“Ethical Markets welcomes the JUST100 Socially Just List of Companies, and their innovative method of surveying the US public. We will continue posting this List and monitor its continuing feedback from the public. We thank our colleague Frank Dixon, MBA, author of Global System Change (2016) for this analysis. ~Hazel Henderson, Editor”
Frank Dixon
December 22, 2016
Published on EthicalMarkets.com
The Just 100 List of corporate sustainability leaders, issued by Just Capital and Forbes, (America’s 100 Socially Just Companies) represents a significant advancement in environmental, social and governance (ESG) rating. With traditional ESG rating models, experts develop metrics and weightings focused on key sustainability issues. The Just 100 approach uses public input to identify model metrics and weightings. Just Capital and the University of Chicago surveyed over 50,000 people in the US. Extensive public input was gathered on key sustainability issues, including labor, the environment, product quality, supply chain, transparency, customer service and leadership. Citizens were most concerned about fair wages, working conditions and other labor issues. As result, labor-related metrics represent about 50% of weighting in the Just 100 model.
By guiding investment decisions, the Just 100 ratings utilize the capital markets to incentivize responsible corporate behavior. The approach empowers citizens by giving them a say in how companies are rated. This encourages businesses to improve in areas that the public believes are most important.
Just 100 illustrates the capital markets’ increasingly sophisticated approach to sustainability. Over the past 20 years, socially responsible investing (SRI) has evolved from ethical screening (avoiding high impact sectors) to positive screening (investing in sustainability leaders). The Just 100 approach further advances SRI by including public input. This is a significant step in the right direction. But substantial improvement still is needed.
Up to this point, essentially all SRI and ESC ratings have been focused on company efforts to act responsibly, largely by mitigating negative environmental and social impacts. But overarching economic and political systems severely restrict companies’ ability to act responsibly. If they voluntarily attempt to eliminate all negative environmental and social impacts, costs would go up. They would put themselves out of business long before reaching full impact mitigation. Very generally speaking, companies can voluntary mitigate about 20% of tangible and intangible, short-term and long-term, negative environmental and social impacts in a profit-neutral or profit-enhancing manner. Beyond this point, costs may compromise companies concern to maximize shareholder returns.
Economic and political systems unintentionally place business in conflict with society. Companies degrade the environment and society to survive. This is a system problem, not a company problem. Evolving economic and political systems into sustainable forms represents about 80% of the sustainability solution. But it receives relatively little attention.
Achieving sustainability and real prosperity requires substantially shifting the focus of SRI rating from company change the system change. Total Corporate Responsibility (TCR®) provides a practical and profitable way to do this. The approach rates companies on traditional ESG metrics as well as system change efforts at the sector and overarching system levels. TCR utilizes the capital markets to drive system changes that protect business and society. It provides a system change roadmap for companies and investors. TCR encourages businesses to work with government, NGOs and other parties to promote system changes that hold companies more responsible for negative impacts, and thereby make acting responsibly the profit-maximizing strategy.
Current systems drive companies to degrade the environment and society. This is unsustainable. Businesses are facing growing pushback for negative impacts. Current systems inevitably will collapse, if they are not changed first. It is in companies best interests to collaborate with others on practical, profitable, business and society-enhancing system change. System change-based ESG rating represents the next major focus area of SRI. As citizens better understand the need for system change, approaches like Just 100 can be used to incorporate this public concern into investment decisions.
More information about TCR is available at www.GlobalSystemChange.com