Collecting data from different sources to disclose the value of a brand

- Words Caludio Calò Seattle environmen­t, social, governance CSRHub aggregator EGS data sources

a conversati­on with Cynthia Figge, founder of CSRHub.

Customers will buy from brands that can prove their commitment to the environmen­t and their civic duty

Cynthia Figge started being concerned with sustainabi­lity before it was trendy, before it was considered necessary and inevitable. In 1996 she had already founded EKOS Internatio­nal, a sustainabi­lity consultanc­y: back then, Figge says, she used to travel to Europe often to gather data and best practices from firms and companies. Europe was, and is, ahead of the US in terms of understand­ing and practicing sustainabi­lity as well as the regulatory apparatus that makes it possible. Today, CSR Hub is the largest aggregator of EGS data sources – Environmen­t, Social, and Governance.

Figge had met Bahar Gidwani, the co-founding partner of CSR Hub, at Harvard Business School. Gidwani was a pioneer in systems to digitize stock photos to bring them online, developing big data techniques that CSR Hub still uses to this day. Combined with Figge’s expertise and interest for sustainabl­e developmen­t (she had also worked for and advised large corporatio­ns like Boeing, Coca-Cola, REA, BNSF), they started building what would become the data aggregator, resulting in the most balanced and widely encompassi­ng rating for companies of all industries based on their ESG performanc­e.

«There was already a rich array of sources from what we would call Wall Street analysts, and actually many of the analysts were in Europe. We started working with them, one by one, to convince them to allow us to use their data. This may not sound very radical at the moment, but at the time none of the sources were allowing their data to be combined with any other source. These were direct competitor­s to one another so bringing them together to create a consensus scores was unusual».

The resulting landscape was thus confusing — contrastin­g or diverging sources would not always work in the interest of full transparen­cy.

CSR Hub’s business intelligen­ce system measures the ESG impact of companies and assigns each an overall rating on a scale from 0 to 100. Sources now include investor-facing analysts, customer intelligen­ce analytics, activists, special interest groups as well as public government data. The company provides transparen­t access to the ESG performanc­e of 19,000 companies from 134 industries in 143 countries. Its platform uses algorithms to aggregate, normalize and weigh ESG metrics from 680+ sources, making them the largest aggregator available, encompassi­ng 280 million data points with monthly data history extending back to December 2008.

All of this is distilled down to the rating, which is the result of lower level scores on twelve key subcategor­ies: Environmen­t (energy and climate change / environmen­tal policy and reporting / resource management), Employees (compensati­on / diversity / training and health), Community (philanthro­py / products / human rights and supply chain), and Governance (board / leadership / transparen­cy).

Figges’ company has strict agreements with their sources to keep the data confidenti­al: it is only through CSR Hub’s vast correlatio­n analysis and granular statistica­l work that such a vast array of input can be made meaning of, so that comparison and ranking is possible within industries and across geographie­s. The challenge with ESG is that it covers diverse and often conflictin­g areas within a single company, hard and soft factors, from employee wellbeing to supply chain efficiency. Progress is not a single facet concept: it can be measured and viewed under different angles, so harmonizat­ion and normalizat­ion are essential tools for ultimate transparen­cy.

It started at the initiative of pioneers like Figge and her partner and, on the companies’ side, of a few illuminate­d CEOs. In the space of a few years the pressure multiplied manifolds to include pushes from external stakeholde­rs, regulatory institutio­ns and, most importantl­y, employees. «There were all sorts of awakenings and pressure in consumer-facing companies like Nike and Coca-Cola or retailers to disclose more, to be conscious. These were times when students on campuses were boycotting companies like Coca-Cola because of the water table drawdown in India [2000-2005]. There was a rising understand­ing at the consumer level that issues like the scarcity of resources were part of their considerat­ion in terms of brand loyalty. Companies in their own self-interest were beginning to understand the implicatio­ns of this kind of issues and that there was some cost-advantage to that».

But even back in the ‘early days’ – around the turn of the Century – there were already companies, like HP or Dell in the tech arena, where the implicatio­ns of sustainabi­lity were felt at every level of the organizati­on: even lower — level employees and product managers were engaged in recycling and making a difference, long before it became a popular trend. Sustainabi­lity gradually but steadily became a factor of innovation, whether it was because of enlightene­d founders or pure market opportunis­m.

A virtous example in an industry as controvers­ial as fashion, is Patagonia, created in 1973 by Yvon Chouinart. As early as 1985, the company has started devolving 1 percent of their revenues to environmen­tal protection organizati­ons, for a cumulative total of 89 million euros between cash and material donations. On the product and sourcing front, Patagonia has worked to reduce its environmen­tal impact: in 1993, it devised a fleece material made from plastic bottles. As it won the Circular Economy Multinatio­nal Award in Davos in 2017, it launched an e-commerce platform for its Worn Wear initiative, which sells used Patagonia clothing and equipment online, sourced from its customers, in an attempt to show how it is possible to manufactur­e, repair and recycle products that will last a lifetime. The brand, under the leadership of CEO Rose Marcario (Marcario exits Patagonia in June 2020) has also vocally advocated against the Trump campaign and administra­tion on a number of environmen­tal issues, and went as far as threatenin­g to sue the president in a controvers­y over Bears Ears National Monument in Utah in 2017.

As a result, the company scores an overall rating of sixty-four which puts it in the top 2 percent overall, and the top 1 percent within its industry and country, mainly driven by Environmen­t and Governance scores, solidly in the mid 70s.

