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November 01, 2002
Oekom Pans Telecoms' Social and Environmental Performance
    by William Baue

A recent report from the German research firm concludes that only a handful of telecommunications companies have above average social and environmental practices.

One indicator of an industry sector's favor with investors is its inclusion in benchmark indexes. The telecommunications sector, for example, is well represented in global indexes such as the Morgan Stanley Capital International (MSCI) World Index, as well as domestic indexes, such as the Standard & Poor's (S&P) 500. Telecom stocks also curry favor with social investors, and are well represented in global and domestic socially responsible investment (SRI) indexes. Telecom stock represents 11.93 percent of the Ethibel Sustainability Index (ESI) Global. Leading global telecom companies such as Germany-based Deutsche Telekom (ticker: DT), UK-based British Telecom (BTY) and Switzerland-based Swisscom (SCOM) are constituents in the Dow Jones Sustainability Index (DJSI) World and the FTSE4Good Global Index. Domestically, Verizon (VZ) is in the Domini 400 index, Nextel (NXTL) is in the Calvin index, and BellSouth (BLS) is in both.

A recent report from Munich-based environmental and social rating agency Oekom Research calls into question whether the telecom sector will be able to sustain its favored status with social investors.

"The telecommunications sector, one-time darling of the stock exchange and paragon of prosperity, is currently taking a battering," said Oekom analyst Evelyn Bohle, who authored the report. "As this trend continues, the question being asked is whether the sector will be able to overcome these problems and at the same time meet its social and environmental responsibilities."

The Oekom report applied 200 criteria of its proprietary Corporate Responsibility Ratings, which consists of both social and environmental ratings. The report rated the world's 38 largest telecommunications companies, and assessed the social and environmental performance of 24 telecom companies. The remaining 14 companies, including Qwest Communications (QWEST) and Sprint (FON), were unable to provide sufficient information on their social and environmental activities to warrant inclusion in the report. Several leading companies scored very well, as Deutsche Telekom earned a B+ grade, while BT and Swisscom both earned B grades. However, more companies earned below-average grades, resulting in a sector grade average of C. Several companies fared dismally, as Verizon earned a D+ and Nextel earned a flat D.

The report applauded the sector's overall transparency regarding environmental issues. All 24 of the companies assessed have implemented an environmental policy, and 18 of the assessed companies publish detailed environmental reports.

"However, there is as yet little evidence of the introduction of company-wide environmental management systems," states the report.

Environmental concerns in the telecom sector included the extremely high power consumption of networks as well as the emission of electromagnetic radiation from transmission equipment. Transparency in these areas was markedly worse. For example, most companies confirm that they are increasing energy efficiency in their networks, but they could not verify the amount of energy being saved. Companies are conducting research on the possible effects of electromagnetic radiation.

"[However], scarcely any company was able to document precisely the company-wide standards that were being applied or observed in relation to electromagnetic radiation from its transmission equipment," the report states.

Transparency was even more opaque on social issues.

"Only a limited number of companies publish reports that comprehensively document social and cultural topics," the report states.

However, the report did point out some positive social practices of telecom companies. For example, most telecom employees belong to trade unions that are helping ensure lay-offs happen in a socially acceptable manner.

According to Oekom, U.S. telecom companies clearly must make more efforts to improve their social and environmental performance. The highest rated domestic company was AT&T (T), which received a C-. Certainly the U.S. companies can do better.


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