Are Crowdfunded Companies Socially Responsible?

By Bahar Gidwani

 

Over the past few years, thousands of companies both in the U.S. and abroad have raised funds through crowdfunding.  Wikipedia defines the term as:

 

“Crowdfunding is the collection of finance from backers—the “crowd”—to fund an initiative and usually occurs on Internet platforms. The initiative could be a nonprofit (e.g. to raise funds for a school or social service organization), political (to support a candidate or political party), charitable (e.g. emergency funds for an ill person or to fund a critical operation), commercial (e.g. to create and sell a new product) or financing campaign for a startup company.”

 

We could expect crowdfunding to be especially attractive for younger entrepreneurs.  These “millennials” should tend to embrace newer, on-line methods of raising money—especially since they may not have started a venture before using traditional funding means.  Companies managed by millennials might also have more socially-positive styles of management than traditional companies and may target markets that care about sustainability and social issues.  As a result, we were hopeful that we could combine the 59 million data points in our CSRHub sustainability metrics database with data from Crowdnetic, and reveal a connection between crowdfunding and positive corporate social responsibility (CSR) performance.

 

Last fall, Crowdnetic, a New York-based company, launched CrowdWatch, a centralized hub that tracks offerings conducted under SEC Rule 506(c).  This rule allows private issuers to offer securities through general solicitation, as long as all purchasers are accredited investors and other conditions are met.  For more details, see http://www.sec.gov/info/smallbus/secg/general-solicitation-small-entity-compliance-guide.htm.  Since CrowdWatch’s launch, Crowdnetic has gathered data on thousands of companies (most of them commercial enterprises) that are seeking to raise funds under 506(c).  Crowdnetic aggregates and normalizes companies in its database, in accordance with its proprietary taxonomy.  A quick analysis of data gathered through the first half of this year found that 72 of a set of 3,540 companies were in industries such as “green building materials,” “solar & wind power,” or “organic food & beverages.”  Given our preliminary analysis, this indicates that crowdfunded companies do not appear to have an especially strong concentration in sustainability-oriented products.  The companies that did offer sustainable products were fairly evenly spread over a range of different industries.

 

 

We next looked in the CSRHub database for other types of sustainability performance data on the Crowdnetic-tracked companies.  Besides product information, CSRHub tracks characteristics such as leadership ethics, employee diversity, transparency and reporting, as well as supply chain practices.  We encountered a number of issues with this matching process:

 

    1. Companies use many name variants, and a number of companies may share a similar name.  The CSRHub database captures thousands of these name variants from its more than 300 sources.  Our staff conducted a company-by-company review of each potential match to ensure that we had accurate matches.
    2. All of the Crowdnetic data set companies were based in the U.S.  Only 3,871 or 43% of the roughly 9,000 companies CSRHub rates are in the U.S.  This limited our opportunities for matching.
    3. The companies Crowdnetic tracks are small, privately-held companies (typically under $100 million in revenue). Most of the companies CSRHub rates are large (greater than $100 million in revenue) and publicly traded (we rate about 1,000 private companies, NGOs and government entities).

 

At the end of the matching process, we found only two companies who had both received crowdfunding and had received enough attention for their sustainability performance to be rated by CSRHub.

 

crowdfunding scores

 

CSRHub measures how a company is perceived to perform on a wide range of corporate social responsibility (CSR) issues.  The average rating for the roughly 9,000 rated companies (across more than 100 countries) stands at around 54.  So, one of the rated companies has an overall score below this average, and one has a score above.  (Ratings range from a low of around 20 to a high of around 70, but have a strong “central tendency.”)  (There are more details about the CSRHub ratings system on our web site.)

 

CSRHub has gathered data on more than 100,000 companies that it does not yet rate.  CSRHub follows a well-defined set of rules that determine when we can rate any part of a company’s performance and also when we can offer an overall rating.  Most of these unrated companies are smaller private enterprises—similar to those that Crowdnetic tracks.  We found 17 instances where CSRHub had partial data on a crowdfunded company.

