September 25, 2003
Sustainable Computer Producers Perform Better than Less Sustainable Counterparts
by William Baue
Innovest adds social considerations to its environmental assessment in its recent computer industry
report, and sustainability still outperforms business-as-usual.
Earlier this month, Innovest Strategic Value
Advisors added to its canon of research documenting the correlation between proactive
sustainability performance and positive financial performance with its Computers and Peripherals
Industry Global Report. The report found that companies that ranked above-average on
Innovest's sustainability ratings financially outperformed companies with below-average ratings by
19.1 percent over the three years from April 2000 to June 2003. Over the past two-year period, top
rated firms outperformed laggards by 35.6 percent, and over the past year, by 26.7 percent.
Whereas previous reports focused on environmental performance using Innovest's
EcoValue21 rating system, this is one of the first reports to use Innovest's Intangible Value
Assessment (IVA) rating to compare to financial performance. IVA ratings include social as well as
"We're developing the Intangible Value Assessment, and that's going
to be our integrated product going forward, so that subsumes the environmental rating within it,"
said Devin Crago, the Innovest analyst who authored the report.
HPQ) ranked first
on the IVA scale with an AAA rating, the highest score. IBM (IBM) placed second on the IVA list
with an AA rating, and first on the EcoValue21 list with an AAA rating.
HP's top ranking
on the IVA scale is particularly impressive in light of its recent merger with Compaq, which
resulted in significant restructuring and massive layoffs. According to the Executive Excess 2003 report by
United for a Fair Economy (UFE), a nonprofit
focused on the underpinnings of the gap between rich and poor, HP laid off 25,700 workers in 2001.
UFE criticized HP for concurrently increasing its CEO pay 231 percent, from $1.2 million in 2001 to
$4.1 million in 2002.
Although Innovest's IVA analysis acknowledged the layoff problem at
HP, it rated the company above average on labor relations. The IVA was silent on the issue of CEO
pay, and rated HP above average on traditional governance.
"There's a lot of layoffs
across the whole tech sector, so our focus is to look at how the companies handled the layoffs, and
HP was positioned fairly well," Mr. Crago told SocialFunds.com. "CEO pay and layoffs are merely
two of the many governance and labor issues assessed."
Although IBM ranked high on both
IVA and EcoValue21, it scored significantly below average in the health and safety category of the
IVA analysis. IBM faces lawsuits from some 220 current, former, and deceased employees over
exposure to toxic chemicals that may lead to cancer, miscarriages, and birth defects. Studies
suggest that some sets of IBM employees have developed these conditions at a greater rate than the
national average. IBM publicly maintains that the lawsuits' claims are without merit.
"These lawsuits put some downward pressure on the IVA rating for IBM, but we've also put it on
our stock watch list, and we're going to continue to monitor it and revise the rating as we see how
materiality this is going to have for the company," said Mr. Crago. "IBM is in the spotlight
because the legal actions are focused on it, but in a larger sense, it's an issue across the entire
"I don't think anybody should go out and short IBM tomorrow over
this," he added.
IBM has come under fire since the publication of the report for eleventh
hour lobbying to shift California Senate Bill 20 from requiring manufacturers to foot the bill for
electronics recycling to placing the financial onus on the consumer. The Computer TakeBack
Campaign (CTBC), which advocates for
computer manufacturers to take responsibility for recycling their products, also criticizes the
bill for covering only cathode ray tubes (CRTs), and not all electronic equipment.
doesn't distinguish between historic and future electronic waste, which lets companies like IBM off
the hook," reads a CTBC position statement on the bill. "IBM is responsible for a major portion of the
historic waste, however, they will not pay their fair share, since their current sales of CRTs is
Innovest's report notes that the entire computer industry is behind the
eight-ball in its preparedness for extended producer responsibility (EPR) legislation. The report,
however, commends companies such as IBM for addressing the issue with more foresight than many of
"There are some companies that are seemingly unaware that this issue is
going to affect them at all," said Mr. Crago. Neither EMC (EMC), which placed seventh on IVA
list with a B rating, nor NCR (NCR), which placed last on this
list with a CCC rating, appears to have any strategies in place to deal with EPR legislation.