Socially Responsible Investing: Corporate Citizenship and Wall Street Meet

1
Socially Responsible InvestingCorporate
Citizenship and Wall Street Meet

• How Ford Motor Company is Evaluated and Viewed

2
Corporate Citizenship Through an Investors Eyes

• is a business approach to create long-term
  shareholder value by embracing opportunities and
  managing risks deriving from economic,
  environmental, and social developments.
• - Dow Jones Sustainability Group Index

3
Corporate Citizenship Through an Investors Eyes

• One of our guiding principles is that the best
  long-term investment opportunities are to be
  found among companies that are financially sound
  and are committed to meeting the challenges of
  today and the future with an expanded view of
  corporate responsibility.
• - Barbara Krumsiek, President CEO of Calvert
  Group

4
Companies outperforming oncorporate citizenship

• Secure a long-term license to operate by
  responding to stakeholders changing needs
• Use resources in more efficient and economic
  manner
• Deliver more predictable results, with fewer
  negative surprises
• Likely have other sound management practices
  (environmental/ social management is proxy for
  overall quality of management)
• Look to create wealth among a broad set of
  stakeholders, increasing market awareness and
  access to new markets
• Demonstrate increased transparency and offer more
  perfect information, financial and otherwise

5
Socially Responsible Investing

• More than 2 trillion in assets in socially and
  environmentally responsible investments in U.S.
• Grew from 1.185 trillion in 1997 to 2.16
  trillion in 1999
• Growth outpaced broad market at twice the rate
• One out of every eight dollars under professional
  management in U.S. is part of SRI portfolio
• SRI accounts for 13 of 16.3 trillion
• One in nine investor households have SR
  investment
• Negative screens are giving way to best in
  class

6
Socially Responsible Investing
SCREENS AND RETURNS 10 LARGEST U.S. SRI FUNDS SCREENS AND RETURNS 10 LARGEST U.S. SRI FUNDS SCREENS AND RETURNS 10 LARGEST U.S. SRI FUNDS SCREENS AND RETURNS 10 LARGEST U.S. SRI FUNDS SCREENS AND RETURNS 10 LARGEST U.S. SRI FUNDS SCREENS AND RETURNS 10 LARGEST U.S. SRI FUNDS SCREENS AND RETURNS 10 LARGEST U.S. SRI FUNDS
Fund Name Inception Date Assets (m) Annual Average Annual Average Annual Average Annual Average
1 year 3 year 5 year 10 year
Domini Social Equity 6/3/91 1,299 -19.4 2.6 14.2 14.5
Pax World Balanced Fund 8/10/71 1,234 -1.3 9.5 14.2 11.3
Dreyfus Premier Third Century 3/29/72 989 -27.3 1.9 12.7 12.2
Calvert Social-Balanced A 10/21/82 600 -5.9 2.6 9.3 9.0
Ariel Appreciation 12/1/89 530 30.6 10.7 19.1 14.6
Citizens Core Growth Fund 3/3/95 473 -28.4 2.0 14.5 -
Ariel Fund 11/6/86 396 27.0 9.8 17.3 13.9
Parnassus Fund 5/2/85 373 -16.8 19.4 17.7 16.5
Citizens Emerging Growth 2/8/94 294 -37.5 15.7 16.5 -
7
The Context
Demand information
Investors
Rating Agencies
Provide information
Reporting
Investor interest growing
Surveys, interviews
Companies
8
On what criteria are we judged?

• Vision and Commitments
• Management Quality
• Multi-Dimensional Performance
• Financial, Economic, Environmental, Social
• Across value chain
• Reporting Commitment / Policy

9
What sources of information are used?

• Annual reports
• Financial reports
• Sustainability or corporate citizenship reports
• Verification emerging as important
• Questionnaires/surveys
• Management interviews
• Internet scans
• Media stories
• NGO opinions

10
Companies evaluated by different groups

• The Center for Responsibility in Business
  (formerly CEP)
• Sustainable Asset Management (SAM)
• Dow Jones Sustainability Group Index (DJSGI)
• Innovest
• Investor Responsibility Research Center (IRRC)
• Kinder, Lydenberg, Domini (KLD)
• OEKOM
• Storebrand
• EIRIS
• Others

11
Research used for different purposes
Examples

• The
• Center
• SAM
• Innovest
• KLD

• FTSE4Good (in partnership with EIRIS)
• some Fortune and Worth Magazine rankings
• Shopping for a Better World
• Dow Jones Sustainability Group Index
• most often cited in Financial Times and Economist
• companies use for benchmarking
• sells data to financial analysts institutional
  investors
• Domini Social 400 Index