 

crowdfunded companies

 

Most of CSRHub’s smaller company information is coming from data gathered via several types of expert sources (supply chain tracking, government regulators and non-governmental organizations) and crowd sources (consumer ratings, employee ratings and sentiment tracking systems).  We have data on crowdfunded companies from a number of sources in each of these categories.

 

 

Both the number and size of crowdfunded companies are growing.  At the same time, the number of companies with publicly-available social performance data and information is also growing.  CSRHub’s efforts to collect information on smaller companies should soon allow us to rate 90,000 or even 900,000 companies instead of 9,000.  Over the next few years, the overlap between our data sets should grow rapidly.

 

Crowdnetic’s statistics indicate that a small percentage of crowdfunded companies currently offer products or services in areas that are viewed as sustainable, such as organic food, energy-saving devices, social services or community impact programs.  CSRHub statistics do not include enough crowdfunded companies yet to tell if they have measurably better internal social behavior than non-crowdfunded companies.  We continue to believe that a connection is likely and will reexamine this question as soon as we have a broader overlap between the CrowdWatch and CSRHub data sets.

 

 


 

Bahar GidwaniBahar Gidwani is CEO and Co-founder of CSRHub. He has built and run large technology-based businesses for many years. Bahar holds a CFA, worked on Wall Street with Kidder, Peabody, and with McKinsey & Co. Bahar has consulted to a number of major companies and currently serves on the board of several software and Web companies. He has an MBA from Harvard Business School and an undergraduate degree in physics and astronomy. Bahar is a member of the SASB Advisory Board. He plays bridge, races sailboats, and is based in New York City.

 

About CSRHub:

 

CSRHub provides access to corporate social responsibility and sustainability ratings and information on 9,100+ companies from 135 industries in 104 countries. Managers, researchers and activists use CSRHub to benchmark company performance, learn how stakeholders evaluate company CSR practices and seek ways to change the world.

 

CSRHub rates 12 indicators of employee, environment, community and governance performance and flags many special issues. We offer subscribers immediate access to millions of detailed data points from our 339 data sources. Our data comes from nine ESG (environment, social, governance) analysts, well-known indexes, publications, “best of” or “worst of” lists, NGOs, crowd sources and government agencies. By aggregating and normalizing the information from these sources with its patent-pending system, CSRHub has created a broad, consistent rating system and a searchable database that links each rating point back to its source.

 

CSRHub is a B Corporation, an Organizational Stakeholder (OS) with the Global Reporting Initiative (GRI), a silver partner with Carbon Disclosure Project (CDP), a founding member of The Alliance of Trustworthy Business Experts (ATBE), an advisory board member of Sustainability Accounting Standards Board (SASB) and supports both the Global Initiative for Sustainability Ratings (GISR) and the International Integrated Reporting Committee (IIRC).

 

 

About Crowdnetic:

 

Crowdnetic is a leading provider of technology and market data solutions to the global crowdfinance marketplace. They operate the industry’s premier centralized hub for real-time market data aggregated from platforms across the globe.

 

Founded in 2011 by experienced financial technology and data industry experts, Crowdnetic is committed to creating a productive and sustainable marketplace for the global crowdfinance industry. Bringing over 15 years of experience in building complex, data-intensive customized solutions, the leadership team has been instrumental in revolutionizing the industry through developing market data and analytics solutions.

 

Crowdnetic owns and operates CrowdneticWire.com, Lendvious.com, CrowdWatch.co and is a co-producer of the premier peer-lending conference, LendIt, the largest and most recognized conference in the P2P and online lending industry.

 

 

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The Swerve in Climate Change Depends on Innovation Too

By Carol Pierson Holding

 

A classmate from business school emailed me last week to set me straight on climateCalifornia salmon change. His argument was “extreme opinions about things that naturally vary are probably wrong” and supported his stance with three arguments:

 

1) Malthus predicted the end of the world’s ability to feed itself in 1798.

 

2) In the 70’s, oil was projected to cost (in constant dollars) $200/bbl, whereas the current price is about $80, or after inflation, less than in 1980.

 

3) California was going to run out of salmon – it’s having abundant seasons.

