Report from the GlobeScan/SustainAbility Salon – Measuring Responsibility and Building Trust – The CSR Ratings Game

CSR ratings and rankings can be useful guides to company performance, but should be approached with caution, according to participants at a GlobeScan/SustainAbility Salon in London on October 12.

Attendees from global companies, think tanks, NGOs and research organizations gathered at GlobeScan’s London offices to discuss the significance and of the vastly increased number of CSR and sustainability ratings, with an expert panel chaired by SustainAbility’s Gary Kendall, consisting of Mallen Baker, Founding Director of Business Respect, Seb Beloe, Head of SRI Research at Henderson Global Investors and George Dallas, Director of Corporate Governance at F&C. 

Sam Mountford, Research Director at GlobeScan, opened proceedings with a presentation of GlobeScan’s global attitudes tracking among publics and sustainability experts, and an interactive e-vote among all attendees on their perceptions of CSR rating systems.

Some key themes emerged from the discussion: 

Public perceptions of trust and responsibility have undergone a number of recent shifts

GlobeScan’s recent public and stakeholder attitude tracking shows that trust in global companies remains very low. There is also a widening gap between public expectations and perceptions of corporate performance on CSR. Responsibility is increasingly associated with the increasing demand for transparency; possibly linked to the boom in social media, with consumers increasingly expect transparency about corporate failures and shortcomings. However, Mallen Baker suggested that actual confidence levels in the corporate world might be higher than this suggested, as it is “very easy to distrust generalities”, as opposed to individual companies and public figures.

Scepticism about the usefulness of CSR ratings

Both participants at the Salon and global sustainability experts polled in The Sustainability Survey doubted the ability of ratings agencies to accurately measure a company’s level of sustainability. NGOs were felt to be the most accurate judges, ahead of ratings agencies. But panelists argued that the results of respondents’ comparisons between ratings organizations revealed a lack of familiarity. Seb Beloe said that ratings were less useful in isolation and too dependent on data received from companies. Ratings, he thought, were also limited by the difficulty in comparison between different sectors, and did not take into account external or historical factors; carbon emissions in the energy sector are complicated by inherited circumstances from previous leaderships or outdated technologies.

Ratings and the trade-off between coverage and quality

George Dallas stressed the importance of understanding what the composite elements of ratings are. Sustainability ratings combine environmental, social, and economic factors, but with no consensus as to the proportional importance of each, resulting in potential subjectivity. Those with a narrower focus are more likely to match specific needs. Seb Beloe suggested that there was a choice when utilizing ratings; either you focus on a specific subset of issues, or you consider a range but use professional judgment.

 The increased use of ratings by companies points to the power of branding

The explosion of the ratings field prompts questions as to where the demand stems from. This is the “power of branding” according to Mallen Baker, which would go some way to explaining why the Dow Jones scores highest among ratings companies and why NGOs perform better than ratings companies. People respond to the integrity of NGOs rather than their ability to judge a “universe” of companies. Companies are not single sentient units but broad combinations of communities, cultures and practices. Individual leadership and management structure can have a transformative effect and, along with quality of service, are part of a complex interaction of factors.

What is the purpose of ratings?

Panelists said they thought the problem with CSR reporting was the gap in the market for interpretation into strategy. “Ratings should not be an end unto itself”, according to George Dallas, “Research needs to be actionable and the point of a rating is what you can do with it.” End investors see ratings as a dimension of risk management. Demand for CSR ratings may stem from their use as a positioning tool.

Groupthinking to oblivion

Last week, I attended the latest in a long series of conferences, round-table events and discussion evenings on sustainability. It had its moments. But a defining feature of these events is consensus – lots of it. Delegates from businesses large and small, NGOs, academics, the media, governments – all without fail voice their concerns about the parlous state of the planet, often quoting alarming statistics about the number of new power stations in China or the plight of fish stocks in the North Atlantic, and violently agree on the need for wholesale changes in consumer, state and corporate behaviour. Trenchant debate about how to achieve this is frequently lacking.

Now, as a pollster, you don’t need to tell me that what we have here is a self-selecting sample. If you’re either apathetic or professionally sceptical about the environmental challenges we face – which, for the record, I am not - you are unlikely to choose to spend your time at these events.

This is certainly not to say that we can dismiss these gatherings out of hand – the sheer number of them, for one thing, tells us that there’s a genuine groundswell of concern out there. But for those looking for explanations as to why we haven’t seen this mushrooming of bien-pensant concern translate (by most measures) into behaviour change on the scale required, perhaps University of Manchester psychologist Geoff Beattie’s new book can help.

