RESPECT Index stock exchanges in Poland as the Corporate Social Responsibility tool Katarzyna Hys Opole University of Technology Department of Production Engineering and Logistic Address: Prószkowska 76, Opole, Poland e-mail:
[email protected] Abstract
The aim of this article is to present the idea, conditions and basic statistics in the scope of RESPECT Index used as the Corporate Social Responsibility (CSR) and Socially Responsible Investing (SRI) tool on the Stock Exchange in Warsaw. The preparation of data, their analysis and drawing conclusions have been made on the basis of the desk research method. The data was gathered by means of an analysis of source materials such as, among others: announcements, press releases, reports for industries, publicly available reports of companies and research institutions, information from the Internet. The aim of the analyses is to draw conclusions. The research ought to be continued in the form of detailed analyses of particular companies’ reports. The subject of research provided interesting conclusions and at the same time, became an inspiration for defining research issues such as the ex-post analysis of the information available in the scope of RESPECT Index, drawing conclusions and drawing up directions of development. Keywords: Corporate Social Responsibility (CSR), ESG criteria (Environmental, Social and Governance), RESPECT Index (RI), Socially Responsible Investing (SRI), Warsaw stock exchange. JEL Classification: E2, F3, M14
1. Introduction The Corporate Social Responsibility (CSR) concept focuses on the organisation responsibility. This kind of responsibility is seen in many levels of the organisation and it concerns in particular economic, legal and philanthropic reliability (Carroll and Buchholtz 2012; Hąbek and Wolniak, 2015; Hys and Hawrysz, 2013; Maj, 2012, Wolniak, 2013; Wolniak, 2014; Wood, 1991; Jones, 1999; Lantos, 2002; Shellenberger and Nordhaus, 2004; Swanson, 1995). The above-mentioned areas are reference points in relations to which a given organisation works out standards of its functioning in the market and its co-operation principles. At the same time, this organisation is evaluated by all stakeholders as far as its financial result, legitimacy, ethical behaviours and charitable activities standards are concerned (Hys, 2014 a, b, c; Hys, 2015 a, b; Carroll, 1991; Carroll 1999; Fifka, 2009). The transfer of the principles of social responsibility of business on the area of stock exchange operation is referred to in the Socially Responsible Investing (SRI) idea. SRI is an investment strategy based on the simultaneous achieving financial returns with the achievement of social objectives. Social objectives achieved by the listed companies are evaluated from the point of view of undertaken activities aiming at the fight against climate change, energy use, HR management or the quality of relations with investors (Hys and Hawrysz, 2012). It is assumed that SRI can be achieved at three levels. Among market monitoring organisations it is possible to enumerate (Chamberlain, 2013): 1. Investment in companies and governments that the investor believes best hold to values of importance to the investor. These include the environment, consumer protection, religious beliefs, employees’ rights as well as human rights, among others. These areas of concern can be summarized as “Environmental, Social and Governance” and is referred to as ESG investing (Environmental, Social and Governance). In addition, Socially Responsible Investing includes shareholder advocacy and community investing.
