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November 24, 2008
2008 Accountability Rating Finds More Companies Willing to Address Social and Environmental Challenges
    by Robert Kropp

Annual measure of corporate accountability finds telecoms developing effective CSR vision, while oil & gas sector suffers due to operational performance.


If the web sites of most of the world's major corporations are to be taken at face value, global warming will soon be a thing of the past, corporate stakeholders find the doors of executive offices always open to them, and sustainability and transparency are as important to the corporate value system as profitability.

One annual study has made a practice of rating corporate performance in areas of interest to sustainability investors by analyzing information mostly found on corporate web sites. The Accountability Rating 2008 is compiled by CSRNetwork, a consultancy firm, and AccountAbility, an nonprofit organization that promotes sustainable development. The Accountability Rating, described on the web site as "a tool for measuring the extent to which companies have built responsible practices into the way they do business and their impact on the economies, societies and environments in which they operate," is applied to the 100 largest companies in the Fortune Global 500, which is comprised of the 500 largest corporations in the world.

In addition to being published on its own web site, the Rating is published in Fortune Magazine as well.

In this year's rating, Vodafone, last year’s number five, regained the top spot from BP, which dropped to number nine. General Electric placed second, followed by HSBC, France Telecom, and HBOS. Nine of the top 10 companies are headquartered in Europe.

SocialFunds spoke with Todd Cort, Senior Consultant for CSRNetwork, about the Accountability Rating.

"Our study derives its findings from information in the public domain, primarily the corporate web sites themselves," said Cort. "We do not send questionnaires to companies. Therefore, those companies that express through their web sites a commitment to transparency will be rated higher."

Cort continued, "It's possible that a company with first-rate systems and operational performance will score poorly because of a web site that is not useful in sharing important information with stakeholders. But in general, what we have found is transparency on the web sites has gone up. Most companies now have larger web sites that contain more sustainability reports."

Four domains of analysis are employed in the rating's current iteration. Governance and management, in which management systems, standard procedures, incentives and performance targets relating to extra-financial issues are measured; strategic intent; and engagement, in which dialogue with stakeholders, publication of social and environmental performance, and credibility are measured, are the three domains returned from previous ratings. A fourth domain, operational performance, was added this year.

Cort said, "The domain of strategy measures if the direction of a company is linked to sustainability. It measures the difference between a company making money and doing good, and making money by doing good."

Operational performance, the domain that was added this year, measures whether companies report important metrics in a variety of social and environmental impact areas, and if that and other areas of their performance improve from year to year. In a departure from the ranking's reliance on corporate web sites for the majority of its information, the domain surveys media reports on companies to determine if any controversies in the past twelve months might adversely affect performance.

With three companies in the top ten, the telecommunications sector is clearly looking to seize the opportunities that would come from bringing large numbers of people into the information age.

"Computer, telecom, and IT companies have discovered a religion," said Cort. "They realize that they have the power to make an enormous impact. The corporate vision of these companies now includes the realization that network technology can change society, including developing countries."

In previous iterations of the rating, oil and gas companies performed well, largely because of their strong showing in corporate systems. When operational performance was added as a domain this year, the overall performance of those companies declined.

"When oil prices have declined, oil and gas companies back away from previously stated commitment to renewable energy," said Cort.

On the other hand, utilities were the highest-scoring sector in the rating, which was attributed to the regulatory scrutiny that the industry undergoes.

Financial companies scored relatively well in the rating, but a strong performance does not necessarily ensure that they have managed to protect themselves against the financial crisis. A case in point is HSBC, the UK-based holding company that ranked fifth in the rating, but that set aside $4.3 billion to cover bad loans at its American unit in the third quarter of 2008. On the other hand, Bank of America, which was rated 70th and scored about thirty points lower than HSBC, had a risk management system in place that identified risky mortgage securities and removed them from its portfolio.

Of the seeming inconsistency, Cort said, "The rating did pick up some aspects of risks that financial companies were facing, but too few of those aspects are seen in the scores."

As the global economy continues to decline, CSRNetwork and Accountability expect that those companies that have more proactively identified risks will tend to weather the downturn more effectively. In addition, some of the most pressing social and environmental challenges may well lead to profitable solutions for companies that identify them.

Regional Accountability Ratings are also produced for Bulgaria, Greece, Hungary, Italy, Korea, Portugal, Russia and Turkey.

 

 
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