Which Are the “Best Of” Sustainable Companies in the Important Annual Rankings? Mirror, Mirror on the Wall – What Reflection for Our Company?

February 7 2020

By Hank Boerner – Chair & Chief Strategist – G&A Institute

Mirror, mirror on the wall – who is the most sustainable company of them all?  (Paraphrasing that most memorable line from the Queen in the Walt Disney Studios’ 1930s big screen classic, Snow White and the Seven Dwarfs,)

“Best Of” is being regularly applied now by a ever-widening range of third party players in examining the performance and achievements of U.S., North American and global companies’ sustainability efforts (and applying their methodologies to focus on an ever-widening list of ESG criteria for users of the lists, rankings and so on). 

The results are published for many or all to see – such as this week’s Corporate Knights’ “2020 Global 100” unveiling at the World Economic Forum in Davos — which we are sharing in our Top Stories of the week.

Looking at (or for) the “fairest” of them all, or the best-in-class, or most sustainable, or leading in corporate citizenship rankings, et al — there are now many more ESG ratings organizations, publishers, NGOs, investor coalitions, trade / professional associations, and others in the “ratings, rankings, scores and other recognitions” arena.

And these ratings, rankings, scores, best-of lists are published in many more forms and value-added variations.  Keeping current and in the ESG ratings & rankings game is a full-time job at many companies today.

The third party evaluation approach can be better understood in how they apply their research to arrive at rankings and ratings, and assigning scores, with shared (privately or publicly) rationale to explain the selections of the individual company for benchmark, or the rankings assigned. 

Therein, important stories are being told about companies on the list or assigned a high ranking or in an index. Investors can better understand the why and how of the selection.

(And, we should say, stories are told in the ratings & rankings et al processes about those companies that are omitted or not selected or having a lower rating compared to peers).

For example, look at investable products. S&P Global recently launched an index based on the widely-used benchmark, the S&P 500(R), focused on ESG performance. The bottom 25% — 100 companies! — were not included in the first go-round. Story subtly told – company is in or out.

Besides the welcomed opportunity for corporate leaders to bask in the sunshine of the valued third party recognitions (“look, we got in this year’s best companies list focused on…”), and to admire the reflection in the “best of mirror mirror” on the board room or C-Suite wall, there are very practical aspects to these things.

Such as: As explained, the inclusion of a corporation in a key ESG equity index / investing benchmark or investable product offering and more recently, reflections of the company in the mirror mirror of credit risk ratings and ratings opinions on fixed-income instruments.  

The decision to issue a “green” bond to the market may or will be affected by third party views of the planned issue – green enough or not! That’s beginning to happen in the EU markets.

The Positives

With the many in-depth third party examinations of companies’ ESG strategies and resulting outcomes (considering company’s actions, performance, achievements) now taking place, and with the results becoming more transparent, some of the scoring / ranking / etc results have the effect of enabling a more complete, accurate and comparable corporate ESG profile to be developed by the company.

With better understanding of the ranking & rating etc the issuer’s leadership can assign more resources to improve their public ESG profile, especially those developed by the key ESG rating agencies for their investor clients.

Important to understand in 2020: These close examinations of companies’ ESG performance are becoming more and more decision-useful for portfolio management for asset owners and managers.

And lenders, And bankers. And the company’s insurers. And business partners. And customers. And present and future employees wanting to work for a more sustainable, doing-the-right-thing company.

As board room top leaders better understand the importance of these ratings, rankings etc. exercises (and the importance of engaging with raters & rankers & list makers), with more internal resources allocated to the task of improving the profile — the company will tend to make more information publicly-available for the third party examinations.

The virtuous cycle continues — more information disclosed and explained, better ratings could result, year-after-year. As we always say, it is a sustainability journey.

More ESG information is now being made public by companies for delivery on critical ESG delivery platforms (such as on “the Bloomberg” and the Refinitiv Eikon platforms, in S&P Global platforms).

This in turn leads to better packaging of ESG data and narrative to inform and influence investors; and, leads to improved investment opportunity for being recognized as a leader in a particular space by key investor coalitions (ICCR, INCR, Investor Alliance on Human Rights, Climate Action 100+, and other).

The latter means a multiplier effect — quickly bringing the company’s sustainability news to more investors gathered in a community-of-interest on a topic.

(Think of the volumes of information now being made available by companies focused on GHG emissions, climate change risk, diversity & inclusion, labor rights, human rights, reducing ESG impacts on communities, greater supply chain accountability, use of renewable energy, water conservation, and more,)

Mirror, Mirror 2020: At the recent World Economic Forum meeting Davos, Switzerland, the “100 most sustainable companies of 2020” report was announced. 

Publisher Corporate Knights’ much-anticipated annual ranking of “most sustainable companies in the world” was the basis of the announcement. 

