The #MeToo movement has shone a welcome spotlight on gender inequality (while highlighting how much work remains to be done). In Cape Town, the drought and resulting restrictions on water use provided a stark illustration of the growing scarcity of water and its consequences, while the surge in battery production has shone a spotlight on child labour and working conditions in the Democratic Republic of Congo.

A plethora of climate rules and regulations has been introduced over the last year, most successfully in California, which mandated that 100 per cent of its electricity will come from renewable sources by 2045 along with a raft of other measures. But linking a law with climate change doesn’t automatically make it good policy – France’s Emmanuel Macron had to back down on plans to pay for new renewable energy with a carbon tax on fuel.

As Joss Garman of the European Climate Foundation wrote: “Macron’s policy didn’t fail because it taxed carbon. It failed because it was a bad, regressive policy that hit the poorest hardest.”

In the corporate world, there have been some significant breakthroughs, too: Royal Dutch Shell became the first oil and gas company to commit to binding emissions reduction targets; the world’s largest shipping company, Maersk, announced it would be zero-emission by 2050 even as it admitted it did not know how it would get there; one of the biggest carmakers, Volkswagen, announced that its last internal combustion engine car would be launched in 2026.

Meanwhile, the costs of renewable energy and batteries continue to plummet and a growing number of companies have committed to move to 100 per cent renewable electricity or to cut their emissions in line with a 2°C future through initiatives such as RE100 and the Science-Based Targets. For the first time, developing countries installed more renewable energy capacity than fossil fuel power plants this past year, according to Bloomberg New Energy Finance.

The corporate world is increasingly aware of the consequences of failing to deal with environmental, social and governance issues – from the ever-more obvious impacts of climate change, to issues ranging from Facebook’s travails over the use of data and Goldman Sachs’ involvement in the 1MDB scandal in Malaysia, to the sudden need of retailers, food and beverage producers, apparel makers and others to tackle plastic pollution.

In an age of greater transparency, consumers, employees, civil society but especially investors are pressuring companies to act. Shareholders are better informed, better organized and more outspoken than ever before.

In part, this is because they have more data, and new technology such as artificial intelligence, machine learning and big data techniques is enabling them to use it more effectively. But they are working together more, as well, through initiatives such as the Task Force on Climate-related Disclosures and Climate Action 100+, which targets the world’s biggest emitters of greenhouse gases.

It is increasingly clear that performing well on sustainability issues goes hand in hand with financial outperformance, which is why investors and corporations are embracing it more than ever.

Click here to return to the 2019 Global 100 landing page.

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

Sioux Lookout, a small town of 5,000 people in northwestern Ontario known for its fishing camps, now has another claim to fame: the continent’s largest hotel made from old shipping containers. In all, 120 steel containers – older, surplus containers lying around in shipping yards – were used to create this 60-room, two-storey hotel. The containers lay on a steel grill foundation, which is supported by steel piles secured to bedrock. “It took three containers to make two rooms for usage of 90 containers,” reports The Packet & Times, the local news site in Orillia. “The other 30 were used to construct the corridor, storage rooms and laundry room.” Not only is the hotel more sustainable because it’s built largely from recycled material, it also took less than half the time to build it compared to conventional approaches.

U.K. attempts crackdown on corporate tax dodgers

Governments worldwide have been growing more concerned by how some multinational companies avoid taxes by locating their legal headquarters in low-tax jurisdictions, even though a significant amount of their sales are done in countries with higher corporate taxes. Google, for example, has been identified as a major user of this tactic, funnelling profits really earned in the U.K. to its lower-taxed Irish subsidiary. The U.K. is having none of it. As one Forbes article put it, “The Empire Strikes Back.” Proposed legislation, the details of which were just published, creates a new “Diverted Profits Tax” that will charge a 25 per cent tax rate on profits declared or discovered as diverted. The rate is 5 percentage points higher than the U.K. domestic corporate tax rate expected in 2015. “Whilst there may be a popular consensus that the arrangements targeted are unacceptable, the change will cause great uncertainty across many businesses as to whether legitimate arrangements are caught,” according to a legal brief from law firm Norton Rose Fulbright, which calls the proposed legislation “game changing.” Court challenges are expected, but it won’t just be controversial for big business. The OECD had hoped to coordinate its own international response to so-called multinational tax planning. By acting unilaterally, the U.K. is stealing the OECD’s thunder.

