US firms fall behind Europe in ethical standards, says Eiris

Despite high-profile scandals and continuing public disquiet about the effects of globalisation, a study of corporate responsibility reveals that companies have much higher standards of behaviour now than in the past, and that larger enterprises have a better record than their smaller counterparts.

The report by the independent think-tank Eiris, published today, details the findings of its research into corporate governance, policies and practice in the fields of the environment, equal opportunities, human rights and the supply chain.

Responsible practices are increasingly being adopted by companies worldwide, the study found. "Twenty-five years ago, very few companies were aware of environmental and social governance [ESG] issues, let alone developing policies and systems to address them," said Bob Gordon, the report's author and the head of US and Japan Research at Eiris. "Corporate responsibility continues to evolve from what was a mainly philanthropic activity to a more mainstream approach where it is integrated into core business activities."

However, there are wide variations. North American companies generally lag behind those in Europe on ESG issues, although "a core of larger companies has adopted responsible business practices", Mr Gordon said. European companies tended to be more socially and environmentally aware, he added, attributing this to "a sophisticated, responsible investment market, NGO pressure and a strong regulatory environment".

Nearly 75 per cent of European companies operating in "high risk" countries had a basic or advanced human rights policy, compared with fewer than 40 per cent of North American firms and about a sixth of those from Asia, he found.

Japanese companies demonstrated strong performance on environmental issues but "need to make progress on other areas to match European levels". Surprisingly, he said, large firms were more likely to adopt responsible business practices than smaller companies, apparently because of the importance some investors in quoted companies placed on ethical considerations.

"Continued growth in responsible investment especially among 'mainstream' investors, driven by a belief that environmental, social and governance issues affect financial performance, is expected to drive greater corporate take up of and reporting on these issues," Mr Gordon concluded in his report, The State Of Responsible Business.

Peter Webster, the executive director of Eiris, said: "Investors are concerned by the potential costs of investing in irresponsible and unsustainable companies. Increasingly, they are favouring those companies that are responding well to the ESG challenges they face – each of which has the potential to affect shareholder value if not properly addressed."

Sixty-two per cent of the companies studied by Eiris ensured more than a third of their directors were independent. However, the proportion varied. More than 90 per cent of firms in North America, Britain, Switzerland, Holland and Australia had more than a third of their directors independent, compared with fewer than 10 per cent in Germany, Austria and Japan.