How can investors test firms' CSR policies?

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How to benefit from CSR

According to Rose Beale, thematic analyst in the responsible investment team at Columbia Threadneedle Investments, companies could be reporting on strategic or material issues, or non-strategic.

  • Non-strategic CSR issues could include donations to sports charities or special days dedicated to helping in the community.
  • Material ESG issues could include: progress on diversity or environmental incident reduction.

She adds: "In any case, we believe the most relevant issues to test are not isolated CSR activities but holistic ESG performance."

Thierry Bogaty, head of SRI expertise at Amundi, agrees having a holistic analysis of ESG will provide investors with more information than simply scrolling through a company's CSR statements. 

He explains: "Building environmental, social and governance criteria into analyses and investment decisions, in addition to traditional financial criteria, enables [investors] to gain in-depth knowledge of a company and assess its quality. 

"ESG analysis enables investors to better identify risks and opportunities faced by companies. This helps investors to take into account long-term risks - financial, regulatory, operational and reputational risks - and to fully exercise their responsibility."

According to Mr Bogaty, this approach provides a "360-degree perspective of companies", and thereby "consolidates value creation".

Available information

Ms Crowl says: "Investors should always seek to verify the sustainability credentials published on company websites and elsewhere."

Specialist ESG consultants, such as MSCI ESG ratings, provide a plethora of research products comparing companies’ ESG performance within their peer groups, according to Ms Crowl, but nothing can beat "thorough due diligence" when building the investment rationale, she adds.

According to Mr Ditchfield, there is plenty of information available to help investors and their advisers make sense of companies' CSR practices.

He explains: "There are a good many investment companies which seek to analyse CSR activities and identify the extent to which a company or group of companies is genuinely seeking to address a public need or promote social welfare."

Many companies, such as Hermes Investment Management, Columbia Threadneedle Investments and Rathbone Greenbank Investments, collect data on hundreds of companies' CSR policies and performance.

The reason, according to Matt Crossman, engagement manager for Rathbone Greenbank Investments and stewardship director at Rathbones, is to be able to rate a company's efforts in three areas: policy, performance and plans.

He outlines these as follows: 

  • Policy: "Investors can test the strength of CSR policies by grading company efforts against their peers on these core topics. There has to be a policy – evidence of critical thinking regarding a risk," he says.
  • Performance: "There then has to be transparency on how this policy has been executed – what has been done, and what has been achieved.
  • Plans: "And finally, there needs to be an evaluation of that performance and a statement of future intent."

Mr Crossman adds: "Companies score highest on our ratings where they clearly spell out their policies, performance and plans.

"Improvements in, say, energy use or business travel mileage may come because of any number of factors – we award the highest scores to those linked to clear reduction plans and intentional investment."

Still some lack of transparency

Yet it is not always easy to find the right information. Part of the reason for this, as Lisa Beauvilain, head of sustainability and ESG at Impax Asset Management, points out, is that investors are often looking for specific information that cannot be easily found.