UN EP FI Principles for Responsible Investing; Kofi Annan's long farewell, Water

What should the PRI do next?
1. Engage companies & policy makers. Achieving goals, challenges, low-hanging fruit.

The PRI has the most to gain by building strong content and loyal membership over the next six-month period. Developing content articulating the PRI to both private sector and policy makers must be the primary goal. While personal speaking engagements may be best for developing the real relationships in influential networks, written materials have the longer half-life in the marketplace for thought leadership in order to institutionalize and generate a longer tail of activity. From my experience in institutional money management, and the development of SRI, I think intersections of academic, foundations and investment industry life must be pinpointed and exploited to maximize the impact. While the project milestones provide the framework, I also expect that the PRI will benefit where it dynamically seizes situational opportunities, for example the interest in “universal ownership” following the conference at St. Mary’s in California. Engagement is the outcome, but activities and outputs may be measured to determine sufficient flow is being created, and the impact measured against the goal. Beyond the effort, the ultimate metric is the number of policymakers and companies that subscribe to the PRI. In order to harvest the “low-hanging fruit”, I believe the lessons from other network and membership organizations are instructive and should form the basis for action: develop content, and incentivize membership.

1. Develop content
Multi-stakeholder projects face many challenges, including failure where they are perceived as intellectually lightweight. The PRI needs solid content delivered via a compelling virtual home online. As a global project, and with intellectual thinking and ideas as a basis, the PRI must be well represented. Using the resources of the UN and the brand of UNEP FI, I would build the web presence beyond the approach currently at www.unpri.org to leverage all current multi-media approaches, using a style that emphasizes simplicity and ease of navigation. The virtual home needs to serve the multiple audiences for the PRI, thinking strategically about what “influencers” when given the best information, will help push the PRI to the tipping point. The website must deliver multi-media [text, graphics explaining the approach, video and audio of speeches and/or events, possible a podcast]. An investor relations approach delivering media packs is a key component, making available chunks of PRI content to be ripped from the site by time-poor, information-hungry media. Other targets include key constituencies within firms, graduate students and academics. Web-measurement metrics must be included in PRI reporting internally, and if positive, in external profiling.

The PRI should also use the mechanism of an online speaker database as a self-nominating approach to maximizing interest in the subject matter, as well as raising the profile amongst peers. From this database, the PRI can increase the pool of available voices, while reducing risk of dispersion of opinions by maintaining ownership of the message through providing talking points and developed slide decks. Audio and video capture for the resources center on the website will also act as an accountability mechanism.

2. Incentivize membership
Choosing membership in organizations is the sum of a risk/return algorithm for any reputation. In order to build the membership, existing members’ decision should be supported and positively reinforced, creating a loyal base. Adopting the old B2B sales mantra, one satisfied institution makes an introduction to many more. The PRI must work through existing signatories to encourage membership, incentivizing existing members to recruit peers. Incentives include profile and reputation rewards, starting with public attribution and using www.pri.org. Critical questions include: are each of the 10 major brands in institutional money manager or investment consulting in each target market signed up, and if not, how can PRI change that? Are the 10 major GLOBAL financial services brands actively engaged, and acting across all their regions to implement the PRI? By using the powerful clusters as influencers, building from the loyal based, the PRI can maximize sustainable relationships invested in the project over the long term.

2. Measurement of PRI implementation. Challenges.
Measurement for this project may rely on the cross-sector approach to measurement, adopting the philanthropy model of input > activity > output > outcome > goal alignment. Measuring the seeding of ideas is more difficult, but the PRI will have to decide carefully how to measure each of these five components.

The primary challenge is mapping back to members’ expectations, established at signing, and their resource commitment and institutional energy devoted to the project. In signing on to the PRI, the list of “possible actions” has left opportunity for the proactive participants to scope out new areas for action, and ambiguity for the passive members to be inactive. Linking to my recommendation regarding the primary importance of content, I believe encouraging content will act as a real-time and longitudinal gauge of effort and effectiveness. The role of the PRI must be to assert the need for frequent information from members, and to remove barriers to action by smoothing the collection, collation and analysis of activity. Activity levels are easily measured, and suggest self-evaluation. Within each of the principles are many examples that lend themselves to content collection and collation, for example policies and their implementation, or developing collaborative initiatives. The online and international nature of the PRI presents some language and information management challenges, but these have been solved elsewhere and may be adapted for use by PRI.

