Corporate Rankings Measure Social Impact

October 26, 2020

---

What kind of companies pay their median workers more, give more to charity, emit fewer carbon emissions — and consistently outperform their Russell 1000 peers?

Just companies. And Forbes JUST 100 companies.

For the fifth year, JUST Capital, a non-profit organization, partnered with Forbes to rigorously evaluate and rank nearly 1,000 of the largest publicly traded U.S. companies. Measuring five aspects of business behavior that more than 110,000 Americans in 2021 considered the most important, JUST Capital evaluated how each company:

• Workers 
  – Pays a fair, living wage
  – Protects worker health and safety
  – Provides benefits and work-life balance
  – Cultivates a diverse, inclusive workplace
  – Invests in workforce training
• Communities 
  – Creates jobs in the U.S.
  – Respects human rights in the supply chain
  – Contributes to community development
  – Gives back to local communities
• Shareholders and Governance
  – Prioritizes accountability to all stakeholders
  –  Acts ethically at the leadership level
  –  Generates returns for investors
• Customers
  – Protects customer privacy
  –  Treats customers fairly
  –  Communicates transparently
  –  Makes beneficial products
• Environment
  – Develops and supports sustainable products
  – Minimizes pollution
  – Helps combat climate change
  – Uses resources efficiently

JUST Capital announced the 2021 ranking in January 2022, featuring the Forbes JUST 100 and Industry Leader lists. Alphabet Inc. rose to the number one spot, followed by  Intel Corp, Microsoft, Salesforce.com Inc, and Bank of America.

Capitalists ‘committed to stakeholder capitalism’

Founded as an independent, data-driven, non-profit organization in 2013, JUST Capital tracks and engages with U.S. companies and their investors to measure and publicize how well the businesses serve their stakeholders. JUST Capital’s goal is to drive investment capital toward more companies to incentivize “a more just and equitable marketplace.”

According to the JUST Capital mission statement, “business can and must be a greater force for good,” and “markets must be part of the solution.” By using their enormous wealth (four times the size of the U.S. government), the private sector can build an economy that serves the needs of all stakeholders and address systemic problems — racism, poverty, global warming — at scale.

“Restoring trust in capitalism requires us to think differently about how we do business. About how we invest. About how we make decisions, as consumers, as workers, as community members. It invites new ways to talk about, measure, and incentivize business behavior. It demands that we do a better job of aligning how companies, and investors, define success.”
Mission & Impact, JUST Capital

The organization reflects the thinking of a new — or perhaps, renewed — breed of capitalists bent on rejuvenating the social purpose of capital investment as a means to improve society. As the income gap widens in the U.S., corporate leaders are increasingly embedding a deliberate profit driven “shared value” approach into their business model rather than emphasizing quarterly profits over the people and communities they serve.

And the data reveals this result: a shared value approach drives alpha, or the ability to exceed the market.

When doing the most good pays the most

Take a look at the 2021 Fortune 500 rankings — companies ranked by total revenues for their respective fiscal years. Three top ten Fortune 500 companies in 2021 also made the JUST 100 list ( Alphabet Inc., UnitedHealth Group, and Apple). Alphabet Inc reached the number eight spot on the Fortune 500 list, as its shares soared by more than 65 percent, nearly three times the Nasdaq’s 22 percent gain in 2021. It ranked number one on the JUST 100 with a “first in industry” on how it treats its customers, supports its communities, and invests in its workers.

On average, the global, publicly traded companies on Fortune’s Change the World list since 2015 outperform the MSCI World Index. Change the World companies are ones that intentionally tie social and environmental causes to their business model to create shared value. Eight of the 2015 Change the World companies delivered total returns of 100% or more by 2019; the MSCI benchmark returned 42% over the same period.

But where is the list ranking the companies doing the most good most profitably?

A tale of two companies

How companies measure and report data often fail to make the causal link between a company’s social impact and its bottom line, according to the economists at the Shared Value Initiative. Socially responsible investors evaluate companies based on their Environment, Social, and Governance (ESG) rankings or a Socially Responsible Investment score. Yet these measurements have been developed without regard to company growth or profits.

A September 2020 report from Shared Value Initiative emphasizes that due to the “illusionary historical divide” between social/environmental impact and economic performance, extensive and rigorously verified financial performance data has rarely been extended to its social and environmental impact. This results in:

“two separate narratives: one telling how profitable a company is, and the other highlighting whether the company is good for people and planet, with no clear way to discern which company is most profitably doing the most good.”
Hybrid Metrics: Connecting Shared Value to Shareholder Value

But that’s about to change. Armed with new formulas, like the ones employed by JUST Capital, companies are now beginning to experiment with hybrid metrics to demonstrate a causal link between deliberate social/environmental impact and company profits to underscore the importance of creating shared value. In other words, there are now means to report on companies “doing the most good most profitably.”

Here’s an example from the report:

The Italian power company Enel has an explicit strategy to shift from fossil fuels to renewable power generation, which increases their profitability and reduces risk. One can calculate the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) variation in relation to the reduction in carbon intensity. If validated, this ratio could be compared against industry peers to determine which utility is most profitably managing the shift to renewable energy or used to predict changes in future earnings based on planned investments in renewables during the current transition phase.

The report goes on to say that similar hybrid metrics could link:

• Profitability to health outcomes for healthcare companies
• Nutritional value for food and beverage companies
• Employee productivity to wages and benefits in service and retail industries
• Cost of goods sold to labor conditions in the supply chain for clothing companies

Why is reporting and promoting shared value important — like the JUST 100 list? Because shared value strategies create a virtuous cycle where intentional decisions to improve communities and the environment generate higher profits for shareholders who then reinvest them in a self-reinforcing loop.

In other words, a shared value business model — or just companies — can help solve many social and environmental problems at scale.

 

About the author: Mary Jane Maxwell is a Senior Expert at Washington Business Dynamics (WBD).