In a world where environmental, social and governance (ESG) issues are increasingly seen as financially material by mainstream investors, are religious investors any different?

With a history stretching back over 250 years, ethical investing by churches and religious bodies is well established, but in recent decades it’s become more sophisticated than just the traditional negative screens. With the increasing urgency of tackling climate change, the movement has accelerated to the point where some religious investors believe they have the responsibility and the capacity to lead the changes needed to save the world.

The Roman Catholic Church, which has a long history of screening out investments that conflict with its principles, is now understanding the power that investment decisions may have to shape the future, both directly and by modelling the change it wants to see.

Pope Francis, through his encyclical “Laudato Si: On care for our common home,” has made it clear that environmental awareness and ecological concern are entirely in line with Catholic social teaching. The Global Catholic Climate Movement has adopted a comprehensive report, “Ethical Investments in an Era of Climate Change,” which explicitly links Catholic social teaching, climate change and investment policy.

“Laudato Si is such a groundbreaking document,” says Lorna Gold, head of policy and advocacy at Trocaire, the Irish Catholic development agency, and author of the report. “Most of the leadership and clergy were not formed in this school of theology. They had an ethical view, but the view of a responsibility to other creatures, to the web of life – that’s not something they would have learned about.”

The church’s ethical investment principles were summarized in a statement last May. “The celebration of human life, creation, and human dignity are fundamental Catholic principles and values that are to guide the Institute’s investment choices and always prevail over return consideration,” it says, referring to the Institute for the Works of Religion (IOR), commonly known as the Vatican Bank.

In practice, the institute excludes investments that violate globally recognized principles concerning human rights, work standards, the fight against corruption and the fight against environmental crimes. In addition, the Catholic stance against contraception and abortion means any company involved in these products, or in stem cell research, is also on the banned list.

Gold says her report, a comprehensive guide for Catholic institutions on how to integrate climate change into their investment philosophy, is about broadening the frame of reference for faith-based investing.

In September, the Global Catholic Climate Movement announced that 19 member institutions, including the Belgian and Irish Bishops’ Conferences, would divest all fossil fuel holdings from their funds. It was part of a larger announcement at the Global Climate Action Summit, where some 900 institutions representing US$6 trillion of assets signalled the intention to divest.

Many investors (including other faith-based active investors) believe engagement with oil companies is worthwhile, arguing they will continue to be needed through the transition to a low carbon economy and that shareholder pressure for these companies to cut emissions can be effective. Gold is convinced this is the wrong approach.

“The oil majors have so much to lose in terms of assets; they will have such big losses on their books, they won’t be able to manage. The whole structure of those companies is just wrong,” she says. Furthermore, as might be expected from a faith-based investor who is guided by a belief in God and the church, she believes the symbolism of divestment is powerful.

The report refers repeatedly to “prophetic leadership,” calling on Catholic institutional investors to show others the way to care for the planet.

This leadership is already showing some impact. In July, the Irish government voted to divest the Irish Strategic Investment Fund from all fossil fuel investments over the coming five years. Trocaire was closely involved in drafting the bill. However, despite the historically close relationship between the Irish state and the Catholic Church, the argument was based on the need to meet Ireland’s emissions-reduction obligations under the Paris Agreement.

“Whether you believe it is because of intergenerational justice or because we have a duty to be stewards of God’s creation doesn’t really make a difference,” says Gold.

While the argument was largely on the grounds of Ireland’s international obligations, she says procedural requirements meant the bill had to demonstrate it would not create an undue financial burden, so it was an advantage that the financial argument in favour of portfolio decarbonization is strong.

Although the Global Catholic Climate Movement is a group of more than 250 institutions, it has the advantage of a central figure with ultimate authority and can therefore assume its members are all singing from the same hymn sheet. Not all religions are so coherent in terms of doctrine, but nevertheless many choose to come together to improve their understanding of how religion and investment interact and to pool their reach as shareholders.

“Do people need uniform beliefs to act together? Our experience is that they don’t,” says Peter Chapman, senior adviser at Canada’s Shareholder Association for Research and Education (SHARE). “You just cannot invest successfully in the long run as an institution unless you’re investing in a healthy, sustainable industry.”