A meaningful framework for assessment must incorporate elements that private sector actors are familiar with: competition, rewards, and sanctions. Competition – whether implicit or explicit – presents a “race to the top” where companies can stretch to achieve better implementation of the PRI. Obviously, some firms will weigh the calculus for success and temper their efforts accordingly. But focusing on the influential actors, especially those with strong brands, may have a multiplier effect. For example, advocating ESG training internally by industry majors is valuable. The PRI benefits when winners are easily measured. Rewards to members who meet or exceed the defined expectations for the PRI across the six principles and action areas should be firstly at a personal level [the effort relies so heavily on networks and relationships], secondly at the corporate level. Understanding the cultural differences in approach to recognition and rewards, diplomacy must be applied to skillfully deal with managing the personal ambitions and the corporate egos. Profiling members [personal and corporate] is an easy, and uncontroversial, approach, for example, the website in a section highlighting “member profiles” with a monthly calendar rotation. The PRI needs teeth. Sanctions must be applied within the membership to at least one outlier in the first review period. I believe the signaling effect is powerful, and immediately establishes the measurement program as being material, with consequences having impact. The degree of sanction and delivery of messages will depend on the dynamics of the situation and the defined metrics established, but the process is critical. A fine line must be trodden between offending members, and keeping their “feet to the fire” as Warren Buffet would say.

Measurement for members and by members can lean on the project management framework of being specific, measurable, actionable, reasonable and time-specific. With multiple actors with different corporate cultures, revenue bases and geographic challenges, as well as the tiered member structure, the performance review I recommend should be driven by PRI members themselves, with relative accountability to appropriate peer groups. Anticipating some inertia at start-up, I think the measurement needs to offer generous timelines, but the specific targets per time period [for example, requesting X companies to apply ESG factors in Y number of conversations over period X]. With new relationships in this “start-up” network, and looking to empower peer-driven assessments, I strongly encourage maximizing face-to-face interactions of members in the early stages, rolling over to web-based video/audio over time [to reduce costs and maximize ease of capture for the PRI content stored on the platform]. The PRI will succeed where influential, smart and ambitious people are committed to its vision, and lead their organizations and professional peers in the direction of the Global Compact and making ESG issues important in investment decisions.

Three weeks from Kofi Annan’s resignation, it was poignant to hear him field questions at the Truman Library in Missouri today, a slight deference, some defiance in his eyes, and a very clear idea that so much needs to be done. There is not much chance the goals for water will be met, but others have better chances of success. The investment case for water keeps growing, even as the US West Coast girds for a snowless winter in the Sierras, and the prospect of a long dry summer [see http://www.gemi.org/water/module4.htm]. Time to review the water investment opportunities for US investors, beyond the exploration by my friends at Generation IM, Goldman Sachs and the odd hedge fund in NYC. See also post at http://plentymag.com/features/2006/12/liquid_assets.php.

Victoria's Secret Trims Pulping the Boreal

Chainsaws down! Millions of men in the 18-35 demographic are relieved: Limited Brands just helped them reduce the size of their environmental footprint, and prevented the 2007 version of the The Victoria's Secret Fashion Show 2006 being greened out. Victoria's Dirty Secret is safe [see also SRI Extra, Monday, February 12, 2007]. After fumbling along without a leader in the C-suite on sustainability issues, it seems Limited Brands has empowered the SVP of Community and Philanthropy to help it get its head in the game. It is not clear on the power dynmaics, or where this will be in 2 years time. Any investor would worry a little about the poor reputation strategy management, especially for a FMCG firm, yes?! Or was that arrogance that LTD/VS could build a brand like Victoria's Secret on the basics of brand management, but the same laws would never apply to it? It is actually the VS sister company, Victoria's Secret Direct, that mails more than 400 million of its sexy catalogs per year, offering intimate apparel, women's clothing, and footwear. At somewhere between 20-32 pages, that’s a lot of bright shiny, ink-covered pages, many of which last about a week or hour until they are trashed.

