Overview of ESG 100 in 2020

Overview of ESG 100 in 2020

For the third year running The Governance Group has assessed the sustainability reporting of the 100 largest companies listed on the Oslo Stock Exchange. On 8th September, The Governance Group published its annual analysis of ESG reporting – ESG 100 – rating the 100 largest companies on the Oslo Stock Exchange. Sustainability and ESG factors have long been perceived as a minor concern for investors. Many CEOs live by the assumption that a sustainability agenda conflicts with shareholder interests and that ESG consideration are immaterial to finance. It has become increasingly clear that this notion is outdated.

In this analysis, Scatec Solar was rated A, placing the company in the top category among companies excelling at ESG reporting. The analysis rates how well companies disclose relevant data. The analysis is a useful tool for corporations and investors alike to better understand the risks and opportunities related to ESG. The financial markets’ quest for ESG information has radically changed communication with investors on sustainability. For analysts to correctly evaluate a company there is a need for more information on ESG performance and the company’s governance approach for managing sustainability risks and opportunities. Therefore, TGT performed the mind depth ESG analysis and rated ESG 100 sustainability companies. 

Assessment criteria

The companies were analysed over four relevant areas. The Global Reporting Initiative – GRI, by assessing the degree to which the company reports to material topics in a systematic manner. Those do not include only impacts that have intermediate consequences from a business perspective, such as financial costs or a damaged reputation. The assessment also includes CDP rating, A to D, or F if they failed to report. Moreover, companies were also assessed as to whether their reporting complies with the recommendations of the TCFD with regard to governance, strategy, risk management and goal setting. Integration of UN Sustainable Development Goals has gained widespread international support, including from business.

Scatec Solar is an integrated independent solar power producer, delivering affordable, rapidly deployable and sustainable clean energy worldwide. While contributing to reducing emission is at the core of Scatec Solar’s business model, sustainability is also integrated into all operations and is closely monitored and reported. 

Key takeaway

This year’s analysis of the 100 largest companies on the Oslo Stock Exchange reveals that many companies lack a systematic approach to sustainability reporting. However, the trend is positive compared to last year. This is good news for investors and society at large – sustainability has become less noise and more substance.

The responsibility of identifying material sustainability risks and associated goals does not only belong to senior management. The company’s board should have access to information regarding key sustainability risks to the same extent as it does in other areas. By being transparent with regard to risk tolerance and goals related to material sustainability factors, the board will also aid investors in understanding the company. 

Read the full Stock Exchange report on The Governance Group. The analysis is a useful tool for corporations and investors alike to better understand the risks and opportunities related to ESG.