SHARE has been working with churches to support their faith-based investment policies since it was set up in 2000 with Chapman as executive director. He stepped down from the role last summer, but continues to work with the group.

Chapman is keen to point to the long history of shareholder activism by faith investors, from boycotting companies in apartheid South Africa to talking about climate change in the 1980s, but also says “they are still innovating and doing new things.”

Chief among these is an unprecedented drive to work in concert with like-minded investors, forming coalitions and relationships across the world.

As one example, in 2018, SHARE, along with the U.K.-based Church Investors Group (CIG), the U.S. Interfaith Center on Corporate Responsibility and the Church of Sweden, launched an international, faith-based collaboration on modern slavery.

This collaboration involved a wide range of strategies, from an app developed by CIG to help U.K. drivers weigh up whether the car wash they use participates in illegal human trafficking, to engagement with companies in the hospitality sector regarding their obligation to recognize where modern slavery occurs on their premises.

The CIG provides research, coordination and guidelines for its members to use as they attempt to invest in line with their religious beliefs.

It has 66 members, all the investment arms of Christian churches. Of the £20 billion-plus that they represent, some £12 billion belongs to the Church of England.

The church has three main investment bodies. The Church Commissioners oversee the church’s endowment, which needs to return a substantial income for its upkeep. The Church of England Pensions Board oversees a number of pension funds of varying sizes and liabilities. And the CBF Church of England Funds run by specialist asset manager CCLA is open to investment by any charitable organization with objects closely connected to the work of the Church of England.

The Church Commissioners outsource most of the management of church assets, including a large passive core. While this is in line with their fiduciary duty to manage the money prudently, it makes it harder to ensure all portfolios are entirely aligned with the church’s values.

The three investment bodies fund an Ethical Investment Advisory Group, chaired by the Bishop of Manchester, which sets out an ethical investment policy. As a baseline, it uses the Principles for Responsible Investment, but in addition lays out restrictions on investments in alcohol, pornography, weapons, payday lending and human embryonic cloning. Climate change is recognized as a distinct ethical issue, so all church investments are expected to be in line with a climate change policy. In particular, it will not invest in any company that derives 10 per cent or more of its revenues from tar sands or thermal coal.

The investment policies of the Church of England itself have repeatedly come under fire as its portfolios are found to contain investments in companies which do not meet its own stated principles.

In 2013, the Archbishop of Canterbury announced a plan to put a particular payday lender out of business by supporting more consumer-friendly credit unions. This led to embarrassment when it was discovered the Church Commissioners, who are responsible for managing the church’s funds, had made an indirect investment in the company. It was soon divested, but the situation is likely to recur on a regular basis, given the size and complexity of the various funds affiliated to the funds and the archbishop’s commitment to speaking out on matters relating to contemporary society.

The CBF Church of England Investment Fund, which manages assets of £1.4 billion for charitable organizations connected to the Church of England, discloses investment positions in 95 companies accounting for 64 per cent of its holdings. The disclosures show no direct holdings in companies which derive 10 per cent or more of revenues from tar sands or thermal coal. It also shows the fund shed most of its directly held Royal Dutch Shell stock and fully divested from ExxonMobil, BP, BHP Billiton and GlaxoSmithKline.

Interestingly, there is a lot of overlap between the fund’s “conviction” portfolio of concentrated positions and the Corporate Knights Global 100 Most Sustainable Corporations, including Kao, Ecolab, Unilever, ING Group, L’Oreal, Valeo and the number one ranked company in 2019, Chr. Hansen, in which the fund has a £9.5 million stake. This exposure represents 0.72 per cent of the fund’s holdings, over 23 times more than the company’s weight on the MSCI World Index. Practising what you preach does not appear to have hurt returns for the fund, which has outperformed its comparison benchmark on a one, five- and 10-year basis, turning in annualized performance of 7.84 per cent versus 6.80 per cent for its benchmark over the past decade.

A theme that comes up repeatedly with religious investors of all creeds is that managing the selection of and relationship with investment managers is key. The Joseph Rowntree Charitable Trust (JRCT), a Quaker foundation, outsources its asset management to five managers after intensive due diligence to ensure their investment philosophy aligns with Quaker values.