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2. Shareholder advocacy is exactly what it would seem; socially responsible investors
proactively influencing corporate decisions that could otherwise have a large detrimental impact on society (Hawrysz, 2014). The various goals of shareholder advocacy is to pressure those entities into improving practices and policies and acting as a good corporate citizen, while at the same time promoting long-term value and financial performance. The goals are accomplished through various means including dialogue, filing resolutions for shareholders’ vote, educating the public and attracting media attention to the issue, which generally garners support and puts additional pressure on the corporation to do the socially responsible thing. 3. Community investing has become the fastest growing segment within SRI, with some $61.4 billion in managed assets. With community investing, investors’ capital is directed to those communities, in the U.S. and abroad, which are under served by more traditional financial lending institutions and gives recipients of low-interest loans access to not just investment capital and income but provides valuable community services that include healthcare, housing, education and child care. Among market monitoring organisations it is possible to enumerate: US SIF – The Forum for Sustainable and Responsible Investment, Eurosif – Europe-based national Sustainable Investment Forums and ASrIA – The Association for Sustainable & Responsible Investment in Asia. Many CSR indices are applied all over the world, among others (www.odpowiedzialni.gpw.pl): Dow Jones Sustainability Index series (DJSI). The basic criterion considered during selection of companies for indices is the analysis of three aspects: economy, environmental protection and social responsibility. Calvert Social Index (CSI). When selecting companies for the index they are analysed from the perspective of type of created products, protection and pollution environment, compliance with rules and standards place of work and integrity of business. FTSE4GOOD series. The index underlying companies undergo: negative selection (companies that are excluded are those dealing with weapons production, substance production or violating social equality principles) and positive selection (environmental protection activities, development of positive relations with environment, maintenance and development of human rights, combating corruption). These indices are the sole indices that enjoy special status recognized by UNICEF. FTSE Johannesburg Stock Exchange Socially Responsible Index (JSE SRI). In addition to running socially responsible business the basic selection criterion for companies is the respect for human rights. Sao Paolo Stock Exchange Corporate Sustainability Index (ISE). Index methodology is based on positive selection, in terms of the ESG criteria (Environmental, Social and Governance). KLD Global Sustainability Index Series (GSI). Index methodology is based on positive selection, in terms of the ESG criteria (Environmental, Social and Governance). 2. The Idea of RESPECT Index The Polish Stock Exchange is an important capital market in Europe and the leader in the Middle and Eastern Europe. In 2009, the RESPECT Index was implemented in the scope of the Stock Exchange activities in the scope of Corporate Social Responsibility and Socially Responsible Investing. The index name is an acronym of the following notions: Responsibility, Ecology, Sustainability, Participation, Environment, Community and Transparency. According to the idea - RESPECT Index is the basic identification tool of responsible companies listed at the Stock Exchange in Poland. The evaluated companies get the
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RESPECT Index if they meet the defined requirements in the scope of the corporate and information governance, relations with investors and requirements of ESG factors (Environmetal, Social and Governance). 1.1 Stages of the selection to RESPECT Index The RESPECT Index project is targeted at listed companies with the exclusion of the NewConnect market, foreign companies and companies with dual listing. The RESPECT Index structure is revised every six months in three stages (fig. nr. 1). Fig. 1. The stages of the selection of listed companies within the RESPECT Index Stage I
Criterion for the selection of companies: liquidity of the shares
Stage II
Evaluation of companies in terms of: - Corporate governance - Information governance - Relations with investors
Stage III
Evaluation criteria: ESG
Verification of the declaration with the facts
Criteria RESPECT Index
Generate a list of companies
Assessment practices
Complete a questionnaire assessment
Final review and evaluation of companies
The decision on the RESPECT Index