Using ‘implicit association tests’ he has investigated how our stated attitudes differ from our unconscious biases and instincts, and has come to the conclusion that we aren’t as green as we think we are. He estimates that between 40 and 50% of people have ‘implicit’ attitudes towards sustainable consumption that don’t match their ‘explicit’ ones.

From a GlobeScan perspective, it wasn’t a huge surprise to read this. We’ve seen the number of self-described ‘ethical consumers’ in our surveys – those who claim to reward or punish companies on the basis of their sustainability credentials – balloon massively in the past few years. Now, are 62% of American consumers really going out there and punishing irresponsible companies, as they told us in 2009? Sales data would suggest not. So what’s happening here?

What’s undeniable is that environmentalism, to a greater or lesser degree, has become the new orthodoxy. The way that sceptics present their case illustrates that, with much talk of ‘a conspiracy’ to hoodwink the public. In that context, we should not be too shocked if people feel a social pressure to pay lip-service to attitudes that they don’t really hold, or if they exaggerate their commitment. People would like to think they are ethical consumers. Hysterical talk of climate change ‘deniers’ – with its overtones of the Holocaust and David Irving – will hardly help the situation.

It’s been said that climate change is the ultimate political, rather than technical problem. Moving to a sustainable world will require creativity and a real understanding of what makes people behave the way they do. Memo to those who share this laudable objective: groupthink and demonization of those who disagree won’t cut it.

CSR and soap bubbles

As we reported recently, our latest tracking data suggests that Indian consumers are proving to have surprisingly high expectations of companies' CSR, and don’t appear to share the increasingly cynical outlook of their Chinese counterparts.

One particularly intriguing – and perhaps counter-intuitive – finding was that Indian consumers are actually more likely to say they have heard or read about companies’ CSR activities than in most other countries we surveyed – 50%, compared to 30% globally. Of course, there may well be some over-claim here – but if not, maybe Indians have just been watching a bit more TV lately?

India’s Mint business newspaper reports that TV product placement is back with a vengeance in the subcontinent, citing Procter and Gamble’s recent promotion of its Shiksa CSR campaign around children’s rights via a storyline in a popular soap on the Star channel among its examples. And indeed, a GlobeScan colleague confirms that P&G’s efforts to raise the profile of its CSR haven’t gone unnoticed by the TV soap fans in her family in India.

Is this the way forward for companies wanting some credit for their efforts to do good? Maybe. But another trend we’ve noticed is an increasing tendency for people looking for information on what companies are doing to be more responsible to bypass companies’ own CSR messaging – reports, website content and the like – and look instead to independent online sources, including social media. CSR in sponsored soap storylines would appear to run counter to that trend. But as we've seen, the number of people aware of companies’ CSR efforts is relatively low, and hasn’t grown at all in four years. Maybe it’s not a bubble, and P&G are on to something with their soap strategy after all.

Rising expectations around CSR in India

It's sometimes asserted that corporate social responsibility is a luxury that is just too expensive for companies and consumers in the world's developing economies to worry about. Creating jobs and boosting GDP is, allegedly, all that matters.

Our latest tracking data on attitudes towards CSR in India suggests that this assessment is pretty wide of the mark. Nearly two-thirds (63%) of the Indian public say they want their government to force companies to go beyond their traditional economic roles and work to improve society, even if this means higher prices and fewer jobs. They're more demanding in this respect than the Japanese (55%), British (50%) or Americans (39%). Consumer attentiveness to CSR communications by companies also looks to be on the rise in the subcontinent. And while a highly successful company like Tata is picked out most frequently as a 'responsible company', concerns over labour standards also mean that it's the company that is most commonly mentioned as 'irresponsible'. Consumers, in other words, are conflicted - economic growth is transforming the lives of so many, but this doesn't mean that they're blind to the social and environmental costs that accompany it.

We've seen attitudes around responsible business in the world's other emerging economic superpower, China, become much more cynical in the wake of the Sanlu scandal, in which a highly respected producer of infant formula was found to have contaminated its products with melamine, and caused the death of several children. With faith in corporate leadership on the decline in India, companies are going to need to demonstrate credibly what they're doing to meet these heightened expectations, or risk government stepping in and enforcing a responsible approach to business.

Global governance: just a mirage?

With the number of intractable global problems mounting inexorably, an effective system of global governance has been the pot of gold at the end of the rainbow for many decades now. It may now be as far away as ever. After an amicable but somewhat ineffective G20 summit in Toronto, Philip Stephens of the FT points out that, now the immediate financial crisis has waned, the imperative for governments to come together and co-ordinate policy across borders has also diminished. Voters, he says, expect their national government to ‘shelter them from the storms’, and governments don’t want to admit that they can’t do so without help from outside, and so resist moves that would require them to cede sovereignty.

