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The bar keeps rising for corporate sustainability

The bar keeps rising for corporate sustainability

24-01-2013 | Insight

Corporate attitudes to sustainability have changed dramatically over the last decade. At the same time, sustainability assessments have adapted to this transformed landscape. But the process is not over: companies have no choice but to keep on upping their game.

  • Edoardo Gai
    Edoardo
    Gai
    Head of Sustainability Services
  • Gabriela
    Grab Hartmann
    Head Sustainability Strategy

In January, the Sustainability Yearbook was published for the tenth time. Gabriela Grab Hartmann, RobecoSAM’s Deputy Head of Research, notes that after a decade of research and dialogue with companies, the landscape has altered irrevocably. “When we published the first Sustainability Yearbook, sustainability was still a somewhat neglected issue,” she says.

In the decade since 2004, though, companies have made tremendous progress in recognizing the financial benefits of including sustainability as a core component in their corporate strategies.

Accordingly, the participation rate in RobecoSAM’s corporate sustainability assessment (CSA), on which the Sustainability Yearbook is based, has risen over the past decade. So have the sustainability scores of the companies taking part. As a result, it is increasingly difficult to distinguish sustainability leaders from laggards.

Consider how corporates now treat environmental issues. Most major companies now have an environmental management system in place and publish detailed environmental reports.

There have been similar developments in corporate governance. “Ten years ago, we were among the first investors to put a spotlight on corporate governance. Today, it is of central importance for companies and investors alike, particularly in the light of the various scandals recently,” notes Edoardo Gai, Head of Sustainability Services at RobecoSAM.

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Companies must keep improving to get into the Yearbook

In fact, so great are the strides that companies have made that they have to keep upping their game to stand out from their industry peers to make it into the Yearbook.

“Companies will have to communicate the financial benefit of their sustainability strategy” Gabriela Grab Hartmann

But there’s more to it than simply getting more ambitious and effective at implementing sustainability. Corporates will also have to link the results of their sustainability strategies to their financial performance. “Companies will be expected to communicate the financial benefit of their sustainability strategy,” says Hartmann. The bar is being raised.

This ongoing progress in companies’ sustainability performance means that RobecoSAM’s analysts are constantly in search of ways to refine the CSA methodology to capture new sustainability factors that can influence a company’s financial performance. Over the years, RobecoSAM has added criteria to the CSA in areas such as innovation management, water-related risks, climate-change policies and, most recently, supply-chain management.

Emerging markets are embracing sustainability

Another development since 2004 has been the spread of sustainability around the globe. “Interest in our assessment has grown considerably in every region,” notes Hartmann.

Moreover, the performance gap between companies based in Europe and those in regions such as North America and the emerging markets has narrowed. “South Korea is a country whose companies have shown remarkable improvement in their sustainability performance, mirroring the country’s own sustained economic development in recent years,” adds Gai.

So remarkable has that improvement been that Korea received six “gold medals”—which are awarded to the top-performing company in each sector and to those companies whose scores are within 1% of their sector leader’s score—in the 2013 Yearbook.

GS Engineering & Construction (heavy construction), Amorepacific (personal products), SK Telecom (mobile telecoms), KT Corporation (fixed line communications) and Lotte Shopping (general retailers) were industry leaders, while Hyundai Engineering & Construction also received a gold medal. The total of six gold medals puts South Korea in second place internationally, alongside Germany.

"Today, corporate governance is of central importance for companies and investors alike” Edoardo Gai

As emerging markets in Asia, Latin America and Africa gain economic importance, investors are increasingly interested in how corporate sustainability is applied in these regions. “We will continue to increase the number of emerging markets-based companies covered by our assessment,” notes Gai.

Local vs global: how should multinationals tackle sustainability?

This global expansion is creating new issues. As multinational companies expand into more regions, the question is whether to take a comprehensive, global approach to sustainability standards or to work intensively with each individual market to develop tailored policies.

“On the one hand, it’s important that global companies apply their policies and standards uniformly across all of their operations,” says Hartmann. “On the other, both global and local companies face additional sustainability challenges that are specific to the emerging markets.”

Clearly, sustainability is now at the top of corporate agendas. Despite the extraordinary progress since the first Sustainability Yearbook was published in 2004, there is still plenty to be excited about for the next decade.

Want to find out which companies are this year’s sustainability leaders?