Social Assessment by Chris Nelder
		As we began research for this issue of BWZ, trying to separate "socially responsible" claims of substance and integrity from those who merely used the tag line, it became immediately apparent that the distinction is fuzzy indeed. There are virtually no comprehensive standards by which to compare one company with another. While organizations like the Council on Economic Priorities have provided a certain amount of navigational aid to consumers through publications like their Shopping for a Better World, in which companies are graded from A (excellent) to F (poor) for their performance in eight dimensions of evaluation, the approach has been criticized for being simplistic and reductionist. As the book's subtitle admits, it is "The Quick and Easy Guide to ALL Your Socially Responsible Shopping." It grades 191 companies on eight dimensions: the environment, charitable giving, community outreach, women's advancement, minority advancement, family, workplace issues, and disclosure of information. A brief summary of the evaluations which resulted in these grades is given in the front of the book, and 20 of the companies are selected for additional brief, page-and-a-half profiles. Such guides may be useful to consumers who are merely looking for a few quick suggestions on how to select their next purchase of cookies or light bulbs, or for a brief sense of where the products' manufacturers stand on various social issues. But they hardly constitute a rigorous review of individual companies, nor do they reflect the greater context in which the companies conduct their affairs. They more reflect a summary of popular conceptions and fashionable concerns. The mere structure of the book betrays the problem inherent in the subject: it is simply far too complex to describe that way. There are far more than 191 companies we need to examine. We want a transparent window on their activities, not an issues-centric Venetian blind. A summary grade on a broad and complex subject like the environment is so lacking in descriptive power that it could be more misleading than informative. We need enough information to weigh for ourselves the relative importance of various aspects of social and environmental performance, and some usable standard metrics for expressing those evaluations. Some compare today's world of socially responsible business (SRB) and investing (SRI) assessment to that of the financial world in the 1700s, just as the early seeds of modern financial systems were beginning to take root. The challenge of devising models for assessing companies on this host of interrelated, complex issues is enormous. The top minds in the field disagree on substantive issues, and like any emerging science, there are a host of models being offered up which are subject to the vigorous criticism of peers in the field. Dr. Simon Zadek of the New Economics Foundation offers a good basic description of social auditing: "A means of assessing the social impact and ethical behaviour of an organisation in relation to its aims and those of its stakeholders. Stakeholders include all individuals and groups who are affected by, or can affect, the organisation." I decided to consult the most well-respected authorities in the field that I could find, and ask them directly what they think social assessment--or social auditing, as some call it--is today, and what it needs to be. They had a lot to say. While opinions on the finer points of today's methods may vary, all were agreed on one thing: as socially responsible business moves into the big time, it must achieve a significantly higher level of accountability and transparency in order to grow into a force that is both effective and of high integrity. And in order to achieve that level, we must develop the methods, the criteria, and the metrics for assessing the true merit of a business' social responsibility. It's important to distinguish here between SRB and SRI. Socially responsible business is mainly about conducting one's business affairs--and one's investments--in a responsible manner, which can mean everything from a fundamental principle of the business to a casual observance of things like community involvement, and not polluting the environment more than necessary. Whereas SRI tends to reflect the success of SRB in achieving certain standards of performance on popular issues--what SRB/SRI watchdog Jon Entine calls "boutique social investing." What everyone would eventually like to see is a generally accepted set of principles by which businesses evaluate and monitor themselves on social and environmental issues, along with regular, external validation and auditing. While a few progressive companies such as Ben & Jerry's Homemade and The Body Shop International (BSI) have undertaken the burden of assessment on themselves largely in response to criticism of their claims, and others such as Tom's of Maine have made it a traditional part of their internal processes, the wider acceptance and practice of social assessments hinges upon there being some sort of objective measure by which the companies--and their assessments--can be compared and externally validated. Roots of Social Assessment The roots of social assessment can be traced to societal reactions to various issues--such as prohibition and other "sin" movements, or the anti-war movement--which had a bottom-line impact on business. But the history of business and investment as influenced by social issues is brief indeed--a few decades at best. The ethos is still evolving and making its way into new territory in the business world. Considering the industry's youth, it is understandable that systems for assessing the effectiveness of "socially responsible business,' and the veracity of their claims, are only beginning to be developed. As Alisa Gravitz, Director of Co-Op America, puts it, the social assessment is "absolutely necessary, this is the right time to embark on it, and it's absolutely in its infancy." She points out that the industries with the longest records--we're talking 10 to 15 years here, max.