Police are everywhere and in the distance about a thousand protesters approach. There is chanting and drumming and the hoisting of signs in support of “the 99 per cent,” and mixed among them are banners condemning corporate profits made at the expense of the planet and its people.

This is one of many May Day protests being played out across the country – across the continent – and it’s a reminder that the Occupy movement didn’t go away. It was only hibernating, conserving its strength in preparation for the second of what will likely be many outbursts to come.

This “vivid expression of a broader anxiety” – as U.S. President Barack Obama described it in an April interview with Rolling Stone magazine – may seem worlds apart from the discussions taking place in the boardrooms of corporate Canada. On a very basic level, however, there is growing recognition among the country’s biggest companies that business-as-usual isn’t a sustainable option over the long term.

It’s why corporate social responsibility is on the rise, and why more investors are pushing corporations to take CSR beyond window dressing by turning it into a pursuit for that triple bottom line: people, planet and profit, each dependent on the others.

Corporate Knights’ 11th annual Best 50 Corporate Citizens in Canada is a reflection of that pursuit, and a measure of its progress – be it evidence of increasing diversity in the boardrooms of the nation or more efficient use of energy, water and the natural resources that are the pillars of our economy. The meaning of corporate citizenship has evolved from philanthropy as a side project to how corporations can change the world for the better through their individual core competencies.

There is much to celebrate in this year’s Best 50 ranking. On average, 19.77 per cent of directors on corporate boards are women, up from 16.86 per cent in 2011. Representation of visible minorities or aboriginals on boards also went up slightly, to 4.53 per cent from 3.57 per cent a year earlier.

The number of corporations with a sustainable development-themed board committee also increased, most noticeably in the materials, industrials and consumer sectors. This year 88 per cent of companies overall had such a committee, compared to 76 per cent in 2011 and 68 per cent in 2010.

In some sectors there was an increase in the number of corporations that tied a senior executive’s compensation to sustainability targets. This was most evident in the energy sector, where 88 per cent of companies have created this compensation link compared to 76 per cent in 2011 and only 41 per cent in 2010. The financials sector made significant progress as well, with 50 per cent of companies having an executive compensation link compared to 36 per cent last year.

All wasn’t good news. The average percentage of defined benefit pension plans that are funded is down again this year, as is the average percentage of statutory taxes that was paid.

“It’s not surprising,” said Michael Yow, lead analyst with CK Capital, this magazine’s sister research division. “Companies are looking for ways to keep cash during more trying economic times, so they’re looking for any possibility to take advantage of any and all tax loopholes.”

On the funded status of pension funds, Yow said it’s a bad time overall for making investments. “If your RRSPs are affected you can expect your pension funds to be affected. It’s difficult for fund managers to produce decent returns in the current economic climate.”

Despite these difficult times many companies are making great strides, including this year’s winner, Desjardins Group (see profile here). “Increasing efficiencies can only be achieved by a change in people’s attitudes and behaviour,” said Yow. “Within a corporate environment this requires the right policies with the right incentives. Desjardins has done this beautifully.”

There are some surprises on the Best 50, such as scandal-rocked SNC Lavalin (ranked 11th this year). The Montreal-based engineering firm has been in hot water over suspicious payments to certain executives with close ties to the family of former Libyan dictator Moammar Gadhafi. At least one executive is likely to be charged with fraud and corrupting a public official.

While these events dominate current perceptions of the company they represent a small part of SNC’s overall impact, including its leadership on energy efficiency and low-carbon energy projects. Our methodology does not bend to news cycle gyrations, but is firmly grounded in transparent objective operational metrics, on many of which SNC scores highly.

Still, it’s a reminder that these are early days in the age of clean capitalism. The size and volume of future Occupy protests may prove one valuable barometer of changing corporate attitudes and actions in the years ahead.

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But those annual emissions savings weren’t enough for Desjardins. In the last couple of years, it has been putting a big push on alternative transportation in an effort to further cut its environmental footprint. Some of the emphasis has shifted from buses to bikes.

The financial institution, which has 42,500 employees in Canada, has offered staff 50 per cent off the registration fee for the BIXI bike-sharing program along with workshops on tuning up a bike for people who use their own. It has also given out free three-month passes to try public transit, held regular draws for free bus and metro passes, and created a company carpooling program. Along the way the cooperative behemoth has notched a 30 per cent improvement in its energy productivity ramping revenue per gigajoule of energy consumption from $5,144 (U.S.) in the 2011 survey to $7,187 for 2012.

But if this was all that Desjardins was doing, it wouldn’t matter that much, as a financial institution makes its central impact on society via its financial operations. And it is on this score that Desjardins rose above the pack to claim top spot among Canada’s 2012 Best 50 Corporate Citizens in Canada. For example, to assist customers who have run into severe financial difficulty and are often excluded from conventional credit networks, it offers free budget advisory services and “tide-over” loans of up to $500 that can be paid back without interest over 24 months.

