In Good Company

G Magazine

Making tidy profits isn't enough these days: discerning investors prefer companies that are environment-friendly and good corporate citizens - a trend that's also healthy for their balance sheets.

Green businessman

Credit: Joe Kingleigh/Getty

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Corporations were described by the poet Edward Thurlow as "Not having a soul to be damned, nor a body to be kicked." That may be so, but bad publicity can be fairly painful: ask the James Hardie Company about its asbestos products. Or AWB Ltd about selling wheat to Iraq.

Bad publicity can torpedo a company’s share price, as both of these companies can attest. Which is why a lot of companies are now making a real effort: not just to look like they're good corporate citizens, but to actually be them.

As Ian Wood, vice president of sustainable development at mining giant BHP Billiton says, "Our sector is not regarded highly in terms of the environment or human rights, and that adds enormously to our costs. "It's something the company worries about, enough to spend A$250 million annually on - maintaining the integrity of our reputation and processes."

That's a lot of worry. But how is a green investor going to know whether a company is spending time and money on being a good citizen - and addressing issues like sustainability - or whether they're likely to end up on the TV news for all the wrong reasons?

This is where RepuTex comes in. Founded in 2000, the private Australian research firm compares the environmental and social responsibility standing of companies in a similar way to how ratings agency Standard & Poor’s rank corporate creditworthiness (AAA is best, DDD is worst). Established by chief executive Laurel Grossman (a former education advisor) and with offices in Asia and Australia, it is led by a former head of Standard & Poor’s in Australia, Graeme Lee.

Its annual index is "a mechanism to assess the social responsibility performance and risk management capacities of Australian and international companies," according to RepuTex Rodrigo Castellanos. In other words, it assesses whether companies are good "corporate citizens". RepuTex looks at a company's attitudes towards corporate governance, the environment, social issues and workplace practices. From the RepuTex point of view, corporate governance includes looking at a company's transparency, management and ethics. The scandal surrounding AWB's kickbacks to Sadaam Hussein's regime illustrates clearly how a company’s culture can either encourage or discourage unethical behaviour.

Measuring up
Rating a company's work practices involves an assessment of its occupational health and safety, management systems, workplace culture and diversity. A company's social impact is measured by reviewing its products and services, policies and practices. And environmental impact covers carbon dioxide emissions and supply chain issues.

Castellanos said RepuTex is not an ethical indicator, rather, a systematic mechanism to inform the market of the level of environmental, social and governance risk, and the capacity of a company to manage such risks or opportunities. "RepuTex leaves moral and ethical decisions to individual investors; instead we focus on the implications of a company's actions and operations from a risk and exposure perspective." RepuTex ratings are assigned on a scale from AAA (outstanding) to D (inadequate). So who out of Australia's Top 100 companies and New Zealand's Top 20 companies gets a gold star under this rating system?

Well, in 2007, for the third year in a row, Westpac Banking Corp was the only Australian company to get an AAA rating, while 11 other Australian companies received an AA rating. These are (in alphabetical order): ANZ Bank, Australia Post, BHP Billiton, Energex, Ergon Energy, Hewlett Packard Australia, IBM Australia, Insurance Australia Group, National Australia Bank, Queensland Rail, and Visy Industries.

Westpac is clearly doing something right, because the bank also came top in its category in the Dow Jones Sustainability World Index for the fifth year in a row. So what does it take to get a AAA rating from RepuTex? The bank was noted particularly for its workplace practices: adopting a strong commitment to diversity and sound work/life balance initiatives for employees, such as increasing paid parental leave from six weeks to 12 weeks; a commitment to sustainability within Westpac and the wider community; best practice in the community investment and philanthropic support (especially Westpac's community partnerships, which focus on sharing staff expertise with the non-profit sector and providing financial literacy programs); and environmental impact - especially risk and ecological footprint.

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