Friday, August 10, 2012

Part Two: Sustainability: What the Numbers Tell You

Since my recent Sustainability: What the Numbers Tell You post was so resoundingly successful, I have decided to maintain the momentum and  take a look at some more numbers. This time I am going to look at environmental metrics that were covered in the Sustainability Practices 2012 Edition, which I fairly glossed over in my previous (resoundingly successful) post. The Report covers a range of environmental metrics including those relating to: emissions, energy, water, waste, recycling, packaging, purchasing and spills and fines. Let's start with this number:

of companies in the Bloomberg ESG 3000 Index report having a Climate Change Strategy. This compares with only 26% of the S&P 500 and 16% of the Russell 1000. (Just to remind you, the Bloomberg ESG 3000 covers a range of global companies while the S&P and Russell indices cover large-cap U.S. companies. So when the Bloomberg is higher than the S&P/Russell, it means that the world is doing better than the U.S.) In this case,  U.S. companies have not yet caught up on climate change as something they need to be making decisions about.

Many people probably don't know the difference between a climate change strategy and reducing energy consumption. In the Sustainability Practices Report, a climate change strategy is defined as: "a set of risk management procedures designed to mitigate the impact on business operations of climate change". Typically, as defined in the report, such a strategy will include: an assessment of the energy efficiency of the business, a commitment to capital investment in environmentally preferable technologies and a search for new sources of capital through commodity trading of GHG emissions or government subsidies for GHG emission reductions. 71% of big companies (over $100 billion revenues) have apparently given this some thought as they do have a climate change strategy. Only 22% of companies under $1 billion have done the leg-work in this area. The rest of them either they have a policy and are not disclosing (unlikely) or they don't have a policy and they are ostriching (likely). That's a shame, because "if you think mitigated climate change is expensive, try unmitigated climate change", (a quote from Dr Richard Gammon) .

And now for a little quiz: How many of the Bloomberg ESG 3000 actually report their total carbon  emissions?
A: 83%
B: 72%
C: 65%
D: 48%
E   34%
F:  21%

Yes, great, you were either wrong or right. The correct answer is:


That's it. Just over a third of the world's leading companies disclose their total carbon emissions. But this is not really the world's companies - it's Japan. In the Bloomberg 3000, there are 644 companies from Japan of which 80% disclose CO2 emissions, which is required by law. In the U.S., for example, only 8% of the 70 U.S. companies in the 3000 Index disclose CO2 emissions, which is the lowest rate of disclosure across a range of countries. The Netherlands and Sweden do better at 70% and 62% respectively, but France and the UK are lagging with 39% and 30%. This might be changing fairly soon in the UK with new legislation which will require large listed UK companies to disclose GHG emissions.  But disclosure is one thing and sustainable performance is another.  Think about this next number:


which is the average total CO2 emissions in tons from the 36 disclosing companies in the S&P 500 Index. This is a whopping 5 times higher than the total emissions from the 1,033 disclosing companies in the Bloomberg ESG 3000.  Utilities and energy companies reported the highest level of emissions, as you might expect. It takes energy to produce energy, apparently. Double whammy. When normalized per employee, we find that the utilities sector produces 1,473 tons of CO2 emissions per employee (median, not average). This is equivalent to emissions per employee resulting from powering 167 homes with electricity for a full year, or running 262 passenger cars for a full year. Wonder if all those employees think about that on their morning commute: "Hah, wonder how many cars on the road the carbon emissions resulting from my working today will equate to?" Perhaps this could be the next stage in sustainability-driven Employer Branding. It might work for the Financial Services Industry, where CO2 emissions are a mere 3 tons per year per employee (median). "Do you feel you have a personal responsibility for protecting our planet? Come and work for us. Your work will generate only 3 tons of carbon emissions per year, which is less than the equivalent of keeping one car on the road. You can manipulate interest rates with hardly any impact on the environment".  