Small businesses can tap into microcredit. Homeowners can take out green mortgage loans to pay for energy-efficiency retrofits. For customers who purchase fuel-efficient vehicles, such as hybrid-electrics, Desjardins offers discounts of between 10 and 15 per cent on auto insurance premiums. It also offers low-cost home insurance to low-income earners. Its socially responsible mutual funds, meanwhile, have seen a doubling of assets under management to $506 million in 2010, up from $259 million a year prior.

Progressive actions are also visible at the board and management levels. Desjardins now boasts one of the lowest differentials between CEO compensation and average employee pay. It has also bolstered its standing in the rankings by linking executive compensation to the achievement of sustainability-related performance targets and growing the proportion of women on its board.

Chief executive Monique Leroux suspects that Desjardins has a bit of an advantage over some corporate contenders because of its status as a cooperative; it works for its members, rather than investors. “If you read our mission, it’s a very special mission,” says Leroux. “It’s really to contribute to improve the economic and social well-being of people and communities. It’s not just a question of making money. And that philosophy – although we are not perfect – is spread throughout our network.”

Desjardins was founded by Alphonse Desjardins who, in the final years of the 19th century, had a job as a French language stenographer in the House of Commons. In Quebec at that time the banks concentrated on wealthy individuals, and at work one day Desjardins heard a member of Parliament talk about how regular working-class people were being charged interest rates of up to 3,000 per cent. That inequity led him on a quest to find a better solution for average people who needed to tap into finance.

With more than $190 billion in assets, Desjardins is now the biggest financial institution in Quebec and the biggest cooperative financial group in Canada. It is made up of a network of financial services cooperatives, including credit unions, life and general insurance companies as well as securities, venture capital and asset management businesses. It has 5.6 million members and its profits prior to paying out dividends to its members amounted last year to $1.58 billion.

Leroux says that innovation at Desjardins comes from decentralization, with employees at each of the company’s 450-plus caisses contributing ideas. Although her pay package, at nearly $2.1 million, is still 33 times that of the average staff member at the company, it’s one of the lowest ratios among the companies included in the Corporate Knights survey. Desjardins, which has both unionized and non-unionized employees, has a pay equity policy based on the principle of equal pay for equal work. “It is important for employees to have a comparable salary and remuneration,” Leroux says.

Desjardins has chosen to continue offering its employees a defined benefit pension plan at a time when many firms are abandoning the costly retirement vehicles. The plan’s funding status actually improved since the last ranking by Corporate Knights, rising by four percentage points to 70.5 per cent funded.

And the compensation of some executives, such as Serge Cloutier, executive vice-president of cooperative development and democratic governance support, is tied to sustainability targets.

As a result of governance changes, Desjardins’ board of directors is now nearly half women, and the company still has further goals when it comes to improving the diversity in its ranks. This year it formed an advisory committee of 25 elected officers to discuss the evolution of governance.

“It’s a question of having the right mix of people in the ranks of the top management,” says Leroux.

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Environmental

• Energy Productivity: Sales ($USD) per total indirect and direct energy use in gigajoules
• Carbon Productivity: Sales ($USD) per total CO2e emissions in tonnes (scope 1 and 2)
• Water Productivity: Sales ($USD) per total water use in cubic metres
• Waste Productivity: Sales ($USD) per total waste produced in tonnes

Social

• Ratio of highest-paid executive remuneration to average employee pay
• Number of no-lost-time and lost-time accidents and fatalities per 1,000,000 hours worked
• Average per cent of statutory taxes paid over the last four fiscal years
• Funded status of defined-benefit pension plan benefit obligations

Governance

• Existence of sustainable development-themed board committee (environment, health, safety, corporate responsibility)
• Existence of a link between sustainability criteria and a senior executive’s compensation
• Per cent of women, Aboriginal, and visible minorities on Boards of Directors

Transparency

• Existence of a GRI report by company; evaluation based on adherence level and declaration level
• Percentage of voluntary data points (resource productivity and injuries) reported
  Together the above indicators are worth 85 per cent.

Relative core business impact

The relative core business impact indicator is worth 15 per cent. It examines companies based on relevant environmental and social impacts that go beyond strict resource use. Examples include sustainability-related assets under management (Financial Sector) and eco-social product differentiation (Retail Sector).

Sector Indicators

Healthcare
Sustainable Development (SD) innovation and responsible business practices

Communications and Media
SD differentiation of products/media

Financials
Proportion of sustainable assets under managements

Retail, IT
Eco-social product innovation

Oil and Gas, Utilities
Renewable energy portfolio

Transportation and Logistics
Fleet efficiency

Chemicals, Mining
Downstream impact, environmental and human toxicity

Paper and Forestry
Production from sustainable forests

Industrials and Manufacturing
Investment in resource-efficient production technologies, development of energy-efficifient products

Corporate Knights Research Group gathered the following data points which were cross-referenced with Bloomberg’s ESG data feed to ensure maximum accuracy:

Sales in $USD, 2010 fiscal year (Source: Annual Reports)

