By Hank Boerner – Chairman and Chief Strategist, G&A Institute
Barron’s is one of the most influential of investor-focused publications (in print and digital format) and a few months ago (in October), the editors published the first of an ongoing series of articles that will focus on ESG performance and sustainable investing, initially making these points:
- Barron’s plans to cover this burgeoning style of investing on a more regular basis. A lot of possible content that was developed was left on the cutting room floor, the editors note.
- Says Barron’s: “We are only in Version 1.0 of sustainable investing. 2.0 is where ESG is not a separate category but a natural part of active management.”
- And: “Given the corporate scandals of recent days (Wells Fargo, Equifax, Chipotle, Volkswagen, Valeant Pharmaceuticals), it is clear that focus on companies with good ESG policies is the pathway to greater returns for investors!”
The current issue of Barron’s (Feb 5, 2018) has a feature article and comprehensive charting with this cover description:
“The Top 100 Sustainable Companies – Big Corporations With the Best ESG Policies Have Been Beating the Market.”
Think of this as proof of concept: The S&P 500® Index Companies returned 22% for the year 2017 and the Barron’s Top 100 Sustainable Companies average return was 29%.
The 100 U.S. companies were ranked in five categories considering 300 performance indicators. Barron’s asked Calvert Research and Management, a unit of Eaton Vance, to develop the list of the Top 100 from the universe of 1,000 largest publicly-held companies by market value, all headquartered in the United States.
Calvert looked at the 300 performance indicators that were provided by three key data and analytic providers that serve a broad base of institutional investors:
- Institutional Shareholder Services (ISS)
- and Thomson Reuters ASSET4 unit.
Five umbrella categories were considered:
There were items considered in the “shareholders” category, like accounting policies and board structure; employee workplace diversity and labor relations; customer, business ethics and product safety; planet; community; GHG emissions; human rights and supply chain.
We can say here that “good governance” (the “G” in ESG) is now much more broadly defined by shareholders and includes the “S” and “E” performance indicators (and management thereof), not the formerly-narrow definitions of governance. Senior managers and board, take notice.
Every company was ranked from 1-to-100, including even those firms manufacturing weapons (these firms are usually excluded from other indexes and best-of lists, and a number of third party recognitions).
Materiality is key: the analysts adjusted the weighting of each category for how material it was for each industry. (Example: “planet” is more material for chip makers using water in manufacturing, vs. water for banking institutions – each company is weighted this way.)
The Top 100 list has each company’s weighted score and other information and is organized by sector and categories; the complete list and information about the methodology is found at Barron’s.com.
The Top 5 Companies overall were:
- Cisco Systems (CSCO)
- salesforce.com (CRM)
- Best Buy (BBY)
- Intuit (INTU)
- HP (HPQ)
The 100 roster is organized in categories:
- The Most Sustainable Consumer Discretionary Companies (Best Buy is at #1)
- The Most Sustainable Financials (Northern Trust is #1) – Barron’s notes that there are few banks in the Top 100. Exceptions: PNC Financial Services Group and State Street.
- The Most Sustainable Industrials (Oshkosh is ranked #1)
- The Most Sustainable Tech Outfits (Cisco is at the top)
Familiar companies names in the roster include Adobe Systems, Colgate-Palmolive, PepsiCo, Deer, UPS, Target, Kellogg, Apple, and Henry Schein.
Singled out for their perspectives to be shared in the Barron’s feature commenting on the ESG trends: John Wilson, Cornerstone Capital; John Streur, Calvert; Calvet Analyst Chris Madden; Paul Smith, CEO of CFA Institute; Jon Hale, Head of Sustainability Research at Morningstar.
Calvert CEO John Streur noted: “This list gives people insight into companies addressing future risks and into the quality of management.”
Top-ranked Cisco is an example of quality of management and management of risk: The company reduced Scope 1 and 2 GHG emissions by 41% since 2007 and gets 80% of its electricity from renewable sources.
This is a feature article by Leslie P. Norton, along with a chart of the Top 100 Companies.
She writes: “…Barron’s offers our first ranking of the most sustainable companies in the U.S. We have always aimed to provide information about what keenly interests investors – and what affects investment risk and performance…” And…”what began as an expression of values (“SRI”) is finding wider currency as good corporate practices…”
The complete list of the top companies is at Barron’s com. (The issue is dated February 5th, 2018) You will need a password (for subscribers) to access the text and accompanying chart.
For in-depth information: We prepared a comprehensive management brief in October 2017 on Barron’s sustainable coverage for our “G&A Institute’s To the Point!” web platform: https://ga-institute.com/to-the-point/proof-of-concept-for-sustainable-investing-barrons-weighs-in-with-inaugural-list-of-top-100-sustainable-companies/