12
Dow Jones Sustainability Group Index

• The only index which measures sustainability on
  a global basis
• In-depth analysis of economic, environmental, and
  social dimensions
• Examines risks and opportunities for strategy,
  management, and industry-specific issues
• Analyze surveys, monitor media, solicit
  stakeholder input
• Top 10 of industry sector selected for the Index
• Selection process audited by PWC

13
DJSGI Leading Companies (2000)

• Ford excluded due to crisis management but
  performed well in other areas
• - Firestone and discrimination (human rights)
  issues

14
Ford Risk Criteria (2000)
15
Ford Opportunity Criteria (2000)
16
Auto Industry in Perspective
17
Ford DJSGI Assessment (2001)

• Effective October 5, 2000 - BMW, DC, VW
• Preliminary feedback on Ford
• Weaknesses
• supplier standards (social dimension)
• environmental performance (manufacturing)
• intellectual capital management (need to
  investigate further)
• Scored quite well on other aspects, just not in
  top 10

18
Innovest

• Uncovering hidden value potential for strategic
  investors
• Primarily environmental but beginning to include
  social
• EcoValue 21 model includes 60 environmental
  criteria
• Conduct annual interviews approximately 1.53.0
  hours with about 1200 companies
• Well respected with impressive list of
  institutional investors, asset management firms,
  corporations
• Considerable costs associated with research
  excludes activists

19
Innovest
20
Innovest
21
Innovest Ford Rating
Weaknesses
Strengths

• AFVs, EVs, 2003 HEV Escape, ISG
• ISO 14001
• Environment at the BoD level
• Rouge project
• First to drop out of GCC

• Wanting in environmental cost accounting and
  performance reporting
• Promised improvements in fuel efficiency will
  be followed closely by NGOs
• With Firestone tire recall, Fords reputation
  has been shaken

22
Innovest
23
FTSE4Good

• Launched in July, 2001 with widespread media
  coverage
• Assess three dimensions
• Working towards environmental sustainability
• Developing positive relationships with
  stakeholders
• Upholding and supporting universal human rights
• Four indices
• UK 50 Index (no auto manufacturers)
• Europe 50 Index (BMW ranked 50th)
• US 100 Index (no auto manufacturers)
• Global 100 Index (Toyota ranked 16th, Honda
  ranked 66th)
• Relies on The Center and IRRC data

24
Storebrand

• Analyzes environmental performance and selects
  top 30 of auto industry
• Uses weighted average of eight sustainability
  indicators
• Strong focus on impacts of product in use
• Beginning to conduct human rights assessment
• Analyze policy, operations, suppliers/partners,
  internal management systems reporting

25
Storebrand Evaluation

• Fords Sustainability Index (weighted average)
  is 108 the industry average is 100. Ford
  qualified for the Environmental Value Fund.
• Other auto companies are Fiat, VW, Honda,
  Toyota

26
The Center for Responsibility in Business

• Established in 1969, influential and
  long-standing, although going through rebranding
  and restructuring
• Assign grades as part of company report cards
• One of the more activist organizations
• Criticized for subjective ranking process

27
Report Card
Disclosure (1999) Environment (1999) Minority Advancement (1999) Women's Advancement (1999) Workplace Issues (1999) Work/Life Programs (1999) Charitable Giving (1999)
Ford Rank A C A B C B 0.45
Sample Rank - N/A 41/213 101/212 82/127 64/133 -
Industry Rank - 5/6 1/4 2/4 2/2 2/2 -
DC B B B D - - -
GM A A C C A A -
28
OEKOM

• Weighting 17.5 environmental management, 65.0
  products services, 17.5. environmental
  performance data
• European auto manufacturers rank 1-7, then two
  U.S. companies, followed by Japanese
• Ford received a C rating and ranked 8th out of 14
• Strengths ISO 14001, reporting
• Weaknesses sustainability risks of SUVs, poor
  fuel economy performance
• VW, Audi, Renault leaders with B- ratings
• Mitsubishi and Mazda laggards with C- and D
  ratings

29
KLD
30
How are we performing?

• Rank in middle tier (good we are responding to
  requests)
• Credited for vision, must deliver on promises and
  improve product performance
• Recognized for AFVs, HEV Escape in 2003, ISG,
  Th!nk, SUV fuel economy commitments
• Rewarded for strong environmental management
  systems, but environmental performance is either
  (1) lagging or (2) difficult to assess due to
  lack of data and/or lack of targets
• Asked to improve social performance reporting and
  provide evidence of supporting management systems

31
Going Forward

• Explore better ways to respond to surveys
• streamline responses
• develop standard data set
• Engage with rating agencies
• better understand methodology (demand
  transparency)
• seek commonality between surveys
• ask for feedback and opportunity to respond
• understand reasons for Ford scores and those of
  leadership companies
• Collaborate with other companies and suppliers
• dialogue on soundness/consistency of methodology
  (promote GRI)
• analyze extent to which this analysis impacts
  investors and valuations