While the announcement in San Francisco, Dec. 7, 2006 by ForestEthics of their pact on environmental stewardship with Victoria's Secret is good news, it will probably require ForestEthics keep the target companies feet to the fire. Annual checkups like Banktrack.org has done supported by WWF, RAN and FOE on lending practices after the Equator Principles is a good idea, and wherever possible, making the business case in laymen’s terms, for their motto after all is “because protecting the forest is everyone’s business”. An environmental impact scorecard or index like we covered for the Business Ethics 100 at KLD, perhaps in partnership with major media, will keep the trend toward more sustainable forest and paper policies in the news regularly, and cover all those moving forward like Patagonia, but also raise awkward questions in board rooms which have surprisingly shown stubborn resistance particularly endangered forests like some of the US industry's largest companies, including Sears and Lands' End.

The ForestEthics and Limited Brands, parent company of Victoria's Secret, announcement of a “new forest protection policy” included “several landmark environmental measures and ensures that the pulp for the company's catalog paper will not come from endangered forests” [I have a visceral dislike when corporate-speak trots out terms like “landmark”, “benchmark” and innovative”. Do you too?].

"We consider environmental stewardship to be an essential part of our values, and we're proud to take a leadership role," was the PR by SVP Tom Katzenmeyer, but one had to wonder where that “leadership” had been lurking the previous two or ten years… No word on whether Dan Howells, Paper Campaign Director for ForestEthics, smiled, grimaced or fidgeted when these words were spoken.

ForestEthics had been advocating with the catalog industry for several years to reduce their environmental impact on the Canadian Boreal leading two years ago launching a campaign against Limited Brands/Victoria's Secret, and deftly beginning “discussions” with the company. In June 2006 in St. Louis, MO they led local and national activists to rally at the Victoria's Secret store at the St. Louis Galleria, with Unitarian Universalist activists, Young Religious Unitarian Universalists (YRUU), the Missouri Forest Alliance, the Boston Coalition for Sustainable Logging, and other local activists. Those discussions must have been fun...! ForestEthics’ campaign has been about the impact of catalog production on Canada's Great Boreal Forest. ForestEthics statistics are alarming:

Stretching from Alaska to Canada's Atlantic coast, the Boreal contains 25% of the intact, roadless forest remaining in the world and is a key regulator of global climate, providing one of our first lines of defense against global warming. It is critical habitat for many species, including endangered caribou and half of North America's songbirds, and provides $93.2 billion a year in ecosystem services like air and water filtration. Currently, the Boreal is being logged at a rate of two acres per minute, 24 hours a day, and paper production accounts for nearly 50% of that logging.

Extractive industries had been targeted long before firms down the pulp and paper supply chain, as the WSJ reported back in 2001 [not on the editorial pages] Wall Street Journal -- Big Firms, Environmentalists Join To Save Canada's Boreal Forests by Christopher J. Chipello. They adopted the classic regulatory route, calling for government action not positively establishing their own private sector standards for the 10% not in government hands, including chunks in company leaseholds. Of the four big natural-resources companies that announced they will join with a coalition of environmental and native groups to persuade the Canadian government to protect much of the country's vast boreal-forest region, according to officials involved in the effort, only one firm, pulp producer Alberta-Pacific Forest Industries Inc., was expected to make a commitment to have its forestry practices certified by the Forest Stewardship Council [FSC], the leading standards organization. Of course, Gary Larson's Far Side would surely cartoon the irony of a oil sands firm calling for forest protections [does that include unpolluted groundwater from mining operations?], Suncor Energy Inc. extracts oil from the massive oil-sands deposits in northern Alberta.

The measures make for interesting reading on what a leading NGO had been able to negotiate with an industry major, based on willingness to negotiate and how material the impact may be:

1. Limited Brands will partner with its primary paper supplier to eliminate all pulp supplied from the Boreal Forest (Alberta's Rocky Mountain Foothills) and British Columbia (Inland Temperate Rainforest).
2. Shifting its catalogs to either 10% PCW or at least 10% Forest Stewardship Council (FSC) content during 2007.
3. A preference for FSC certification, the only credible certification for sustainable logging. Limited Brands has partnered with one of its principal suppliers to shift four of its mills to FSC.
4. Overall catalog paper reduction.
5. A commitment to continual improvement on environmental attributes of catalog paper and paper use. Progress will be audited by an independent third party and made public.
6. A commitment to phase out of endangered forests.
7. One million dollars committed to research and advocacy to protect endangered forests and ensure leadership in the catalog industry [is this the cheapest marketing spend ever for a billion-dollar consumer brand with a sustainability themes problem?].

