Social Reporting: An American Perspective
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Social Reporting: An American Perspective

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Bennett Freeman, SVP, Social Research and Policy - Calvert - United States

Bennett Freeman, SVP, Social Research and Policy - Calvert - United States

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  • Shareholder advocacy means using your position as a company owner to push companies to improve.

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  • 1. Social Reporting: An American Perspective TBLI Conference Europe 2006 9-10 November 2006 Bennett Freeman SVP Social Research and Policy Calvert Group
  • 2. Presentation Outline www.calvert.com
    • Calvert’s Approach to Social Reporting
    • Reporting Issues and Trends
    • Leadership Elements and Examples
  • 3.
    • Select companies that meet Calvert’s social criteria
    • Identify Companies with Good Management
    • Seek Companies with Lower Risk
    • Manager Stock-Selection Process
    • Identify Leading Companies in Category
    • Qualitative/Quantitative Research
    • Attractive Valuation
    Calvert Social Investment Process www.calvert.com Calvert Social Research www.calvert.com www.calvert.com Calvert Equity Portfolios = + Calvert Equity Management Group Reviews/Monitors Managers and Supervises Integration of Social Research Double Diligence ®
  • 4. Calvert Social Research www.calvert.com
    • In-house social research team of 14 analysts
    • Specialization by issue area and industry
    • In-depth research identifies companies that meet our minimum ESG standards
    • Focus on Double Diligence®, which uses an extra level of analysis that seeks to identify risk and better managed companies
  • 5. Core Analytical Criteria www.calvert.com
    • Governance & Ethics
    • Environmental Impact
    • Product Safety & Impact
    • Employee & Workplace Issues
    • Indigenous Peoples’ Rights
    • International Human Rights & Operations
    • Community Involvement & Citizenship
  • 6. Social Reporting Informs Research
    • To conduct robust reviews, analysts need:
    • Comparable, reliable, consistent reporting
    • Relevant metrics supported by hard data
    • Clear identification of goals and timetables
    • Explanation of management structure
    • Board oversight of CSR issues
    • Company perspective on tough issues
    www.calvert.com
  • 7. Social Reporting as Platform for Dialogue and Advocacy www.calvert.com
    • A CSR report provides a basis to begin engaging with analysts:
    • Many companies seek annual input from analysts as part of reporting process:
      • Starbucks, HP, Intel, Dell, and others
    • Reports are now standard pegs to convene multi-stakeholder dialogues around difficult and emerging issues
    As of September 30, 2006, Starbucks Corp (SBUX) represented .36% of CSIF Balanced Portfolio, .42% of Calvert Social Balanced, .36% of Calvert Social Index Fund and .97% of Calvert Large Cap Growth Fund. As of September 30, 2006 Hewlett Packard Co (HPQ) represented .48% of CSIF Balanced Portfolio, .53% of Calvert Social Balanced, 1.16% of CSIF Enhanced Equity, 1.39% of Calvert Social Index Fund and 2.29% of Calvert Large Cap Growth Fund. As of September 30, 2006, Intel Corp (INTC) represented .40% of CSIF Balanced Portfolio, .39% of Calvert Social Balanced, .85% of CSIF Enhanced Equity and 1.63% of Calvert Social Index Fund. As of September 30, 2006, Dell (Dell) represented .30% of CSIF Balanced Portfolio, .30% of Calvert Social Balanced, .65% of CSIF Enhanced Equity, .62% of Calvert Social Index Fund. All holdings subject to change.
  • 8. Calvert Participation in Reporting Initiatives www.calvert.com
    • Chief Social Investment Strategist Julie Gorte serves on steering committee of UNEP FI
    • Environmental Analyst Lily Donge serves on GRI Utilities Working Group
    • Calvert has been a key contributor to the Carbon Disclosure Project from the outset:
      • International effort by institutional investors to increase disclosure of carbon risk, management
      • Expanding to S&P 500 to heighten awareness and build benchmarking platform
  • 9. Social Investment Research Analyst Network www.calvert.com
    • SIF working group with 100+ analysts
    • SIRAN Sustainability Reporting Statement
      • Called for annual reporting, use of Global Reporting Initiative (GRI) framework
      • Supported by18 investment firms and $230 billion
    • SIRAN Benchmarking Report of S&P 100
      • 34 companies now reference the GRI in CSR reports (up from roughly 22 last year—June 2005)
      • 43 issue annual CSR reports (up from 39 last year)
      • 79 have web-site sections (up from 50 last year)
  • 10. Business Benefits of Social Reporting
    • Contributes transparency to capital markets
    • Discloses non-financial risks
    • Improves performance by enhancing internal management tools
    • Establishes basis for accountability to stakeholders
    • Growing acceptance by companies for more sophisticated qualitative and quantitative data
    www.calvert.com
  • 11. The New Realities of Social Reporting www.calvert.com
    • Increased demand from stakeholders for ESG accountability in addition to financial performance.
    • Disclosure and transparency are becoming essential to:
      • Identifying and reducing risk
      • Demonstrating performance and accountability
      • Building credibility and enhancing reputation
