What Are NGOs Saying About You?
NGOs are at the forefront of corporate social movement. If a company is not adhering to regulatory compliance or social responsibilities, NGOs will shout about it.
Here SIGWATCH Founder and Managing Director, Robert Blood explains for CEO Today how investors use NGO campaigning data to inform ESG investment.
Campaigning groups – NGOs – are rarely out of the public eye these days. The street-blocking climate protests of Extinction Rebellion or the oil rig occupations of Greenpeace are just the more visible activities of a global industry constantly trying to change the way politicians and the public think about the world’s problems. Corporations are often the targets of such efforts, as activists hope to embarrass them into changing their behaviour, or to play ‘good’ companies off ‘bad’ to bring on the laggards.
On ESG and materiality, NGOs are by far the most important stakeholders making the weather. They are setting the corporate agenda on sustainability, human and labour rights, animal welfare, and increasingly on corporate governance (think Oxfam and tax havens). They also engage regularly with banks, insurers and other leading institutional investors and as a result, investment ESG policies have evolved in lock step with NGO concerns.
Smart investors look at where NGOs are pushing to get the jump on ESG trends. In three key areas – screening problem companies, identifying sustainability leaders, and forecasting factor trends – NGO campaigning data not only points the way, it helps identify strong and weak corporate performers, and tests the claims firms make about their ESG performance against the observations of some of their sternest critics.
Screening problem companies
NGO campaigns are particularly effective at finding problematic firms. NGOs are not afraid to call out misbehaviour wherever they find it, while their extended networks of local allies mean intelligence on even obscure or unlisted companies will be exposed, which can be very revealing if they are suppliers to well-known firms.
Within days of the Rana Plaza factory collapse in Bangladesh in 2013, which killed over 1,000 mainly female garment workers, NGOs in Europe and North America knew through local partners which Western brands had been sourcing from firms operating in the building, and therefore could be made morally responsible for paying compensation to the victims’ families.
Identifying corporate sustainability leaders
ESG funds have been mostly concerned with keeping ‘bad’ investments out. A newer trend is to seek out firms that should be included, because they have superior ESG performance. The ESG investment manager and indexer Arabesque claims firms which prioritise sustainability and ESG benefit from lower cost of capital and outperform peers in investment performance.
NGOs provide a unique and independent insight into which firms could be over or under performing on ESG, because they often focus campaigns on exposing ‘bad’ companies and ‘praising’ good ones. Their commentaries on corporate behaviour can be quantified to create indices of companies leading or lagging on sustainability.
Forecasting factor trends
As initiators of issue trends, NGO campaigning reveals emerging problems and start trends that can affect entire sectors. These trends can be highly disruptive, such as the switch away from meat eating (something we foresee will be the next plastic), with implications for every part of the food industry and agribusiness, or concern over non-degradable chemicals on clothing, which have forced apparel brands to look for new ways to make breathable water- and stain-resisting materials. This is affecting the chemical industry as well as the textile sector.
It is these kinds of insights, provided by closely observing what NGOs are saying about companies and industries across the world, that give investors the edge, enabling them to identify out-performing and changing firms long before their behaviour begins to affect the annual indexes like Corporate Knights and FTSE4Good.