Each year, corporate responsibility (CR) becomes a bigger part of our culture. Making decisions that will positively impact the world around us is not just a consideration. This is the way we do business. And the success of our business is one of the reasons we place so much emphasis on CR. We know that CR leads to more efficient processes and lower costs. It makes for happier employees, more satisfied clients and stronger communities. Simply put, making life better makes us a better business.
CR is incorporated into our business strategy, and risk management is one area where this is evident. CR risks include environmental, social and governance. When we consider these risks in our business decisions, we are protecting and enhancing value for our stakeholders.
In 2012, our investment management business signed the United Nations’ Principles for Responsible Investment, showing our commitment to building responsible investment portfolios and helping our clients manage CR-related risks. We’re also staying focused on regulatory reform developments — such as the Dodd-Frank Wall Street Reform and Consumer Protection Act — to help our clients comply with evolving requirements.
This year our team also showed its dedication to doing what’s right for the environment. We achieved ISO 14001 certification — a global standard for environmental management systems — for seven of our office buildings, bringing the total number with this certification to 10.
Meanwhile, our Business Operations and IT Transformation program has proved to offer benefits in several areas of CR, including both risk management and environmental sustainability. For example, by virtualizing systems and increasing cloud-computing capacity, we are better protecting our clients’ information, reducing operating costs and saving energy.
Our employees’ involvement in all areas of corporate responsibility continues to impress me. This year, the International Association for Volunteer Effort presented us with its inaugural Global Volunteer Program Award, which recognizes a global company with an exemplary approach to global corporate volunteering. Illustrating this achievement was more than 87,000 hours of volunteer time our employees donated to nonprofit organizations in 2012.
Our wide global reach puts us in a unique position to make a real difference. In 2012 we were listed on all four of the STOXX Global ESG Leaders indices for the second consecutive year. We were also the only financial services company named as one of Newsweek’s “Most Transparent Companies in the US.”
Our 2012 actions in the area of CR, which you will read in the following pages, speak for themselves. CR just makes sense — for our employees, our clients, our communities and our business.
State Street’s corporate culture and values reflect our belief in doing what’s right for our stakeholders and the world around us. The Executive CR Committee’s primary charge — formalizing CR governance and further integrating it into our day-to-day operations — supports this long-held conviction. As chair of the committee, I’m proud of our progress in 2012 to make CR truly integrated into our business.
In November of 2012 we held a CR stakeholder engagement meeting. Most of our stakeholders were represented, including clients, employees, shareholders and members of the community, as well as peers from the financial services industry. In this productive session we reflected on our performance and outlined our future strategy and objectives.
One of our key achievements this year was developing an Executive CR Committee charter that outlines the committee’s purpose, responsibilities, composition and operations. The charter underscores our reliance on various internal networks, such as the CR working group, to engage employees. We also devoted much of the committee’s time to making sure our environmental, social, governance and products (ESG+P) framework was the right model for managing our CR efforts. We established subcommittees for each pillar of ESG+P that focus on programmatic and policy-level recommendations. And we plan to use these subcommittees to continue to cultivate interest and spread knowledge about CR among employees.
In 2012, employees became more connected to CR with the launch of State Street Collaborate, our internal social networking tool. Collaborate facilitates information exchange and was the forum for our Innovation Rally, a three-day virtual event to spur conversation and ideas at all levels of the organization. Nearly half of all our employees participated, generating 10,000 posts on a range of topics — including many ideas related to CR programs and initiatives. The committee is excited to see so much interest in CR. And we remain committed to clearly communicating our CR goals, how we’re working to meet them and what employees can do to help.
In 2012, I began overseeing the Procurement and Global Realty divisions — a structural change that will align internal focus on CR. Accountability for CR is beginning to permeate through our supply chain, most notably with the inclusion of environmental and social factors into our new vendor assessment tool. Beginning in 2013, new vendors will be asked to provide information on their CR performance. We expect this will help standardize preference for suppliers committed to sustainability and help us to better manage risk.
In 2013, the Executive CR Committee wants to increase interaction with our management by increasing dialogue throughout the year. We also seek annual input from our board of directors. The diverse experience of our senior management team and our board provide a unique perspective on CR. Their feedback enhances how we continue to evolve our understanding of material issues and stakeholder interests, as well as our governance approach. Employees in every part of our organization contribute to improving CR at State Street. The work of the CR committee would not be possible without this level of dedication. I am proud of our accomplishments, and look forward to taking on new challenges together in 2013.
In today’s competitive financial services industry, companies that create value for their stakeholders are the most likely to succeed. Corporate Citizenship is essential in value creation through investments that build strong communities, make our employees proud and reinforce that we are committed to a sustainable future.
The State Street Foundation has a 35-year history of creating value, and today makes social investments in 41 communities around the world. The Foundation is in the final stages of implementing a multiyear plan to enhance its business model and be a more effective investor. The plan’s major initiatives include focusing investments on education and workforce development, as well as building an appropriate infrastructure and applying metrics to our social investment process.
