Companies failing on ESG despite heightened scrutiny
GLOBAL - Only one in six companies - out of a universe of 3,100 in 45 sectors - currently satisfies the environmental and social requirements laid down by oekom research as prerequisites for its Prime Status despite growing pressure from sustainable investors, according to the oekom Corporate Responsibility Review (CR) 2011.
In 2010, numerous companies from the industrialised nations were still involved in violations of human rights, labour rights or environmental scandals, oekom said.
More than half - 56% - still fall a long way short of sustainable management, but 26% do at least have the basis for a sustainable management system.
Of the nearly 550 companies with oekom Prime Status, around 200 are small and highly specialised companies from sectors very closely linked to sustainability - renewable energies or water treatment, for example.
Approximately 350 companies come from conventional sectors. Only around 2% of the analysed companies from emerging markets, which oekom research rated for the first time, have been awarded prime status.
BP's oil platform Deepwater Horizon scandal, the suicides of numerous workers at Taiwanese electronics supplier Foxconn and the debate about data protection sparked by the Google Street View images last year show two things, according to Matthias Bönning, chief operating officer and head of research at oekom research.
"Firstly, companies throughout the world are increasingly coming under scrutiny from society in general and from investors," he said.
"Secondly, no company can now maintain that it knew nothing about, for example, inhumane working conditions in Asia. As far as the awareness of corporate responsibility is concerned, although there are no black swans - or unforeseeable events - anymore, there are still plenty of black sheep."
Emerging markets constitute one of the major trends in which sustainability-orientated investors show an interest. However, while demand for securities here is rising, there is still a limited supply of suitable issuers.
Oekom research believes pressure from sustainable investors will help to bring about improvements in the performance of companies in emerging markets over the next few years.
The research also found that, due to the fact many institutional investors reduced the proportion of equities in their portfolios during the financial and economic crisis in favour of money market investments and bonds, the interest in factoring environmental, social and governance (ESG) criteria into fixed-interest investments has risen markedly over the last two years.
More and more private and institutional investors also take such criteria into account when purchasing corporate or government bonds.
With regard to alternative investments, while some areas, such as microfinance and forestry, have long been assessed against sustainability criteria, the debate about whether and how to invest sustainably in other areas - particularly commodities - is only just beginning.
Overall, the market share and volume of sustainable capital investments rose worldwide in 2010. Currently, around €8trn is invested taking ESG-related criteria into account, with Europe alone accounting for €5trn.
The bulk of this capital, however, is managed according to rather soft sustainability criteria.
The full report is available here.