100 LARGEST COMPANIES ON OSLO STOCK EXCHANGE

CompanyScore
Borregaard4,0
Equinor4,0
DNB3,0-3,9
Entra3,0-3,9
Gjensidige3,0-3,9
Grieg Seafood3,0-3,9
Mowi3,0-3,9
Norsk Hydro3,0-3,9
Orkla3,0-3,9
SpareBank 13,0-3,9
Østlandet3,0-3,9
Storebrand3,0-3,9
Telenor3,0-3,9
Veidekke3,0-3,9
Yara International3,0-3,9
Aker BP2,0-2,9
Atea2,0-2,9
Bakkafrost2,0-2,9
Fjordkraft2,0-2,9
SalMar2,0-2,9
Lerøy Seafood Group2,0-2,9
Nordic Semiconductor2,0-2,9
Petroleum Geo-Services2,0-2,9
Scatec Solar2,0-2,9
Schibsted2,0-2,9
Wallenius Wilhelmsen2,0-2,9
AF Gruppen1,0-1,9
Akastor1,0-1,9
Aker1,0-1,9
Aker Solutions1,0-1,9
AKVA Group1,0-1,9
B2Holding1,0-1,9
BW LPG1,0-1,9
BW Offshore Limited1,0-1,9
Elkem1,0-1,9
Europris1,0-1,9
EVRY1,0-1,9
Golden Ocean Group1,0-1,9
Höegh LNG Holdings1,0-1,9
Kongsberg Automotive1,0-1,9
Kongsberg Gruppen1,0-1,9
Norway Royal Salmon1,0-1,9
Norwegian Property1,0-1,9
NRC Group1,0-1,9
Odfjell1,0-1,9
RAK Petroleum1,0-1,9
Salmones Camanchaca1,0-1,9
SpareBank 1 Nord-Norge1,0-1,9
SpareBank 1 SMN1,0-1,9
SpareBank 1 SR-Bank1,0-1,9
Subsea 71,0-1,9
TGS-NOPEC1,0-1,9
Tomra Systems1,0-1,9
Wilh. Wilhelmsen Holding1,0-1,9
XXL1,0-1,9
ABG Sundal Collier0,0-0,9
American Shipping CO0,0-0,9
Arcus0,0-0,9
Arendals Fossekompani0,0-0,9
Austevoll Seafood0,0-0,9
Axactor0,0-0,9
Bonheur0,0-0,9
Borr Drilling0,0-0,9
Bouvet0,0-0,9
DNO0,0-0,9
Fjord10,0-0,9
FLEX LNG0,0-0,9
Frontline0,0-0,9
Gaming Innovation Group0,0-0,9
Hexagon Composites0,0-0,9
IDEX0,0-0,9
Komplett Bank0,0-0,9
Kværnerk0,0-0,9
Magseis Fairfield0,0-0,9
MPC Container Ships0,0-0,9
NEL0,0-0,9
Nordic Nanovector0,0-0,9
Northern Drilling0,0-0,9
Norwegian Air Shuttle0,0-0,9
Norwegian Energy Company0,0-0,9
Norwegian Finans Holding0,0-0,9
NTS0,0-0,9
Ocean Yield0,0-0,9
Odfjell drilling0,0-0,9
Olav Thon Eiendomsselskap0,0-0,9
Otello Corporation0,0-0,9
Protector Forsikring0,0-0,9
Pareto Bank0,0-0,9
Sbanken0,0-0,9
Selvaag Bolig0,0-0,9
Shelf Drilling0,0-0,9
Solon Eiendom0,0-0,9
SpareBank 1 BV0,0-0,9
SpareBank 1 Ringerike Hadeland0,0-0,9
SpareBank 1 Østfold Akershus0,0-0,9
Sparebanken Møre0,0-0,9
Sparebanken Vest0,0-0,9
Spectrum0,0-0,9
Stolt-Nielsen0,0-0,9
The Scottish Salmon Company0,0-0,9
Treasure0,0-0,9

This year’s analysis of the 100 largest companies on the Oslo Stock Exchange reveals that many companies lack a systematic approach to sustainability reporting. However, the trend is positive compared to last year. This is good news for investors and society at large – sustainability has become less noise and more substance.

The most sustainable companies in Europe

The most sustainable companies in Europe

Europe is front-and-centre in the tidal shift towards more sustainable business, driven by far-reaching regulations. Nearly half the world’s most sustainable companies are in Europe. France paves the way with nine sustainable companies in the ranking, followed by Finland with six companies of 100.

European countries have typically been leaders in the fight against climate change, with many ranking lowest in carbon emissions globally and highest in environmental quality. The newest trillion-euro investment plan looks to solidify Europe as the global example for combating global warming as other continents like Asia and North America continue to produce high carbon emissions and lag in renewable energy sources.

We took top 3 companies in Europe that rank high on corporate sustainability criteria. The researchers rely on readily available data for all publicly-listed companies with at least $1 billion in gross revenue (in PPP), as of the financial year 2018.

Some of the criteria used for measurement of corporate sustainability include financial management, employee management, resource management and clean revenue.

 

Ørsted A/S

Denmark’s Ørsted A/S claims the top of the leaderboard in 2020. Within a decade, the company has completely transformed its business model—shifting away from the Danish Oil and Natural Gas (DONG) company into a pure-play renewable energy company.

Ørsted A/S operates through three segments: Wind Power, Bioenergy and Thermal Power, and Distribution and Customer Solutions. According to media, they have recently signed a deal described as “the world’s largest renewables corporate power purchase agreement.” Taiwan Semiconductor Manufacturing Company – purchased all the energy produced by Orsted’s yet-to-be-built 920-megawatt offshore wind farm off Taiwan.

Nevertheless, Ørsted attributes its dramatic transformation to the societal demand for green energy and aims to be carbon-neutral by 2025.

