FT Investing in a Sustainable Future

The Financial Times hosted their 2nd annual FT Investing in a Sustainable Future international conference in NYC.  The event was well attended by companies, NGOs, consultants, investors, and others focused on CSR - Corporate Social Responsibility.  

Thoughts & Analysis:

Generally, topics covered were:
1. Definition of CSR
2. Incorporation of Environmental matters / stewardship into the definition
3. Impact, importance and relevance of CSR
4. Measurement
5. Enforcement

"...while governments provide the necessary policy framework, the real solutions must come from business" - Former Executive Secretary of the UN Framework Convention on Climate Change, Yvo de Boer

The quotation above referenced by Fred Krupp of the EDF set the stage for the discussion.

The definition of CSR has evolved to incorporate the impact a business has on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere.  Another way to define it is the deliberate inclusion of public interest into corporate decision-making, and the honoring of a triple bottom line: People, Planet, Profit.  (per CSR link above)

There are tangible benefits to those companies assuming CSR policies, among which I would include:
1. Increased sales
2. Better employee retention
3. Appeal to broader set of investors

Notably, the increase in sales could entirely offset any cost involved in enforcing CSR policies.  This ties into the second part of the referenced quotation, "the real solutions must come from business."

The question now becomes how to measure CSR and how to compare it across companies and industries.  The Global Reporting Initiative has developed arguably the world's most prevalent standards for sustainability reporting.  The framework is designed to measure performance on human rights, labor, environmental, anti-corruption, and other corporate citizenship issues.

Its useful to note that "sustainability" and "social responsibility" are used fairly interchangeably and encompass broadly environmental and social issues.  While we maybe used to seeing these issues addressed separately, to quote Al Gore: "In the larger scheme of things, the planet Earth will be just fine. The real risk is for human beings."

Most companies report in response to public pressure (investors, consumers, political) and it seems to be used primarily as a reactive tool to mitigate social and environmental risk as opposed to a proactive tool to increase awareness.  In any case, companies report on a voluntary basis, using the GRI framework or their own set of metrics.  The question becomes, should the GRI or another set of guidelines be enforced by regulatory organizations onto companies?

If sustainability metrics are to be required, I believe there should be one set of generic metrics that can be used across all industries and another industry-specific set, i.e. the pharmaceutical, IT, oil & gas, etc. industries should be measured with metrics specific to their business.  In this way, we can benchmark across industry sectors, and among companies within a specific industry effectively. 

Turning to the first part of the initially referenced quotation, "while governments provide the necessary policy framework," legislation maybe critical to establishing a standard set of CSR policies.  This could be part of the Financial Reform Bill and enforced similar to the Sarbanes-Oxley reporting requirements, with the specific metrics to be determined by language in the Energy Bill.  To reward those companies that are ahead of the curve in developing detailed CSR reports, I would suggest that they get a weighted vote in the setting of their industry specific metrics.

Ideally, a company's CSR "score" would reflect in its market valuation.  The higher score should reflect companies that have a lower risk profile, better brand awareness and sales, happier employees, and a broader shareholder base.