No word on what the CFO had to say. When will the case be put in compelling business terms, explicitly linking damaging the natural resource bases irreparably as a cost to society and therefore to business? Fortune's Marc Gunther had in September covered the Canadian forest issue in Are Kleenex tissues wiping out forests? referencing Kimberly-Clark being targeted by Greenpeace and other environmental groups for misleading the public on its sustainability practices and reports, the unfortunately common practice of “greenwashing”, referencing the Domini work on FSC sourcing. Kimberly-Clark Corporation (NYSE:KMB) is a US$16 billion a year forest products firm whose brands include Kleenex, Huggies, Scott, Pull-Ups, Cottonelle, Viva, Kotex and Depend. Greenwashing is a business characteristic that will perpetually offer ratings firms like KLD, Innovest, EIRIS and GES a daily wage. I will be watching for what the Forest Service Employess for Environmental Ethics has had t say. FSEEE is made up of those public servants and retired workers who actually care about what they did at the environment service and its forest philosophy, although I am sure same little in-fights happen along the way. I still think the whistle-blower is the most powerful component of any corporate governance or ethics protocol.

Victoria’s Secret has been a phenomenon and a shining star for LTD. Lingerie, especially VS's expensive lingerie has along with conspicuous luxury items like handbags for Coach [NYSE:COH] been a strong consumer trend in affordable luxury segment – you need more than one, right, Dara?! The branding masterstroke was to use the annual fashion show as a TV event, like SI’s annual swimsuit edition [although the latter suffers withholding from fathers and librarians who are getting increasingly nervous]. I'm still waiting to be invited, and will let all know as usual on the EVENTS page! It really would be a sad understatement to regard the photos from the VS catalogue like the cataloguing of equipment in say Runner's World or Chainsaws Monthly, yes? Never having heard of VS before coming to America in Feb. 2002, I often wondered how the prudish American TV sensibilities allowed the dressed up lingerie to wiggle through onto primetime TV like at The Victoria's Secret Fashion Show 2006.

No word yet on greening the fashion show for 2007, using wind turbines driven by all the hot flushes, perhaps…

Thanksgiving in VT, sometime home of SRI, voices from the SRI retail sector in Consumer Reports, December 2006

Thanksgiving is the quintessential American holiday. Held the penultimate Thursday in November, it oftentimes ranks as more important to extended families than Christmas/Hannukah celebrations in December. With major highways and airports becoming legendary logjams, K and I were able to scoot north to Vermont midday Wednesday before the lemmings left Boston.

Vermont is a unique state in the American psyche. Renowned for its clean countryside [billboards are banned], rugged New Englander independence, and the eponymous Green Mountains, VT is home to a mix of fierce “red staters” hunting and shooting, including National Guard volunteers, wealthy but outdoorsy city people [flatlanders to the locals] who escape New York, New Jersey or Boston for the lifestyle, and crunchy granola types in Subarus, Saabs and Volvos as far as the eye can see, VT being the last resting place of many of the 1960’s hippie generation. While many VT policies point toward a “green” orientation, including incentivized alternative energy, it is also home to the Yankee Nuclear plant near Brattleboro in the south of the State. Distinctive VT businesses are mostly service sector, with outdoors activities like skiing, kayaking, and hiking being endemic. General tourism includes a solid antiquing industry.

Vermont's long history of farming is threatened by emerging mega-farms and the low product prices, so it supported from Montpelier, and the dairy farms that formed the competitive advantage for Ben & Jerry’s superb ice cream are teetering. The state is also home to the 2006 top-ranked listed company in the Business Ethics 100, Green Mountain Coffee [GMCR], whose practices were so impressive and within the corporate DNA, they actually won the award long before they put out their first CSR report [released in October 2006].

