Wall Street Takes a Closer Look at Corporate Social Responsibility

published in The Daily Transcript, May 4, 2006

In case you haven’t noticed, Wall Street is now getting in on the act and taking a company’s corporate social responsibility initiatives seriously. What this says to me is that companies that continue to operate with a “shareholder-only value” mindset will be in for a rude awakening. It’s no surprise to me that more than 45 percent of the top Global Fortune 500 U.S. companies now report on corporate responsibility and that the S&P 500 also review a company’s CSR programs. According to Mike Wallace, of Wallace Partners LLC in San Francisco, the United States is predominately in a regulatory driven business atmosphere and slow to follow international trends” This is evident in the U.S. presence on indices By Barbara Burton such as the Dow Jones Sustainability Index and the FTSE4good, Wallace thinks companies need to “pay atten­tion to how traditional financial service institutions are rat­ing their corporate behavior and understand the direct link to their bottom line”

“I wholeheartedly agree with Wallace and wanted to find concrete examples. During the recent Business for Social Responsibility conference. I found exam­ples. Many were like the representative of an oil and gas company I spoke with, who said her company had embarked on a program to reduce emissions sever­al years ago- There was an initial cost, of course, but eventually the reduction in emissfons saved the company money, partly because its processes became more energy efficient than before. She described the initiative as “beyond com­pliance.” The end result: The company ended up with a strong, sustainable environmentally focused process, gained a positive reputation (as opposed to some of its competitors) and the initiative actually added to the bottom line. Why pay attention to CSR? Because it makes financial sense.

Today on Wall Street, asset owners, sell-side analysts and institutional and individual investors are looking at a company’s ESG and finding out that long-term business valuation is tied, more than ever, to a company’s positive envi­ronmental, social and its effective governance practices — its ESG — as well as its financial performance.

Sarah Forrest, a sell-side analyst with Goldman Sachs who leads its Global and Investment Research Division, said issues such as political risks and effects of major disasters may have put emphasis on ESG, but she points out that financial industry has reached a critical point. In a discussion at the BSR con­ference, Forrest said that if companies don’t integrate ESG into their financial analysis, they’ll have missed an opportunity to gain a competitive advantage.
With a strong commitment by top managers, her division began to measure ESG in

Wall Street and corporate social responsibility are no longer strange bedfel­lows. A solid CSR program is not only a valuable risk management tool for companies, but it can contribute to a solid reputation and valuation in the mar­ketplace. In fact, Dow Jones and Sustainability Asset Management launched a new North American and U.S. index, to examine major companies’ social, envi­ronmental and financial performance ( I hope CEOs will take a close look at these indicators and understand what I believe is behind corporate success. Like Wall Street, they’ll see the direct link between sustainability and profitability and will hopefully take the next step to implement a solid CSR program.

Burton is a specialist in the field of corporate social responsibility and received accreditation on conducting social audits from, the New Economics Foundation in London.

Source Code: 20060503tza