EU plan to drop recycling, clean air rules stirs controversy

It would be one of the most progressive waste regulations in the world, but the EU Commission is now looking to scrap a “circular economy package” that would direct EU members to recycle at least 70 per cent of their waste (and 80 per cent of product packaging) by 2030. It would also phase out landfill dumping and mandate a 90 per cent paper-recycling rate by 2025. Savings resulting from the proposed regulations have been estimated at $860 billion, while it has the potential to create 280,000 jobs, according to a report in BusinessGreen. Why is the EU Commission balking? It seems some members considered recycling laggards are expected to resist. In response to the EU Commission’s proposal to drop the rules, a coalition of seven trade bodies, environmental organizations, and professional associations expressed “dismay” in a letter to Liz Truss, the U.K.’s environment secretary. “There is a very broad consensus amongst industry groups and associations, major companies, NGOs and municipalities that the circular economy package offers huge potential for green job creation, resource security, environmental protection and economic growth,” reads the letter, which urges the U.K. government to persuade EU leadership to reconsider.

Has the U.S. reached a turning point on oil?

Taylor Swift’s popular “Shake It Off” tune would seem an appropriate theme song for a compelling interactive infographic released by Bloomberg, and it’s something that should concern Canada’s oil industry. The infographic, titled “America Is Shaking Off Its Addition to Oil,” is a series of 15 graphs explaining what’s going on. In a nutshell, the graphs show how U.S. domestic oil production is at its highest level in three decades and oil use per dollar of GDP is lower than it’s been in more than 40 years. One of the most interesting charts shows how GDP and oil consumption, which have historically moved in tandem, are beginning to diverge. Since 2006, U.S. GDP has been growing while oil consumption has been falling – and the gap is getting bigger. Other graphs explain the causes: more efficient cars, retiring boomers driving less, young people moving to cities, and more young people riding public transit. Overall energy efficiency and the move to alternative energy sources are also big contributors. This is an infographic that everyone interested in energy trends should look at. Kudos to Bloomberg for putting it together.

Time to price carbon, remove subsidies: IEA chief

On the topic of changing dynamics in the oil market, a timely Huffington Post commentary by Maria van der Hoeven, executive director of the International Energy Agency, urges countries to price carbon and remove oil industry subsidies while the price of crude is so low. Remember, this is an agency that has been historically conservative on environmental issues and was founded on the backs of fossil fuel interests. “With the drop in oil prices delivering a shot of economic stimulus to consumers around the word, policymakers have leeway to take actions that even a year ago would have been unthinkable,” she writes. For one, opposition to removing fossil fuel subsidies – amounting to more than half a trillion dollars in 2013 – “may well be muted” in the current climate of low oil prices. Secondly, “policy makers in major energy consuming countries should take advantage of the oil market’s collapse to introduce carbon pricing, taxes or low-carbon mandates, or to strengthen existing schemes.” Complacency would be a mistake, van der Hoeven concludes. Policymakers “have a once-in-a-generation chance to get us back on track. Let’s hope they seize this moment.”

Catholic leaders, meanwhile, weigh into climate debate

We know the Pope’s position on the need to act on climate change, but his words were given even more force this week when Catholic bishops from around the world – representing 1.2 billion people on every continent – urged an end to fossil fuel use. As Matt McGrath of the BBC reported, “this is first time that such a global collection of senior priests have made such a call.” The bishops, in a statement, cited their obligation to challenge the misuse of nature and protect those people, mostly the poor, who will feel the worst impacts of climate change. “We felt this joint statement had to come now because Lima is the milestone on the way to Paris, and Paris has to deliver a binding agreement.” The statement adds yet another influential voice to the growing chorus of global stakeholders urging concrete action on climate change.

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The post December 12, 2014 appeared first on Corporate Knights.

BNP Paribas Investment Partners, the Paris-based fund manager, is lobbying the pharma sector in support of the AllTrials campaign, which was started by U.K.-based Sense About Science, a charitable trust. The campaign is pushing for much greater transparency around clinical trials, a necessary and crucial step in the process of drug development. Unfortunately, around half of clinical trial results have never been published. Perhaps not a surprise, trials with negative results are twice as likely to remain unreported as those with positive results. At the same time, industry funded trials that have been published are much more likely than independently funded trials to show positive results. Helena Viñes Fiestas, who heads sustainability research at BNP, said some companies have faced enormous fines by not disclosing clinical trial data. As recently as 2013, several pharmaceutical firms paid over $10 billion in fines for not fully articulating secondary effects they were aware of. Companies have also been criticized for wasting significant amounts of money conducting unnecessary trials when such funds could be better directed towards research and development and trials that have greater potential.

