Beyond the bottom line
Our second annual ranking of Global 500 companies.
(Fortune Magazine) -- About one in every ten dollars of assets under management in the U.S. - an estimated $2.3 trillion out of $24 trillion - is being invested in companies that rate highly on some measure of social responsibility. That's a $2.3 trillion wager that socially responsible companies will outperform companies that don't engage a wide array of stakeholders, from shareholders and customers to employees and activists, in an ongoing conversation about what can be done better.
Which is why Fortune, for the second year in a row, is ranking the world's largest companies according to how well they conform to socially responsible business practices.
The survey, once again conducted by AccountAbility (a London think tank on corporate accountability) and CSRnetwork (a British for-profit consultancy), measures six criteria, ranging from stakeholder engagement to performance management, at the top 50 companies on Fortune's Global 500 list. Fourteen other large companies were included so that there were at least ten in each of five industry sectors.
Many of the highest-ranking companies are not what you'd think of as do-gooders. Oil giants BP (Charts) and Shell (Charts) are No. 2 and No. 3, respectively, and four of the top ten on the list are utilities. That's because the rankings don't measure performance outcomes such as CO2 emissions. Instead, they look at management practices: Does a company have procedures for listening to critics? Are its executives and board members accountable? Has it hired an external verifier?
This year the top-ranked company is Britain's Vodafone (Charts), the world's largest mobile-phone operator, edging out last year's leader, BP. "What we've tried to do is embed CSR," says Charlotte Grezo, the company's director for corporate responsibility.
"The senior managers at Vodafone know it's really, really important." That has helped put good ideas into practice, Grezo says, pointing to the Mpesa program in Kenya, which enables people to do banking with their mobile phones. Vodafone has also made its networks more accessible to emergency workers and added a content-filtering system because customers said they were worried about their kids.
There were four newcomers in the top ten this year - French water companies Suez (No. 5) and Veolia (No. 8), Italian utility Enel (No. 6), and British banking and insurance company HBOS (No. 9). That's partly explained by changes in methodology: Companies that did well last year had to keep improving - further developing management systems or engaging with a broader array of stakeholders - to maintain their ranking.
The ratings this year also penalized companies that didn't address nonfinancial issues at the core of their business. A bank that switches to more energy-efficient light bulbs may be doing good, but that doesn't deal with the consequences of lending to a controversial client.
Oil companies as a group rated lower this year. The ten companies in the petroleum-refining sector had an overall rating of 30, down from 45 last year, making it the only one of the five sectors that fell. Adding newcomer PDVSA to the group didn't help: Venezuela's state oil company had a score of only ten.
Once again, European companies outperformed their counterparts in the U.S. and Asia. The top 11 companies on the list are headquartered in Europe, where corporate social responsibility is the lingua franca and CSR reporting is required for a company to list on some stock exchanges. The top U.S. company is General Motors (Charts) (No. 12); it moved ahead of Ford (Charts), which dropped ten places to No. 16.
The most improved company this year was Volkswagen, which jumped from No. 56 to No. 19 after releasing its first comprehensive CSR report. Another big improver was Home Depot (No. 52). Its score doubled, in part because it now publishes a Web report on the nonfinancial impacts of its business, such as how the wood it sells affects forests in North America and the Amazon. That may sound like tree hugging, but managing the risks to your company's most important product is smart business too.2006 FORTUNE Global 500
Europe's top 50
Asia's top 50