    • No industry or company can hold back – especially now that GE has produced two reports
  • 12. GRI: Global Reporting Initiative (1)
    • GRI Reporting Guidelines (G3) were launched in October 2006 after 2 years of multi-stakeholder development
    • The G3 guidelines represent significant improvements:
      • Streamlined reporting principals allow reporting entities to focus on material issues
      • Enhanced reporting on management systems recognizes the importance of governance and process to performance
      • Continued development of sector specific guidelines ensures reporting entities produce comparable data on high impact issues
    www.calvert.com
  • 13. GRI: Global Reporting Initiative (2) www.calvert.com
    • Despite improvements, G3 faces significant challenges:
      • Focus on structural elements cannot replace analysis of performance data
      • Sector specific guidance limited to only a few industries
      • Reporting framework is difficult to adapt cost-effectively for SMEs
    • Nonetheless G3 is still the best game in town
  • 14. Elements of Leadership Reporting
    • GRI – In accordance or reference only
    • The Business Case - Link ESG performance to financial objectives
    • Performance Focus – Establish salient retrospective data and indicators together with prospective goals and targets
    • Management Focus – Ensure implementation
    • Assurance - Externally audited or verified reporting
    • Stakeholder Engagement – Develop, review, and refine reporting criteria as ESG issues and performance evolve
    • Aggressive Disclosure – Acknowledge mistakes and address problems to establish credibility and track performance
    www.calvert.com
  • 15. Gap and Nike: The Race to the Top www.calvert.com
    • Recent reports by Gap and Nike lifted standards and expectations for social reporting in the textile industries on global labor issues:
      • Gap’s 2004 report disclosed patterns of code violations by issue and country, demonstrating credibility of compliance process and gaining new stakeholder support
      • Nike’s 2005 report not only disclosed violations but also supplier factory names and locations, raising the bar for supply chain transparency
    • What implications do these precedents have for other issues where greater disclosure may reveal problems as well as progress – and for other industries with extensive supply chains?
    As of September 30, 2006, Gap (GPS) represented .12% of CSIF Balanced Portfolio, .13% of Calvert Social Balanced, .28% of CSIF Enhanced Equity Portfolio, and .16% of Calvert Social Index Fund. As of September 30, 2006, Nike Inc (NKE) represented .42% of CSIF Balanced Portfolio, .20% of Calvert International Equity, .50% of Calvert Social Balanced, .37% of Calvert Social International Equity and .21% of Calvert Social Index Fund. All holdings subject to change .
  • 16. Issues in Social Reporting (1)
    • Defining and applying materiality in understandable and credible ways
    • Engaging stakeholders in reporting even if not always agreeing about policy objectives and outcomes
    • Melding the confidence that corporate managements want to project in setting and meeting financial targets with the credibility that stakeholders attach to communicating problems as well as successes
    • Reconciling the need to set credible performance targets with the possibility or even likelihood of failing to meet them in the near future
    www.calvert.com
  • 17. Issues in Social Reporting (2)
    • Reporting on a consolidated global basis versus breaking out reports on a country or region basis
    • Deciding whether reporting will remain focused on stand-alone reports for the most committed companies, or integrated into annual reports and other communications
    • Finding ways to communicate CR commitments and performance in terms sophisticated enough to satisfy the most demanding stakeholders (especially NGOs and SRIs), while connecting clearly with the public
    • Anticipating – and even welcoming – regulatory requirements for greater ESG disclosure
    www.calvert.com
  • 18. For more information on any Calvert fund, please contact your financial advisor or call Calvert at 800.368.2748 for a free prospectus. An investor should consider the investment objectives, risks, charges, and expenses of an investment carefully before investing. The prospectus contains this and other information. Read it carefully before you invest or send money. Calvert mutual funds are underwritten and distributed by Calvert Distributors, Inc., member NASD, a subsidiary of Calvert Group, Ltd. #6211-200607 May lose value. Not FDIC Insured. No Bank Guarantee. Not NCUA/NCUSIF Insured. No Credit Union Guarantee . A Note on Mutual Fund Investment Risk Mutual funds can offer the advantages of diversification and professional management. But, as with other investment choices, investing in mutual funds involves risk, including the possible loss of principal invested.  Different funds carry different types of risks.  For example, stock funds are subject to stock market risk.  Stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments.  Bond funds, for example, are subject to interest rate risk, the risk that the market value of the bonds will go down when interest rates go up, and credit risk, the possibility that companies or other issuers whose bonds are owned by the fund may fail to pay their debts. Before you invest, be sure to read a fund's prospectus to learn about its investment strategy and the potential risks. #6390