Having appointed these managers, however, the JRCT does not leave them alone to manage its money. Instead, it meets the managers twice a year; once for a traditional performance review and once to discuss their process with regard to ESG issues. This can include scrutinizing the fund managers’ own internal practice, according to Jackie Turpin, the JRCT’s head of finance.

“This meeting includes issues on our own agenda, such as the need for tech companies to develop good governance and ethical standards,” she explains. “Two years ago, we talked to them about the gender imbalance at the fund managers.”

In addition, the JRCT has established a regular practice of convening all its fund managers to discuss larger issues together, either to promote best practice or occasionally because they feel the managers working together can promote better outcomes.

Although most religious investors can agree on some basic principles, which overlap strongly with mainstream ESG investment principles, there are also areas of difference. For example, while the Catholic Church has for a long time refused to invest in any company that does stem cell research or produces contraceptives or abortifacients, the Jewish Reform Pension Board (RPB), in its Reform Jewish Values Fund, specifically overweights companies that support reproductive rights.

“We’re known as a liberal, progressive movement,” says Michael Kimmel, executive director of the RPB. Kimmel explains its approach to investing is based on 100 years of resolutions by Reform rabbinical bodies, all of which are centred on the twin ideas of “tikkun olam,” which means making the world whole, and “tzedek,” or justice. Between them, these two principles cover pretty much all of regular ESG topics.

As with many religious investors, the majority of the RPB’s ethical policy is uncontroversial, but there are some distinctive aspects. In this case, the recognition of the special place of Israel in Jewish life, and therefore overweight exposure to the Israeli economy, is a specifically Jewish concern. The RPB Reform Jewish Values Fund top 10 positions bear this out, including East Japan Railway (invited to spearhead the “Tracks for Peace,” a rail line from Haifa to Saudi Arabia), Coca-Cola (2,000 employees in Israel), and shopping centre conglomerate Unibail-Rodamco-Westfield (Westfield’s founder Frank Lowy survived the Holocaust and fought in the Israeli war of independence).

Because it is primarily a pensions company, the RPB cannot prioritize principle over returns as the Joseph Rowntree Charitable Trust can. This means it has large passive holdings, where it has given up the ability to engage with companies or vote proxies, because its fiduciary duty requires it to hold the most diversified, efficient portfolio available.

This being said, it does not expect the Reform Jewish Values Fund, the RPB’s most actively faith-driven product, to underperform its global benchmark (MSCI ACWI), despite significant differences in weightings of various sectors and an 80 per cent lower carbon footprint. (The much lighter carbon footprint and dearth of fossil fuel holdings is something that the Reform Jewish Values Fund has in common with the largest Islamic values mutual fund, Amana Growth Fund, which has US$1.7 billion assets under management.)

The RPB launched its Reform Jewish Values Fund in January 2018 in response to growing demand from its investors. “They wanted the ability to do more with their investable dollars,” says Kimmel.

This is consonant with a global trend of savers being more aware of the impact of their investment decisions. Both secular and religious investment managers are having to answer to their beneficiaries, to justify the decisions they make in the context of the world we live in. Religious investors are becoming increasingly aware they can choose to use their investment policy as a way to express their values in the real world. We can expect to see more religious investors becoming more open, vocal and active in pursuit of their faith. It could be a powerful example for the rest of us to also invest with our values.

For snapshots of Vatican, Anglican and Aga Khan funds, read O Holy Funds.

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These 17 goals, however, are just the headlines to a detailed framework with 169 measurable targets for each member country to reach. The targets are designed to make it feasible and realistic for entities such as states and companies to work out strategies towards achieving the goals.

The SDGs’ predecessors, the Millennium Development Goals, were mostly seen as a way for charities and well-meaning Western governments to measure the effectiveness of aid, but the SDGs are aimed at quite a different audience. For one thing, they’re not just targeted at developing countries.

The underlying goals and analysis make it clear they offer a structure for all countries and businesses to think about how to align their future – whether in policy terms or business strategy – with the goals to create a more sustainably prosperous world.

