The SRI community feels vindicated as recognition mounts that ESG issues influence shareholder value and affect corporate sustainability. The CFA Institute published a new Manual for Investors: Environmental, Social, and Governance Factors at Listed Companies to help investors and analysts understand and assess ESG factors in fulfilling their fiduciary responsibilities. Proxy proposals and their success rates also reflect this evolution, as highlighted in Risk Metrics’ early synopsis of the 2008 proxy season, 2008 Postseason Report Summary and their outlook for 2009 [downloads require registration]. Employees, various stakeholders, investors and companies increasingly consider such issues.

As mainstream investment community interest has grown, studies suggest linkages between ESG factors and financial risk, as found in a 2007 cross-sector study of European companies and in stock price performance (according to an Innovest study published in The Banker [requires registration]). However, integration remains inconsistent, as outlined in a recent BSR report, Environmental, Social and Governance: Moving to Mainstream Investing?

A timely new book, Sustainable Investing: The Art of Long-Term Performance, includes a collection of articles from 22 contributors including co-editors Cary Krosinsky and Nick Robins. As one review notes, pricing ESG risks and opportunities is important, but challenging for markets in which average holdings are measured in months, not years. The Moskowitz Prize was awarded to researchers for their study, The Wages of Social Responsibility, documenting the outperformance of best-in-class SRI firms, contrasted with portfolios that simply exclude companies (such as tobacco) based on negative screens. The IFC has also reported on “Outcomes of the Who Cares Wins Initiative” (2004 - 2008), including recommendations to scale up ESG integration, particularly from the investment community perspective. Another IFC study highlighted the business case for ESG implementation in emerging markets, offering parallels in developed markets as well as a usable matrix for organizational business case development.

In our previous News Alert, we conducted a survey of CSR practices. Survey questions related to report presentation (print or web) as well as report content. Among respondents, we found that two-thirds create a printed CSR report and a printed summary or brochure. All respondents offer an online report, either in PDF format (2/3) or HTML (1/3). Nearly 60% also offer online CSR content apart from a report. (According to KPMG’s study, 75% of the G250 present corporate responsibility-related information on their websites.) Fewer than 10% of respondents incorporate CSR content into their financial reporting, although 25% intend to within the next two years. All of those not yet reporting plan to provide some form of reporting within the next two years.

Regarding report size, over 80% surveyed intend to reduce the size of their printed CSR report. However, 50% are likely to increase their online CSR content and update that content as needed. Only 25% plan to increase their online PDF or HTML CSR report content. Respondents cited “managing and approving data” as the most challenging aspect of reporting, followed by “the length of the process.” The least challenging aspects of reporting were “timely access to Web resources” and “the cost of using an outside firm.”