VT has hosted the Green Mountain Summit on Investor Responsibility since inception, an event pitched mostly at institutional SRI niche. I first got acquainted with the conference when I spoke in April 2004 on my B-school study on pension fund trustee attitudes to ESG factors in 2003 I developed with Prof. Jon Doh at Villanova University. The VT state treasurer Jeb Spaulding has remained a positive influence for ESG factors in investment decisions. VT has a variety of tertiary institutions with a sustainability curriculum, with UVM [University of Vermont] B-school, Vermont Law School [a small but strong law school focused on environment] which I enjoy including in my 3.5 hour road cycling route, and the School for International Training [SIT] which has a Net Impact chapter. VT is remarkably sensitive to climate change issues, with agriculture and outdoor industries impacted by weather changes, like the tapping of maple trees for their “liquid gold” and ski areas having to manufacture snow [sign of global warming: ever tried to find someone to buy into a snow ski operation lately?!]. The Septemebr/Octber months sees many tourists for the “Fall foliage” season [when the forests change to beautiful gold, bronze and burgundy colors as the temperature change initiates their change to autumn foliage]. Screwy weather patterns risks even this rite of passage.

My father-in-law is a quintessential socially responsible professional, having dedicated his whole medical career to not-for-profit practice. In my book, anyone investing his own career in a SR practice is making the biggest possible SRI move. The Doctor is also a great personal demographic for understanding the thinking of the average SRI investor. He bikes in the backwoods almost daily, will debate until his veins stand up with his Republican brother-in-law [we have to watch them at parties!], and is a member of AARP and NRDC. The Doctor is fairly financially literate, and a dedicated reader of Consumer Reports for all things, including the Money Adviser publication. While a large chunk of wealth is in the home [typical of the average American], his mutual fund investments are balanced into international portfolios, and a fair portion in TIAA-CREF mutual fund.

Browsing the December 2006 Money Adviser [Consumer Reports], I found a fascinating little window into the SRI retail market. Apparently they surveyed their subscribers, with 25% respondents reporting “yes” and their answers breaking down below. As I was finding my work at the major SRI rating firm in Boston, the largest area of interest is in environmental issues. Of course I would be interested in what the vendor breakout is, and mapping to other consumption patterns, particularly items with easy profiles like energy star appliances, fluorescent bulbs, and hybrid cars. One distinction I valued was the breakout between socially “conservative” vs. “liberal” value sets. I foresee the “socially conservative” market as a latent force in values-based investing, and one which current providers have no clue on how to address, but more about that in another post. Chatting to the Doctor raised another few issues as I tried to map what would have been his answers: firstly, the low response rate reflected in the good Doctor being away saving lives and without time to complete the survey, secondly his vagueness on his current vendor, and thirdly the lack of clarity about exactly which buckets his vendor would cover [we settled on environment, socially liberal and humanitarian]. This reflects the general malaise in investment marketing, where clients lack the fluency with their investment portfolio.

Much to reflect on, but now to raise a glass of fine red from California: it's not even 5 pm and the forests of VT are dark and cold. The snow will be coming soon [hopefully]…
Quickpoll > Money Adviser Consumer Reports December 2006 > Have you invested in socially conscious mutual funds or do you plan to?
Environmental/green
43%
Socially conservative
29%
Socially liberal
20%
Other
16%
Humanitarian/Aid
15%
Donor Assisted
8%
n=514 [25% of subscribers], conducted May 2006. Answers reflect answers only of the 25% of respondents who replied yes to initial poll question. Results do not add to 100% [multiple possible answers]. Responses are representative of subscribers but not of the general public.

2006 Moskowitz Prize

Judges seem to be finding it harder to choose winners. A good sign. The 2006 Moskowitz-prize winning article describes CalPERS' use of shareholder activism and its thoughtful and thorough writing supports the taxonomy for investors incorporating environmental, social and governance [ESG] factors by building a case from CalPERS, one of the foremost proponents of incorporating ESG in their investment strategy. The CalPERS CG mandate remains a differentiated investment theme, with about 11 money managers havuing active CG mandates, accounting for just under 2.5% of total CalPERS AUM. With such size, and seemingly controversial mandates, CalPERS is also one of the most closely watched [as a public instiution should be]. See also their coverage of issues like consultant's conflicts of interest, environment themes, and the oftentimes controversial economically targetted investments.

In a similar way, I am following with interest the situation in South Africa where the largest institutional investor, the Public Investment Commission [the investing arm of the Government Employees Pension Fund [GEPF] has ascribed to the UN Principles for Responsible Investing. Just last Friday on my way to speak at the Net Impact national conference in Chicago my Blackberry picked up this note re. addressing the issue of the wage gap, one of my personal interest issues.