Ottawa moves to protect Canada’s “brand” abroad

Canada is introducing a new social responsibility policy aimed at protecting the country’s positive “brand” in overseas markets, and mining and energy companies that don’t toe the line could find themselves cut off from government support. That includes financing and other supportive services from agencies such as Export Development Canada, not to mention the many Canadian embassies around the world that help companies gain a foothold in foreign markets. The news was reported in Friday’s Globe and Mail, which said that International Trade Minister Ed Fast is also appointing a new corporate social responsibility counselor with added powers to assure policy compliance. In addition, the federal government is requiring that resource companies comply with new transparency standards, by reporting, for example, payments made to foreign governments.

Viking women failing to crack glass ceiling

Sweden, Norway, Denmark and Finland are hailed as being more civilized societies because of the equal opportunity provided to women. As The Economist points out, the state provides world-leading coverage for childcare and maternity leave, and more women graduate from Nordic universities than men. Take a tour of their respective parliaments and women are equals or dominate the chambers, and mandatory quotas on corporate boards assure women are well represented. In the C-suite, however, and even among senior managers, women aren’t faring so well. As the magazine points out, Denmark, for one, was ranked 72^nd by the World Economic Forum when it came to the gender gap in upper management of publicly traded firms.

Barclays, MSCI launch green bond index family

Barclays and MSCI have come out with a new green bond index family that measures the global market of fixed income securities issued to fund projects and initiatives that have direct environmental benefits. Securities must pass an independent and objective assessment by MSCI ESG Research to be included in the index family. The assessment looks at how proceeds of the bond issue will be used, whether projects meet criteria, how funds will be managed, and how results will be reported. Additional fixed income index criteria are then applied to this screened universe to identify index membership on a monthly basis. “The availability of market standard indices is important in establishing clear, broadly accepted guidelines for the new issuers rapidly entering the market,” said Sean Kidney of the Climate Bonds Initiative. “The stature of Barclays and MSCI will help to bring attention to green bonds.”

NYC comptroller Scott Stringer leads board accountability project

The man who has auditing power over New York’s $75 billion annual budget and oversees the city’s five municipal pension funds – which together represent $160 billion in assets – is leading an initiative that aims to bring better corporate governance practices to the boardrooms of big U.S. corporations. Specifically, Stringer wants to leverage the huge shareholder clout that the country’s public pension funds have to push through long-needed governance changes. Corporate Knights’ managing editor Jeremy Runnalls chatted with Stringer about the Boardroom Accountability Project, which was launched last week with a coalition of large public pension plans. Its goal: pressure companies to let shareholders that control at least 3 per cent of company shares to nominate their own board candidates. “The fact is that friends of friends are still placed on boards and then often make decisions that are not in the long-term interests of shareowners,” Stringer told Runnalls. “I think this project promises to transform the dynamic between shareowners and corporate boards by giving investors real power to nominate corporate directors.

The post November 14, 2014 appeared first on Corporate Knights.

Duhigg uses the example of former Alcoa chief executive Paul O’Neill, who took a struggling U.S. aluminum manufacturer and turned it around by being obsessed with one operational indicator: workplace safety.

Not only did O’Neill improve the company’s lost-day injury rate to 0.2 per 100 workers, down from 1.86, he created a culture of safety that has since seen the rate drop to 0.125. Workplace safety statistics are now published publicly on the company’s corporate website, in near real time. On O’Neill’s watch, the decline coincided with a quintupling of Alcoa’s net income and a 15-fold increase in revenue.

An impressive accomplishment, one that got O’Neill handpicked by former U.S. president George W. Bush as America’s 72^nd Secretary of the Treasury. And little did he know that, 13 years after leaving Alcoa, his work at the company would be referenced by the U.S. Occupational Safety and Health Administration (OSHA) to support new disclosure regulation – an expanded “name and shame” rule – that has proven highly unpopular with many American businesses.

David Michaels, an assistant secretary with the U.S. Department of Labor, revealed the details at a press conference last November with a cheerleading O’Neill by his side. Under the proposed rule, employers with 250 or more employees would have to start electronically reporting to the OSHA all serious workplace injuries soon after they occur. That data – including company name, type of injury, and cause – would be posted online for anyone to see.