That annual survey looks at 7,400 companies having more than US$1 Billion in revenues, examining 21 KPIs. The stories of the companies from Fast Company and The Hill provide the details for you.  (This is the 17th year of the survey.)

At the Davos gathering this year, participants learned that almost half of the most sustainable companies were based in Europe (49); 17 were HQ in the U.S.A; 12 in Canada; 3 in Latin America, 18 in Asia, and one company in Africa.

For the U.S.A., Cisco Systems is highest ranked (at #4, thanks to $25 billion generated for “clean revenues” from products with “environmental core attributes”). The #1 company is worldwide is Orsted of Denmark (renewable energy).

Our G&A Institute team closely monitors these and many other third party rankings, ratings, scores, corporate ESG profiles, and other critical evaluations of companies. 

This is an example of the knowledge we gain in this [ratings/rankings] arena, which becomes a vital part of the various tools and resources we’ve created to help our corporate clients qualify for, get selected for, and lead in the various “best of lists”.

In sum, achieving better rankings, ratings, scores — so their mirror mirror on the wall question reflects back a very welcoming image! 

In these newsletters, we work to regularly share with you the relevant news items and other content that helps to tell the story of the dramatic changes taking place in both the corporate community and in the capital markets as as the focus on corporate ESG sharpens. Like this week’s Top Stories.

Top Stories for This Week

The 100 most sustainable companies of 2020   
Source: The Hill – A ranking of the most sustainable organizations was unveiled at the World Economic Forum in Davos, Switzerland, Tuesday. 

These are the most sustainable corporations in the world   
Source: Fast Company – Canadian research firm Corporate Knights releases its annual list of most sustainable corporations in the world, with some new entries in the top 10. 

For a the complete list and important background, go to:
Corporate Kings’ 2020 Global Ranking 

And also from Davos:
World Economic Forum calls on business chiefs to set net-zero targets   
Source: Edie.com – In a letter from the Forum’s Founder and executive chairman Klaus Schwab and the heads of Bank of America and Royal DSM Brian Moynihan and Feike Sijbesma, businesses have been urged to respond to climate science through the… 

The Year 2020: Off To Great Start For News About Sustainable Investing

by Hank Boerner – G&A Institute Chair & Chief Strategist

January 2020 — Here we are now in a new year, and new decade (already, the third decade of the 21st Century) and much of the buzz is all about (1) climate change and the dramatic impacts on business, finance, government and we humans around the globe; and (2) many investors are moving their money to more sustainable investments.

Oh, of course, there are other important conversations going on, such as about corporate purpose, corporate stewardship, human rights, the circular economy, worker rights, supply chain responsibility, reducing GHG emission, conserving natural resources, moving to a greener and lower carbon economy, workplace diversity, what happens to workers when automation replaces them…and more. 

But much of this is really part of sustainable investing, no?  And corporate purpose, we’d say, is at the center of much of this discussion!

The bold names of institutional investors/asset management are in the game and influencing peers in the capital markets – think about the influence of Goldman Sachs, BlackRock (world’s largest asset manager), State Street/SSgA, The Vanguard Group, and Citigroup on other institutions, to name here but a handful of major asset managers adopting sustainable investing strategies and approaches.

This week’s Top Story is about Goldman Sachs Group Inc’s pivot to “green is good”, moved by Reuters news service and authored by Chris Taylor.  The GS website welcome is Our Commitment to Sustainable Finance

The company announced a US$750 billion, 10-year initiative focused on financing of clean energy, affordable education and accessible healthcare, and reduction of or exclusion of financing for Arctic oil-gas drilling.

Head of GS Sustainable Finance Group John Goldstein explains the company’s approach to sustainable financing and investment in the Reuters story. 

Our other Top Story is from Morningstar; this is an update on the investors’ flows into sustainable funds in 2019…what could be the leading edge of a huge wave coming as new records are set. 

For 2019, net flows into open-end and ETF sustainable funds were $20.6 billion for the year just ended – that’s four times the 2018 volume (which was also a record year). There’s always information of value for you on the Morningstar website; registration is required for free access to content.

And the commentary on the January 2020 letter from BlackRock CEO Larry Fink to the CEOs of companies the firm invests in – we’ve included a few perspectives. 

We’d say that 2020 is off to an exciting start for sustainability professionals, in the capital markets, and in the corporate sector! Buckle your seat belts!

Top Stories for This Week

Green is good. Is Wall Street’s new motto sustainable?   
Source: Reuters – If you have gone to Goldman Sachs Group Inc’s (GS.N) internet home page since mid-December, it would be reasonable to wonder if you had stumbled into some kind of parallel universe. 

Sustainable Fund Flows in 2019 Smash Previous Records   
Source: MorningStar – Sustainable funds in the United States attracted new assets at a record pace in 2019. Estimated net flows into open-end and exchange-traded sustainable funds that are available to U.S. investors totaled $20.6 billion for the…