Gap between rich and poor too high - Molefe
The gap between the lowest and highest paid in South Africa needs to be addressed urgently, according to Brian Molefe, the head of the Public Investment Corporation, which oversees the the largest retirement fund in the country, the R600 billion Government Employment Pension Fund.

As would be expected, the page hits and downloads of the winner are outstripping the two "honorable mentions". While I respect the need to cover the tobacco issue, I have little sympathy for the "ethics" of tobacco industry - even the tenuous arguments about poor farmers which I regard as patently paternalistic [ever tried eating tobacco leaves when the commodity price drops through the floor or the manufacturer chooses not to buy your whole crop?]. In another century I remember some philosophical and mercantile arguments were equally persuasive for slavery. The net of the paper matters little, even when I try and stretch to my best Machiavellian or Rand thinking - it is never worth another 100 or 700 basis points [risk-adjusted] even if you are the trustee trying to grow the healthcare institutions endowment to fund doctors to do explicitly good work. It's just not.

Monitoring the Monitor: Evaluating CalPERS' Shareholder Activism
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=890321
BRAD M. BARBER
University of California at Davis March 2006
Abstract:
Many public pension funds engage in institutional activism. These funds use the power of their pooled ownership of publicly traded stocks to affect changes in the corporations they own. Perhaps the most high profile activism has been pursued by CalPERS. In this paper, I review the theory and empirical evidence underlying the motivation for institutional activism. In theory, the merits of institutional activism hinge critically on two agency costs: (1) the conflicts of interest between corporate managers and shareholders, and (2) the conflicts of interest between portfolio managers and investors. While portfolio managers can use their position to monitor conflicts that might arise between managers and shareholders, they can also abuse their position by pursuing actions that advance their own moral values or political interests at the expense of investors. Which of these effects dominates the actions of portfolio managers will determine the value of activism and is an empirical issue. I analyze the gains from CalPERS activism linked to their focus list firms from 1992 to 2005. I document that CalPERS has generally pursued reforms at focus list firms that would increase shareholder rights. My best estimate, based on conservative short-term announcement reactions, indicates CalPERS activism has resulted in total wealth creation of $3.1 billion between 1992 and 2005. In general, I argue that institutional activism should be limited to situations where there is strong theoretical and empirical evidence indicating the proposed reforms will increase shareholder value. At times, institutions will be forced to take positions on sensitive issues (e.g., investment in tobacco firms). In these situations, I argue portfolio managers should pursue the moral values or political interests of their investors rather than themselves.
Paper Stats at 30 Oct 2006 7:22:
Abstract Views: 791
Downloads: 258
Download Rank: 11190

The Price of Sin: The Effects of Social Norms on Markets
http://search.ssrn.com/sol3/papers.cfm?abstract_id=766465
HARRISON G. HONG
Princeton University - Department of Economics
MARCIN T. KACPERCZYK
University of British Columbia - Sauder School of Business March 15, 2006
Sauder School of Business Working Paper
EFA 2006 Zurich Meetings
Paper Stats at 30 Oct 2006 7:20:
Abstract Views: 559
Downloads: 208
Download Rank: 13784

Is Doing Good Good for You? Yes, Charitable Contributions Enhance Revenue Growth
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=920502
BARUCH LEV
New York University - Stern School of Business
CHRISTINE PETROVITS
New York University - Leonard N. Stern School of Business
SURESH RADHAKRISHNAN
University of Texas at Dallas - School of Management
July 2006
Downloads
Paper Stats 10/30/2006 6:41 ET
Abstract Views: 141
Downloads: 68
Download Rank: 34566

ONE > Pictet debating the fewest possible indicators > Job Creation

Having time to catch up on some summer reading, I reached out to Christoph Butz in SUI who shared with me his Pictet paper on Job Creation [Do Stock Markets Reward the Creation of Jobs?, June 2006]. Pictet is a niche Swiss money manager with a sustainability team [Pictet Quants; Sustainable Investment] based in Geneve that previously put out paper citing the reasoning for a single measure of sustainability performance [see 'Less Can Be More…A New Approach to SRI Research" article at Socialfunds.com].

