FirstGroup, GoAhead and GlaxoSmithKline (GSK) are among the ten companies doing most to reduce their environmental and social impacts, according to new ratings published by ethical investment analyst EIRIS.
Apple and ExxonMobil are two of the worst performing companies.
EIRIS assessed the performance of more than 2,000 of the world’s largest companies listed on the London Stock Exchange compared with 300 environmental, social and corporate governance indicators.
Companies are ranked in absolute terms to identify the overall best and worst performers (see table), and in relative terms to identify how they are performing within their own sector.
The results are expressed as an A-E rating with A identifying the best performers and E the worst. A company scoring B is one of the best in its sector, but may have some way to go compared with overall leaders.
EIRIS says this approach reflects the desire of most investors not to exclude sectors such as oil and gas despite their inherent lack of sustainability, but to invest in firms that are doing most to minimise their impacts.
EIRIS, which conducts research on corporate environmental and social performance for investors, says its new ratings aim to provide a clear and simple way of measuring how well a company is performing. The information could be used for investment portfolios or to guide shareholder engagement activities.
Mark Robertson, head of communications at EIRIS, said: “If we’re going to switch to a greener, more sustainable economy then investors need to know how companies in their portfolio are performing on these issues.” Even for investors not concerned about ethical issues, incorporating environmental, social and governance issues into investment criteria makes sense because they could affect a company's financial performance.
Although EIRIS excludes tobacco companies from its report, it includes them in the ratings service it offers investors. This is despite Mr Robertson’s acknowledgment that “it’s difficult to justify how their products are in any way beneficial to society”. This is because, aside from the health impacts of tobacco, companies can vary on other performance indicators such as the environmental impacts of growing their products.
Companies in the clothing sector, such as sportswear company Puma, risk their reputation and regulatory action by using suppliers in developing countries, because they face issues such as poor employment conditions and factory pollution. However, EIRIS says Puma has “exceptional environmental management systems and reporting practices… bolstered by significant improvements in environmental performance”. Puma’s environmental profit and loss accounts reflect this (ENDS Report, December 2011).
UK train and bus operators FirstGroup and The GoAhead Group have done well because more than 90% of their turnover comes from public transport services. EIRIS says they also have good records on environmental management and performance.
Pharmaceutical firms are strong in the ratings because of the healthcare benefits offered by the sector. EIRIS says it ranks UK drug company GSK highly due to its environmental performance, notably on water management (ENDS Report, June 2011). The company also offers preferential drug pricing to developing countries for some medicines and issues voluntary licences to generic drug manufacturers.
By contrast, out of the 50 largest companies in the world, US firms such as Apple, Google, McDonald’s and Wal-Mart, which owns UK supermarket Asda, all score D.
American oil and gas companies ExxonMobil, Chevron and ConocoPhillips are all rated E, while UK firms BP, Shell and BG Group do much better with B ratings.
In general, European companies score better than US and Asian firms. The UK has a 20% share of A-rated and a 36% share of B-rated companies. The US has 2% and 7% shares respectively. EIRIS says this is due to the threat of litigation of the US, which means firms disclose less performance data. The US has also been much more sceptical of issues such as climate change.
EIRIS said: “Apple has yet to tackle some of its most relevant [environmental, social and governance] issues,” such as human rights and labour issues in its supply chain. It says Exxon has gone some way to addressing its impacts but lacks best practice on climate change, biodiversity and water.
Please note this article has been republished with the kind permission of the ENDS Report.