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ESG Case Study – Cisco Systems, Inc.

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By Sara Rodriguez

From lowering greenhouse gas emissions to excellent supply chain management, Cisco is an industry leader among environmental, social, and governance investments. The company’s strengths lie in the social category. The range of social topics discussed in Cisco’s Corporate Social Responsibility (CSR) report and its related policies show that the company is well-intentioned when it comes to creating an inclusive culture that supports all employees. Over­all, Cisco’s above-average transparency and commitment to corporate social responsibility earns the company a 5/5 Sage ESG Leaf Score.

About Cisco Systems

Cisco Systems was founded in 1984 in the pursuit of connecting people, after two Stanford faculty members developed a way to enable communication over different networks between two buildings on campus — thus creating the router. One of the world’s largest technology companies by brand value ($26B), Cisco designs and manufacturers internet and communications related technology worldwide, including infrastructure platforms, networking service technologies, collaboration products, network security, and system management products. Today, more than 80% of the world’s web traffic travels across Cisco connections.

Environmental

Cisco excels in greenhouse gas (GHG) emissions management. The company has implemented science-based emissions targets for three types of emissions. Cisco aims to reduce Scope 1 (direct emissions from owned or controlled sources) and Scope 2 (indirect emissions from the generation of purchased energy) GHG emissions worldwide by 60% by FY 2022. Cisco’s U.S. facilities are 100% powered by renewable elec­tricity, and overall, 85% of Cisco’s global electricity is purchased from renewable sources. Having already met its 2020 supply chain GHG goal, Cisco has set a new goal to reduce supply chain-related Scope 3 emissions by 30% by FY 2030. Scope 3 emissions are all emissions that occur indirectly in the value chain caused by a company’s prod­ucts, such as the lifetime emissions from powering a Cisco router. Most of Cisco’s products expend 95% of their energy in the use phase (included in Scope 3 emission calculations) so inclusion of Scope 3 is fundamental for an accurate representation of Cisco’s GHG impact.

Cisco utilizes Life Cycle Assessments guided by the ISO 14040 standard to determine the carbon footprint of its products. The company sets tar­gets for the reduction of use of virgin plastics and foam and prioritizes in­creasing product packaging efficiency and circular design. The increased consumption of electronics has led to large quantities of electronic waste, causing adverse ecological effects on air, water, and soil pollution due to hazardous materials used in production. Cisco offers free pickup services to customers so they can return equipment to be recycled, refurbished, and reused. Equipment is disassembled and processed to retrieve ma­terials for reuse, lengthening the life cycle of Cisco’s products. Addition­ally, Cisco enables remote collaboration and virtual work environments through its WebEx technology, which further reduces carbon emissions.

Social

Cisco regularly ranks as one of the world’s best places to work, and its Corporate Social Responsibility (CSR) report offers an in-depth look at a multitude of company policies designed to create a sup­portive culture. Through a framework called “Conscious Culture,” Cisco focuses on practicing inclusivity to positively impact people, society, and the planet. The company’s CEO has prioritized destig­matizing mental health, and Cisco requires North American em­ployees to take time off at the end of December for a company-wide 10-day shutdown. Every employee at Cisco gets their birthday off.

Many of Cisco’s policies are designed to support its female employees. Cisco conducts regular analysis of pay parity based on gender (and in­clusive of ethnicity in the U.S.) to ensure people are paid equitably for similar work in the same location. The company has also banned sala­ry history questions during its hiring process and instead bases salaries on market data, candidate experience, and location. Cisco employees receive paid time off to care for a newborn or adopted child, which is based on the role they will play as caregiver rather than on gender. Pri­mary caregivers are granted 13 weeks, while supporting caregivers are given four weeks off. However, parental leave policies that institute a primary/secondary caregiver system have come under scrutiny for po­tentially discriminating against fathers. Paid parental leave regardless of gender is considered best practice. Cisco employees can take three days off to welcome a new grandchild. In 2019, Cisco introduced a reimburse­ment benefit for up to $50,000 for family planning (harvesting and stor­ing of eggs, sperm, or embryos), in addition to the coverage included in medical plans. Cisco offers U.S. employees adoption and surrogacy reim­bursement for up to $20,000 dollars and is the first company to offer U.S. employees access to preventative free elective testing to identify chang­es in genes associated with breast and ovarian cancers. While there is no blueprint for creating a culture that effectively supports women in the workforce, Cisco’s policies go above and beyond the industry norm.

Cisco began tracking the diversity of its workforce in 1988 and has since been committed to full-spectrum diversity and an inclusive cul­ture. Cisco’s CSR provides a comprehensive ‘workforce snapshot’ that offers transparent data inclusive of gender and ethnicity, categorized by region and type of employee (technical workforce, nontechnical, executive leadership, and board of directors). About 46% of executive leadership is made up of women, and 62% of Cisco’s executive lead­ership is considered diverse in terms of gender and/or ethnicity. How­ever, Cisco could improve both gender and ethnicity diversity in its board. Representation for Black and Hispanic/Latino employees have increased every year since 2016, and are up to 3.8% and 5.6%, respec­tively. Despite improvement, Cisco recognizes its Black and Hispanic/ Latino employee populations are underrepresented, and the compa­ny is using technology to track hiring practices to continue progress.