They have come at a propitious time; it is generally agreed that the Paris Agreement on carbon emissions hammered out at COP21 started a tectonic change in private sector attitudes towards climate change (goal #13).

Senior business leaders are starting to recognize the risks of doing nothing and the opportunities for new business. Unilever’s chief executive Paul Polman pointed out in a speech last year the symbiotic relationship between the SDGs and company strategy.

“We know that the SDGs cannot be achieved without business,” he said. “At the same time, business cannot thrive or survive long term without the SDGs. After all, there is no business case in enduring poverty and climate change.”

According to a report from the Business and Sustainable Development Commission, authored by Polman and Mark Malloch Brown, focusing on the SDGs could open up $12 trillion (U.S.) of market opportunities in four key economic systems. These are food and agriculture, cities, energy and materials, and health and well-being. They represent around 60 per cent of the real economy and are critical to delivering the SDGs.

Slowly, companies are beginning to see the advantages of reporting on their contribution to achieving the goals – 2018 will see the second opportunity for this progress to appear in annual reports.

Investors are already taking note. Sarah Norris of Aberdeen Standard Investments runs the Global Equity Impact Fund, which uses a methodology based on the SDGs to select the best-performing companies in both financial and sustainability terms.

“We are seeing more and more companies strategically aligning themselves with the SDGs,” says Norris. “We’re encouraging them to use the goals as a framework for reporting.”

She warns, however, that some companies are talking the talk without walking the walk. “There is an issue with what I call ‘impact-washing’; that’s using the language of the SDGs without actually making any changes. If a company claims allegiance to the goals, they should be able to report on the outcomes of their commitment.”

For some companies, reporting on their contribution to the SDGs is just a new way to talk about their business – renewable energy companies, for example, are by their very existence contributing to climate change mitigation.

Others are seeing opportunities to “reapply the technology they have in a more creative, innovative manner,” says Norris. Even sectors that might not obviously leap to mind as bastions of sustainability can use the SDG framework to shape and change their business.

Norris cites the example of Belgian materials technology and recycling group Umicore, which is participating in what she calls “the circular economy,” recycling and repurposing obsolete electronics to create new products. Umicore is not just building individual sustainable business lines – it has applied the philosophy of the SDGs across its businesses.

Umicore claims to be the first company in the world to have developed a sustainable procurement framework for cobalt. Cobalt is used in many applications, notably rechargeable batteries for electric cars, but its main deposits are found in challenging regions such as Central Africa. Ensuring it is sustainably sourced requires attention to the environmental impact of extraction, but also the social impact. Forced labour, poor health and safety conditions, child labour and corruption are all challenges for cobalt sourcing.

Umicore offers one model for how companies can integrate the SDGs into their company strategy. It has identified the three areas where it can make the most material difference (resource scarcity, clean air and vehicle electrification). It has also outlined policies to improve sustainability in its supply chain as well as in the products and services it offers. And it sees these policies as the foundation for doubling its profits in the six years to 2020.

Canadian agribusiness company Agrium (now named Nutrien after a competing a merger with PotashCorp earlier this month) has similarly emphasized eight SDGs where the company has the greatest potential impact. While these efforts are focused on helping growers increase yields to address food needs and increase prosperity, the ripple effects for farmers, especially smallholder farmers, are seen as leading to educational and health care gains, along with greater gender equity and access to clean water.

Other companies have explicitly emphasized the holistic and interconnected nature of the SDGs. Ericsson, for example, has assigned a different senior team member as a champion for each individual goal.

Last October, Maryland-based spice and flavourings company McCormick & Company released its Purpose-led Performance framework, retooling its previous corporate social responsibility efforts around three pillars: people, communities and planet. A series of commitments and clear performance targets out to 2025 were made, tied explicitly to one or more of the SDGs. Only four SDGs were left off the list.

While these efforts seem admirable, Bhaskar Chakravorti, senior associate dean of international business and finance at the Fletcher School at Tufts University, recommends a different approach. He suggests a “dispersion of efforts is not advisable, as it tends to splinter resources, delink the SDG investments from company strategy and have the paradoxical effect of making orphans out of all the SDGs because none gets the sustained strategic investments needed.”

