What kind of companies pay their median workers more, give more to charity, emit fewer carbon emissions — and have a 56 percent higher total shareholder return over the past five years compared to their Russell 1000 peers?
Just companies. And Forbes JUST 100 companies.
For the fourth year, JUST Capital, a non-profit organization, partnered with Forbes to rigorously evaluate and rank nearly 1,000 of the largest publicly traded U.S. companies. Measuring five aspects of business behavior that more than 110,000 Americans in 2020 considered the most important, JUST Capital evaluated how each company:
- Invests in Its Workers
– paying a fair wage and a living wage
– investing in worker training
– cultivating a diverse workplace
– 24 new COVID-19 data points related to augmented benefits, worker wages and financial assistance, job security, and onsite health and safety protocols
- Supports Communities
– upholding human rights standards in the supply chain
– creating jobs in the U.S.
– four new COVID-19 data points related to charitable giving and in-kind donations during the pandemic
- Respects Its Customers
– protecting customer privacy
– treating customers fairly
– making products that do not harm
– eight new COVID-19 data points that assess special customer accommodations and shifts in companies’ production, distribution, and logistical efforts to meet pandemic-related needs nationwide
- Delivers Value to Its Shareholders
– acting ethically and with integrity at the leadership level
– prioritizing value creation for all stakeholders
– generating returns
– two new COVID-19 data points around pay cuts for CEOs and other executive officers
- Reduces Its Environmental Impact
– minimizing pollution
– helping to combat climate change
– developing sustainable products.
JUST Capital announced the 2021 rankings on October 14, featuring the Forbes JUST 100 and Industry Leader lists. Microsoft Corporation maintained its number one spot, followed by NVIDA Corp, Apple Inc., Intel Corp and Salesforce.com,inc in fifth place.
Capitalists ‘committed to stakeholder capitalism’
Founded as an independent and data-driven, non-profit organization in 2013, JUST Capital tracks and engages with U.S. companies and their investors to measure and publicize how well the businesses serve their stakeholders. JUST Capital’s stated goal is to drive investment capital toward more companies to incentivize “a more just and equitable marketplace.”
According to the JUST Capital mission statement, “business can and must be a greater force for good” and “markets must be part of the solution.” By using their enormous wealth (four times the size of U.S. government) the private sector can build an economy that serves the needs of all stakeholders and address systemic problems — racism, poverty, global warming — at scale.
“Restoring trust in capitalism requires us to think differently about how we do business. About how we invest. About how we make decisions, as consumers, as workers, as community members. It invites new ways to talk about, measure, and incentivize business behavior. It demands that we do a better job of aligning how companies, and investors, define success.”
Mission & Impact, JUST Capital
The organization reflects the thinking of a new — or perhaps, renewed — breed of capitalists bent on rejuvenating the social purpose of capital investment as a means to improve society. As the income gap widens in the U.S., corporate leaders are increasingly embedding a deliberate profit driven “shared value” approach into their business model rather than emphasizing quarterly profits over the people and communities they serve.
And the data reveals this result: a shared value approach drives alpha, or the ability to exceed the market.
When doing the most good pays the most
Take a look at the 2020 Fortune 500 rankings — companies ranked by total revenues for their respective fiscal years. Five of the top ten Fortune 500 companies in 2020 also made the JUST 100 list (Walmart, Amazon, Apple, CVS, and AT&T). For example, Apple Inc reached the number four spot on the Fortune 500 list, with an 89 percent return to investors, and ranked number three on the JUST 100 with a “first in industry” on how it treats its customers and communities. Microsoft, topping the JUST 100 list, also had the top “most profitable” rankings in Fortune along with Apple Inc.
On average, the global, publicly traded companies on Fortune’s Change the World list since 2015 outperform the MSCI World Index. Change the World companies are ones that intentionally tie social and environmental causes to their business model to create shared value. Eight of the 2015 Change the World companies delivered total returns of 100% or more by 2019; the MSCI benchmark returned 42% over the same period.
But where is the list ranking the companies doing the most good most profitably?
A tale of two companies
How companies measure and report data often fail to make the causal link between a company’s social impact and its bottom line, according to the economists at the Shared Value Initiative. Socially responsible investors evaluate companies based on their Environment, Social, and Governance (ESG) rankings or a Socially Responsible Investment score. Yet these measurements have been developed without regard to company growth or profits.
A September 2020 report from Shared Value Initiative emphasizes that due to the “illusionary historical divide” between social/environmental impact and economic performance, extensive and rigorously verified financial performance data has rarely been extended to its social and environmental impact. This results in:
“two separate narratives: one telling how profitable a company is, and the other highlighting whether the company is good for people and planet, with no clear way to discern which company is most profitably doing the most good.”
Hybrid Metrics: Connecting Shared Value to Shareholder Value
But that’s about to change. Armed with new formulas, like the ones employed by JUST Capital, companies are now beginning to experiment with hybrid metrics to demonstrate a causal link between deliberate social/environmental impact and company profits to underscore the importance of creating shared value. In other words, there are now means to report on companies “doing the most good most profitably.”
Here’s an example from the report:
The Italian power company Enel has an explicit strategy to shift from fossil fuels to renewable power generation, which increases their profitability and reduces risk. One can calculate the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) variation in relation to the reduction in carbon intensity. If validated, this ratio could be compared against industry peers to determine which utility is most profitably managing the shift to renewable energy or used to predict changes in future earnings based on planned investments in renewables during the current transition phase.
The report goes on to say that similar hybrid metrics could link:
- Profitability to health outcomes for healthcare companies
- Nutritional value for food and beverage companies
- Employee productivity to wages and benefits in service and retail industries
- Cost of goods sold to labor conditions in the supply chain for clothing companies
Why is reporting and promoting shared value important — like the JUST 100 list? Because shared value strategies create a virtuous cycle where intentional decisions to improve communities and the environment generate higher profits for shareholders who then reinvest them in a self-reinforcing loop.
In other words, a shared value business model — or just companies — can help solve many social and environmental problems at scale.
About the author: Mary Jane Maxwell is a Lead Consultant at Washington Business Dynamics (WBD). She supports the firm’s Private Sector Engagement Support Mechanism award at USAID, bolstering the Agency’s capacity to work hand-in-hand with business, industry, and private enterprise to unlock private investment and achieve sustainable development outcomes at greater scale.