The study looks at 1677 companies of the MSCI World and the period from 1997 to 2005, we investigate whether the creation of jobs has been rewarded or penalised by stock markets. The ESG data comes partly from KLD as an "esteemed research partner through the SiRi company network". Most fascinating is the graphic looking to describe correlation between jobs and CSR, "JOB CREATION VS. STANDARD SOCIAL RATING" graphing a scatter graph plotting our the new job-based social responsibility rating (x-axis) versus a standard multi-criteria social SRI score sourced from SiRi company (y-axis) which concludes: "The scores are virtually uncorrelated."

SRI and sustainability is a notoriously complicated subject, more art than science. So personally I like the elegance of a model that simplifies. Others in SRI rightly point to company performance being multi-faceted and the narrowness of just one indicator. I think the idea deserves some air to breathe [like the air in Montana, fine]. After all, in assessing investment decisions in companies, analysts will default back to their single favourite indicator [EPS or EBITDA or forward P/E] to give their 15 sec. elevator pitch on a buy/sell/hold decision.

Acknowledging the drawbacks of having one factor assess the CSR performance of a company, I find the angle of inquiry by Pictet interesting "job creation eclipses all other labor issues as a key indicator of corporate social responsibility". Of course, cutting jobs may be the sign of a company trimming down to fight competition, or changing its product line-up etc etc. Currently, I understand that few CSR or SRI research shops are tracking job creation, or the switch from high quality to low-quality jobs.

As a quant money manager Pictet is interested in finding the fewest possible metrics to describe CSR/sustainability to fit into their numbers-driven model. The full title is a mouthful but gives you the direction: Do Stock Markets Reward the Creation of Jobs? Job Creation as a straightforward proxy for companies' "Social Responsibility" and its implication for performance.
See related story 6 July 2006 on socialfunds.com
A peer in SRI supported Bill's view, noting "The authors would seem to argue that any problems with [outsourced] jobs would eventually catch up with the companies, but that isn't necessarily the case - so far - for the companies that fall outside the radar screen of labor activists hunting down sweatshop problems, and that describes many companies. Since host country govts want the investment and are reluctant to rock the boat about labor rights abuses, you can't rely on local regulations to iron out the problems anytime soon, either".

The same day Bill's story hit [6 July 2006 WSJ] on my regular mornign T commute through Cambridge to Boston I read of a similar simplification [caveat, caveat] re. customer service: bottom line question - based upon your client service experience, would you recommend the company to your friends? A cutting question for market researchers everywhere!

The forward by Jean Laville,Deputy Director, Ethos Foundation, Geneva outlines the Foundation's interest in the study of job creation:
"We are convinced that the societal cost and the hidden, internal cost for the companies involved could – as a result of raising insecurity in many countries because of job cutbacks in one region and transferring them to an other region - backfire in the long term, eventually completely undoing the purported cost cuts or even turning them into the opposite.
... Ethos will support initiatives to understand more clearly the mechanism of job creation and destruction. Ethos recognises the urgent need for a comprehensive database in this area to provide sustainable investors with presently unavailable employee-specific information in
an appropriate way.
...We are convinced that modern ESG research cannot afford to continue to all but neglect the creation of jobs. Rather, this crucial aspect will be the cornerstone for all future and meaningful assessments of the social responsibility of companies. And it is precisely in this sense that the present paper does indeed make a most valuable and highly welcome contribution."

Mr. Butz concludes: "For some sectors and regions, the creation of jobs appears to play the role of a leading indicator with regard to a company’s future stock-market performance whilst for other sectors and regions, these results could not be confirmed."

I look forward to exploring this elegant idea in future.

Contents:
1. INTRODUCTION 5
2. LEGITIMACY OF USING JOB GROWTH AS A
PROXY FOR SOCIAL RESPONSIBILITY 6
3. SCORING METHODOLOGY: HOW TO MEASURE
JOB CREATION? 11
4. BACKTRACKING AND SIMULATION: TESTING ‘WHAT IF’
SCENARIOS... 14
5. PRESENTATION & DISCUSSION OF RESULTS: FINANCIAL
IMPLICATIONS OF JOB GROWTH 16
6. CONCLUSION: DOES IT PAY TO CREATE JOBS? 23
7. APPENDIX: JOB CREATION BEYOND MERE HEADCOUNT -
EXPLORING SOME MORE IDEAS
Pictet Do Stock Markets Reward the Creation of Jobs?
1