A new report from Ceres and Sustainalyticsconcluded that while there are “pockets of leadership and innovation” in the sustainability efforts of 600 of the largest corporations in the U.S., there remains a “compelling case for deeper, more comprehensive business action on sustainability.”
EIRIS recently released its own report [PDF] on corporate sustainability practices as well, in which the more than 2,000 global firms listed in the FTSE All World Developed (AWD) Index are evaluated. The more global perspective adopted by EIRIS may have helped the research organization identify more leaders — sustainability efforts in the U.K. and across Europe are generally more advanced than those in the U.S. or Asia — but the report’s conclusions are not much different from those arrived at by Ceres.
“There are many companies which are demonstrating positive sustainability impacts, along with some leadership on ESG (environmental, social, and corporate governance) issues,” EIRIS concludes. However, “there are significant differences in the extent to which companies are on track to tackle the broad sustainability challenges they face.”
In the U.S. in particular, according to the report, “there are some excellent examples of strong corporate leadership on sustainability … However, there have been some levels of anxiety about corporate social responsibility (CSR)/sustainability disclosure amongst U.S. companies.” Of the 50 largest companies by market capitalization, only three U.S.-based companies — Intel, Merck, and Schlumberger — received a grade of B.
Intel, which is one of the relatively rare U.S.-based companies to link executive compensation to sustainability goals, was cited for its sustainability efforts in the Ceres report as well. Apple, on the other hand, received a grade of D from EIRIS: “Amongst the worst performers of the technology hardware and equipment sector.”
Four European companies — all of which are in the pharmaceutical sector and “provide products and services with a social or environmental benefit,” according to EIRIS — received a grade of A.
EIRIS notes that according to the definition of sustainability articulated in the Brundtland report — “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” — some industry sectors, notably oil and gas, are inherently unsustainable. While some companies in the extractives sectors have policies addressing climate change, human rights and the environment, “many more show negative performance on the ground,” EIRIS found, including breaches of international conventions.
Yet, that companies in industry sectors traditionally faced with pervasive ESG challenges can outperform is demonstrated by the top ranking awarded to Puma, a personal goods company with a far-flung supply chain.
ESG risks in the personal goods sector include “legal, regulatory and reputational concerns associated with environmental impacts, brand perception and human rights risks particularly with respect to supply chain practices,” according to EIRIS. Puma has demonstrated significantly improved environmental performance, has leading supply chain policies and disclosure, and practices meaningful stakeholder engagement.
Not one of the top 10 global sustainability leaders identified by EIRIS is located in the U.S.
Investors, EIRIS concludes, “need to consider not only traditional financial risk factors, but also performance against the full range of material ESG issues — not just environmental — in understanding sustainability performance and how these factors are integrated into a company’s business strategy.”
Because of their long-term investment horizons, asset owners in particular should fully understand the sustainability risks and opportunities included in their portfolios.