 

My classmate’s opinions were formed watching severe weather growing up in Florida, working in the oil industry, and, for the last 27 years, as a venture capitalist in Silicon Valley. He’s smart and thoughtful. He understands risk. How could our opinions on climate change be so opposed?

 

Once again, the battle turns out to be filled with irony. What saved us from each of the predicted disasters was not that the predictions were wrong, but that we changed the set course through innovation, a skill through which my classmate makes his living. Had we stayed on the trajectory we were on without innovation, the alarmists would actually have been correct.

 

Malthus raised the specter of mass starvation but failed to account for the response to his predictions — innovations in machinery and fertilizers — as well as the growth in the workforce. Recent scholars such as Ester Boserup augmented Malthus’ theory, adding that whenever the population threatens to exceed the food supply, people find ways to increase the production of food. The predictions were followed by visible evidence of food shortages, which drove innovation and altered Malthus’ trajectory.

 

Oil companies were predicted to run out of oil based on trends evident in the 1950s. Shell Engineer M. King Hubbert introduced the peak oil curve, causing great consternation among fellow geologists and oil companies and eventually the public as well. But technological advances made drilling in secondary sites economical. Since then, public pressure has energized political will to open areas previously not available for oil exploration. US oil production in 2012 was the highest in our history. (Paradoxically, that success energized the renewable energy movement, which could make oil as an energy source obsolete.)

 

My classmate’s third example, salmon in California, experienced this same process. Environmentalists warned of impending doom; experience on the ground amid fishermen supported dire predictions. Salmon stock began dwindling in the 1950s then crashed in 2008. By 2011, only 1% of the salmon remained. Public pressure moved government and resource managers to take steps to restore both water and habitat for Chinook salmon, “innovating” California’s hatchery and conservation programs. The salmon population rebounded.

 

Innovation altered the course of my classmate’s alarmist scenarios, and it’s exciting to see how innovators are beginning to alter the course of climate change as well. Entrepreneur Elon Musk with his Tesla electric car, solar and battery initiatives is one example; successful airline executive Richard Branson, founder of Virgin Atlantic Airways, is investing in renewable energy projects for his jet fuel and his Caribbean venture.

 

Innovators, businesses, governments and public opinion come together to create adaptations that will shift a trend away from disaster. As described in an excellent New York Times op-ed piece by Robert Jay Lifton, this shift or “swerve” is a “major historical change in consciousness that is neither predictable nor orderly.”  Lifton compares the climate change swerve that’s happening now to the nuclear swerve that shifted us during the Reagan era from a nuclear build-up to the non-proliferation treaty of 1986.

 

In both cases, Lifton says, experience, economics and ethics coalesced. Climate change economics have shifted practices in every industry, perhaps most notably in insurance, agriculture, and the military. Secondly, and for the first time, most Americans are experiencing the kind of extreme weather that my classmate saw in subtropical Florida. Now, the ethics component is gaining widespread public acceptance too. As Lifton says,

 

“People (who) came to feel that it was deeply wrong, perhaps evil, to engage in nuclear war, are coming to an awareness that it is deeply wrong, perhaps evil, to destroy our habitat and create a legacy of suffering for our children and grandchildren.”

 

The questions my classmate posed are important to address. Just as we need competitors to create industries and innovation, we need “rationalists,” as my classmate believes himself to be, to keep us “alarmists” engaged.

 

Photo courtesy of jcookfisher via Flickr cc.

 


 

Carol Pierson HoldingCarol Pierson Holding writes on environmental issues and social responsibility for policy and news publications, including the Carnegie Council’s Policy Innovations, Harvard Business Review, San Francisco Chronicle, India Time, The Huffington Post and many other web sites. Her articles on corporate social responsibility can be found on CSRHub.com, a website that provides sustainability ratings data on 9,100+ companies worldwide. Carol holds degrees from Smith College and Harvard University.

 

CSRHub provides access to corporate social responsibility and sustainability ratings and information on 9,100+ companies from 135 industries in 104 countries. By aggregating and normalizing the information from 339 data sources, CSRHub has created a broad, consistent rating system and a searchable database that links millions of rating elements back to their source. Managers, researchers and activists use CSRHub to benchmark company performance, learn how stakeholders evaluate company CSR practices and seek ways to change the world.

