Like most investors, you probably aim for the best possible return when picking potential investments. But as consumers increasingly clamor for companies to embrace social responsibility, good corporate citizenship is becoming a vital part of many companies' success. And it can boost the performance of our portfolios, too.
CR magazine recently released its "100 Best Corporate Citizens" list for 2013, in which it rated members of the Russell 1000 large-cap index on 325 different elements related to responsible behavior. In the coming weeks, I'll delve into each of the seven categories that contribute to a company's overall score. Today, we'll look at the human rights category, which gets a 16% weighting. Here are the top-rated companies:
Gap (NYSE: GPS )
Microsoft (NASDAQ: MSFT )
Johnson Controls (NYSE: JCI )
Johnson & Johnson (NYSE: JNJ )
Northern Trust (NASDAQ: NTRS )
To earn their high scores, the companies above engaged in a variety of good practices, including applying their human rights policy to their suppliers and vendors, and committing to quantifiable targets and goals.
So what, exactly, are these companies doing right? Here are a few examples of their human rights practices.
Gap's ranking at the top of the list is impressive, as clothing companies have repeatedly been criticized for poor conditions at globally far-flung factories. Gap spells out its thinking and commitment regarding human rights and also notes that it now monitors 99% of the factories that produce its branded apparel. It also breaks out the ratings for its many factories, revealing that the percentage where action is required has fallen from 18.3% in 2009 to 15.6% in 2011, while those rated excellent rose from 14.5% to 15.9%.
Microsoft, in its 2012 Citizenship Report, notes that it's using its "size and leadership to influence government behaviors" around the world. It requires all of its suppliers to abide by its Vendor Code of Conduct and has been checking for violations against requirements such as no child labor and the presence of humane working conditions. It has also "assisted law enforcement worldwide in their fight against online child pornography by making Microsoft PhotoDNA technology available for free."
Johnson Controls specializes in building efficiency, automotive systems and parts, and power solutions. Its Human Rights and Sustainability policy (link opens PDF file) calls for, among other things, no children working under the age of 16, no "forced, bonded, indentured or involuntary prison labor," no employment discrimination, and supporting the right of collective bargaining. The company expects its suppliers to abide by such principles, too, and includes such language in its contracts.
Johnson & Johnson has a Statement on Human Rights noting, "we believe our most significant opportunities to impact human rights -- and therefore our greatest areas of responsibility -- are in the areas of Human Rights in the Workplace, Access to Health Care, and Clinical Research Ethics." The company supports principles such as non-discrimination, freedom of association and collective bargaining, and freedom from forced and child labor, and expects its suppliers to support them, too.
Northern Trust, a financial services company, notes in its 2011 Corporate Social Responsibility Report that it, too, supports a broad range of human rights and expects its vendors to support them, as well. The company's "responsible investing" products hold more than 5% of their overall "index and multi-manager solutions assets." Northern Trust's RI screen avoids companies with poor records on human rights, among other things, and the company has been involved in socially responsible investing for more than 25 years.
Earning well while doing good
Companies doing good can boost your portfolio's performance. And various other studies have suggested that socially responsible investments are at least competitive with the overall market, if not outperforming it on occasion. That's a solid motivation for even the most coolly rational investors to take social responsibility to heart.
If you're in the market for solid socially responsible candidates for your portfolio, check out the real-money portfolio run by my colleague Alyce Lomax. Out of all the Fool portfolios in the group, hers was recently in first place.
Is bigger really better?
With Johnson & Johnson involved in everything from baby powder to biotech, its critics are convinced that the company is spread way too thin. If you want to know whether J&J is nothing but a bloated corporate whale -- or a well-diversified giant that's perfect for your portfolio -- check out The Fool's new premium report outlining the Johnson & Johnson story in terms that any investor can understand. Claim your copy by clicking here now.