What’s interesting is the potential contradiction at the heart of public opinion on this issue that our data reveals. The political pressure from voters for visible, unilateral action that Stephens identifies is real enough. But in the latest wave of our tracking in late summer 2009 we saw a remarkable upswing in trust in national governments to act in the interests of society (as the chart below shows)– just at a time when those governments were being forced by circumstances to come together and co-operate in a way rarely seen before. Voters may not like the idea of ceding power outside their borders, but appear to like it when progress is made. Maybe governments need to take heart from this and be more honest with voters about the pooling of sovereignty that is needed to address many of the issues that most concern them.

But if the autumn of 2008 represented a high-water mark in cooperation among national governments, December 2009 and the failure to come up with any sort of adequate deal to address climate change at Copenhagen was surely a nadir. Our next wave of tracking of trust in government, due out later this year, will show whether the mini-boom in public confidence in governments has, like the aforementioned pot of gold, vanished into thin air as soon as it appeared.

Greenwash, and why it matters

Regular readers may recall that we've talked before about the perils of greenwash.

Here's some more evidence that it's a real barrier to sustainable consumer behaviour. My colleague Eric Whan, our Director of Environmental research, writes:

"We all have ideas about why sustainable consumption has not become mainstream despite all of the effort put toward that goal. Materialism, greed, product (in)efficacy, poor communications--all of these are at least partially valid explanations.

Published this month, the National Geographic / GlobeScan "Greendex" survey of consumers across 17 countries has found that while consumption habits of the average individual have become somewhat more sustainable in more countries than not, gains have been modest. As we at GlobeScan have long said, a broad gap exists between the values that people hold as individuals (green), and their behavior as consumers (not so green).

How to narrow the gap? To get some answers, we asked 17,000 consumers this very question directly. Many will consider this method a rather blunt measurement tool, but the survey question generated the most compelling results of the 2010 Greendex study.

As this chart shows, when asked to what extent ten different factors discourage them doing more for the environment than they do now, the top rated factor was the perception that companies make false claims about the environmental profile of their products. The second greatest obstacle was a belief that individual action is futile if governments and companies do not take action themselves. Less important barriers included conventional explanations such as cost, inconvenience, confusion, and a lack of green product alternatives.

So, if we are to conclude anything from the data, it is that corporate credibility and a lack of leadership in general are the priorities that must be first adressed by those who wish to further sustainable consumption. Thus the question arises: How? I'll leave that to you."

BP: in very Deepwater, but not drowning yet

If you were looking for a suitable image to convey what a crisis in reputation looks and smells like, you could scarcely do better than this. Hundreds of thousands of barrels of sticky crude oil leeching daily into the Gulf of Mexico, and washing up week after week on the shores of the country that is still the world’s biggest power, ruining people’s livelihoods along with the coastal environment and sending American politicians into apoplexy. The clever tagline that BP devised a few years ago to position itself as part of the new, sustainable future now looks like a bad joke. Far from being ‘beyond petroleum’, the company may now be about to drown in it.
Or so the conventional wisdom goes. What chance does BP have of emerging from the current crisis?
There’s a case for saying that, once the flow of oil has been staunched and the immediate crisis has passed – easier said than done, apparently - the company has a reasonable chance of returning to some semblance of business as usual. BP is a colossal company – the world’s fourth biggest – and its many other operations across the world continue to earn it healthy profits, particularly in an era of high oil prices. Unlike a company producing consumer goods, whose market appeal might be fatally damaged by an incident of this scale, consumers have limited scope to boycott BP’s products, even if they wanted to. Most of BP’s revenue is from its upstream rather than downstream business, in contrast to some of its competitors, and it’s hard to see how the drive to ensure BP covers the full cost of cleanup and compensation would be served by turning off its funding tap.
And there is some reason to believe the effect on its reputation may not be as seismic as has been suggested. BP has faced other problems – the Texas City oil refinery explosion killed 15 back in 2005, and corrosion problems in an Alaskan pipeline caused a spill of an estimated million barrels of oil there in 2006. But when GlobeScan tested awareness of these incidernts among UK and US consumers at the time, we found that most had not heard of them; those that had tended to feel BP were doing a reasonable job in trying to resolve them and – critically – the great majority did not feel that their respect for BP had been damaged as a result.
Of course, the scale of the current disaster dwarfs those two accidents, and together with the BP leadership’s hapless media performances this may mean that all bets are off. But it’s worth considering this: for many years, our data has shown that the oil companies across the board are not popular corporate citizens, and accidents like this are a major reason why. Deepwater Horizon may be a stark reminder of the price we pay for our collective addiction to oil, but for now, there’s no obvious alternative to hand. That, for now, may be enough to save BP’s skin.