--are the ones like environmental engineering, manufacturing, insurance, and banking, where the owners are financially responsible for damage and liability. In the financial industry, most of the standards development and auditing are handled in the private sector. The government doesn't play much of a role, beyond the SEC and the IRS. Financial auditing works because there's a lot of financial interest riding on the need for solid, verifiable, apples-to-apples comparisons. In the US and the UK, the federal approach has been to help create a standard, and then let the public be the judge of performance against that standard. It takes a little imagination to see where the private sector can similarly address itself to the need for across-the-board standards for social auditing. But Gravitz sees a parallel in the reinsurance industry (companies who insure insurance companies). "In the world of social auditing, you have reinsurance companies who are very concerned about global warming, because they have billions of dollars in potential claims facing them as a result of global warming, so you find them joining up with environmentalists." Demand-side strategy Like Co-Op America's non-profit business network, socially responsible investing tends to pursue a demand-side strategy in search of responsibility and sustainability. One of the leading social and financial assessment and investment companies, Kinder, Lydenberg, Domini & Co. of Boston, Massachusetts, has one of the most-watched funds in the trade, and a well-respected index of approved companies, the Domini Social Index. I asked founder Amy Domini about the strategies employed in social investing to achieve the investors' aims. She observed that there were two different approaches to social investing at work early on: "Until the mid-80's, the dominant approach was to respond viscerally to corporate action and to avoid investing in it. And that was most widely expressed in terms of what we commonly call "sin"--alcohol, tobacco, gambling, nuclear power, military weapons, and the occasional company that crossed the line--Occidental and the Love Canal--some occasional other things that came along--and we knew it when we saw it. "In the mid-80's, the effort to publicize what was going on in South Africa turned into an investment boycott. And that investment boycott did manage to publicize what was going on in South Africa and did also mean that those boycotting companies had moved away from what you would call that sort of visceral or moral outrage position, to a tactical position to make corporate accountability part of the agenda in deciding what companies they would invest in. "That was for many of us in the industry an important turning point. It meant that we were beginning to explore whether or not the way that we make investment decisions could in some way create an infrastructure, within which corporations could be kept a little bit closer to their original charter. "The question really is, now, with both governments and corporations assessing everything in fiscal terms rather than economic terms, looking at numbers rather than economics, what tools do we as concerned citizens have in our toolbox to return the conversation to that original charter with society--a contract to provide needed goods and services? That has dominated social investing since 1986. All of the major mutual funds--Franklin's Investing for a Better World, Green Yield, the newsletters, the books that are out there--have focused on defining corporate responsibility. Both as a tool for bearing witness, and as a tool for building an ownership base in corporate America of concerned owners." The Financial Auditing Model Keeping businesses closer to their charters with society, and building an ownership base, is precisely where the tradition of financial auditing originated, and there are some potentially useful parallels to be seen in the comparison. Co-Op America's Gravitz observes that in the very early days of business (in North America, at least), most transactions were conducted directly and informally between individuals within a limited geographical area. "In the very early days of the U.S.' setting up its laws, companies had to put up a state charter and demonstrate to their stakeholders how they were going to take care of them, including their workers, their customers, their financial stakeholders, and their community. Now people would add 'the environment', but in those days that wasn't so much an issue. The state charter authority had the right to take away a [business'] charter if the business didn't meet up to their standards. "So everybody was right there, in the community, and things were handled directly between individuals. Over time what happened is that the shareholders and financial providers became geographically dispersed. They were the first ones who needed a report. So that tradition evolved and the next thing you know, there was a whole set of regulations and practices that became the SEC. So now we have players like the SEC and the SASBE people that put millions of dollars into defining what the standards should be, and trade associations agreeing on how things should be done, and financial auditors. [Social assessment] is going to take that kind of thinking, and research, peer review, academic articles and everything that goes into developing an art and science. And measuring financial performance is so much easier than measuring social/environmental performance!" Yet, while one may imagine social assessment developing in a similar way to the tradition of financial auditing, there are a few problems with the idea. First, it took around 150 years for the generally-accepted, unwritten standards of financial accounting practices to evolve into the written, standardized, and externally validated practices we have today. In the case of social assessment, the need for such formalized practices is immediate, and the precedent is limited to a few decades of small studies. Second, as Paul Hawken, noted author of The Ecology of Commerce, co-founder of Smith & Hawken, and one of the most progressive thinkers in the field charges, social assessment is unlike financial accounting in that it is a "soft" science. The comparison, he says, is "invidious...because money is a reductionist system, and social is synthetic. So they're really completely different, that's why the word ["auditing"] itself I think gets people into big trouble; it has to be an "assessment." And therefore you have to expose your subjectivity, you have to be open about it, as opposed to presuming otherwise. Your methodology can work towards objectivity in terms of eliminating bias but you still have to realize that you're dealing with entirely opposite systems and any comparison between one and the other betrays the ignorance of both." Continued... CONTENTS Introduction Roots of Social Assessment Problems of Social Assessment Emergent methodology The criteria The need for validation Organizational Benefits Visions for the Future What do you think? "The social change agenda has to do with bearing witness and holding the corporate feet to the fire." "Money is a reductionist system, and social is synthetic. So they're really completely different, that's why the word ['auditing'] itself I think gets people into big trouble; it has to be an "assessment."
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