Extreme Disclosure

Citing the fact that about three million American workers at private companies got injured or ill on the job in 2012, Michaels said such a rule is necessary to “save lives and limbs.”

“How will this make workplaces safer?” he asked. “Public posting of workplace injury and illness information will nudge employers to better identify and eliminate hazards.” The better public disclosure will allow businesses to compare themselves against their peers, while prospective employees will have a way to find out how companies in a sector rank on work safety, Michaels explained.

O’Neill, when introduced later, praised the initiative. “I hope it’s a step but not the final step.”

Many industry watchers cringed, including Howard Mavity, an Atlanta-based labour lawyer with the law firm Fisher & Phillips.

“It’s possible this information will be misconstrued and used unfairly to sully the reputations of employers,” wrote Mavity in a guest post on Forbes.com earlier this year. He described the data published as “lagging indicators” of events that have already happened. “Anyone in the safety profession knows that putting too much emphasis on lagging indicators fails to increase workplace safety.”

Employers should be encouraged instead to do better at communicating safety to employees, Mavity added. “They shouldn’t have to waste valuable time defending themselves to the media. Taking the time everyday to remind employees to be safe is what works. Not publicly shaming employers.”

Joe Trauger, vice-president of human resources policy for the National Association of Manufacturers, said the proposed rules would make information publicly available without context and create confusion. “The raw data may result in unfair conclusions or judgments about a company or particular industry based on information that is not indicative of the actual safety record.”

The OSHA forged ahead nonetheless. In September it formally announced the new rule, which will come into force on January 1. It requires large businesses, with some exceptions, to continue reporting job-related fatalities but within eight hours of happening. On top of that, worker amputations, eye losses, and hospitalizations from injuries must be reported within 24 hours. The reports will have to be called in or submitted via a web portal, but industries with low injury and illness rates are not subject to the rule.

Michaels, in a statement, called hospitalizations and amputations “sentinel events” that reveal serious hazards in a workplace. “An intervention is warranted to protect the other workers at the establishment.” The idea is that by putting such public pressure on an employer it will be forced to raise its game.

Going too far?

In Canada, detailed reporting to worker compensation boards is required. For more serious injuries and fatalities, each province’s ministry of labour must be notified. But data is only publicly released once it is aggregated. Only when a company is investigated and formally charged for a workplace incident are its name and details of the event publicly accessible.

“When you look at how the OSHA operates in the United States versus provincial and federal structures here, things are publicized in Canada but not like south of the border,” said workplace safety consultant Jeff Thorne. The media may discover and reveal details independently, but news outlets are picky about what they cover. “Unless it involves a young worker or it’s a major fatality at a large corporation, you may never hear about it.”

He said in Ontario there have been limited discussions about creating a better way to register occupational injuries and fatalities, but whether such a database would be accessible to the public is unclear. “It’s hard to tell how far along that discussion is.”

Norm Keith, a lawyer with Toronto-based Fasken Martineau who specializes in workplace health and safety, said there is definitely a need for better data collection and disclosure standards, allowing apples-to-apples comparisons across geographies and within sectors, but he has reservations about the name-and-shame approach.

“I have many clients going to trial to defend not so much that they think they’re perfect, but because they can’t afford a conviction in a press release,” he said. A company’s competitors are more than happy to highlight that information when bidding for business in hopes of winning a contract.

Authorities need to be careful in how far they go, Keith said. “Is there benefit from a deterrence perspective? Ultimately, there has to be some fairness and consistency in the way they do it.” For this reason, he added, naming and shaming should probably continue to be governed by the courts.

Corporate Knights contacted the OSHA’s media relations department to request an interview. We were told to submit some questions in advance, which we did. Among them: How measurably effective has this approach been so far? Nearly three weeks after the original request, and after two follow-up queries that elicited no reply, the agency has been silent.

Absent supporting research, workplace safety experts will be watching closely over the next couple of years to see if the U.S. name-and-shame rules do, in fact, lead to a reduction in workplace fatalities and injuries. From Corporate Knights perspective, improving workplace safety disclosure standards, and requiring companies to self-report this high-level data in quarterly and annual reports, may be a more effective approach than government’s creating shame lists, especially when companies may not ultimately be charged with a workplace violation.