The first stage is based on generating a list of listed companies which at the moment of updating the index structure are characterised by the highest level of the liquidity of shares. At present, the list is composed of companies which are in the index portfolio - WIG20, mWIG40 and sWIG80. It is necessary to explain the basic notions (www.odpowiedzialni.gpw.pl): - WIG20 signifies a stock market index of 20 most important joint-stock companies publicly traded companies on the Stock Exchange. This is the kind of price index, which means that prices of transactions included in it are taken into consideration when it is calculated. - mWIG40 signifies a price stock exchange index of medium-sized listed companies. It is composed of a stable number of 40 companies. Companies are chosen to the mWIG40 index as 40 subsequent ones following 20 qualified to WIG20. - sWIG80 signifies a stock exchange index of small listed companies. It is composed of 80 companies. Companies are chosen to the sWIG80 index on the basis of the ranking as 80 subsequent, which were not included in WIG20 and mWIG40. The second stage of the selection is based on the review of the companies activities. The main objective of the review is an evaluation of practices applied by companies in the scope of corporate and information governance and relations with investors. The reference for the evaluation is contained in the document entitled “Good Practices of Companies Quoted at the Warsaw Stock Exchange” and “The Corporate Governance Rules for Supervised Institutions”. The evaluation of the practices applied by the evaluated companies is made by the employees of the Warsaw Stock Exchange in co-operation with the Association of Listed Companies. It is made on the basis of publically available reports of companies and information included on their websites. The last, third stage of the evaluation of companies nominated to join RESPECT Index is addressed only to these entities which got a positive mark at the second stage. These
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companies are invited to fill in the questionnaire which contains questions concerning environmental, social and economic factors. Then, the information included in the questionnaires is subject to verification by the Project Partner – Deloitte company. The verification takes place each time at the given company’s headquarters. Essential source documents are analysed, on the basis of which an evaluation of the declaration compliance with the actual state is made. The results of the evaluation made by Deloitte are the basis for the Warsaw Stock Exchange to make a decision concerning the inclusion of particular companies in the group of RESPECT Index winners. 1.2 Evaluation criteria for RESPECT Index The basis for the evaluation of the companies at the first stage is the liquidity of shares. The evaluation of the companies at the second stage takes place according to the following criteria: 1. Burdening with sanctions by the Financial Supervision Authority (KNF) and/or the Warsaw Stock Exchange in the scope of fulfilling information obligations (punishments disqualify the participation of the company in further analysis). These obligations concern among others running the website according to the model introduced by the Warsaw Stock Exchange. The functionality of the website, the quality of communication with investors, communication speed and efficacy, the website content (among others information on the structure, professional CVs of the members of its governing bodies, corporate documents, reports, statements, corporate calendar, basic financial indices, references to websites of other institutions of the capital market, the English version of the website). 2. Correct reporting in the scope of Corporate Governance and information governance (among others the quality of current reports, the fact of correcting earlier issued reports, the number of corrections and their importance). Information included in the evaluation questionnaire declared by a given company at the third stage of evaluation is subject to verification. Employees of the Deloitte company evaluate the level and degree of the complexity of activities undertaken by the companies. It concerns in particular activities addressed to the group of stakeholders of a given company in the scope of Corporate Social Responsibility and Socially Responsible Investing. The social and investment responsibility is evaluated on the basis of the defined criteria. For RESPECT Index issues concerning ESG factors (Environmental, Social and Governance) are evaluation criteria. Environmental factors is a group of activities in the scope of environmental management, limitation of harmful effects on the environment, biodiversity and other environmental aspects of products/services. Social factors concern activities undertaken in the scope of safety at work, HR management, relations with stakeholders and social reporting. The last group of factors specifies economic aspects, in particular those concerning strategic and risk management, applied codes of conduct, results of internal audits and applied systems of control and relations with customers (Borkowski and Przybytniowski, 2014; Dudek-Burlikowska, 2010; Kozel et al., 2014; Vilamová et al., 2013). 2. Data and Methods Preparation of data, their analysis and drawing conclusions was made on the basis of the desk research method. The data was gathered on the basis of an analysis of source materials published by the Warsaw Stock Exchange, the RESPECT Index Programme Partner - Deloitte company and the companies which gained the RESPECT Index status. These are among others documents such as announcements, press releases, reports for industries, publicly available reports of companies and research institutions, information from the Internet.