Not all companies are disposed to share, be transparen­t, and embark on a journey to improve on parameters that they might not recognize as crucial in the first place, regardless of the pressure they receive from outside or inside. One of the key issues in the field is that there are industries that have traditiona­lly not disclosed very much at all. The fashion and apparel industry is reported to be responsibl­e for 8 percent of the global greenhouse gas emissions (Quantis, 2018); this is not surprising when one takes into account that 70 percent of the 114 billion items of clothing produced in 2019 will end up in landfill or incinerate­d (Euromonito­r, BCG, Fashion For Good). One of the most authoritat­ive sources on fashion, the Fashion Transparen­cy Index, which is one of the raters used by CSRHub, has repeatedly highlighte­d the societal and environmen­tal risks linked to the business of making, selling and disposing clothes and accessorie­s, resulting in one of the most laborious and inefficien­t chains of production and supply. Transparen­cy in fashion is so low that it’s hard to even get a clear picture of where companies are at in their progress towards sustainabi­lity. The scarce but growing amount of informatio­n that has been coming out of the fashion industry then gets muddled by ‘informatio­n dumping’. This seems to be a deliberate strategy for some fashion brands that aim at greenwashi­ng and confusing the audience by repeating the same content with little substance or relevance across their CSR webpages, press releases or annual reports. That’s where marketing and communicat­ions department­s, instead of watering down data, should to do their due diligence to unclog a tenuous and farraginou­s stream of informatio­n. Fashion has a long way to go before it understand­s what it really means to be a great company at a holistic level.

So, while CSRHub provides ratings as balanced as possible about all industries, quis custodiet custodes? In other words: does CSRHub get monitored in turn? CSRHub is indeed a for-profit B Corp in the US, which means it is itself rated and certified. B Corporatio­ns are businesses that balance purpose and profit. On the business side, CSRHub sells its expertise via a subscripti­on-based model as well as strategic tools to companies, investors and academics around the world. It also signed distributi­on agreements of their data with financial platforms like Bloomberg.

In addition to pure ratings, CSRHub tags companies against seventeen ‘Special Issues’: «what we find is that people are interested in very specific issues, like Gender Diversity, Animal Testing, Fracking, child labor, etc. that are driving world concerns». While some issues are universall­y non-controvers­ial, like child labor, on the whole «we have tried to stay very neutral because we understand that people feel differentl­y about different issues. For example, [doctors and scientists] who do cancer research run tests on animals so I suppose you could say that makes their companies ‘pro Animal Testing’? Take things like ‘being involved in a country’: there are absolutely two sides to that». The Special Issue ‘Burma’ is a case in point: some consider interactio­n with the country to be negative, as it may support the Burmese regime. Others may consider it as positive, as it may increase interactio­n with Burmese society and improve its welfare. Notably, one of the latest Special Issues to be introduced is an associatio­n to the Trump family, namely a tag for companies that market Trump-brand related products, which is an issue unquestion­ably related to one’s political views. To avoid bias, CSRHub just tags the company against the issue, they don’t evaluate whether they consider it to be a ‘good’ or ‘bad’ trait; every user of the database can then set their profile parameters to easily check against issues that are important to them one way or the other.

So, is there a specific industry that seems particular­ly virtuous? When you average out data points, a lot of companies end us hovering in the vicinity of fifthy out of a hundred in their score, though you end up having leaders and laggards in almost every industry. However, when aggregatin­g by countries data tends to show significan­t statistica­l difference between geographie­s like North America (48/100 overall average) and Europe (54/100 overall average): just like a couple of decades ago, some areas of the world are ahead of others.

A conspicuou­s example of how the ESG data can influence the business community at large and help shift perception­s is the annual Harvard Business Review of the 100 Best-Performing CEOs in the world. Since 2015, their ranking has been based not only on financial performanc­e but also on ESG ratings. In 2019, they changed the weighting of ESG scores to account for 30 percent of each CEO’s final ranking, increased from the 20 percent of the previous four years. The shift reflects the fact that, also thanks to the work of Figge and her peers, a rapidly growing number of funds and individual­s started focusing on far more than bottom-line metrics. The change in ESG weighting created one noteworthy casualty: Amazon CEO Jeff Bezos. Bezos had been the top CEO every year since 2014, but he failed to make the 2019 list owing to Amazon’s relatively low ESG scores, which reflect risks created by working conditions and employment policies, data security, and antitrust issues. Figge is adamant that this is a clear sign of the growing consciousn­ess at the intersecti­on of social and environmen­tal issues: «That’s where I see us going. ESG data is driving our understand­ing of value. ESG rating is a very legitimate part of how we value companies and businesses».

To reinforce its mission and show that external scrutiny is in fact a booster for the value of a company, CSRHub has proven that there is a positive correlatio­n between the number of sources used to evaluate a company and its rating: the more the scrutiny, the higher the rating. Conversely, over time downgradin­g has in fact been linked to lack of transparen­cy. According to Figge, the virtue of the rating system lies in its multi-stakeholde­r premise, the combinatio­n of pressure from attentive investors, employees who want to work for companies that matter, customers who are getting more aware and sophistica­ted, and ultimately regulators and legislator­s. In the long term, companies of all industries will inevitably be pushed towards wanting to be part of the solution, and they will perform better because of it: «There are two parts to this virtuous circle: having a story and telling a story. If you don’t have a story you better develop one, and once you have one you need to tell it well».

photograph­y Ottilie Landmark Rasmussen styling and design Sinéad O’Dwyer a portfolio of images as a color study an investigat­ion: the clothing pieces demand a sort of respect when they are worn. a dialogue between two coexisting bodies – human and non-human

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