• Rationale: Sales were used to normalize all resource data

Total CO2 emissions in tonnes (scope 1 and 2), 2010 fiscal year
Total indirect and direct energy use in gigajoules, 2010 fiscal year
Total water use in cubic metres, 2010 fiscal year
(Source: Sustainability Reports)

• Rationale: Companies should aim to produce more goods and services while using fewer natural resources to do so

Number of no-lost-time and lost-time accidents and fatalities per 1,000,000 hours worked, 2010 fiscal year (Source: Sustainability Reports)

• Rationale: Employee safety is of the utmost importance in protecting human capital

Existence of a link between sustainability criteria and a senior executive’s compensation, 2011 fiscal year (Sources: Sustainability Reports, MD&As, Management Circulars)

• Rationale: Making sustainability part of the formal purview of an executive’s compensation creates an incentive among the company’s top leadership to find innovative ways to reduce the company’s negative environmental and social impacts and seek out related strategic opportunities for profit

Highest-paid Executive remuneration in $CAD, 2011 fiscal year (Sources: MD&As, Management Circulars)

• Rationale: Companies that divert excessive compensation to just a few executives in relation to the company’s earnings may suggest conflicts of interest and sub-optimal resource deployment. Note: Lowest-paid employee’s salary is assumed to be $20,800: that of a full-time worker (40 hours per week, 50 weeks per year) at minimum wage of $10 per hour.

Per cent of women, Aboriginal, and visible minorities on Boards of Directors (Source: Management Circulars)

• Rationale: A company that wants to attract and retain the best and brightest must show there are no glass or white ceilings

Existence of sustainable development-themed committee (environment, health, safety, corporate responsibility) on Board of Directors (Source: Management Circulars)

• Rationale: Making sustainability part of the formal purview of the board helps to provide oversight over broad stakeholder issues from the company’s top leadership, which enhances a company’s ability to both manage risk and seek out related strategic opportunities for profit

Average per cent of statutory taxes paid over the last four fiscal years (Source: Annual Reports)

• Rationale: Taxes are part of the social contract for operating a business in society. In the current era of large government deficits, and rising long-term commodity prices (underpinned by scarcity of resources and growing global demand/population), tax authorities are reconsidering fiscal regimes, as well as clamping down on legal tax loopholes and other vehicles that permit tax minimization. Against this context, showing which companies pay substantially lower cash tax as per cent of their reported incomes taxes at a statutory rate relative to their industry peers provides insight for a host of risk factors that could impact future cash flows. Limitation: Corporate tax strategies are plotted out over many years. A four-year tax gap calculation is not cumulative, so it may not be a sufficient time frame in some cases to provide an instructive picture of potential risks to future cash flow. This calculation also fails to capture the fact that certain companies and industries for structural, strategic and other reasons are better insulated against these secular trends than others

Funded status of defined-benefit plan benefit obligations (Source: Annual Reports)

• Rationale: The extent to which a company provides strong pension benefits to the majority of its workforce can influence morale and generate greater loyalty from employees, which helps productivity and reduces turnover rates. The funded status percentage gives an indication of the company’s ability to honour its pension fund obligation

GRI status (Source: Global Reporting Initiative database)

• Rationale: A company who uses the GRI framework creates a report that can be used to benchmark organizational performance with respect to laws, norms, codes, performance standards and voluntary initiatives; demonstrate organizational commitment to sustainable development; and compare organizational performance over time

TSX60 companies were contacted to verify and augment the data provided to Corporate Knights Research Group and any updates/corrections were made. Verification of numbers was also performed based on anomalous data; corrections were made if necessary.

For all private companies, data was gathered via annual reports, company website, and sustainability reports.

Because some companies have not yet reported their ESG data for 2011, the marking is based on 2010 data for environmental and social measures and 2011 data for all data points that fall under regulatory reporting requirements. All regulatory indicators that are reported regularly are from the latest fiscal year available as of March 31st, 2012.

The scoring methodology for the 2012 list is modelled from the Global 100 Most Sustainable Corporations in the World methodology.

Criteria for inclusion in the Best 50 consideration set:

As of December 31, 2010 to qualify for 2011: In TSX60, Top 50 on FP500 and/or ROB1000. Must be traded on TSX and/or have Canadian headquarters to be considered. Additional companies with significant operations in the following high-impact sectors were also added (communications, financials, forestry, mining, oil and gas, retail, utilities).

Best 50 Research Group:

Michael Yow Tung Shing: Lead analyst

Haiyi Ray Hua: Volunteer researcher

Conall Bolger: Volunteer researcher

Daniel Andrew: Volunteer researcher

Top Foreign Corporate Citizens Methodology:

Selection Criteria: Companies must be listed on the Financial Post 500, and rank among the top 10 per cent of 4,500 global companies according to the Global Sustainability Research Alliance. The Alliance was created to assist the Global 100 Most Sustainable Corporations in the World project, and is the world’s largest sustainability research consortium (formed by Global Currents Investment Management LLC & Phoenix Advisors LLC).

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