 

 

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How to Cope With Survey Fatigue?

CSRHUB-Logo

 

Will responding to 200 questionnaires per year get your company a good sustainability rating?

 

Large companies get asked for sustainability information from hundreds of different groups. Wall Street research houses, mutual fund groups, “engagement-oriented” investors, stock exchanges, government regulators, not-for-profit groups, community organizations, consumer researchers, major customers (via supply chain questionnaires), activists, and academics each ask for data. These groups do not harmonize their requests, use common definitions for the terms they use, or work on the same schedule.

 

Join CSRHub Co-founder and CEO, Bahar Gidwani and notable CSR leaders for the next CRA-sponsored webinar event as they discuss the following issues:

 

  • Does not responding to some or all of the questions asked, affect how a company is perceived?
  • Which groups should a company respond to and which can it safely ignore?
  • How can a company get maximum value out of the ratings and input it receives from those to whom it chooses to report?

 

Panelists include:

 

Bahar Gidwani, Co-founder and CEO, CSRHub
Niki King, Senior Manager CSR Program Office, Campbell Soup Company
Maia Kutner, Director, Technical Reporting, CDP
Benoit Terpereau, Product Manager, Enablon/Wizness

 

How to Cope With Survey Fatigue?
Wednesday, September 10, 2014 | 12:00PM – 1:00PM EDT

Free webinar

Corporate Responsibility Association

Register today! This is a free webinar, and space fills up quickly.

 

See the complete CRA webinar series to watch previous webinars and review upcoming webinars.

 


 

CSRHub provides access to corporate social responsibility and sustainability ratings and information on 8,900+ companies from 135 industries in 102 countries. By aggregating and normalizing the information from 325 data sources, CSRHub has created a broad, consistent rating system and a searchable database that links millions of rating elements back to their source. Managers, researchers and activists use CSRHub to benchmark company performance, learn how stakeholders evaluate company CSR practices and seek ways to change the world.

 

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The Next Frontier for CSR Measurement

By Bahar Gidwani

 

The folks at S-Network Inc. invited me to speak at their 2014 Summer In the City Investing Summit about the state of CSR measurement for nonpublic and emerging market companies.  I was joined by Rekha Unnithan of TIAA CREF and Christina Alfonso of Madeira Global.

 

CSRHub has a lot of data on nonpublic and emerging market companies.  About one third of the ~9,000 companies we rate fall into this category and we have some data already on another 100,000 smaller entities.  It was a pleasure to have the chance to talk with an audience of fund managers, sustainability professionals, and pundits about something other than the “Global 1,000.”  S-Network Inc. and their partner Thomson Reuters always sell out this event, so we had a good-sized crowd in attendance.

 

Despite how little attention they get, smaller companies and not for profit enterprises are a huge part of our economy.  For instance, the top 2,000 U.S. companies employ only about one third of U.S. workers.  Improving the sustainability performance of smaller companies could make twice as much difference to our economy, as further improving the performance of the largest ones.

 

 

The rightmost column above uses data from CSRHub’s database to show that there is a big gap between the information available on the CSR performance of the big companies and that of the rest.  The average big company has more than 10 different sources of ratings.  Middle-sized companies have an average of 1.5 rating sources.  Smaller companies have almost no rating sources.  (CSRHub ingests data from 325 ratings sources, and should be a comprehensive sample of what is currently available.)

 

There is another layer to consider.  Many of the smaller entities in our economy are private, for-profit companies.  But, many others are not-for-profits (e.g., charities, religious organizations, and social groups) or government entities (e.g., universities and state, local and federal agencies).  If we have little data on smaller entities in general, we have even less on the 31% (in the U.S.) that are not commercial and profit-oriented.

 

 

I didn’t get into how this type of data looks for emerging market companies.  But, the stats are similar.  We know a lot about a few big companies in those markets and much less about smaller public and private companies and those in the not for profit sector.  As a result, we can measure the CSR performance of only a small portion of smaller companies, not for profits, and governmental agencies.

