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December 17, 2002
Social Investors Spur Social and Environmental Upgrades at Intel
    by Doug Wheat

Over the past five years, Intel Corporation's program of engagement with the social investment community has helped the company boost its competitive advantage.

Every August, a small group of executives from Intel (ticker: INTC) heads off to a series of meetings with investment analysts in Boston, New York, and Washington. These meetings cover the depths of Intel's semiconductor business including such diverse subjects as manufacturing processes, supplier chains, employee relations, and intellectual capital. The analysts ask hard questions; Intel replies, but it also listens.

While analyst meetings may seem like standard fare for a company, these meetings arranged by Intel are specifically designed for social investing analysts and are anything but standard. Over the past five years, Intel has made a concerted effort to engage with social investors as part of its culture of continuous improvement. According to Intel's Director of Corporate Responsibility David Stangis, this process has led to a competitive advantage for the company.

"Members of the social investment community are information gatherers that help Intel identify potential issues before they become problems," Mr. Stangis told "I can point to numerous examples of how social investors have helped Intel."

One of those examples is currently improving Intel's process for assessing and auditing its supply chain. Intel has long included provisions in its contracts that require suppliers to uphold standards it sets for the environment and workplace. However, until a group of social investors, led by Bill Somplatsky-Jarman of the Mission Responsibility through Investment Committee (MRTI) of the Presbyterian Church, asked for proof that these standards were being upheld, Intel had no method in place to evaluate this aspect.
Intel injury
An example of Intel reporting that shows absolute injury rates of contractors and "normalized" rates for revenue fluctuations of the company. (Source Intel 2001 EHS Report)

Now Intel has a system of assessments and audits that yields hard data regarding the social and environmental performance of its suppliers. This data allows Intel to do a better job managing its supply chain. Or, in Intel's language, the data enables the suppliers to become part of the company's continuous improvement process. Mr. Somplatsky-Jarman, who has visited nearly every Intel facility, affirms that Intel listens to the concerns of social investors and encourages investors to speak with employees to verify information and procedures. The MRTI works with the Presbyterian Church's major investing agencies, the Board of Pensions and the Presbyterian Church Foundation, that together own more than 660,000 shares of Intel.

Calvert Group, which is one of the largest socially responsible mutual fund families in the U.S., believes Intel is one of the better social and environmental performers in its class.

"Intel beats its peers on environmental impact, achieving substantially better-than-average reductions in emissions, recycling/recovery ratios, compliance, and reduction of production waste," said Julie Gorte, Calvert's director of social research. Partly because of Intel's social and environmental performance, it is included in many social investment indexes including the Domini 400 Social Index, the Calvert Index, the Dow Jones Sustainability Index, and the FTSE4Good Index.

In an industry such as semiconductor manufacturing, which can have major environmental impacts and worker safety issues, improvements in environmental and social performance can result in tangible business benefits. For example, after Intel improved its design and manufacturing processes, the U.S. Environmental Protection Agency (EPA) switched Intel's U.S. facilities' classification from "major source" of pollution to "minor source" of pollution. Designation as a minor source allows the company to reduce its permit costs.

Although Intel is beating its peers in terms of social and environmental performance, social investors are not satisfied with the status quo. Mr. Somplatsky-Jarman said that he would like Intel to adopt the CERES Principles, strengthen its environmental reporting, and provide greater oversight of its global operations. There are also lingering concerns from local residents about Intel's water use at its New Mexico manufacturing facilities.

Social investor demand for information that spans multiple departments led Intel this year to release its first comprehensive corporate citizenship report. Even though Intel prides itself on an "organic culture" that encourages departments to work together, compiling the report was a major task that took four months longer than expected. For social investors, who care as much about how a company uses its resources as any other investor, time spent on such reports is worth it. Ms. Gorte commented, "In the long run, these disclosures will be more important for all investors, not just social investors, and as this light dawns, Intel is well positioned."

Intel has also found an unforeseen benefit; the citizenship report has become an excellent tool for communicating company initiatives to Intel employees and their families. According to Mr. Stangis, "Intel employees want to know that they work for a company that takes a progressive approach to social and environmental issues."

Intel's approach to investors appears to rest on a principle of transparency and trust. Intel ensures that investor queries are answered, whether the answer comes from the investor relations department; the public relations department; the environmental, health, and safety department; or the corporate responsibility department. The trust between shareholders and Intel encourages investors to raise concerns during informal discussions instead of opening a public proxy ballot issue.

According to Mary Jane McQuillen, a Vice President with the Social Awareness Investment group at Citigroup Asset Management, Intel's transparency helps it protect its brand and reputation value.

"A company's willingness to be transparent and responsive on all levels, particularly in this market environment, may add to the level of comfort and confidence that investors have from a risk management and return standpoint. Intel's leadership on CSR and corporate governance issues has potentially helped to raise their visibility and protect their brand value."

Individual investors in social mutual funds may sometimes wonder what impact they are having. If Intel is any example, it appears that social investors are collectively responsible for helping change business culture and deliver benefits to companies and to society.


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