 

Chr. Hansen Holding A/S

Chr. Hansen took second place in 2020 among the worlds most sustainable companies. Chr. Hansen’s score improved to 83.9% from 82.99%. Moreover, Ørsted A/S jumped to No. 1 in 2020 from No. 4 in 2019 as its overall score improves to 85.2% from 80.13%.

The company is developing microbial solutions for the food, nutritional, pharmaceutical and agricultural industries. Sustainability is an integral part of Chr. Hansen’s vision to improve food and health. In 2019 Chr. Hansen has ranked as the world’s most sustainable company by Corporate Knights thanks to strong sustainability efforts.

Chr. Hansen scored high marks in clean revenue, which Corporate Knights defines as the percentage of a company’s total revenue derived from products and services categorized as clean.

 

Neste Oyj

 

Neste Oyj ranked as the world’s third most sustainable company on the Corporate Knights’ Global 100 list of the world’s most sustainable corporations.

“Our company’s purpose is to create a healthier planet for our children, particularly through tackling the climate crisis. In this work, we need everyone on board. It is great to see more and more companies placing sustainability at the core of their strategies worldwide” – says Peter Vanacker, President and CEO of Neste.

Neste has gone through a comprehensive transformation over the past decade: the former local oil company’s aim is now to become a global leader in renewable and circular solutions.

The organizations that make up this list have made significant strides toward sustainability, but there’s still much work to be done, and it’s in their best interest as businesses to do it. The big takeaway when looking at Ørsted and the other companies is how the gorwth in green and sustainable development is moving forward. In this age of climate and carbon constraints and an emerging climate economy, these companies are positioned to succeed.

 

ESG Investments Croatia

ESG Investments Croatia

ESG could be defined as responsible investing strategy and practice which includes 3 key factors in investment decision making: social, environmental and governance factors.

ESG is becoming more important and present in the investing world because there is a growing number of clients who take into consideration ESG factors when deciding on which fund to invest in. 

Croatia in ESG practices

ESG investing is still at its early phases in Croatia. There is undoubtedly a higher level of ESG practices in Croatia and the future of investing.  This to some extent will come as a consequence of regulators already increasingly emphasizing that responsible investing is an integral part of asset management services.

At the EU level, asset management companies will need to start announcing how they integrate ESG factors into investment decisions. Recently, Croatia’s regulator (HANFA) announced that the International Organization of Pension Supervisors (IOPS) has adopted Supervisory Guidelines on the integration of ESG factors into investment and risk management of pension funds. Moreover, according to MSCI Croatia implemented 2 regulations by Governments with ESG practice in 2019. The regulations include slean and energy-efficient road transport vehicles. It also includes commission Decisions 2009/300/EC and 2018/59 on the ecological criteria for the award of the Community Eco-label to televisions.

Croatia has an ESG Relevance Score of 5 for Political Stability and Rights as World Bank Governance Indicators have the highest weight in Fitch’s SRM and are highly relevant to the rating and a key rating driver with a high weight.

Key rating drivers

Fitch forecasts the economy will contract by 5.5% in 2020, from the growth of 2.9% in 2019, due to the impact of the COVID-19 pandemic.  Croatia is highly dependent on tourism and tourism-related activities. According to Eurostat, the ratio of tourism to total domestic supply stands at 9.8%, by far the highest figure in the EU (average is 3.4%).

The hit to tourism and other services will have a significant effect on employment, consumption, investment and exports. However, it macroeconomic professionals expect the economy to recover in 2021. Moreover, the economy will expand by close to 3% on the back of service sector growth and a pick-up in exports as global demand resumes.

The chart above shows that HT leads the list with an ESG score of 61.97, followed by Ad Plastik with 45.76. The early adopters to ESG practices could possibly benefit from having high ESG scores as it might attract a new pool of investors who are seeking investments in companies with implemented ESG practices. 