Such an approach would set a baseline standard for all companies, and give industry leaders, such as Alcoa, a chance to demonstrate best practices and rise above their peers.

(This story is the fifth in a series of articles on workplace safety that will appear on corporateknights.com during October, in partnership with and with funding support from the Canadian Society of Safety Engineering and the Center for Safety and Health Sustainability. Visit our Workplace Safety landing page to follow the series.)

The post Can “name and shame” reduce worker injuries? appeared first on Corporate Knights.

The goal is to have a common standard that will allow extractive companies to report how much they pay governments for access to their resources, regardless of what stock exchange they are listed on. Citizens should be able to use this information to track the profits from mines and oil wells and make sure their political representatives are spending resource revenues wisely.

But, writing a rule that will cover the three biggest stock exchanges for extractive companies—Toronto, New York and London—is not easy. And now that the E.U. Commission has opened consultations on what it will accept from companies reporting in other countries, the doors are open for further negotiation and, possibly, a less coherent standard.

The United States passed a law in 2010 as part of the Dodd Frank Wall Street Reform and Consumer Protection Act that will require oil, gas and mining companies to publicly disclose how much they pay governments for access to their resources.

The European Commission followed suit in 2013 with a law that will require all companies listed on European stock exchanges to disclose payments over €100,000 to all levels of governments, in all countries, for all projects, without exemptions by November 2015.

This is considered the gold standard for payment disclosure because it provides a level of granularity that citizens need if they are going to inquire about specific projects, says Colin Tinto, a campaigner at U.K.-based Global Witness, an organization that looks at the economic networks behind conflict and corruption.

Before the E.U. members could implement the law, the American Petroleum Institute challenged the U.S. rule in court, saying it would place an undue burden on the industry and affect competition. The U.S. District Court for the District of Columbia sent the rule back to the U.S. Securities and Exchange Commission with the understanding that it can either rewrite the rule or provide a better justification. The final rule is scheduled to come up for discussion some time before March 2015.

In the meantime, the Canadian government has begun working on its own payment transparency law to be implemented by April 2015. Natural Resources Canada (NRCan) has been working with provincial and territorial governments, industry, civil society and Aboriginal groups to design the law.

To make things easier on companies listed on multiple stock exchanges, the Canadian government is working with the U.S. and E.U. to align its law with the existing international standards and to ensure that there is a level playing field for companies operating domestically and abroad, says Jacinthe Perras, spokesperson for the NRCan.

But, some Canadian companies do not like the way the E.U. law has been written and Talisman Energy Inc., a Canadian oil and gas company, is calling for a different standard altogether.

“We do not believe that trying to draft Canadian rule so that they are ‘equivalent’ with the most severe set of rules currently proposed is of any service to Canadian companies,” the company says in its letter to NRCan.

Instead, Talisman is calling for anonymous country-by-country reporting with exemptions in countries where it is forbidden to reveal how much companies have paid governments.

The suggestion that Canada can pass a different rule and have it accepted in the E.U. is a misunderstanding of the law and would make it impossible to declare equivalency between the two reporting standards, says Tinto.

The Commission has yet to announce an official position on what it will require from companies that want to report in other countries.

“We have not taken a decision yet,” says Didier Millerot, spokesperson for the Commission. “We cannot say that if Canada allows for exemptions in its legislation that we won’t accept it. We have to look at the Canadian system as a whole…. This is also a political decision.”

A global transparency standard would allow for comparison and make it easier for citizens to access, use and interpret information, says Claire Woodside, Director of PWYP Canada, the global network of organizations pushing for transparency in the oil, gas and mining industries.

Any efforts to keep company names a secret or to make exemptions for certain countries will increase opportunities for the theft and mismanagement of revenues, which robs citizens of the economic benefits of natural resource wealth, she added.

Brent Anderson, Manager of External Relations at Talisman says, “the Canadian government should take care of its own citizens and companies first, and foreign citizens should be protected by their own countries’ laws.”

When assessing a third-country rule, Millerot says, the Commission would be looking to see whether the laws aim to achieve the same end result.

“It’s a transparency instrument that is there to empower citizens, stakeholders, NGOs and all those working towards more transparency and to encourage better use of natural resources by the countries that are sitting on them,” he added.

“That’s the first, indispensable step: that we understand each other and we know where we are going,” he says.

The post Enforcing transparency appeared first on Corporate Knights.

