Corporate sustainability is something that interests investors today. Consciously ‘ethical’ investments are only made by investors who place particular emphasis on these questions, however. Companies that are seen as being sustainable and that are growing are generally more desirable than those without a clear profile in terms of sustainability. In principle, all investors tend to avoid major risks, and evidence of sustainability is often a sign of general good business management.
Would you invest your money in gambling, drugs, alcohol, arms, tobacco, or human trafficking? An ethical investor certainly wouldn’t, even if it offered a high level of potential return. The risks in these areas can be pretty big, even where the businesses are legal. These areas are, in fact, good examples of ones that are typically avoided by ethical investors. There is a large degree of unanimity on the factors that rule out an investment. One borderline case here is nuclear power, which is excluded by some investors.
How is sustainability measured?
The world’s toughest sustainability ranking, The Global 100, is based on a set of public criteria. The expert panel behind it carries out its screening process in four stages:
1. A list is made of listed companies with a market capitalization of more than USD 2 billion, which yields a database of around 4,000 companies.
2. These companies are then reviewed against four criteria:
- What does the company say about its approach to sustainability and how comprehensive is the sustainability data it provides? The data must cover at least 75% of the industry’s priority KPIs. This leaves 648 companies.
- What is the company’s financial status? This leaves 456 companies.
- Are any unethical products involved? This leaves 446 companies.
- Has the company been subject to any legal sanctions or is it affected by any legal irregularities? This leaves 371.
3. A detailed review is then made, using 12 quantitative key performance indicators covering:
- Resource management (waste, water, greenhouse gases, energy)
- Financials (R&D investments, taxes, remuneration, pension funds), and
- HR management (safety, staff turnover, diversity, rewarding sustainability).
4. The 100 best companies are then placed in order of excellence.
You can find out more about the methodology used here: http://global100.org/methodology/
Number 6 – what does it mean?
Neste Oil has been included on The Global 100 list for eight years in succession, that’s more than any other energy company. The only energy company to be ranked higher than us on the 2014 list was Norway’s Statoil.
If our financials had taken a hit, we might possibly have been eliminated early on. This underlines why a company’s financial performance is also important when looking at how sustainable it is. If we hadn’t had more than two decades of experience in sustainability reporting, we might have been eliminated even earlier. The expertise that we have built up in areas like this makes a real contribution to our shareholder value. From the investor’s point of view, what’s decisive, however, is how well a company is performing now. Neste Oil reports on its sustainability annually and last year’s results can be found in the Annual Report.
Will someone invest in Neste Oil simply because we produce the world’s most advanced renewable fuel? I don’t think so. Will they because our financials are in good shape, we produce the world’s most advanced renewable fuel, and we are growing? I would like to hope so. What’s critical is that investors can rely on the sustainability of our operations. To help them do so, an impartial expert review represents a very useful source of information.