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Ethical Investment Research Services (EIRIS)

The state of responsible business:
Global corporate response to environmental, social and governance (ESG) challenges


Ethical Investment Research Services (EIRIS)

September 2007

SARPN acknowledges EIRIS as a source of this document: www.eiris.org
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Introduction

Ethical Investment Research Services (EIRIS) Ltd is an independent, non-profit research organisation which has been conducting detailed research on the issue of corporate social responsibility (CSR) on behalf of investors in the UK and abroad over the past quarter of a century. EIRIS was established in 1983 as a collaborative venture by a group of churches and charities that were concerned by their investments in companies involved in the Apartheid-era regime in South Africa.

EIRIS Ltd is a wholly-owned subsidiary of the EIRIS Foundation. The EIRIS Foundation is a charity that supports and encourages responsible investment. It promotes research into the social and ethical aspects of companies and provides other charities with information and advice to enable them to choose investments which do not conflict with their objectives. EIRIS Ltd helps to deliver these charitable aims and provides research and consulting services on corporate environmental, social and governance (ESG) and other ethical performance issues to investors.

EIRIS does not offer consulting services to companies, and does not advise on or endorse campaigns by NGOs or other bodies related to companies’ ESG performance, ensuring that it remains a trusted and objective source of information on ESG issues. EIRIS’ independence from both companies and their critics ensures that it remains objective in its assessment of companies’ approaches to ESG issues.

EIRIS Ltd provides research on corporate ESG and other ethical performance indicators to more than 100 clients. It assists a broad range of investors including retail and institutional fund managers, pension funds, foundations and private client investment managers in the development and implementation of responsible investment strategies. Over the past 25 years EIRIS has dramatically expanded both the breadth of its company coverage and the range of issues it researches. From an initial focus on ‘involvements’, traditionally used for negative screening strategies, EIRIS now researches a comprehensive list of ESG and related ethical issues for approximately 3,000 companies worldwide, covering over 60 different issues in the areas of environment, corporate governance, human and labour rights, business ethics, social performance and risk management. EIRIS data supports a wide variety of responsible investment strategies.

When EIRIS was founded in 1983 as the pioneer of responsible investment research in Europe only a handful of companies reported anything publicly on their corporate responsibility activities. Most of these were limited to a brief description of their philanthropic activities. By placing questions before companies on their broader social and environmental policies and practices, EIRIS was part of a process that raised corporate consciousness of CSR issues, reflecting public and investor concerns. As a result companies started reporting on some of their key impacts, especially environmental matters. The first stand-alone environmental reports emerged in the late 1980's and by the 1990's social data was included as well. As responsible investment grew in popularity in the UK, continental Europe and beyond, the demand from investors for more information on CSR also grew. EIRIS witnessed an increase in the number of company CSR reports, as well as an increase in the volume of information contained in the reports. Companies from across Europe and North America also began to improve the range of sustainability issues covered. Reporting that had started as a description of philanthropic activities had evolved into a description of responsible business practices.

EIRIS research evolved to meet the demands of investors developing investment products with more sophisticated and nuanced approaches to analysing corporate responsibility. However although the quantity of information had increased, the quality and usefulness of information contained in company reports did not increase proportionately. Many company reports remain public relations tools and many gaps remain in terms of identifying appropriate indicators, reporting how key issues are being addressed and how targets are being implemented. In addition, many companies have yet to produce any meaningful information in relation to the ESG issues they face. However through voluntary projects such as the Global Reporting Initiative and limited regulation, companies have been offered frameworks to assist improvements in their reporting. Input by EIRIS and others helped to make sure that the views of investors were met in the creation of such frameworks. Thus in recent years company reports have become more focused on explaining their key ESG impacts and what they are doing to meet the core sustainability and responsibility challenges faced. This information better serves the needs of investors.

There can be little doubt that reporting has risen sharply over the past 25 years. In two separate studies, Context and KPMG report that in 2005, 80% of top companies had Corporate Responsibility reports compared with 50% in 2002. Context state that reporting is on the rise globally, although reporting was lower in the US than in Europe in 2006, with 59% and 90% of the top 100 companies reporting respectively1. The KPMG findings state that Japan is the highest corporate responsibility reporting region, with 80% of companies producing CR reports, followed by 71% of UK companies, and the US substantially lower with only 32% of companies reporting2. EIRIS expects that corporate responsibility reporting will continue to improve in addressing the needs of all stakeholders whilst ensuring that investor needs are increasingly central.

Over the last 25 years the growing interest of investors in ESG issues is encouraging more and more companies to publicly adopt a pro-active approach to corporate responsibility issues. NGOs and governments in turn are responding to public concerns about corporate behaviour by interacting more with investors on ESG issues as a way of encouraging corporate responsibility. The terms corporate social responsibility (CSR), corporate responsibility and corporate sustainability are increasingly prevalent in business discourse, as business awareness of the phenomenon has grown dramatically. These terms typically embrace a wide range of social, environmental and governance issues. However the term ‘responsible business’ has been chosen in this report as the terms mentioned above are often associated with corporate philanthropy, and although community involvement is considered in this report, the focus is on adopting responsible business practices.

The report illustrates how companies from different countries score against several key ESG risks. All figures are based on information extracted from databases maintained by EIRIS as of March 2007. The data contained in this study relates to the FTSE All-World Developed Index, covering a total of 1,996 companies. EIRIS research is compiled using company annual reports, sustainability/CSR reports, company websites, EIRIS survey responses and a variety of non-company sources. The data has been collated to help highlight key issues and to provide a simple snapshot of the state of responsible business around the world. In compiling these figures, EIRIS has noted some of the main factors influencing corporate behaviour in relation to key ESG issues.

The purpose of this report, commissioned by the EIRIS Foundation, is to provide an overview of how seriously companies across the world are taking their ESG responsibilities. It provides a unique snapshot of how companies in different countries are responding to key corporate responsibility topics.

The report is broken down into four sections. Chapter 2 provides an insight into the range of influences on responsible business activities. It charts the rise of corporate responsibility over the past 25 years, focusing on various drivers of the emergence of the phenomenon. Factors examined include globalisation, increasing regulation and oversight (from both government and civil society), encroachment by the private sector into public sector responsibilities, and the role of responsible investment.

Chapter 3 forms the major part of this report. It uses EIRIS data to provide a country-by-country breakdown of how companies from different regions perform across a selection of the most widely used responsible investment criteria as follows:

  • Corporate Governance
  • Equal Opportunities
  • Human Rights
  • Supply Chain
  • Environmental Responsibility
  • Community Involvement
  • Nuclear Power
  • Military Involvement
Each section contains further background on definitions, illustrating graphs, and commentary on key differences observed. It also notes the relevant methodology and definitions applied by EIRIS to these topics3.

Chapter 4 examines some of the hot topics and emerging issues that are shaping responsible investment, as well as discussing potential future trends in company approaches to responsible business and disclosure. These include climate change, HIV/AIDS, international conventions, taxation and transparency and responsible business approaches in emerging markets as well as water shortages, nanotechnology and private equity.

Finally, chapter 5 provides some concluding remarks on the future of corporate responsibility and sustainability.


Footnotes:
  1. Context 2006 Global Corporate Responsibility reporting trends: Reporting in Context 2006 Available at www.econtext.co.uk.
  2. KMPG 2005 KPMG International Survey of Corporate Responsibility Reporting 2005 Available at www.kpmg.com/NR/rdonlyres/66422F7F-35AD-4256-9BF8-FACCA9164/0/KPMGIntlCRSurvey2005.pdf.
  3. Further information on EIRIS’ research methods are summarised in Appendix B.


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