Data, Debate and Consequences. According to Steven Lydenberg, author of, “Corporations and the Public Interest”, these are the three elements needed to create the market mechanisms that will drive corporations to act in society’s best interests. Lydenberg advocates a long-term view of wealth-creation that forces companies to look beyond quarterly earnings data and annual profits towards making positive contributions to communities and the environment that outlast the life of the corporation itself.
Lydenberg defines long-term wealth creation as the internalization of social and environmental costs that companies have hitherto imposed on society, the preservation and renewal of natural resources, and a commitment to stakeholder engagement. Using Adam Smith’s metaphor of the ‘invisible hand’, a classical economic theory that pursuing profits automatically benefits the public interest, Lydenberg argues that government, consumers, investors, and employees have a role to play in guiding that ‘hand’.
Lydenberg outlines three strategies that can encourage companies to operate in a socially responsible manner: (1) the business case; (2) values-driven models; (3) systems of measurement and consequences.
Focusing on the third strategy, Lydenberg describes the growing trend in public disclosure of non-financial data that has led to companies publishing sustainability reports and many attempts to measure social and environmental impacts. In some cases, regulation has spurred the trend, although the scope and comparability of data still has a long way to go. In order for market mechanisms such as purchasing and investing to be able to effectively use this data to reward good corporate citizens and punish bad ones, Lydenberg affirms that there must be sufficient public debate and analysis of the data.
Socially responsible investment (SRI) firms have already developed ways to analyze company data and evaluate performance that enable them to make ethical investment decisions. The SRI movement is small but growing, accounting for just under 10% of all assets under management in the US. Online tools such as Calvert’s Know What You Own® Tool and Amnesty International’s Shareholder Advocacy guides are indicative of a groundswell in popular support for and understanding of SRI, which had previously been limited to large institutional and religious investors.
Lydenberg also advocates the provision of more company data on social and environmental impacts at the point of sale to encourage consumers to make ethical purchasing decisions. Some certification programs like the fair trade or organic labels are signs of a trend in that direction, and recently, Timberland went out on a limb and announced that it would add “nutritional labels” detailing the environmental and community impacts of its products on its shoe boxes.
CSCC is one cog in the wheel of this process of internalizing costs and engaging stakeholders through auditing. As we create new services around sustainability reporting and verification, we hope to further contribute to the development and analysis of social and environmental data that will allow the market to drive a race to the top rather than a race to the bottom.