Socially Responsible Investing:
Corporate Citizenship and Wall Street Meet
How Ford Motor Company is Evaluated and Viewed
Corporate Citizenship Through an
Investor’s Eyes
“…is a business approach to create long-term
shareholder value by embracing opportunities and
managing risks deriving from economic,
environmental, and social developments.”
- Dow Jones Sustainability Group Index
Corporate Citizenship Through an
Investor’s Eyes
“One of our guiding principles is that the best long-term
investment opportunities are to be found among
companies that are financially sound and are committed
to meeting the challenges of today and the future with an
expanded view of corporate responsibility.”
- Barbara Krumsiek, President & CEO of Calvert Group
Companies outperforming on
corporate citizenship…
• Secure a long-term license to operate by responding to
stakeholders’ changing needs
• Use resources in more efficient and economic manner
• Deliver more predictable results, with fewer negative surprises
• Likely have other sound management practices (environmental/
social management is proxy for overall quality of management)
• Look to create wealth among a broad set of stakeholders,
increasing market awareness and access to new markets
• Demonstrate increased transparency and offer more perfect
information, financial and otherwise
Socially Responsible Investing
• More than $2 trillion in assets in socially and
environmentally responsible investments in U.S.
– Grew from $1.185 trillion in 1997 to $2.16 trillion in 1999
– Growth outpaced broad market at twice the rate
• One out of every eight dollars under professional
management in U.S. is part of SRI portfolio
– SRI accounts for 13% of $16.3 trillion
– One in nine investor households have SR investment
• Negative screens are giving way to “best in class”
Socially Responsible Investing
SCREENS AND RETURNS: 10 LARGEST U.S. SRI FUNDS
Fund Name
Inception
Date
Assets
($m)
Annual Average %
1 year
3 year
5 year
10 year
Domini Social Equity
6/3/91
1,299
-19.4
2.6
14.2
14.5
Pax World Balanced Fund
8/10/71
1,234
-1.3
9.5
14.2
11.3
Dreyfus Premier: Third Century
3/29/72
989
-27.3
1.9
12.7
12.2
Calvert Social-Balanced A
10/21/82
600
-5.9
2.6
9.3
9.0
Ariel Appreciation
12/1/89
530
30.6
10.7
19.1
14.6
Citizens Core Growth Fund
3/3/95
473
-28.4
2.0
14.5
-
Ariel Fund
11/6/86
396
27.0
9.8
17.3
13.9
Parnassus Fund
5/2/85
373
-16.8
19.4
17.7
16.5
Citizens Emerging Growth
2/8/94
294
-37.5
15.7
16.5
-
The Context
Demand
information
Investors
Investor
interest
growing
Provide
information
Rating
Agencies
Reporting
Surveys,
interviews
Companies
On what criteria are we judged?
• Vision and Commitments
• Management Quality
• Multi-Dimensional Performance
– Financial, Economic, Environmental, Social
– Across value chain
• Reporting Commitment / Policy
What sources of information are used?
• Annual reports
– Financial reports
– Sustainability or corporate citizenship reports
– Verification emerging as important
•
•
•
•
•
Questionnaires/surveys
Management interviews
Internet scans
Media stories
NGO opinions
Companies evaluated by different groups
• The Center for Responsibility in Business (formerly CEP)
• Sustainable Asset Management (SAM)
– Dow Jones Sustainability Group Index (DJSGI)
•
•
•
•
•
•
•
Innovest
Investor Responsibility Research Center (IRRC)
Kinder, Lydenberg, & Domini (KLD)
OEKOM
Storebrand
EIRIS
Others
Research used for different purposes
Examples
The
Center
FTSE4Good (in partnership with EIRIS)
some Fortune and Worth Magazine rankings
Shopping for a Better World
SAM
Dow Jones Sustainability Group Index
most often cited in Financial Times and Economist
companies use for benchmarking
Innovest
sells data to financial analysts & institutional investors
KLD
Domini Social 400 Index
Dow Jones Sustainability Group Index
• “The only index which measures sustainability on a
global basis’
• In-depth analysis of economic, environmental, and
social dimensions
• Examines risks and opportunities for strategy,
management, and industry-specific issues
– Analyze surveys, monitor media, solicit stakeholder input
• Top 10% of industry sector selected for the Index
• Selection process audited by PWC
DJSGI Leading Companies (2000)
• Ford excluded due to crisis management but “performed well” in other areas
- Firestone and discrimination (human rights) issues
Ford: Risk Criteria (2000)
Ford: Opportunity Criteria (2000)
