At the same time, the myriad risks posed by climate change to corporate bottom lines are becoming clearer every day, a point emphasized by increasingly assertive employees, investors and regulators. A new study by the Center for Climate and Energy Solutions identified more than 1,200 global businesses that have either adopted or are planning to embrace a price on carbon over the next two years.

Even global corporate leaders in sustainability are struggling to reinvent themselves in the midst of this new paradigm, forced into making tough decisions about legacy assets and future investments. Iconic industrial conglomerates General Electric and Siemens, both listed in Corporate Knights’ 2018 Most Sustainable Corporations in the World index (see here), announced global layoffs of 12,000 and 6,900 employees respectively in their power businesses in December. “Traditional power markets including gas and coal have softened,” explained GE in a statement.

A look at the other companies on this year’s index finds utilities shifting their growth models onto renewables, traditional car companies placing massive bets on electric vehicles, food companies beginning to move towards more healthy, sustainably-produced food and a greater emphasis placed on rooting out conflict minerals from supply chains across the board. The transition is anything but linear, but the overall trends are unmistakable.

It’s in the midst of this period of both rising climate risks and sustainability-oriented business opportunities that Corporate Knights has decided to revise the manner in which our rankings are conducted. We are committed to an objective, data-driven approach for assessing global sustainability performance, and are always weighing the availability of data with the desire to measure as much positive and negative corporate impact as possible. With these guidelines in mind, our research team has implemented two major advancements to the ranking process this year.

First, each key performance indicator (KPI) is now weighted to reflect the relative performance or contribution of the sector in question. The energy KPI, for example, will carry more weight for a company in a sector that accounts for significant portion of total energy use (within the universe of ranked companies) than it will for a company in a sector that accounts for a relatively small portion of total energy use.

Second, a clean revenue KPI has been added. It is calculated using multiple research sources that identify potential clean revenues on a product/service segment basis. Findings of potential clean revenues of 10 per cent or more of total revenues are then confirmed via manual inspection of financial statements and sustainability reports on a company-specific basis.

“It was imperative that we design a much more refined identification of which KPIs are most important in which sectors,” says Michael Yow, director of research for Corporate Knights. “Clean revenue is also a big driver of both commercial health and contribution to sustainability, and will add an important new dimension to our ranking.”
—

Class of 2018

Emerging as the top company this year is Dassault Systèmes, the French multinational software company that has become a major force in sustainable innovation. Finishing 11^th last year, its digital technologies have assisted companies and governments alike in adopting renewables, experimenting with various forms of sustainable mobility and the creation of smarter cities (see profile here).

Following closely behind is Finland’s Neste Oil, an oil refining and marketing company that has begun directing more than 90 per cent of its investments into renewable fuel and bio-based materials. Almost a quarter of the company’s revenues is currently derived from green revenue, on track to grow up to about 50 per cent over the next five years. While it is an oil refining company, Neste is attempting one of the most aggressive bets on renewables in its peer group.

In third place is another French company, automotive supplier Valeo, which has placed a strong emphasis on helping automakers reduce carbon emissions and integrate intuitive driving into the driving experience. Belgian pharmaceutical corporation UCB and Finnish construction and engineering firm Outotec round out the top five.

Valeo is one of 47 companies new to the list this year, a higher turnover rate than usual that is largely explained by the methodology updates. Companies like Valeo, Itron and Chr. Hansen all have green revenue scores over 40 per cent, for example.

Companies from 22 different countries made the 2018 list, with the U.S., France and U.K. leading the pack. European companies dominated the rankings, accounting for 69 per cent of listed companies, while North America and Asia accounted for 22 and 12 per cent respectively.

Click here to go back to the ranking landing page.

The post Global 100 progress report appeared first on Corporate Knights.

*Svenska Cellulosa Aktiebolaget was split into two new companies on June 15, 2017, named SCA and Essity, respectively.
** We regret that due to a miscommunication, no consolidated waste figure was obtained for Koninklijke DSM N.V. This resulted in the company not making the 2018 Global 100.

Click here to go back to the ranking landing page.

The post 2018 Global 100 results appeared first on Corporate Knights.

It just didn’t know it at the time.

Founded in 1981 as a spinoff from France’s Dassault Aviation, the company has always been focused on helping its customers to reduce waste and become more efficient. “We invented sustainable development before the term existed, even though it was not explicit in our purpose,” says Valerie Ferret, director of public affairs and sustainability. “At the time it was all about optimizing manufacturing processes.”

