products. This may have an affect on their bottom lines, but it’s also begging a new financial reporting standard that allows investors to determine if the "good" a company does add more to shareholder value than meets the eye under the current reporting system.
Regulators only require publicly traded corporations to report numbers; everything else is considered adjunct editorial. But investors are looking for more of this soft information, as the $2 trillion in socially "screened" investment dollars is testament.
Mutual fund operators saw this, and over the last decade some 230 socially responsible funds have sprung up. People looking to invest directly with socially responsible companies, on the other hand, have had to fend for themselves, not only finding good companies in which to invest but also conducting their own proprietary research to see if these companies do "good."
SRI World Group Inc., in Brattleboro, Vt., has stepped up and is offering something called "Onereport," which facilitates corporate sustainability reporting. The reporting system consolidates data, provides data management tools and then distributes this "sustainability data" to the marketplace. Some 50 multinational corporations have signed on to use Onereport, according to SRI World Group.
Jay Falk, who founded SRI World Group, says "investors and other stakeholders are increasingly interested in corporate-sustainability information." He notes that getting that information into the hands of investors "has been a difficult process." Onereport, he hopes, will help solve that dilemma.
The Global Reporting Initiative (GRI), based in Amsterdam, in 2002 devised guidelines for companies who opt to use them. The sustainability guidelines, as they’re called, can be used by corporations to showcase the economic, environmental, and social dimensions of their activities, products and services. So far 625 organizations are using them, GRI says.
Transparency of this nature allows investors to decide if they’re getting their money’s worth. And it may not be that these companies perform better than their peers. Data doesn’t show socially responsible companies generating better or worse returns than their counterparts.
However, companies do stand to lose face and value if they are deemed socially irresponsible.
Last month, for example, Calvert, the biggest socially responsible mutual fund group in this country, dropped from its social index American International Group (AIG: news, chart, profile) and Merck (MRK: news, chart, profile) because they no longer met Calvert’s criteria. Shares of these companies, which were already on the downslide, fell further. So, not only did these companies lose a large institutional investor, they lost more value in the public marketplace.
Such is the power of socially responsible perception — and it’s not lost on companies themselves. On the same day Calvert dropped AIG and Merck, Starbucks (SBUX: news, chart, profile) and Dell (DELL: news, chart, profile) announced they were endorsing a code of corporate conduct aimed at promoting gender equality and women’s empowerment. Their share prices both rose that day.
People like companies that do good and seem to reflect that by investing more with them.
According to accounting firm PriceWaterhouseCoopers’ "Millennium Poll on Social Responsibility" of 22,000 consumers around the world, two out of three people surveyed want companies to go beyond their historical role of making profit, paying taxes, employing people and obeying the law; they want companies to contribute to broader societal goals as well.
In fact, 25 percent of those surveyed said they had boycotted a company’s products, or urged others to do so, when they didn’t agree with its policies and actions.
The clarion call for corporate responsibility is getting louder. This week The Economist magazine is running a survey on "the fashionable notion of corporate social responsibility." It asks, "do companies know what they are saying when they claim to be implementing ‘CSR’ policies? And do they mean it?"
Clearly the power of accountability is driving this business foray, led by private organizations and investors.
But where are the regulators in all of this? Neither the Securities and Exchange Commission, nor the Financial Accounting Standards Board, which enforces and oversees the general accepted accounting principles by which companies abide, have guidelines for sustainability reporting.
Instead of the death grip regulators maintain on the tails that wag them, they should let go and stand out in front; ironically it may give us a better view of the dogs.
