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March 30, 2013
Twenty Years on, Corporate Sustainability Still Lacking
    by Robert Kropp

In its annual rating of the sustainability performance of the world's largest companies, oekom research finds that only one in six demonstrate adequate commitment.


In Rio de Janeiro in 1992, the Earth Summit brought together representatives of 172 nations, who agreed that protecting the environment and reducing global overconsumption were critically important sustainable initiatives.

One year later, the rating agency oekom research was founded in Germany. On behalf of the sustainable investors that comprise its clientele, oekom analyzes and rates both companies and nations on their sustainability performance.

For several years, oekom has published an annual Corporate Responsibility Review. In the review oekom rates the world's largest companies according to their performance in the seven areas of climate protection, biodiversity, water, forestry, poverty, demographic changes, and corruption.

In his foreword to this year's edition, oekom CEO Robert Haßler described the corporate response to the agency's measurement of sustainability performance in the early years. "At the time, many companies viewed this as a monstrous imposition," he wrote. "Managers were not used to having outsiders systematically and comprehensively scrutinizing their social, environmental and ethical behavior. Especially as this scrutiny was unsolicited, since oekom research's sustainability ratings were commissioned not by the companies themselves, but by the investors using the ratings."

After 20 years of increasing corporate commitments to sustainability, what do today's measurements suggest about their performance? "Not nearly enough," oekom states. "Only one in six (16.7 per cent) of the companies from the global MSCI World equity index which have been rated by oekom research currently demonstrates a good level of commitment to sustainable development." That so few companies are performing at all well—none have been accorded oekom's highest rating—is especially sobering given the fact that 62% of companies now report that they pursue sustainability strategies, and almost two-thirds of those that do state that doing so has been profitable for them.

The industry sector with the highest sustainability performance rating was paper and forest, but that sector's rating was only 47.7 out of a possible 100. "The very industry which, more than any other, stands for sustainable management has thus failed to achieve even half of the maximum possible score," Matthias Bönning of oekom observed. The only other sectors achieving even a rating of 40 were household products and automobile.

The worst performing sectors were real estate and oil and gas, "sectors which have a key role to play in overcoming the major challenges of sustainability," the report states. And insurance and commercial banks, both of which will play important financial roles in achieving sustainability, performed poorly as well.

Not one of the 20 companies designated as best performers in the industry sectors is headquartered in the US. Seven are based in the UK, and the vast majority of the remaining are located elsewhere in Europe. "The quality of sustainability management in North America and Asia is significantly lower" than in Europe, the report found.

Observing that addressing climate change is of "paramount importance," the report concludes, "The time remaining for taking decisive political, economic and social action in order to prevent the worst from happening is already running out."

However, "the ideas, concepts and technical capabilities needed to meet the challenges successfully already exist," oekom continued. "Environmental and social commitment are not the product of economic success, but rather its root cause. Only those who manage energy and raw materials efficiently, treat their own employees and those of their suppliers fairly and offer products that are tailored to changing market requirements will also be economically successful in the long run. In this sense, sustainability is also described as long-term economics."

 

 
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