While investors and civil society say they welcome this new tool, the database is likely to remain incomplete as long as companies get to choose whether or not they want to share this information.

The platform, released on Monday, will allow users to search the 10-K filings of Russell 3000 companies from 2009 to the present, and to filter this information based on clean energy, renewables, weather risk, climate-related regulatory risks and opportunities.

Public companies in the U.S. are legally required to submit 10-K filings to the U.S. Securities and Exchange Commission (SEC) once a year, which covers their businesses, risks, financial conditions and audited financial statements.

At the request of over 100 institutional investors, representing $7 trillion, the SEC provided Interpretive Guidance in February 2010 on how companies could add climate-related risks and opportunities to their 10-K reports.

The SEC is the key U.S. government body that gives investors the information they need to make smarter financial decisions. But without an online tool, like the one created by Ceres, information related to climate change is difficult to track down.

“For markets to properly account for rising climate-related risks, investors need information on how companies recognize and manage those risks. This tool helps to make that enterprise easier for investors interested in understanding and managing climate risk,” said Julie Gorte, Senior Vice President for Sustainable Investing at Pax World in an online statement.

But, analysis of the Ceres tool shows that voluntary climate change reporting provides little incentive for companies to comply with reporting standards, as “only half of the Russell 3000 filers had something to say about climate change in their 2014 10-K filings,” and those filings “were highly variable in length and quality.”

A report by Ceres last February called Cool Response: SEC and Climate Change Reporting shows that more S&P 500 companies made climate-related disclosures after the SEC issued its guidance in 2010, but participation has slowed since then. And while the number of participating companies has increased overall, the disclosures were less specific in 2013 than they were in 2010, said the report.

Online tools are just as helpful for pointing out gaps in data as they are for analysis, said Michelle de Cordova, Direct of Corporate Engagement and Public Policy at NEI Ethical Funds. It’s an indication that there is a need for engagement to get companies to disclose what they’re already doing or to get them to start doing something, she said.

At a press event last week for the Risky Business Report, Henri Paulsen and Robert Rubin, former U.S. Treasury secretaries, called on the SEC to improve their climate disclosures and do a better job of getting companies to comply with the guidance it implemented. Rubin said companies should be reporting to the SEC assets that could be stranded, or unburnable, due to climate change.

Bloomberg LP released its own tool in November 2013 that helps investors assess how climate-related risks can affect the earnings of oil, coal and gas companies by estimating their ‘unburnable assets.’ This assessment is calculated regardless of the sustainability indicators, using a combination of current reserves and projected carbon prices. The Carbon Tracker Initiative describes unburnable carbon as fossil fuel energy sources which cannot be burnt if the world is to adhere to a given carbon budget.

Investors have a responsibility to pressure the SEC to a better job of enforcing environmental and social reporting because these issues are “critical to the long-term value of companies, ” said de Cordova.

“It’s important for investors to support the SEC to do better, because the SEC is supposed to be there to support us,” she said.

The post Managing climate risk appeared first on Corporate Knights.

What distinguishes the Global 100 from many other sustainability rankings is the nature of its methodology. Instead of relying on analyst judgment or rolled up “black box” sustainability scores, the Global 100 is driven exclusively by how companies perform on a set of 12 metrics covering resource, financial and employee management. Coupled with this “data driven” approach, every aspect of the project, including how each metric is calculated, and how the starting universe of about 4,000 stocks is whittled down to 100, is detailed on the Global 100 website.

This transparency has been a critical factor in the Global 100’s success. In the often murky world of corporate sustainability reporting, stakeholders take a certain comfort level in being able to replicate the Global 100 using the same data inputs as those available to Corporate Knights.

Over the years, the Global 100 has granted its coveted number one position to several recognized leaders in corporate sustainability, including Umicore, Novo Nordisk and Statoil. While the Global 100 is unique in the sense that it uses a data-driven approach to measure something as outwardly nebulous as corporate sustainability performance, from an investor standpoint it is simply a portfolio of 100 global stocks that turns over annually. Given mounting evidence about the long-term connection between sustainability and financial performance, it is worth examining how an investment strategy built around the Global 100 would have fared.

Let’s pretend an investor had purchased one share of each company in the inaugural 2005 Global 100, held those shares for one year, and then replaced them with shares in the next Global 100, then buying and selling shares subsequently to reflect each and every successive annual Global 100 ranking to date.

