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January 13, 2004
World Economic Forum Survey Projects Mainstreaming of Corporate Citizenship
    by William Baue

The report credits socially responsible investing, among other trends, for influencing mainstream investors to take corporate citizenship more seriously.


Is corporate citizenship, also known as corporate social responsibility (CSR), entering mainstream investors' consciousness? No and yes, according to a new World Economic Forum (WEF) report that surveys chief executive officers (CEOs), chief financial officers (CFOs), and investor relations officers (IROs) at 26 companies from 14 different countries.

These executives report surprisingly little current interest in CSR expressed by mainstream investors. Over two-thirds of the respondents said their companies field CSR-related questions from mainstream investors only occasionally, and then only around crisis situations or "hot" topics such as climate change, diversity, obesity, and HIV/AIDS. Some of the respondents (15 percent) never field such CSR-related questions from mainstream investors. Only three companies--Anglo American (ticker: AAL.L), Infosys (INFY), and Deutsche Bank (DB)--state that they are often asked CSR questions by mainstream investors.

However, over 70 percent of the respondents, who hail from such companies as Coca Cola (KO), Diageo (DEO), Rio Tinto (RTP), and Siemens (SIEG), believe that mainstream investors will have an increased interest in CSR issues.

"2004 might just be the year corporate citizenship comes of age in the mainstream investment community," said Richard Samans, managing director of the WEF, a nonprofit devoted to world improvement and funded by over 1,000 corporate members.

The report, entitled Values and Value: Communicating the Strategic Importance of Corporate Citizenship to Investors, credits the socially responsible investment (SRI) community, among other influences, with advancing CSR into the mainstream. Other influences include new legal requirements such as Sarbanes-Oxley, new international norms such as the United Nations Convention against Corruption, and voluntary reporting mechanisms such as the Global Reporting Initiative (GRI).

Almost half (42 percent) of the respondents felt there has been a major increase in the level of activism, engagement, and sophistication from the SRI community regarding CSR.

"Many of the companies see SRI fund managers as increasingly influential, both in terms of their influence on policy makers and their impact on corporate behaviour through active engagement with companies and their promotion of an investment style that takes nonfinancial performance into account," the report states.

However, some of the respondents also offered critical commentary on the SRI community's influence on the mainstreaming of CSR. According to one CEO, the SRI community sends mixed messages.

"Many SRI investors invest with an ethical motive, and are prepared to accept average returns or below if their ethical standards are upheld," he stated. "Others believe that a portfolio of companies with strong corporate citizenship policies and implementation should provide better than market average returns in the longer term."

"As long as these two opposing theories sit side by side in the SRI community, its credibility will suffer and mainstreaming will not progress," he concluded.

Another CEO points to obstacles on both the SRI and the mainstream investors' side of the fence inhibiting the growth of corporate citizenship as a legitimate driver of investment value.

"There is a lack of training of many SRI analysts in basic financial and accounting issues and a relative lack of understanding of some of these corporate citizenship risk areas on the part of many mainstream analysts," he stated. "However, for many sectors, it is inevitable that the two perspectives will converge."

The WEF's Global Corporate Citizenship Initiative (G CCI), which wrote the report, also sponsors the Mainstreaming Responsible Investment project in conjunction with AccountAbility, an international nonprofit that advances corporate accountability. The project seeks to "improve understanding of impediments to and opportunities for broader integration of social and environmental aspects of corporate citizenship in mainstream investment policies and practices."

Toward this goal, the project is convening a series of roundtables. Deutsche Bank hosted the first in London in July 2003 focusing on identifying constraints and opportunities, and Swiss Re hosted the second in New York in October 2003 focusing on the pivotal relationship between pension fund trustees and their fund managers. The third roundtable is slated for early 2004.

 

 
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