U.S. Community Investing Index

 

Overview

The U.S. Community Investing IndexTM 1 (“USCII” or “the Index”; Bloomberg Ticker: CMTYIDX) is an index of publicly traded companies designed to identify those that contribute positively to the communities in which they source, operate, and sell.

Heron developed the index in 2005 to understand how large companies contribute to (or detract from) Heron’s mission to help people and communities help themselves out of poverty. Over the past decade, Heron and its research partners have refined the methodology to draw from new data sources and better align the index with Heron’s strategic objectives.

Strategy

Heron and its research partnersuse a rigorous methodology to identify companies that contribute positively to the communities in which they source, operate, and sell. The positive screen is organized around the four capitals of Heron’s net contribution lens. Heron works with custom data and research providers to evaluate the impact of companies on stakeholders within these four capitals.

Capital Stakeholder Hypothesis & Evaluation Criteria
Human Employees            

 

 

 

Suppliers

Hypothesis: One of the most direct opportunities for companies to impact society is through their employees.
        

Evaluation criteria include: Pay & benefits, work-life balance, health & safety, training & education, strategic training management, equal opportunities & non-discrimination, broad-based employee ownership


Hypothesis: Companies increasingly rely on supply chain partners to outsource low-wage work.

Evaluation criteria include: Transparency & performance related to supply chain labor including human rights, health and safety, freedom of association, forced labor

Financial Board & Investors            

 

 

 

Management

Hypothesis: Management of impact comes from the top. Governance and ethics protocols influence a company’s ability to manage and optimize for social and financial performance.
        

Evaluation criteria include: Governance & ethics, board diversity/independence, pay distribution, shareholder democracy, accounting policies


Hypothesis: Management will be better suited to manage a company’s impact on its stakeholders if incentive structures are aligned with long-term value creation.

Evaluation criteria include: Integration of sustainability performance objectives into the variable remuneration of members of the executive management team

Civic Government            

 

 

 

Customers

 

 

 

Neighbors

Hypothesis: Companies impact their communities both positively and negatively by interacting with local and national governments. Interactions often include paying taxes, receiving subsidies, and lobbying.
        

Evaluation criteria include: Taxes and subsidies, presence in jurisdictions enabling tax-base erosion and profit-shifting; controversies related to tax avoidance, political contributions & lobbying.


Hypothesis: Companies impact customers through their products and services.

Evaluation criteria include: Product safety, responsible marketing, pricing & affordability, product-related controversies


Hypothesis: Neighbors include stakeholders who aren’t necessarily employees or users of products and services. Companies impact neighbors directly through operations and indirectly through sourcing practices.

Evaluation criteria include: Community involvement, monitoring and evaluation of community projects, community outreach and consultation, human rights practices & results.

Natural Environmental inputs            

 

 

Environmental outputs

Hypothesis: Companies have an impact on the environment through the sourcing and management of their production inputs.
        

Evaluation criteria include: Environmental management in the supply chain, sustainable procurement of supplies and/or raw materials used for production.


Hypothesis: Companies have an impact on the environment through their operational outputs, as well as through their products and services.

Evaluation criteria include: Environmental management, climate change strategy, eco-efficiency, product lifecycle

Index Performance

*Source: Bloomberg price returns (not adjusted for dividends). Returns greater than one year are annualized.

 

Process

Index Creation

Heron is responsible for selecting securities in the index, and it does so by compiling a positive screen using the four capitals and their underlying stakeholders.

Heron uses absolute weighting coefficients at the capital level:

  • 30 percent: Human Capital (including employees and suppliers)
  • 30 percent: Civic Capital (including government, customers, and neighbors)
  • 20 percent: Natural Capital (including environmental inputs to and outputs from production)
  • 20 percent: Financial Capital (including the board, management, and investors)

Heron then dynamically weights stakeholder scores depending on what is relevant to any given industry.3 For example, suppliers may represent between 10 percent and 60 percent of the Human Capital score, depending on how heavily the company relies on outsourced labor. The industry-relative stakeholder weighting coefficients are informed by Heron’s research partners.

Each company is scored between -5 and +5, and companies that score a 0 or higher are considered for inclusion in the index.

The selection universe is then run through a rules-based “reality check” that looks for additional controversies that are deemed very severe. These controversies may have been over- or under-expressed in the scoring process due to timing, score weighting, or other factors. The reality check is conducted quarterly and reviewed by Heron’s staff and the USCIITM advisory committee.

The USCIITM is then constructed using a free-float-adjusted market-capitalization weighting methodology, managed by S&P Dow Jones Indices.

Index Monitoring

The U.S. Community Investing IndexTM is overseen by an advisory committee of professionals in pertinent fields, including but not limited to sustainable investing, philanthropy, and social data. The advisory committee meets quarterly with Heron staff and research partners to discuss methodology enhancements and review index performance.

Product Creation

Heron works with two asset management partners who license the USCIITM to create investable product offerings:   

  • Work Capital offers a separately managed account (SMA) for retail and institutional investors. The Work Capital USCIITM SMA tracks the USCIITM but can be further customized for client preferences.
  • State Street Global Advisors (“SSGA”) offers an institutional investment fund that aims to replicate the USCIITM.

For product-related inquiries, please contact State Street Global Advisors or Work Capital (Mackenzie Colgan at kenzie@workcap.com) directly.


[1] The U.S. Community Investing Index (the “Index”) is the property of the F.B. Heron Foundation, which has contracted with S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC) to calculate and maintain the Index. The Index is not sponsored by S&P Dow Jones Indices or its affiliates or its third-party licensors (collectively, “S&P Dow Jones Indices”). S&P Dow Jones Indices will not be liable for any errors or omissions in calculating the Index. “S&P Dow Jones Indices” and the related stylized mark(s) are service marks of S&P Dow Jones Indices and have been licensed for use by the F.B. Heron Foundation. S&P® is a registered trademark of Standard & Poor's Financial Services LLC (“SPFS"), and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”).

[2] The methodology management and maintenance relies on custom research partnerships with oekom research AG and the National Center for Employee Ownership (NCEO)

[3] Capital coefficients are consistently applied to all companies/industries (Human 30%, Civic 30%, Natural 20%, and Financial 20%). Stakeholder coefficients rely on the industry-relative stakeholder materiality assessment conducted by oekom research AG, so will vary by company.