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3. Results and Discussion The overall number of companies which won in eight editions of the RESPECT Index project was 164. Companies which have successfully undergone eliminations to the programme represent 15 sectors (table nr. 1). Table 1. The number of companies in each edition of the RESPECT Index Edition I
Total Sector/Industry (number absolute) electromechanical industry banking building materials industry chemicals building industry energetics fuel industry raw materials industry telecommunications forest, paper & packaging food industry insurance capital markets wholesale trade metals
Edition II
Edition III
Edition IV
Edition V
Edition VI
Edition VII
Edition VIII
16
16
22
23
20
20
23
24
1 3 2 2 1 0 3 1 1 1 1 0 0 0 0
0 5 1 1 2 0 3 2 1 1 0 0 0 0 0
1 5 2 1 3 1 3 2 2 1 0 0 1 0 0
1 5 0 2 3 2 3 2 2 1 0 1 1 0 0
1 5 0 1 2 2 3 3 2 0 0 1 0 0 0
1 4 0 1 2 2 3 3 2 0 0 1 0 1 0
2 5 0 1 2 3 3 2 2 0 0 1 1 1 0
1 5 0 1 2 4 3 3 1 0 0 1 1 1 1
However, it is worth paying attention to the fact that there are companies which took part in the programme more than once. It means that the same company can win the programme several times. Finally, 39 companies took part in the programme (table nr. 2). Table 2. The actual number of companies participating in the program Total Sector/Industry electromechanical industry banking building materials industry chemicals building industry energetics fuel industry raw materials industry telecommunications forest, paper & packaging food industry insurance capital markets wholesale trade metals
Editions I-VIII (number absolute)
Editions I-VIII (%)
39
100
2 9 2 3 3 4 3 3 3 1 1 1 2 1 1
5 23 5 8 8 10 8 8 8 3 3 3 5 3 3
An analysis of data from the point of view of the real number of companies taking part in the programme made it possible to state that mainly large companies, that is companies which have a leading position in a given market, engage in RESPECT Index. Information included in Table nr. 3 make it possible to notice the occurring tendency. Companies representing the banking sector are take the most active part in the RESPECT Index programme. Since the first edition of the programme, banking companies have been the most numerous to join the programme. At the same time, it is important to notice that the largest number of banking companies have successfully undergone all evaluation and verification stages in accordance with the agreed criteria of the programme. It is quite interesting as a question appears why banking companies are so active and willing to engage in the programme the main objective of which is to meet ESG conditions?
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The second sector, engaged in the RESPECT Index programme is the fuel industry. Similarly to the case of the banking sector – here since the beginning of the programme – it is possible to notice the process of active participation of companies. Companies take part in the programme systematically, starting from the 1st edition to the 8th one. Table 3. Percentage of companies in each edition of the RESPECT Index Edition I
Total Sector/Industry (%) electromechanical industry banking building materials industry chemicals building industry energetics fuel industry raw materials industry telecommunications forest, paper & packaging food industry insurance capital markets wholesale trade metals
Edition II
Edition III
Edition IV
Edition V
Edition VI
Edition VII
Edition VIII
16
16
22
23
20
20
23
24
6 19 13 13 6 0 19 6 6 6 6 0 0 0 0
0 31 6 6 13 0 19 13 6 6 0 0 0 0 0
5 23 9 5 14 5 14 9 9 5 0 0 5 0 0
4 22 0 9 13 9 13 9 9 4 0 4 4 0 0
5 25 0 5 10 10 15 15 10 0 0 5 0 0 0
5 20 0 5 10 10 15 15 10 0 0 5 0 5 0
9 22 0 4 9 13 13 9 9 0 0 4 4 4 0
4 21 0 4 8 17 13 13 4 0 0 4 4 4 4
Similarly, companies of the building and industry sector (building industry, energetic, raw materials industry, telecommunications and electromechanical industry) systematically take part in the programme, although with varied intensity. Unfortunately, companies of the building industry sector do not take part in the programme any more (building materials industry, forest, paper & packaging and food industry). It seems that this phenomenon is unfavourable as goods offered by companies of these sectors have a key influence on the life quality of a given society. A reverse situation can be observed in case of sectors: insurance, capital markets, wholesale trade and metals. The companies joined the programme later but they still take part in the programme systematically. 4. Conclusion The RESPECT Index programme is implemented by the Stock Exchange as a tool which is an investment benchmark. In practice, it means that RESPECT Index is a synthetic evaluation tool for investors in the scope of the evaluation of activities implemented in accordance with the Corporate Social Responsibility and Socially Responsible Investing ideas. The 8th edition of the programme has just finished. During this time, a list of the programme winners has been announced in the number of 164 companies, out of which 39 different companies took part in this programme during these eight editions. Eliminations to RESPECT Index consist of three stages. What is important is the fact that companies are evaluated on the basis of agreed evaluation criteria of their activity on the stock exchange by means of data declared by the companies themselves which are eventually verified in the given companies headquarters. An analysis of available information made it possible to draw the following conclusions. Companies representing 15 important sectors of the Polish economy take part in the programme. Companies from the banking sector and the fuel industry the most willingly engage in the programme. Unfortunately, the companies of the sector building materials industry, forest, paper & packaging and food industry left the programme what is assumed to be exceptionally unfavourable.
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