Chakravorti, who is also the founding executive director of Fletcher’s Institute for Business in the Global Context, prescribes segmenting the goals to understand which of them is most relevant to the business, identifying which goals intersect with the company or its activities. These are the places where the company can have meaningful impact, he says.

Finally, Chakravorti calls for companies to make the business case for the strategy: This may be that there is a business opportunity; it may be about risk management, even reputational risk; it may be about shifting the company strategic horizon to the longer term, when climate change might threaten the profitability of the company.

Although companies globally have been slow to take on the SDGs as part of their corporate strategy, there are hot spots of progress. In Europe, governments have been faster to lead through regulation. In France, companies over a certain size are required to report how their business is aligned with the aim of limiting climate change to 2 C, for example.

The challenge for companies and the investors hoping to select stocks based on their commitment to the SDGs is that there is no standardized reporting framework as yet.

“Companies don’t know what information they should be reporting, because there’s no gold standard,” says Norris of Aberdeen Standard. Although the Global Reporting Initiative, which was set up 20 years ago to promote standardized reporting on sustainability issues, could offer some guidance, Norris feels it “is not fit for purpose any more” given the new framework of the SDGs.

There are numerous organizations offering support to companies wanting to use the SDGs to mold and improve their businesses. KPMG created the SDG Industry Matrix, identifying how different industries could contribute and what companies are already doing in these areas. The Business and Sustainable Development Commission was launched in 2016 at the World Economic Forum to help companies reap the economic rewards inherent in the SDGs.

The Global Compact, set up by the UN in 2000 to support business in adopting sustainable practices, has fully integrated the SDGs into its language. Local chapters such as Global Compact Canada are also working to encourage member companies to realign their business operations around the SDGs.

Two years into the 15-year period to attain the SDGs, a huge amount remains to be done. But companies are beginning to see the goals as opportunities to rethink their business.

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Although gender has been the key dimension for diversification in the U.K. and North America, there are other ways to approach the issue.

In Germany and other continental European countries, one form of board diversity has been baked into corporate structures for many years. The system of codetermination brings worker representatives onto boards, ensuring the voice of workers is heard alongside that of management and shareholders.

“This is a different way to get diversity onto the board and prevent group-think,” says Markus Roth, a professor at Phillipps-University Marburg in Germany and expert in European corporate governance.

Although the diversity it brings may be a fashionable benefit, codetermination was not designed with that in mind. Rather, it has its roots deep in the corporatism and cooperative model that has underpinned German businesses for more than a century.

There has been recent interest in this model from some unexpected quarters in the past year. Most notably, Theresa May, then home secretary of the United Kingdom,  proposed introducing European-style worker representation on boards. This proposal was one plank of her successful campaign to become Tory leader and de facto U.K. prime minister.

“We’re going to have not just consumers represented on company boards, but workers as well,” said May during her leadership campaign. Once established as prime minister, however, she dropped this idea in favour of less radical ways to give voice to employee concerns.

Nevertheless, with increasing interest in responsible investment comes increasing interest globally in how companies can be made more responsive to the needs of stakeholders other than their shareholders.

Modern German codetermination structures are based on a law from 1976, the Mitbestimmungsgesetz, and are embedded in a two-tier board system. Between a third and half of a supervisory board (Aufsichtsrat) must be employee representatives, although the chair of the board is always a shareholder representative. The Vorstand, or management board, is answerable to this supervisory board and must also include an employee representative.

Sitting slightly lower in the corporate hierarchy is the work council (Betriebsrat). This group is present in almost any German company with more than five employees and has broad consultation rights to influence working conditions, pay principles, working time and so on.

Although worker representatives at both levels frequently have ties with trade unions, they are not officially there in trade union roles.

Opinion is divided on whether codetermination is a good thing for businesses and economies. Some academic studies find it has no effect, others that it has a small positive effect on innovation, investment and productivity. It is credited with having cushioned the German economy from the impact of the global financial crisis, as companies were able to negotiate either temporary layoffs or shortened hours for employees during the hard times. This created goodwill and resilience to recover when the economic climate improved.

