Many US companies are failing to meet the criteria necessary for
inclusion in one of the world’s best-known SRI indexes. EP looks at the
reasons – and the excuses
It has its critics, but the FTSE4Good index has been one of the success
stories of corporate responsibility. Since it was launched in 2001, a
further 400 companies have been added to the index as they have begun
complying with human rights, labour standards and other criteria. There
are now 900 constituent companies.
There is, however, one less-than-bright spot. In the US, the level of
compliance with some criteria has been low, even though these are being
introduced gradually. As a result, FTSE Group, which runs the index,
has been obliged to give companies more time to meet the criteria – in
some cases as much as two years.
Of the 200-odd US companies in the index, about half still do not
meet environmental criteria, compared with less than ten per cent in
other regions. Only about a quarter of US listed companies have even
responded to initial contact from FTSE4Good about its human rights
criteria, compared with a response rate of 65 per cent elsewhere. And
only one in five of the US companies have met the index’s requirements
on collective bargaining, compared with 60 per cent worldwide.
In other words, while most companies in most countries have virtually
finished implementing the FTSE4Good criteria that currently apply, US
companies are not even close to doing this. With a plethora of new
criteria being brought in over the next two years, the fear is US
companies will fall further and further behind.
FTSE is so concerned it has set up a US committee to look into the
matter. Will Oulton, strategic adviser on socially responsible
investment to FTSE, says one of the main difficulties identified by the
committee is the parochial approach of those US companies catering
largely for their domestic market. ‘The multinationals comply with our
criteria at around the same level as their European and
Asia-Pacific peers,’ says Oulton. ‘But for domestically-focused
US companies, the figures change dramatically. That’s where we find the
bulk of the companies that are difficult to engage with.’
FTSE complains that many US companies do not even have an environment
or CSR department, ‘which means that simply making contact with a
company representative who is prepared to discuss such issues poses
significant difficulties’. But there is, in any case, a general
reluctance to divulge. ‘Disclosure in a litigious culture is a
problem,’ says Oulton. ‘It’s a perceived risk in the US to put too much
information in the public domain, though there’s a view from our US
committee that there is little case law to support such a fear.’
Poor disclosure, however, is not the whole story. FTSE says domestic
companies are simply lagging behind on CSR issues. While the
multinationals are pushed into action in other parts of the world by
pressure from consumers, campaigners and government, domestic US
companies are not feeling the same pressures.
Craig MacKenzie, head of investor responsibility at Insight Investment
and deputy chair of the FTSE4Good policy committee, believes US chief
executives ‘are focused on the practice of their domestic peers rather
than international corporate norms’, and ironically notes that ‘US
multinationals seem to find it relatively easy to meet the criteria
despite operating in the same jurisdiction as the national companies
who offer us legal excuses’.
There are also cultural differences, with domestic companies less
inclined to appreciate the need for action on trade union recognition
and other issues, and more likely to focus solely on legal compliance.
FTSE argues that one of the main barriers to US companies meeting its
environmental criteria is that many have management systems designed to
comply only with the country’s Environmental Protection Act, rather
than continuous improvement systems such as ISO14001.
Matters are not helped by the Sarbanes Oxley Act, intended to raise
corporate governance standards in the US. ‘We’ve found a lot of senior
management time has gone into Sarbanes Oxley-related issues, with a
loss of focus on some related areas,’ he says.
Given that the US’ poor performance against FTSE4Good criteria is not
an isolated failure – US companies have been slow to support the Global
Reporting Initiative’s guidelines (EP6, issue 3, p6) and the UN Global
Compact – FTSE is trying to maintain a tolerant
approach. But its willingness to talk publicly about its frustrations
tells its own story. At the recent launch of FTSE’s plans for the
index, group chief executive Mark Makepeace did not mince his words.
‘There is now a dialogue, which is an improvement from 18 months ago,’
he said. ‘But we need to see action.’
The addition this month of two indexes covering US companies to the Dow
Jones family of sustainability indexes may prompt
companies to further action. It will be interesting to see whether an
SRI index bearing a name indelibly associated with Wall Street can
overcome the scepticism of some US companies.