Summary

Croatia is leaning towards ESG practice and many companies show deep interest in ESG topic through published articles and reports. We can clearly see that there is a better understanding of the environmental, social and governance challenges. Investors are looking to invest in companies with long term ESG strategy. Existing and future regulatory changes at EU-level (EC’s Action Plan on Sustainable Finance) provide a further decisive impetus to embrace sustainability aspects.  We can advise clients in devising the ESG strategy and communicating it to various stakeholders.  ESG strategy is not a stand-alone issue but should be integrated into the overall company’s strategy, operating environment, and business model

Sustainable investing in the new normal

Sustainable investing in the new normal

Sustainable investing is becoming part of business today as businesses face environmental and social challenges. Addressing these sustainable challenges in global markets allows for financial advisors and investors who are actively seeking places to invest their money that support their sustainable values.

Refinitiv provides a rich source of environmental, social and governance (ESG) research data, covering 80% of global market cap, spanning 76 countries. However, only 35% of companies have specific reduction targets around their emissions, meaning many are setting up policies without backing up their intentions.

Sustainable investing has become more important now more than ever. In the world of new normal, investors will look for their portfolio companies to integrate ESG objectives.

Why sustainable investing is growing?

 

The reason behind the high interest in sustainable investing starts with climate change that was most discussed theme this year in Davos. From a corporate and market perspective, that shows more opportunities for tech companies. Some of the companies that showed interest in green investing are Starbucks and Salesforce.

According to Barron’s, Salesforce.com announced it would plant a trillion trees over the next 10 years. Starbucks (SBUX) committed to a 50% reduction in emissions. That said, big companies are willing to speak loudly about climate risks in 2020. The fact that climate change was number on the topic at Davos, says a lot about how important this issue really is.

The climate solutions market could double from $1 trillion a year now to $2 trillion a year by 2025, says BofA’s Israel, including renewables, electric vehicles, batteries, biofuels, and circular economy plays.

Technology is changing what we demand and how we consume. Whether it’s driverless cars, smart metering in utilities, renewables in oil and gas, or online sales in retail, most sectors of the economy are seeing paradigm shifts in the way business is conducted.

Together these are the reasons why sustainable investing is rapidly growing. Therefore, sustainable investing has become more than a trend, it’s become the new normal.

In today’s environment where change and uncertainty seem to be the only constants, more and more investors are taking a long-term view and choosing to put their money into companies that generate a return and act responsibly. ESG investing is already reshaping global markets.

Key takeaways

 

To sum up, ESG investing is growing and it is becoming part of business today. In the recent article, we discussed the ESG legislation requirements.

Registered data on ESG investing growth showed a good path for sustainable investors and could serve as a proof point of how investors can trust ESG funds in turbulent markets.

There is no question about ESG becoming an integral part of doing business. If you are looking to integrate ESG criteria to your business strategy, we can advise you on devising the ESG strategy and communicating it to various stakeholders. 

Why ESG is core to a venture capital success?

Why ESG is core to a venture capital success?

Venture Capital (VC) is having a transformative impact on large sections of the global economy. While ESG issues have never been greater, investors may think the ESG is less relevant for VC. Tech companies do not directly emit many greenhouse gases or pollute many rivers after all. However, ESG integration for investing can be critical to long term success of venture capital firms.

The need for sustainable investments has grown dramatically in recent years and so has the pressure on investors to integrate sustainability factors in their investments. VC mostly targets disruptive business models that often don’t have developed model of ESG issues. As companies grow, individuals within the company will have their own perceptions of appropriate behaviour and activity which will likely be divergently resulting in a loss of ESG rigour in the corporate operation.

Moreover, tech companies are often at the forefront of emerging ESG concerns. For example, the ethical issue of personal data will become major 2020s human right issue.

That said, VC investors will have greater chances to identify ESG risks with systematically integrated ESG into investment decision making. Moreover, systematic approach is particularly valuable for VC investors because they have smaller teams and bigger portfolios than their private equity peers.

The adoption of environmental, social and governance policies can help mitigate risks and provide a healthy framework for inexperienced founders. Moreover, it can be less painful for the company if ESG has been part of its culture in its early stages rather than being ‘retro-fitted’ under the pressure of investor scrutiny.

With this in mind, VC investors can set the foundations for rapid growth if their company incorporates ESG early on. A clear ESG commitment can also attract Millenials, as sustainable consciousness consumers. A 2019 Morgan Stanley Institute for Sustainable Investing survey of high net worth investors found that 95% of millennials were interested in sustainable investing.

