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CSR and Governance:  Managing for Risk

The Calvert investment group has been a U.S. leader in socially responsible investing (see our page on socially responsible investing) and it issued a statement on corporate ethical approaches following Hurricane Katrina. Calvert stated: " We see the horrific impact of unexpected events.  Companies constantly struggle to be prepared for any contingency, whether it be a natural disaster, an unexpected shift in marketplace dynamics, or an unanticipated internal issue.  And the best way to prepare for certain risks is to take proactive measures to keep them from happening or, where that is not possible, to minimize the damage.  This is why we at Calvert encourage companies to integrate corporate social responsibility (CSR) into the overall governance of the company. 

"We strongly believe that companies should have board responsibility for CSR issues, either through a separate committee or a specific mandate of a vital committee such as the audit committee.  This committee should actively monitor the potential risks to reputation and ongoing business viability that many social and environmental issues raise.  We also believe companies should have a CSR or sustainability department that reports into the board on a regular basis. 

"Many leading companies also have cross-functional executive committees to make sure CSR issues are integrated into the various business lines.  Such companies also have management compensation tied to achieving specific CSR goals.   Finally, companies should annually report on their overall progress in meeting the CSR goals they have established.  Companies with these governance mechanisms in place are more likely, in our opinion, to proactively manage risk, and will therefore be better long-term investments. 

"For example, on the sustainability section of Bristol-Myers Squibb's (BMY) corporate web site, the company provides a detailed overview of "Governance Structure and Management Systems:  Structure and Governance."  The company reports that the board's Committee on Directors and Corporate Governance is tasked with overseeing CSR matters.  In addition, executives must meet performance standards tied to the Standards of Business Conduct and Ethics and other non-financial factors.  Bristol-Myers also details the reporting structure for sustainability initiatives, from the head of Environmental, Health, and Safety (EHS) to the CEO to the board.  The company's EHS Steering Committee has representatives from each corporate division that meets four times per year.  Bristol-Myers also discloses that it uses a risk-based approach to conducting EHS assessments of its facilities and implements "preventive measures to address economic, environment, and social issues," such as conducting quality assessments for suppliers and employee assistance programs to manage the health risks of employees and families.

"We firmly believe that companies that work towards this kind of incorporation of CSR into their overall governance structure will be able to respond to risk before there is a crisis.  As we have outlined elsewhere in this special report, we see a number of U.S. companies that recognize the risk from climate change, and have set their own voluntary goals for carbon reduction rather than waiting for federal leadership." 

As of August 31, 2005, Bristol-Myers Squibb (BMY) represented .68% of Calvert Social Index Fund and 1.50% of Calvert Large Cap Growth Fund.

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