This strategy, running from February 1, 2005 to October 31, 2013, would have generated a total return of 87.9 per cent. The MSCI All-Country World Index (MSCI ACWI), an appropriate benchmark for a global large-cap equity portfolio, returned 81.1 per cent over the same period. This means the Global 100 has outperformed its benchmark by 6.8 per cent on a cumulative basis since inception.

As most fund managers can attest, beating the benchmark is not easy. It is widely known that most actively managed portfolios fail to consistently beat their benchmarks over time. That the Global 100 – a portfolio of 100 stocks selected using only corporate sustainability data – has outperformed its benchmark since inception makes it doubly interesting.

If we extend this experiment to consider other globally focused “conventional” stock indices, the story does not change. Over the same period, the Global 100 outperformed the FTSE Developed Index by 13.5 per cent and the S&P Global Broad Market Index (S&P Global BMI) by 25 per cent.

Let’s look under the hood of the current crop of Global 100 companies to better understand where some of this performance is coming from. Looking at year-over-year results, Alcatel-Lucent (EPA: ALU) is the top performing stock in the 2013 class. In the first nine months since the release of Corporate Knights’ 2012 ranking, Alcatel-Lucent shares generated a return of 115 per cent.

Novo Nordisk (CPH: NOVO-B) is another success story. First, it is one of only nine companies (the others being Adidas, Centrica, Intel, Kesko, Ricoh, Royal Bank of Canada, SAP and Unilever) that have managed to remain on the Global 100 every year since 2005. Second, it is the single greatest contributor to the cumulative total return of the Global 100. In the nearly nine years since the inception of the ranking, Novo Nordisk’s contribution to the total return of the Global 100 stood at 270 per cent. Based in Denmark, the health care company has long been recognized for its focus on the “triple bottom line” and embedding a broad and long-term view into its organizational strategy.

The Global 100 has gained credibility in the business world because it uses clearly defined indicators and the overall ranking process is transparent. And it turns out that these indicators could serve as proxies for outperformance in the markets. More research is needed to fully flesh out this thesis, but on its merits the financial performance of the Global 100 is difficult to ignore.

The post Global 100 stock performance appeared first on Corporate Knights.

Executives at the Walmart Global Sustainability Milestone Meeting in September rolled out two ambitious initiatives meant to reduce chemical and pesticide use throughout its supply chain. The Bentonville, Arkansas-based retailer will be working with suppliers to institute the Consumables Chemicals initiative, a policy to eliminate 10 priority chemicals from household cleaning, personal care, beauty and cosmetic supplies in products sold at both Sam’s Club and Walmart. Developed in collaboration with the Environmental Defense Fund, it will also focus on expanding public disclosure of ingredients. Some companies have issued restricted substances lists, says Sarah Vogel, director of EDF’s environmental health program, but “no other company is requiring the all-important, but often forgotten, second step to truly transformational phase-outs: putting a system in place that avoids regrettable chemical substitutions.”

With groceries accounting for 51 per cent of Walmart’s U.S. sales last year and expanded home delivery service on the horizon, pesticide use now accounts for roughly half of the retailer’s carbon footprint. The company also announced new agreements with 15 key suppliers to lower pesticide use, with the goal of cutting fertilizer use by up to 14 million acres of American farmland by 2020. “Using less energy, greener chemicals, fewer fertilizers and more recycled materials is the right thing to do for the planet and it’s right for our customers and our business,” said Walmart president and chief executive Mike Duke in a statement.

The world’s largest retailer has grown increasingly aggressive in pursuing sustainability initiatives, even as its fierce opposition to organized labour and higher wages remains a contentious issue. Hundreds of U.S. employees took part in demonstrations across 15 cities in September. The company has been accused of deliberately avoiding Affordable Care Act health insurance requirements by hiring more temporary workers. This has been paired with attempts to reduce the number of employees per store to save costs, which has affected sales. In a victory for labour advocates, Walmart backtracked on the temporary worker policy in late September by moving 35,000 workers to full-time status in an attempt to improve employee performance and retention.

