Socially Responsible Investing:Socially Responsible Investing:Corporate Citizenship and Wall Street MeetCorporate Citizenship and Wall Street Meet

How Ford Motor Company is Evaluated and Viewed

Corporate Citizenship Through an Corporate Citizenship Through an Investor’s EyesInvestor’s 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

Corporate Citizenship Through an Corporate Citizenship Through an Investor’s EyesInvestor’s 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

Companies outperforming onCompanies outperforming oncorporate citizenship…corporate 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

Socially Responsible InvestingSocially 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”

Socially Responsible InvestingSocially Responsible Investing

SCREENS AND RETURNS: 10 LARGEST U.S. SRI FUNDS

Fund Name Inception Date

Assets ($m)

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 -

The ContextThe Context

InvestorsRating

Agencies

Companies

Demand information

Investor interest growing

Surveys, interviews

Reporting

Provide information

On what criteria are we judged?On what criteria are we judged?

• Vision and Commitments

• Management Quality

• Multi-Dimensional Performance

– Financial, Economic, Environmental, Social

– Across value chain

• Reporting Commitment / Policy

What sources of information are used?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

Companies evaluated by different groupsCompanies 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

Research used for different purposesResearch used for different purposes

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

Examples

Dow Jones Sustainability Group IndexDow 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

DJSGI Leading Companies (2000)DJSGI Leading Companies (2000)

• Ford excluded due to crisis management but “performed well” in other areas

- Firestone and discrimination (human rights) issues

Ford: Risk Criteria (2000)Ford: Risk Criteria (2000)

Ford: Opportunity Criteria (2000)Ford: Opportunity Criteria (2000)

Auto Industry in PerspectiveAuto Industry in Perspective

Ford DJSGI Assessment (2001)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%

InnovestInnovest

• “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 1.5–3.0 hours with about 1200 companies

• Well respected with impressive list of institutional investors, asset management firms, corporations

• Considerable costs associated with research excludes activists

InnovestInnovest

InnovestInnovest

Innovest – Ford RatingInnovest – Ford Rating

• 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, Ford’s reputation has been shaken”

Strengths Weaknesses

InnovestInnovest

FTSE4GoodFTSE4Good

• 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

StorebrandStorebrand

• 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

Storebrand EvaluationStorebrand Evaluation

0

50

100

150

200GW

OD

MI

TR

EI

WI

PC

QM

• Ford’s 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

The Center for Responsibility in BusinessThe 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

Report CardReport Card

Disclosure(1999)

Environment(1999)

MinorityAdvancement

(1999)

Women'sAdvancement

(1999)

WorkplaceIssues(1999)

Work/LifePrograms

(1999)

CharitableGiving(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 -

OEKOMOEKOM

• 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

KLDKLD

How are we performing?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

Going ForwardGoing 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