Campaigning groups have never been more powerful at changing policy debates and getting their concerns into the public eye. When issues grab the headlines seemingly out of the blue, it is almost always because clever campaigners have worked to put them there.
Corporations are made high profile targets in these campaigns, putting them very publicly on the spot to embarrass them into changing their behaviour, or playing “good” companies off against the “bad” through judicious doling out of praise and criticism.
Non-governmental operations (NGOs) are not just influencing policy, they are disrupting entire industries. The reason Europe has virtually no genetically modified crops, a stuttering shale gas sector and the world’s largest renewable energy generating capacity per capita, is down almost wholly to campaign groups.
NGOs, whether they are global, national or local, are immensely influential and are having a non-trivial impact on business and society. This has been the case for over a decade in Europe and North America, but it is also increasingly the case in Latin America and beginning to happen in Asia and Africa too.
Investors can clearly no longer ignore the impact of NGOs. Is it possible therefore to learn from them to gain market advantage? We believe yes, investors can do this in three core areas: screening problem companies, forecasting factor trends and identifying sustainability leaders.
Screening problem companies
Financial services companies are increasingly using issues campaigning data to flag up companies with potential ESG or reputational problems that could affect their value or suitability for including in funds with exclusion criteria. NGO campaigns are particularly effective at finding problem firms.
Unlike some media outlets, NGOs are usually not afraid to call out misbehaviour wherever they find it. Their extended networks of local partners and allies mean intelligence on even obscure or unlisted companies will filter up, especially if such companies are suppliers to better known firms.
Within days of the Rana Plaza factory collapse in Bangladesh in 2013 which killed over 1000 garment workers, mainly females, NGOs in Europe and North America knew from 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.
Forecasting factor trends
As one of the most important initiators of new societal and policy trends, NGOs provide the means to unpick factors that are affecting industry sectors, and also to identify which companies are riding, or resisting, these trends.
NGO-driven trends can be macro, 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 the pressure on internet companies to protect users’ digital privacy, which is forcing the sector to rethink its business models.
They can also be micro. For example, campaigns against chemicals in the environment are forcing apparel brands to look for new ways to provide functional fabrics that are water and stain resistant, for example. This is affecting the chemical industry as well as the textile sector.
Identifying corporate sustainability leaders
Traditionally, managers of ESG-weighted and criteria-based funds have been concerned with keeping the “wrong” investments out. A newer trend is to seek out firms that should be added in, on the grounds that they are “super right”. This kind of “ESG-positive” weighting is based on the hypothesis, which investment managers like Arabesque say has now been proven, that firms which prioritise sustainability and ESG performance benefit from lower cost of capital, higher case flows and operational efficiency, and also surpass 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. In the last few years, campaigners have become especially sophisticated at separating the corporate sheep from the goats, and their commentaries on corporate behaviour can be quantified to create indices of companies they admire and despise.
When we analyse firms by the amount of praise and criticism they get from NGOs, we find companies tend to fall into one of six distinct types. “Saints” receive only or almost only praise from campaigners – Ikea and Wholefoods for example. “Sinners” get mostly criticism (all extractives and chemical firms, and most banks) while “Demons” get a lot of criticism – examples are Monsanto and currently, the major oil and gas pipeline operators in the US and Canada. “Changemakers” such as Unilever get almost as much praise as criticism: they are criticised to make them act, praised for their actions. “Responders” are aspiring Changemakers, with a less favourable ratio of praise to criticism. Many leading fast-moving consumer good brands are either Changemakers or Responders, as are some banks, but notably, no extractives or heavy industrials.
It is these kinds of insights, provided by closely observing what NGOs are saying about companies across the world, that enable investors to identify out-performing and changing firms long before their behaviour begins to affect the annual indexes like Corporate Knights and FTSE4Good.
Robert Blood is founder and managing director of SIGWATCH, a data gatherer and consultancy specialising in NGO campaigns. It tracks the activities of NGOs across the world, identifying issues and quantifying their impact on corporate targets and industry sectors.
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