 

 

My fellow panelists added several interesting insights to these basic facts.  Both Reyka and Christina had personal experience investing in non-public entities—both here and abroad.  They spoke about the effort it took to dig out and analyze social performance factors on smaller entities—the firms that provide ESG (environment, social and governance) data on bigger companies can’t do the same for thousands of smaller ones.  They had to spend more time and money to do this specialized research.  But, doing so created an “information asymmetry” that gave them an “edge” and allowed them to generate above-average returns.

 

Christina works with investor groups who want to develop socially responsible investment (SRI) strategies.  She noted that some of these groups were “impact first” and some were “financial first.”  For the former, it is important to provide high quality data on the social impact of investments—something that is often hard to do with private companies.  For the latter, it is important to provide good estimates of the expected financial return from a private investment (or investment into a project led by a not for profit or government entity).  This is also hard to do, and requires different skills than impact assessment.

 

Finally, given the investment orientation of our audience, the panel stepped back and took a “big picture” view of smaller company and developing world impact investing.  We agreed that these investments were likely to have different patterns of return and risk than traditional large company investing.  As such, they could be considered a distinct “asset class” (e.g., like stocks, bonds, physical commodities, real estate, and private equity investments).  “Modern Portfolio Theory” would say that adding asset classes improves diversification and that this by itself should make non-public and developing market investments attractive to rational investors investor.  It seemed that our audience did not disagree with this argument.  In fact, many audience members approached my panelists after the talk, to get more information from them about launching their own new investment efforts, in this area.

 


 

Bahar GidwaniBahar Gidwani is CEO and Co-founder of CSRHub.  He has built and run large technology-based businesses for many years. Bahar holds a CFA, worked on Wall Street with Kidder, Peabody, and with McKinsey & Co. Bahar has consulted to a number of major companies and currently serves on the board of several software and Web companies. He has an MBA from Harvard Business School and an undergraduate degree in physics and astronomy. Bahar is a member of the SASB Advisory Board.  He plays bridge, races sailboats, and is based in New York City.

 

CSRHub provides access to corporate social responsibility and sustainability ratings and information on 8,900+ companies from 135 industries in 102 countries. By aggregating and normalizing the information from 325 data sources, CSRHub has created a broad, consistent rating system and a searchable database that links millions of rating elements back to their source. Managers, researchers and activists use CSRHub to benchmark company performance, learn how stakeholders evaluate company CSR practices and seek ways to change the world.

 

 

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Merck & Co., Inc. CSR Performance Benchmark

Sustainability Ratings

 

Corporate Social Responsibility (CSR) and Sustainability metrics site CSRHub recently updated its ratings on Merck & Co., Inc. and the 248 companies in the Pharmaceutical and Medicine Manufacturing industry.  Merck & Co.’s overall rating currently is 63 after the most recent updates to their CSRHub page.

 

Please note, the Sustainability Ratings widget will continually update and show the latest ratings on CSRhub

 

The average rating for the other companies in the Pharmaceutical and Medicine Manufacturing industry is 53.  Merck & Co. has moved up and is currently in 5th position on the list, using the CSRHub average user profile. You can see more information about Merck & Co. at their CSRHub page here.

 

Merck & Co. has a particularly strong score of 73 in the Employees area.  This is due to a high score in Compensation and Benefits category of 74—well above the average for this industry of 57.  The area with the greatest opportunity for improvement for Merck & Co. is the Leadership Ethics category.  Here, Merck & Co. gets a 53— which is equal to the industry average.

 

See the Merck & Co. Corporate Social Responsibility website here.

 


 

CSRHub ratings are on a scale of 0 to 100, with 100 being the highest. To see more on how CSRHub creates a score and the CSRHub rating rules, visit here.

 

CSRHub provides access to corporate social responsibility and sustainability ratings and information on 8,900+ companies from 135 industries in 102 countries. By aggregating and normalizing the information from 325+ data sources, CSRHub has created a broad, consistent rating system and a searchable database that links millions of rating elements back to their source. Managers, researchers and activists use CSRHub to benchmark company performance, learn how stakeholders evaluate company CSR practices and seek ways to change the world.

 

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