In 2012, we launched our online grant application in North America. We also rolled out an intermediary structure in the EMEA and APAC regions that reduces the administrative requirements for our all-volunteer Community Support Program (CSP) Committees. The committees now have more time to build community relationships and better understand local challenges within our social investment focus. We also introduced the first-ever Massachusetts CSP Committee to further engage employees and support community needs in our headquarters city of Boston.
On a global scale, we began including impact metrics in the Foundation’s grant application process. The metrics will improve due diligence for grant requests and advance reporting of how our programmatic focus is positively affecting the economically disadvantaged. We will begin collecting data in 2013 and expect to have full reporting capability by 2014.
Investing in our community also means harnessing the time and talent of our global workforce through volunteerism, board service, fundraising and more. Our employees continue to increase their giving each year across multiple programs. In 2012, employees gave a record $2.5 million through our Matching Gift Program, which was recognized by a fundraising organization, Double the Donation, as a top corporate employee giving program. In addition, the Global Outreach employee volunteer program remains one of State Street’s most popular engagement tools. It works with Global Human Resources to expand opportunities for employees to give back while building internal networks and developing skills.
In 2013 I expect the global reach of our programs to expand even further. In Toronto, we will host the popular State Street On Board internal seminar, the first time our charitable board-service training program will extend outside the US.
From enhancing our social investment infrastructure to deepening our impact in communities, we remain focused on creating value in our relationships with stakeholders and moving closer to becoming a best-in-class corporate citizen.
Scott Powers, the chief executive officer of State Street Global Advisors (SSgA), discusses the decision to sign the United Nations’ Principles for Responsible Investment (UN PRI).
Q. SSgA considered signing the PRI for several years. What was the trigger point for becoming a signatory in 2012?
A. We have had an ongoing dialogue with the PRI initiative to help us better understand and be comfortable with how the principles would align with our passive strategies, which constitute the majority of SSgA’s investment offerings. After a hard look by our ESG team and Investment Committee, we decided that we could apply the principles and maintain our responsibilities to our clients without any conflict. In fact, in many cases we were already aligned with the principles.
Q. Can you offer some examples?
A. In our active strategies, we maintain robust ESG portfolios; ESG investments account for 7 percent of total assets under management. This includes a green bond fund that was launched in 2011 and fully funded in 2012. On the passive side, SSgA’s proxy voting team has actively engaged issuers for several years on environmental and social issues that can affect financial value. Additionally, our proxy voting policy was updated in 2010 to a default of abstention rather than voting with management. We manage $1.4 trillion in passive strategies, so we can be a powerful voice on ESG issues.
Q. Why do the PRI only apply to SSgA’s passive strategies through proxy voting and issuer engagement?
A. In passive strategies, we replicate an index or choose securities that are representative of that index. The PRI becomes relevant in these strategies once we own the underlying securities and can engage management on issues we think are relevant to financial return. That’s why SSgA views proxy voting as not just a right, but a responsibility. If environmental and social issues affect financial results, then we have a duty to act.
Q. How does SSgA decide which ESG factors affect financial value?
A. That’s a question the financial services industry and investors everywhere are debating. In our ESG strategies, we employ quantitative research as well as client requests for certain positive or negative screens. The research and trends also influence our conversations with issuers, and certain sectors have more obvious environmental and social risks. We have a lot of interest in the outcome of Project Delphi, a collaborative venture sponsored by CSR Europe that we are co-leading. The project aims to evaluate and identify, if possible, a set of ESG “superfactors” that can affect long-term value.
For businesses all over the world, environmental sustainability is an important factor in being efficient and innovative. At State Street, we’ve definitely experienced this. We are always looking for creative ways to reduce costs and risk across our operations. As we develop new strategies, the environment and other CR factors are increasingly becoming part of our blueprint for building a smarter and more efficient enterprise.
Our Information Technology (IT) group provides an ideal example for how innovation can create efficiencies, save money and help to protect the planet. IT is in the midst of a multiyear transformation process that will deploy system virtualization and cloud technologies to reduce our operating costs and save energy. In 2012, we migrated 54 applications to the cloud environment and retired 85 applications. We also virtualized our operating system environments and completed 78 operations automation projects across 11 business units. In addition, we trained more than 800 employees in Lean IT process improvements, and we are currently implementing 19 ongoing Lean IT design projects.
While these are just a sample of our team’s accomplishments this year, these technology changes provide a better end-user experience for clients by streamlining processes, protecting data and allowing us to offer the best resources available. They also create a more mobile workplace, supporting our commitment to flexible work and reducing our real estate footprint. We estimate we will avoid the emissions of 100,000 metric tons of carbon and save nearly $23 million in operating costs annually.