Despite being considered a leader in its diversity and inclusion practices, Cisco has been involved in controversy. In March 2020, Cisco agreed to pay $4.75 million to settle a claim from the U.S. Department of Labor that the company participated in gender and racial pay discrimination in 2011, when it was found that the Cisco paid white and male employees more than their female, Black, and Latino counterparts. In June, Califor­nia’s Department of Fair Employment and Housing filed a lawsuit against Cisco for caste discrimination in California — the first time in U.S. history that caste is the cause of a discrimination case. Discrimination based on caste is against the law in India, but there are no related policies in the U.S. Cisco is accused of failing to take corrective action after multi­ple investigations into the alleged discrimination, and according to news outlets, Cisco plans to “vigorously defend itself.” In 2019, 37% of Cisco’s workforce identified as being of Asian ethnicity, and the company is a top recipient of H-1B work visas. Regardless of Cisco’s otherwise thor­ough, transparent, and best-in-class approach to diversity and inclusion, these lawsuits highlight the complexities companies face when navigat­ing diversity, and the pervasive issues in corporate America that require further progress — even top diversity performers have work left to do.

Research has shown that people with sponsors are 23% more like­ly to advance in their careers than those without — but women and minorities often are significantly less likely to have a mentor or spon­sor. Cisco is combating this with programs designed to mentor, re­tain, educate, and support diverse employees, and it has proved successful; participants are more often twice as likely to get pro­moted than nonparticipants. Despite shortcomings, overall, Cis­co excels at promoting diversity and inclusion within the company.

Cisco directly employs 75,000 people in 97 countries and has around 224,000 workers in its global supply chain. Cisco’s manufacturing opera­tions are entirely outsourced to China, Malaysia, and Thailand, putting the company at a greater risk of potential human rights violations and mak­ing supply chain risk management especially material to the company. Through the Responsible Business Alliance, Cisco’s suppliers are required to regularly conduct self-assessment questionnaires and third-party au­dits to ensure they are compliant with the Supplier Ethics Policy. Cisco’s CSR report covers what the company does if violations involving working hours/days of rest, wages and benefits, and freely chosen employment are found. Cisco’s updated 2019 risk assessment methodology now ac­counts for the presence of vulnerable workers, such as foreign migrant workers, young workers, and student workers. Cisco is a member of the Electronic Industry Citizenship Coalition, which covers freedom of associ­ation and collective bargaining for employees; however, some countries in which Cisco operates (China) have severe limitations that exist with re­gard to labor unions, so not all workers in the supply chain are protected.

Electronic products contain 3TG minerals (tantalum, tin, tungsten, gold, and increasingly cobalt). Although Cisco does not directly procure min­erals from mines or smelters, the company prides itself on regularly conducting due diligence on the minerals in its supply chains to ensure that their mining does not benefit groups that commit human rights violations. In the past, certifying the origins of minerals has been dif­ficult due to a lack of data. Cisco is combating this issue by using block­chain technology to track minerals from mines to downstream sale.

Cyber security is a top ESG concern in the technology industry, and Cisco’s own company materiality assessment concluded that data security and privacy is the issue most important to business and stakeholders. Cisco provides privacy and data protection services to help companies manage information, and Cisco’s entire services business is ISO 27001 certified to keep consumer data secure. When it comes to data that Cisco collects, the company maintains a transparent inventory and data map to identify data collected from customers, how it is used, and who has access to it. Additionally, while advanced network technologies offer many benefits, they can also be used negatively to surveil or censor individuals. Cisco advocates for laws that respect privacy as a fundamental human right.

Governance

Cisco releases Corporate Social Responsibility reports annually. Reports include a full materiality assessment conducted every two years, with an internal material refresh on off years. Cisco’s report features a thor­ough assessment of corporate responsibility topics — the 2019 report is 230 pages — and its related United Nation-supported Sustainable Development Goals and is guided by the Global Reporting Initiative (GRI) Standards. The company has a Corporate Affairs team designat­ed to manage stakeholder engagement and corporate responsibility. To reinforce the importance of Cisco’s CSR policies, one hour of new em­ployee orientation is dedicated to information about the CSR program.

Cisco’s code of conduct is considered best-in-class, and covers topics such as antitrust, conflicts of interest, insider trading, and corruption in detail, and third-party due diligence has been implemented to ensure compli­ance with the code. Cisco has implemented anonymous and confidential reporting channels to protect whistleblowers. Although the chair of the board is not independent, Cisco has fully independent board committees in charge of auditing, remuneration, and director nomination. Cisco does not make corporate contributions to candidates for federal elected office, political parties, or election committees in the U.S., and discloses any local contributions on a quarterly basis, which Sage finds best practice.

To listen to the “S in ESG” podcast, click here.

Sage ESG Leaf Score Methodology

No two companies are alike. This is exceptionally apparent from an ESG perspective, where the challenge lies not only in as­sessing the differences between companies, but also in the differences across industries. Although a company may be a leader among its peer group, the industry in which it operates may expose it to risks that cannot be mitigated through company management. By combining an ESG macro industry risk analysis with a company-level sustainability evaluation, the Sage Leaf Score bridges this gap, enabling investors to quickly assess companies across industries. Our Sage Leaf Score, which is based on a 1 to 5 scale (with 5 leaves representing ESG leaders), makes it easy for investors to compare a company in, for example, the energy industry to a company in the technology industry, and to understand that all 5-leaf companies are leaders based on their individual company management and the level of industry risk that they face.

For more information on Sage’s Leaf Score, click here. 

Resources:

Cisco Systems Corporate Social Responsibility Report

United Nations Sustainable Development Goals

Disclosures:

Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. The infor­mation included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. This report is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results. Sustainable investing limits the types and number of investment opportunities available, this may result in the Fund investing in securities or industry sectors that underperform the market as a whole or underperform other strategies screened for sustainable investing standards. No part of this Material may be produced in any form, or referred to in any other publication, without our express written permission. For additional information on Sage and its investment management services, please view our web site at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

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