Because it leads to better communication between C-suite and shop-floor, codetermination leads to less working time lost to strikes, as well as creating a more loyal workforce, limiting the costs of worker turnover.

Yet the clearest evidence of a codetermination effect is economy-wide: it appears to correlate with lower levels of inequality.

Unsurprisingly, studies have found that short-term shareholder value may be negatively impacted by codetermination. This occurs as “labour succeeds in altering the objective function of the firm – away from maximizing shareholder wealth.” In other words, employee representatives will prioritize the interests of workers over those of shareholders, leading to higher staffing levels and lower valuations of companies with higher levels of worker representation at board level.

Even if codetermination was important to the impressive post-war growth of the German economy, it is arguable that its importance may be declining in a 21^st century context. The smaller and mid-sized companies that drive much of the growth in modern economies are exempt from the codetermination law, and Germany has struggled to develop as successful a service industry alongside its manufacturing economy.

So, would there be any value in introducing German-style codetermination in other jurisdictions?

David Pitt-Watson, a leading practitioner in the field of responsible investment and business practice, is ambivalent.

“It seems to be quite successful there [in Germany], which I guess calls into question those who think it would be a disaster elsewhere,” he says. But the specific model is based on the two-tier board, he points out, which would require root and branch change of North American corporate structures.

“Good systems of corporate governance, like good systems of democracy, can be framed differently in different countries, so sometimes cannot be readily imported,” he continues.

The German system has a very particular history with roots as far back as the attempts of the Prussian state under the Iron Chancellor, Otto von Bismarck, to improve worker-employer cooperation in the 19^th century.

All of the codetermination structures, customs and legislation that had developed by the 1930s were torn down by the Nazi regime. But after the Second World War, the Allies (in particular the U.S.) promoted the development of trade unions and workers’ councils that can be seen as leading to the modern system.

Post-war Germany was ripe for establishing codetermination, since workers had relatively strong status in comparison with the corporations tainted by association with the Nazi regime. The historical context also meant the push to nationalization of the industries seen in the U.K. at the time was absent following forced nationalization under the previous regime.

Other countries, particularly across Europe, have other forms of codetermination. The Netherlands, which also has a two-tier board system, provides for employees to elect up to a third of the supervisory board members. The difference from Germany is that those members must not be employees or trade union members.

Swedish employees are represented on the unitary boards of that country, with those representatives elected by workplace unions, while in France employee representatives can be elected either by the workforce or by employee-shareholders. In either case, they are unlikely to make up a significant proportion of the board.

Each model is a product of its country’s history, proving Pitt-Watson’s point about the specificity of democratic and governance models, but they demonstrate that codetermination is an entirely workable concept in a market economy.

In North America, the primacy of shareholder interests has been unquestioned for many years.

Perhaps it is time to consider how it might be possible to change the nature of corporate governance to include stakeholders other than shareholders in the supervision of company behaviour. Codetermination offers one possible solution.

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With such longevity, it is unsurprising that Siemens feels sustainability is a core part of its culture. Indeed, von Siemens himself set the tone with his declaration that “I won’t sell the future for short-term profit.”

This heritage makes it appropriate that in this anniversary year, Siemens tops Corporate Knights’ 2017 Global 100 ranking, with scores above 90 per cent in several categories pertaining to energy, innovation and human resources.

An industrial conglomerate focusing on electrification, automation and digitalization, Siemens is a leading supplier of systems for power generation and transmission, as well as medical diagnosis. In infrastructure and industry solutions, the company also specializes in energy-efficient, resource-saving technologies.

With more than 351,000 employees in over 190 countries, Siemens generated revenues of €79.6 billion in fiscal year 2016.

Although the company appointed a board member with responsibility for sustainability in 2008, a spokesperson says this was a single step in a long process, unifying different strands of sustainability within the company rather than initiating a new order. “There was already a long history of sustainability elements, with eco-design guidelines in the 1970s and employee schemes (like the pension fund, set up in 1872).”

As well as ensuring accountability for sustainability at the board level, Siemens has taken its brand claim “ingenuity for life” as the inspiration for what it calls a Business to Society approach. As part of this philosophy and under its sustainability program, it is systematically carrying out studies of each country where it is active to identify the priorities for that country, with a methodology in alignment with the World Business Council for Sustainable Development.