Looking closely at our costs and risks also means going beyond our own business to the companies we hire all over the world to provide us goods and services. We know that our reputation is affected by the entities we conduct business with and we must be careful to hire vendors whose environmental and social practices are in line with our own. In 2012, we developed a new vendor request-for-proposal tool that will help us embed our suppliers’ CR performance into the procurement decision-making process. Set to launch in 2013, the new tool will help our managers look beyond cost to the full picture of a supplier’s value and potential risks to State Street.
Nowhere is the influence of environmental sustainability more evident than in our global realty portfolio, and in particular Boston, our headquarters city and location with the largest footprint. We occupy a number of buildings throughout the city, largely as a result of acquisitions. With several of these leases set to expire in 2014, we have an opportunity to adjust the financial, environmental and ergonomic impacts of our real estate. At the same time, multiple factors are driving a shift away from traditional offices to collaborative, multi-functional workspaces.
In 2012 we finalized plans to consolidate four of our Boston offices into a single location with the opening of a new building, Channel Center, which is targeted for LEED Silver certification. For instance, lighting at Channel Center will be less than 0.8 watts per square foot and will maximize use of natural light, resulting in a savings of $150,000 and 50 metric tons of carbon annually. We are also moving toward more centralized spaces for printing, recycling and composting, which should reduce paper consumption while making it easier for employees to divert waste to landfill. Our move to Channel Center is scheduled to begin during the first quarter of 2014.
As we continue to transform the way we do business, CR will continue to provide new solutions to our ongoing efforts to manage risk and costs, while maintaining our commitment to innovation. Environmental issues may not always be the driver of change, but they prompt us to look more holistically at our challenges and opportunities — allowing us to perform better and increase value to all of our stakeholders.
As the world evolves, so does our commitment to setting higher standards in CR. These practices are fundamental to being a business leader. They reflect that we are acting responsibly and have a measurable, positive impact on our stakeholders. We see many ways that CR can be incorporated into all areas of our business, and that is especially true for Human Resources (HR).
One of the five attributes of our CR program is to create a positive work environment by fostering a workplace that attracts and retains talented, dedicated employees. As head of both Corporate Citizenship and HR, I take this responsibility very seriously. I am committed to using our resources to make positive impacts in the world and develop and strengthen our global workforce.
In today’s global, knowledge-based economy it’s more important than ever that we have skilled and talented employees to remain competitive. That’s why we make education and workforce development a priority by investing in the organizations that support these issues in the communities where we operate. This approach also makes sense for our business model. We need to access educated, employment-ready talent pools. We also want every member of society to become gainfully employed, with the ability to invest a portion of their income to retirement savings.
One of the nonprofit organizations we partner with in this area is Year Up. It trains young adults deemed “at risk,” both in the classroom and through on-the-job training. We have worked with Year Up since 2005 and take on between 80 and 90 Year Up students annually for six-month internships. And the retention of our Year Up alumni speaks for itself. For our 2007 class — the first year we have data for — we had 62 percent convert to full-time employees, and of those individuals, 100 percent are still employed with us today. On average over the past four years, 75 percent of those hired out of the Year Up program are still employed with us. This partnership has filled our talent pipeline with eager, entry-level employees, while helping to put deserving students on the path to a career.
Another large piece of developing our workforce is supporting women and making sure that we reflect the diversity and ethnicity of all of the areas of the world in which we operate. And we are proud to say that minorities make up 29 percent of our US employees, and 45 percent of our global workforce is women. But we know that diversity is more than that. We are particularly committed to providing all employees with opportunities to develop skills and experiences that will help them reach senior levels. It is imperative that we have candidates for upper management positions that include women and minorities.
We can’t deny the facts. Engaged employees exhibit 57 percent more effort and are nine times less likely to leave our organization. Additionally, organizations with a highly engaged workforce achieve an average three-year revenue growth of 20 percent, as compared to the industry average of 9 percent. Further proof is with Corporate Citizenship. Employees who participate in Corporate Citizenship programs are more engaged, and we’ve seen this ourselves. In our 2012 employee engagement survey, 71 percent of employees involved in Corporate Citizenship programs demonstrated a higher emotional commitment to State Street.
While we have countless programs and efforts designed to improve employee engagement, our Flex Work Program truly stands out as a success. This program is a priority due to its multiple benefits. We know that it drives engagement, as employees with flexible work arrangements have 36 percent less turnover compared to the company overall. The program also reduces real estate costs and has a positive environmental impact. Last year, the Flex Work Program saved a combined total of 190,000 commuting miles per week, eliminating 3,579 tons of greenhouse gas emissions.
I believe that we will continue to discover ways that CR is good for our business, and involving employees in that discussion is vital. Interactive communications will continue to grow as a means for informing and involving employees. We are using online channels to communicate corporate strategies and initiatives around CR, and to understand employees’ ideas and concerns. Collaborate, our internal social network, was launched in 2012 and has already proved to be very valuable in increasing CR dialogue.
CR and HR are very closely connected — when we succeed in one area, we succeed in the other. And I am excited about what we can accomplish as we continue to focus on making decisions that have a positive impact.