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How to Make Socially Responsible Investments Pay Off

| 31/08/2009 | Reply

How to Make Socially Responsible Investments Pay Off

BY Jeff Swartz

Timberland CEO Jeff Swartz on how to make socially-responsible investing appeal to Wall Street.

Every
90 days, I report to Wall Street and our shareholders on the financial
health of our company–called to the carpet when results are bad,
receiving a pat on the back (if memory serves) when numbers are good.

Many years ago, we put corporate social responsibility on the agenda
for these quarterly financial calls, because as a critical component of
our effort to be a responsible business–fiscally and socially–it felt
not only appropriate, but necessary.

Guess how many times I’ve been called to the carpet by shareholders
for not delivering satisfactory CSR results, or how often we’ve
received a comment or question about our CSR programs on these
quarterly calls? Never. The silence isn’t an indication that we’ve
perfected corporate responsibility–far from it–it’s an indication
that shareholders don’t find CSR performance relevant.

Now, I understand clearly that quarterly earnings calls with Wall
Street are going to be primarily focused on … financial results. But
we’ve been a public company for nearly 30 years–and we do a call every
quarter–and so 120 calls later, not one reference to social
responsibility?

Be a CEO trying to balance the demands of various stakeholders. You
will feel gentle pressure from consumers to operate ethically and
responsibly, and you will feel less-gentle pressure from activists to
address what they perceive to be your social and environmental
shortcomings … and both stimuli are proof that for a subset of your
stakeholders, social accountability is relevant. But
nothing–nothing–from shareholders? What’s a CEO to think? If
shareholders don’t give a whit about what an organization is doing to
help strengthen the community or protect the environment, the CEO has
to wonder …

I hear it from my Board–without greater buy-in from shareholders,
CSR practices face sharper scrutiny, especially in these challenging
economic times.

To me, there are two ways forward that preserve the passion
underlying our approach to commerce and justice. The first one is
vitally important but indirect, in terms of shareholders–we have to
entice consumers to reward us for what we do right and better than our
competitors in terms of human rights in the supply chain, or
sustainability in our products. If we make “responsible = sexy,” then
we will grow our brand and our business–and by proxy, we’ll enlist
shareholders in the commerce/justice mission.

Shareholders will nod their heads … when we prove that commerce
and justice pays out. But as many have noted, responsible consumption
is hardly a commercial revolution right now. There’s momentum, and
enthusiasm, but the vast majority of our consumers buy Timberland
products because the shoe fits, aesthetically, in terms of price/value,
in terms of technical features–not because we maintain a measurably
higher standard of human rights practice in our supply chain or because
we label our products transparently with environmental “nutrition
labels.”

So, while we fight the good fight with consumers–which will
eventually pay off with shareholders–how does the CEO justify CSR
efforts with shareholders?

To me, this is where CSR funds could play a much more potent role.
You know that there are more than 260 socially-screened mutual fund
products in the U.S. currently, compared with just 55 SRI funds in
1995. Surely this is proof that the investment community does care
about CSR and is interested in using their investment dollars to
influence corporate responsibility.

On the point of interest, I agree–there is a small (very) subset of
investors who really do align their investment practices with their
social values. Ceres recently reported that a record 68 climate-related
shareholder resolutions were filed by investors this year, which
resulted in notable environmental wins including companies agreeing to
use more renewable energy and setting emissions reductions targets.
It’s good news and further proves the power of the engaged
investor–but–68 resolutions filed? And that’s a record? While I’m
grateful for the leadership of those investors, this is hardly an
investor groundswell. And that is just what we need–more investors
lining up dollars and values affirmatively.

Too much “social investing” seems to me “screen and criticize”
rather than invest behind CEOs and Boards that make real commitments to
commerce and justice. Although many CSR funds have updated their
“screens” in recent years to ensure that they’re considering a company
based on both positive and negative merit, the punishment is still more
powerful–and prevalent–than the reward.

Starbucks–widely regarded as a CSR leader–gets delisted from CSR
funds because its product offerings include alcohol. Meanwhile,
companies that pass the screen (“dry” companies, I guess) get to stay
on the list … and that’s the end of the story. There’s no incentive
to do “more good,” no affirmative influence coming from CSR funds on
behalf of their shareholders.

We’ve earned a decent reputation as sustainable business and
responsible brand … and yet SRIs only hold about one percent of our
shares. If anyone can share similar data on the SRI percentages of the
top 50 CSR companies, I’d be very interested to see it … because my
guess is we’re not alone. We hear constantly from shareholders about
their expectations: improve the margin, increase sales– but because
CSR shareholdings are not concentrated, we never hear expectations
about our CSR leadership. Imagine how much “more good” we could do
under gentle, genuine pressure from our shareholders. Right now, it
doesn’t exist.

So, how to build shareholder interest in socially-responsible
investing in a way that’s effective for everyone involved? For
starters, CSR funds need to take a more thoughtful approach to company
screenings, in recognition that as the world of CSR has evolved, so too
their criteria for judging a company’s performance should be more
sophisticated.

Then, and more controversially, CSR money managers should stop just
Index investing–weighting their entire portfolio as per the
market–and start making some principled, concentrated investments in
companies whose social mission they believe in. Be the patient money,
be the principled investor … and provide the CEO and her Board with
the support they need to see through the leadership agenda they dare on
social responsibility. You expect me to “sell” social responsibility to
my consumer and my Board and my shareholder–why shouldn’t you do the
same? Sell your concentrated, long view “bet” on socially responsible
companies–to your investors?

Follow the money; if we really want to spark a revolution in
corporate social responsibility, the revolution must include principled
shareholders who put money behind the idea.

Category: Finance & Investment, The Americas

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