According to the Corporate Knights data, Siemens’ performance in energy productivity is outstanding, with a score of 94 per cent. This was driven in part by client demand for energy efficiency and clean energy, but also by an ambitious internal target. Siemens aims to cut its carbon footprint in half by 2020 and to become carbon neutral by 2030.

A slew of acquisition and investment announcements in the renewable energy field shows a company determined to meet this target.

“We focus on four levers – our energy-efficiency program, decentralized energy systems, optimization of our vehicle fleet and electricity from renewable sources,” according to the company’s sustainability website.

Decentralized energy systems, where the energy needed for a building is either provided on site or managed in a dynamic way, has been an important element (along with sustainable building design and management) in designing the new Siemens headquarters in Munich to produce 90 per cent lower carbon dioxide emissions. In addition, it uses 90 per cent less electricity and 75 per cent less water than comparable conventional buildings.

With a vehicle fleet responsible for up to 15 per cent of the company’s carbon footprint, improving transport efficiency has lowered carbon emissions and is also projected to cut gasoline costs by a third by 2020.

Siemens expects to save more than €20 million annually from 2020 onwards from investments in energy-efficiency projects. This is typical of the company approach to sustainability. Although it is very much informed by the global context and the need to work towards a world that continues to be habitable, the focus never wavers from maintaining a stable and profitable business.

Siemens chief executive Joe Kaeser told an internal publication: “Competitive earning power is the prerequisite for added value for society. Only those businesses that can generate income on a sustained, financially successful basis can be relied on to contribute to society.” In response to questions for this article, Kaeser added: “A company that does not add value to society should not exist.”

Finally, the commitment to renewable energy is already showing results, with 50 per cent of power used at Siemens plants in Germany coming from renewable sources. The 20 per cent in the U.S. looks less impressive, but is on target to become 100 per cent by 2020.

Although this initiative is led from the top, Siemens does aim to ensure the workforce has a commitment to and a stake in the company’s future. This leads to an ambition to increase the number of employee shareholders by at least 50 per cent, as part of fostering an “ownership culture.”

That ownership should not just belong to white men. Thirty per cent of the supervisory board are women, as demanded by German statute, but there is still some distance to go at lower management levels. By June 2017, Siemens intends to make sure at least a tenth of those at the top two management levels below supervisory board are female.

The focus on gender diversity is not confined to the top levels of management. As a company spokesperson says: “We are aware gender balance should not be limited to leadership and complying with legal requirements but should encompass all departments, countries and age groups.”

In a globalized world, where companies are increasingly expected to take some responsibility for sustainability practices in their supply chain, Siemens has taken the initiative to improve its engagement with its cohort of some 90,000 direct suppliers.

This year for the first time, sustainability in the supply chain has been included in the Corporate Knights’ global rankings. Because the limitations of publicly available data have constrained the CK methodology to looking at the sustainability score of each company’s largest publicly known supplier, Siemens has not scored particularly highly on this metric. However, the company has a highly developed but less easily quantifiable strategy for improving the sustainability of its supply chain. This is a risk-based system, intended to identify potential risks in the supply chain.

The system consists of sustainability self-assessments by suppliers, risk evaluations conducted by Siemens’ purchasing departments and sustainability audits by external auditors.

So, although there is no commitment to vetting every single supplier directly, suppliers are asked to self-assess, Siemens employees conduct risk assessments on suppliers and independent scrutiny is provided by external auditors specifically looking at sustainability.

Problems found and flagged are expected to be rectified on an agreed timetable (as has happened in a number of cases already), but there is also a framework for escalating issues up to the point of ending a supplier relationship and placing it on a central list to ensure other divisions of Siemens are aware of the problems.

This program is not trivial – the number of external sustainability audits ramped up significantly in fiscal year 2016 to 320, from 50 in the previous period.

With its 90,000-plus suppliers and its presence in virtually every nation, Siemens is an example of the interconnectedness of industry and manufacturing in a globalized world. It is taking seriously its responsibility to support sustainability throughout its ecosystem.

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