According to MSCI, the interest from millennial investors has already helped drive the rapid growth in ESG investment. Nearly USD 4 billion flowed into ESG funds in the first three quarters of 2019. The year-end total in 2018 was USD 5.5 billion, which at the time was a calendar-year record, but sustainable funds were on track to triple that during the waning months of 2019.

The necessity of ESG due diligence is simply relative to the sector, and so different factors will be diligenced depending on the profile of the business. Therefore, due diligence and manager research teams have been leveraging ESG data to better understand the ESG characteristics of managed products and funds. ESG reporting and data may help align what managers say they are doing with ESG outcomes.

For example, where a manager says they are building a portfolio designed to minimize exposure to climate change risk, due diligence and research teams may leverage ESG reporting to measure the carbon footprint and performance on climate change risk management of a portfolio and compare it to a benchmark.

At Venturexchange, we can advise clients in devising the ESG strategy and communicating it to various stakeholders. ESG strategy is not a stand-alone issue but should be integrated into the overall company’s strategy, operating environment, and business model.

Our article does not provide all the answers that involve ESG issues, but we hope it provides a framework for VC investors to consider and manage their ESG impact.

ESG investing: Integration of sustainability risks

ESG investing: Integration of sustainability risks

Investing in sustainability is no longer a trend, the ESG considerations are becoming the norm. Growth of ESG investing in Europe became a focus for investment companies. Management companies have been typically concerned with assessing and monitoring the financial risks associated with the investments acquired by funds which they manage. However, from 10 March 2021 onwards, all management companies will be required to provide information on their websites about their policies on the integration of sustainability risks into the investment decision-making process.

During the pandemic, we experienced higher inflows from ESG investing strategies. Public scrutiny of how businesses are responding to the COVID-19 pandemic is bringing renewed attention to the importance of corporate transparency on sustainability issues.

 

ESG Legislation

 

ESG investing integration will require portfolio management teams and risk teams within management companies to assess how sustainability risks are integrated into the investment decision-making process. ESG investing decision will cover what is applicable to each fund under management and to update due diligence policies accordingly. Information on such policies must then be disclosed on the management company’s website.

Under the SDFR, all management companies (regardless of whether or not they manage ESG funds) will be required to revise their remuneration policy to explain how this policy is consistent with the integration of sustainability risks. Given the deadline of 10 March 2021 for disclosing this information on their websites, management companies should now conduct an assessment on how sustainability risks are integrated into remuneration structure.

Legislation and all the necessary information can be found on the Official journal. While legislative measures are about to take action, this is a clear indicator of how the European Commission is committed to sustainability.

According to recent research by Morningstar, over 10 years, the average annual return for a sustainable fund invested in large global companies has been 6.9% a year, while a traditionally invested fund has made 6.3% a year.
The Morningstar researchers noted that sustainable funds are longer-lasting than their peers.

 

Examples of ESG Investing Criteria

 

ESG examples are often interlinked, and it can be challenging to classify an ESG issue as only an environmental, social, or governance issue, as the table below shows.

Source: CFA Institute, illustration by Venturexchange

As more environmental, social and governance issues are arising, the modern investor will reevaluate traditional investment approaches.

 

The New Normal

 

Disclosures on ESG factors will become standardized and widespread by the end of the decade. According to Morningstar, funds that integrate environmental, social and/or governance (ESG) factors registered record growth in Q1 2020 that eclipsed the previous watershed moment in Q4 2019.

Registered data on ESG investing growth showed a good path for sustainable investors and could serve as a proof point of how investors can trust ESG funds in turbulent markets.

Within 36 months there will no longer be a perceptible distinction between sustainable and traditional investing. ESG investing transforms the way corporate sustainability is used by developing new disclosure expectations for material sustainability.

Growing research suggests that ESG factors have contributed to long-term financial performance. Therefore, incorporating Environmental, Social and Governance factors into decision-making frameworks is fundamental to managing new and emerging risks.

If you are looking for advice to incorporate ESG strategy and how to communicate it to various stakeholders, contact us. Our services include ESG due diligence, gathering sustainability and ESG key performance indicators (KPIs), industry benchmarking, identifying risks, proposing action plan, monitoring and reporting on performance.