But, enough of CO2, let's go deeper and look at energy efficiency. Consider these numbers:

 1,933  -  249  -  321

These are the actual numbers of companies in our three reference indices of 3,000, 500 and 1,000 companies which declare that they have an energy efficiency policy. 64%, 50% and 33%. I find that incredible. Forget sustainability, just think about energy costs. Heck, we even have an energy efficiency policy in our home! (Well, I admit, it's not a written policy, but if the kids leave the lights on in their bedrooms, they know there will be unpleasant consequences). Why wouldn't businesses have an energy efficiency policy? Ah, you might say, "companies which are primarily office based have more significant sustainability impacts to think about and more important cost considerations". Ah, I might say back to you, "and pigs can fly".  Even the financial sector, primarily office based as it may be, has a higher rate of energy-efficiency policy disclosure at 52% of companies than the energy sector itself at 46%. Energy efficiency is the second most material issue for companies everywhere, based on a study that was done last year on materiality issues. So how come so few have a policy? Possible they are just doing it because it's in their DNA. (A friendly reference to Oliver Balch, who tweeted "Please, one piece of advice to all companies: ban the phrase 'In our DNA' from your corporate lexicon"). Consider this number:


which is the percentage of companies in the Bloomberg ESG 3000 which report using renewable energy. That's just 164 companies. For all the others, renewables are apparently not yet in their DNA.

Moving on to water consumption, consider this:


is the ratio of average water consumption in the U.S. based S&P 500 to the average in the Bloomberg ESG 3000. The average water consumption per S&P company in the U.S. sample (104 companies disclosing) is 3.72 times higher than the global sample (1,111 companies disclosing). Clearly, size does matter, as the bigger companies have higher water consumption.  Yet still only 74% of the companies in the $100 million revenue category disclose total water consumption, despite the fact that the median water consumption for this group is over 35 million cubic meters in comparison to a $1-10 million revenue company which uses 1.4 million cubic meters per year. With water scarcity becoming the number one resource issue globally, it seems incredible that disclosure for such large corporate users should not be mandatory, leaving 26% of the largest companies in the world to decide for themselves whether to manage water consumption transparently or not. But it gets worse. Consider this:


is the number of companies which report that they use recycled water. 74 companies in a sample of 3000. But it gets worser. Waste is also one of the big drags on our economies and quality of life, not to mention sustainability. Here's another number:


is the average waste in tons generated by companies in the materials sector (which is made up of companies that manufacture chemicals, construction materials, containers and packaging, paper and forest products, extractives etc) which is more than the total average waste of all the other sectors added together, yet only 36% of companies in this sector report on the total levels of waste generated. Waste is cost. More often than not, it's unnecessary cost. How are investors using this information? Companies which are generating so much waste are also wasting investors' money.  Which brings us to the next number:


which is the average amount that companies in the Bloomberg ESG 3000 spend on environmental fines each year. In the S&P 500 index, this becomes a whopping $2,224,831.

I could go on, but I won't. The Sustainability Practices 2012 Edition Report is an encyclopedia of data and comparative numbers. I have given you a jump start. You'll have to do the rest of the leg-work yourself :)  

By now, I think you get the picture. It's one of desperately poor levels of disclosure. Despite the growing momentum of voluntary disclosure and Sustainability Reporting, frameworks, measures, surveys, CEO commitments, investor pressures and all the hype that this brings with it, the picture on transparency is still bleak. Most of the largest companies in the world are barely disclosing most of the most important sustainability metrics. And this low level of disclosure gets proportionally lower and lower as company size decreases. In the U.S., performance is generally lower in comparison to the rest of the world. So it's fabulous that the U.S. is now leading the Medals League Table at London 2012 (39 Gold Medals as I write), but sooner or later, even that performance will not be sustainable without stronger and more transparent behavior by American corporations.

There is something about numbers. They clarify our reality. In this review of environmental sustainability and transparency-by-numbers, that reality is rather depressing, because there is a stark realization that, for all the talk, the results are pretty shameful and perhaps, voluntary disclosure is not all it's cracked up to be. Self-regulation is more self than regulation. When the authors of this Sustainability Practices benchmark report maintain that "there is significant room for improvement", I think we can safely agree that this is more than a mild understatement. With Paragraph 47 not promising to be massively instrumental in driving change in transparent disclosure, we have to wonder just what will propel corporations around the world into a different paradigm, before something else propels them out of ostrichland.

An eternal optimist, I believe change will happen. As a realist, I see it's painfully slow. As a pragmatist, I accept that we have to move on and, as the amazing Pema Chodron says, Start Where we Are. As an icecreamist, I know there is always comfort just around the corner.

elaine cohen, CSR consultant, winning (CRRA'12) Sustainability Reporter, HR Professional, Ice Cream Addict. Author of CSR for HR: A necessary partnership for advancing responsible business practices  Contact me via   on Twitter or via my business website  (Beyond Business Ltd, an inspired CSR consulting and Sustainability Reporting firm)

1 comment:

108CSR said...

hey thx for sharing information about CSR...

Keep posting :)

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