Auto Industry in Perspective
Ford DJSGI Assessment (2001)
• Effective October 5, 2000 - BMW, DC, VW
• Preliminary feedback on Ford:
– Weaknesses:
• supplier standards (social dimension)
• environmental performance (manufacturing)
• intellectual capital management (need to investigate further)
– Scored “quite well” on other aspects, just not in top 10%
Innovest
• “Uncovering hidden value potential for strategic investors”
• Primarily environmental but beginning to include social
• EcoValue 21 model includes 60 environmental criteria
• Conduct annual interviews approximately 1.5–3.0 hours with
about 1200 companies
• Well respected with impressive list of institutional investors,
asset management firms, corporations
• Considerable costs associated with research excludes activists
Innovest
Innovest
Innovest – Ford Rating
Strengths
• AFVs, EVs, 2003 HEV Escape, ISG
• ISO 14001
• Environment at the BoD level
• Rouge project
• First to drop out of GCC
Weaknesses
• “Wanting in environmental cost accounting
and performance reporting”
• “Promised improvements in fuel efficiency
will be followed closely by NGOs”
• “With Firestone tire recall, Ford’s reputation
has been shaken”
Innovest
FTSE4Good
• Launched in July, 2001 with widespread media coverage
• Assess three dimensions:
– Working towards environmental sustainability
– Developing positive relationships with stakeholders
– Upholding and supporting universal human rights
• Four indices:
–
–
–
–
UK 50 Index (no auto manufacturers)
Europe 50 Index (BMW ranked 50th)
US 100 Index (no auto manufacturers)
Global 100 Index (Toyota ranked 16th, Honda ranked 66th)
• Relies on The Center and IRRC data
Storebrand
• Analyzes environmental performance and selects top
30% of auto industry
• Uses weighted average of eight sustainability indicators
– Strong focus on impacts of product in use
• Beginning to conduct human rights assessment
– Analyze policy, operations, suppliers/partners, internal
management systems & reporting
Storebrand Evaluation
GW
200
QM
150
OD
100
50
PC
0
MI
WI
TR
EI
• Ford’s Sustainability Index (weighted average) is 108; the
industry average is 100. Ford qualified for the
Environmental Value Fund.
• Other auto companies are Fiat, VW, Honda, Toyota
The Center for Responsibility in Business
• Established in 1969, influential and long-standing,
although going through rebranding and restructuring
• Assign grades as part of company “report cards”
• One of the more “activist” organizations
• Criticized for subjective ranking process
Report Card
Disclosure
(1999)
Environment
(1999)
Minority
Advancement
(1999)
Women's
Advancement
(1999)
Workplace
Issues
(1999)
Work/Life
Programs
(1999)
Charitable
Giving
(1999)
Ford
Rank
A
C
A
B
C
B
0.45%
Sample
Rank
-
N/A
41/213
101/212
82/127
64/133
-
Industry
Rank
-
5/6
1/4
2/4
2/2
2/2
-
DC
B
B
B
D
-
-
-
GM
A
A
C
C
A
A
-
OEKOM
• Weighting: 17.5% environmental management, 65.0% products
& services, 17.5.% environmental performance data
• European auto manufacturers rank 1-7, then two U.S.
companies, followed by Japanese
• Ford received a C rating and ranked 8th out of 14
– Strengths: ISO 14001, reporting
– Weaknesses: sustainability risks of SUVs, poor fuel economy
performance
• VW, Audi, Renault leaders with B- ratings
• Mitsubishi and Mazda laggards with C- and D+ ratings
KLD
How are we performing?
• Rank in middle tier (good we are responding to requests)
• Credited for vision, must deliver on promises and improve
product performance
– Recognized for AFVs, HEV Escape in 2003, ISG, Th!nk, SUV fuel
economy commitments
• Rewarded for strong environmental management systems,
but environmental performance is either (1) lagging or (2)
difficult to assess due to lack of data and/or lack of targets
• Asked to improve social performance reporting and provide
evidence of supporting management systems
Going Forward
• Explore better ways to respond to surveys
– streamline responses
– develop standard data set
• Engage with rating agencies
–
–
–
–
better understand methodology (demand transparency)
seek commonality between surveys
ask for feedback and opportunity to respond
understand reasons for Ford scores and those of leadership companies
• Collaborate with other companies and suppliers
– dialogue on soundness/consistency of methodology (promote GRI)
– analyze extent to which this analysis impacts investors and valuations