Although the company started working on product lifecycle management (PLM) in the 1990s, it wasn’t until 2008 that it stated that its purpose was not just to be a scientific company but “to help industry make products that help to harmonize production, nature and life,” Ferret says.

Its 3D Experience software platform allows customers to “virtualize” the design process for products by creating 3D designs and simulating their use on screen before they are made in the physical world. Virtualization is a powerful tool. Ferret notes that before manufacturers were able to create a virtual mock-up of a plane, a car or a power station on screen, they used to have to build physical prototypes. “Now, you just build one virtual mock-up before you can put a machine in the air. This not only saves resources and materials, but also allows you to be more innovative because you can test an infinite number of possibilities in the virtual world.”

Among the aircraft that Dassault’s software has helped design is the ground-breaking Solar Impulse 2, the first aircraft to fly around the world using only solar power. The project used the company’s Engineered to Fly application to design and test within a virtual environment an aircraft that had to be as light and strong as possible – before any aspect of it was physically produced.

Although the company started out creating design tools for aircraft manufacturers, aerospace now makes up only 13 per cent of its sales. The industries it currently serves include automotive, energy, consumer goods and construction. Its products can now even model, simulate, visualize and experience entire cities as they become increasingly connected, integrated and smart.

“Our aim is to virtualize as many industrial processes as possible so companies can ‘make it right first time,’ eliminate waste and cut out mistakes in the real world at every stage from production to end of life disposal,” says Ferret.

While the rapid development of 3D design creates a fantastic opportunity to optimize production processes, “that is not the most important function of the digital world,” she adds. “You can optimize as much as you want, but if you keep growing, you will still have a problem with sustainability. Digitalization also creates the opportunity to transform business models and create strategies based on the sharing economy and the circular economy. What we do is not just about optimization, it’s also about inventing what doesn’t yet exist.”

Dassault Systèmes has been rewarded by changes to Corporate Knights’ ranking system, which this year includes for the first time a focus on the proportion of a company’s revenue that comes from services or products that are environmentally beneficial. “The emphasis on clean revenue changes the whole direction of the ranking,” says Michael Yow, head of research at Corporate Knights. “All of the other key performance indicators are operational and look at internal competencies. For the first time, we are now looking outside of the company and the impact that its products have for customers and the wider world.”

Corporate Knights calculated that a quarter of Dassault’s revenues come from clean products, while its pay link score is 100 per cent due to portions of senior executive compensation being tied to hitting sustainability targets. However, it is not just this indicator that helped the company top the rankings – it scored more than 75 per cent in carbon, water and waste productivity as well as in innovation capacity, the ratio of CEO-to-average-worker pay, leadership diversity and taxes paid. With tech groups under a great deal of scrutiny over the amount of tax they pay, this last factor is particularly important to the company, says Ferret.

“We believe paying taxes is a way to contribute to society. We pay more than 30 per cent of our revenue in taxes. It’s a way to contribute to healthcare, to education and other important things. This indicator means a lot to us.”

Another way Dassault contributes to society is by supporting a number of startups that are using its software to create new products and business models, ranging from wave energy devices to non-obsolescent washing machines built to last more than 20 years. “We only support 15 companies at the moment because we really want to work with them on models that we know will disrupt industry and society.”

Disruption will be a key theme for the company and the wider economy in coming years, Ferret says. “In the past, you needed a large IT infrastructure to do 3D design. Now, with the cloud, we can provide our software online and a startup can use the same products as a company the size of Airbus. We will see more innovation in the next 10 years than we have in the last century.”

Dassault Systèmes believes that “constraints” are necessary to accelerate the pace of change. Regulation is one such constraint but “we believe we are at the limits of what regulation can achieve. However, we will see a huge amount of change because the technology is right and because people are ready for new models based on sharing, not ownership,” Ferret adds.

“Every industry and consumers are extending their use of virtual technology. Consumers expect experiences, not ownership, now. They want mobility, not a car.

“All industries, if they don’t adopt this trend, will disappear eventually.”

Click here to go back to the ranking landing page.

The post Top company profile: Dassault Systèmes appeared first on Corporate Knights.

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.

Click here to go back to the ranking landing page.

The post New Year’s resolution appeared first on Corporate Knights.

Learn more here.

Click here to go back to the ranking landing page.

The post 2018 Global 100 methodology appeared first on Corporate Knights.