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Ranking the FTSE 100 on its commitment to ESG
A lot of companies talk a good game when it comes to sustainability and climate change, but how many of them actually do what they say they’re going to do? We now have some idea.
Research platform Tortoise Media has ranked all 100 companies in the FTSE 100 index against the UN’s Sustainable Development Goals. Called the ‘responsibility index’, it measures the gap between what companies say and what they do – the talk versus the walk – highlighting the range of corporate commitment to people and the planet.
Often seen as the darling among sustainability-focused investors, consumer goods giant Unilever (ULVR) comes out on top in the rankings.
Tortoise Media highlighted the firm’s nearly 50/50 gender representation at senior management level, plus the fact it sends zero waste to landfill in the top 21 countries it operates in. It also has the lowest levels of energy consumption per employee among firms in the index.
Bottom of the pile was Scottish Mortgage Investment Trust (SMT), which doesn’t use any environmental, social or governance (ESG) criteria and ranks low on sustainability according to Morningstar.
But the trust does hold stocks like electric vehicle makers Tesla and Nio and scores well with Morningstar when it comes to the carbon emissions produced by the companies it holds.
IT'S GOOD TO TALK
Software supplier Sage (SGE) is the most ‘humble’ company on Tortoise’s responsibility index, sitting in the top 10 after taking strong action to advance social responsibility, yet being in the bottom 10 for talking about it.
Melrose Industries (MRO) was called out for being the least transparent. It failed to report on more than two thirds of the 10,000-plus data points Tortoise Media looked at when compiling the index, staying silent on areas such as employee diversity, training and wellbeing.
RACE TO THE TOP
Alexandra Mousavizadeh, economist and partner at Tortoise Intelligence, called for FTSE 100 firms to start a ‘race to the top’.
She says: ‘The appetite from consumers, clients and shareholders for irresponsible corporate behaviour is diminishing. It is two minutes to midnight and we need this index to identify the gap between PR talk and real action.’
The research found that 3.1m FTSE 100 employees, out of 4.8m in total, work for companies who haven’t committed to paying them a UK Living Wage of £9.30 an hour.
In 2018, 419m tonnes of CO₂ equivalent were released by FTSE 100 companies, 55m tonnes more than produced by the entire UK, with nearly a third of FTSE 100 companies having a rising carbon footprint.
The FTSE 100 contributes almost £1.8bn in charitable and community investments a year, six times higher than Oxfam’s annual spending, for example. But the research found that this spending from FTSE 100 companies equates to just £1.39 on average for every £1,000 earned.
Of all the FTSE 100, broadcaster ITV (ITV) is the most generous, donating £13.94 for every £1,000 of its revenue. The next highest is wealth management business St. James’s Place (STJ), donating
£8.15 on average for every £1,000 of revenue.
The companies with the biggest gap between their ‘talk and walk’ on environmental and social responsibilities are miner Glencore (GLEN), oil and gas giant Royal Dutch Shell (RDSB) and packaging firm Mondi (MNDI).
Breaking it down by sector, in supermarkets Tesco (TSCO) came out on top thanks to its ‘rigorous’ approach to responsibility reporting and action taken on staff training and poverty.
Burberry (BRBY) topped the fashion sector, despite being criticised for burning millions of pounds worth of unsold clothes to protect its brand, thanks to the fact it obtained 58% of its energy from renewable sources in 2018/19.
AstraZeneca (AZN) ranked highest in big pharma, performing well on both its commitments and actions with a relatively high representation of women (44%) at senior management level.
In travel and leisure, InterContinental Hotels (IHG) came out on top for its ‘thorough reporting’ on environmental measures, which even covers composting, while it has also made the largest improvement compared to the other travel companies in the index when it comes to emissions intensity.
Tesco. It is top of the supermarkets, thanks to its rigorous approach on responsibility reporting, backed up by strong action on staff training and poverty.
Then Sainsbury’s, Morrisons and Ocado
Burberry. Despite being criticised for burning millions of pounds worth of unsold clothes last year to protect its brand, Burberry performs well in the climate category. In 2018-19, the fashion company obtained 58% of its energy from renewable sources.
Then Next and JD Sports
GREATER FOCUS ON ESG
The responsibility index comes after a report by index provider MSCI on ESG issues, which found that trends for 2020 include investors using alternative data to spot companies taking the lead on climate change.
It also foresees that ‘ESG storms the CFO’s office, elbowing its way onto the bottom line as financiers get creative with ways to bind ESG criteria to their terms of capital, introducing a plethora of corporate borrowers into the wide world of ESG.’
While in property, MSCI reckons greening the property portfolio will move from a nice-to-have reputation booster to an imperative in the face of a looming ‘brown discount’ if real estate investors don’t kick-start their journey to zero carbon.