Zero: JP Morgan

A wholly owned subsidiary of JPMorgan Chase is currently under criminal investigation for obstruction of justice in regards to a regulatory probe into electricity market manipulation. The largest bank by asset size in the United States settled Federal Energy Regulatory Commission (FERC) allegations that it exploited electricity power market loopholes with a $410 million payment on July 30, but may have attempted to head off the investigation by withholding key documents from the FERC. The commission alleged that JPMorgan exploited loopholes in the electricity trading markets to drive up prices in the Midwest and California between 2010 and 2012. It suspended JPMorgan from participating in the electric power market in November 2012 while conducting its investigation on the grounds that the company “made factual misrepresentations and omitted material information over the course of several months.” JPMorgan did not admit any wrongdoing in the July settlement, and is “pleased to have this matter behind us,” according to JPMorgan spokesman Brian Marchiony. It has stated repeatedly that all required documents were turned over to the FERC in a timely manner. No charges have yet been filed.

The Federal Bureau of Investigation and the Manhattan U.S. Attorney’s Office began to investigate JPMorgan’s actions in the aftermath of the July settlement, after several federal lawmakers began questioning the terms of the agreement. Massachusetts senators Elizabeth Warren and Edward Markey wrote FERC demanding to know why no employees who “impeded the commission’s investigations” were being held accountable. The Senate Permanent Subcommittee on Investigations has launched its own probe into the terms behind the FERC settlement, focused in part on allegations of a cover-up.

Faced with over a dozen investigations by separate federal agencies, states and foreign governments on everything from foreign bribery allegations to questionable debt collection practices, JPMorgan posted a rare loss in the third quarter, with fines wiping out quarterly profits. It has paid $3.68 billion in total throughout 2013. The Wall Street Journal reported on Sept. 25 that JPMorgan may be facing the largest bank fine in history ($11 billion) over the fraudulent sales of mortgage-backed securities.

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Given the casual dress code, the big black dog resting in front of the bar and the beautiful interior of glass, wood and steel, the brewery appears a nice place to work. So do the other boutique businesses on this trendy stretch of Toronto’s Ossington Avenue. What makes the brewery different is the formal commitment made to its workforce as one of the original signees of Wagemark – a recently launched international standard for workplace wage ratios.

To receive Wagemark certification, an organization’s top-paid employee cannot make more than eight times the average compensation of the bottom 10 per cent. The foundation of research the non-profit builds on suggests the wider the income gap, the poorer the performance of both companies and countries. But will the idea sell?

“We actually are pro-capitalist,” says Peter MacLeod, Wagemark’s founder and interim executive director. “We just want everybody to enjoy the fruits of their productivity. It’s about competitiveness. It’s about business, sustainability, the durability, the resilience of an organization.”

MacLeod argues places such as Scandinavia and Japan are examples for the rest of the world. “You look to societies with low income disparities and you see that they not only outperform us around [quality of life], they also outperform us on some important economic indicators, whether it’s productivity, whether it’s a social-economic indicator, like generational mobility.”

In a report published by the University of California, Berkeley, in September, economist Emmanuel Saez found that post-recession income gains made in the U.S. from 2009 to 2012 were 31.4 per cent for the top 1 per cent compared to 0.4 per cent for the remainder. Bloomberg reported in April that J.C. Penney’s CEO had been paid 1,795 times as much as the average company employee.

MacLeod says Wagemark isn’t about “naming and shaming” companies and their leaders, nor does he expect such companies to sign up. But J.C. Penney could learn something from the fallout after its CEO’s golden parachute, when the company’s share price slid, MacLeod points out. “The company has rarely been in a weaker position. They can take whatever lesson from that they like.”

Income disparity has received increased political attention in the United States lately. The Securities and Exchange Commission (SEC) is preparing to vote on a proposal that will require companies to reveal the pay gap between CEO compensation and the median compensation of their workforce, based on a sample of employees. The proposal is a mandate of the 2010 Dodd-Frank Act and expected to pass with three out of five SEC votes; two Democratic and one independent versus two Republican.

While not as extreme as those in the U.S., pay gaps in Canada have also increased. According to the Canadian Centre for Policy Alternatives, the 50 highest paid CEOs made over 200 times as much as the average Canadian wage in 2011, compared to 85 times in 1995.

Wagemark, which is Toronto-based, was inspired in part by The Spirit Level, a book written by British epidemiologists Kate Pickett and Richard Wilkinson. The two researchers argue that equal societies are better for all who live in them. Wilkinson has served as an advisor to Wagemark. “It’s at work we have most to do with each other, yet it’s at work we are most divided by hierarchy. We can change that,” says Wilkinson on the phone from London. “Work ought to be the place where we can get our sense of purpose and our sense of self-worth and appreciation by others.”

Taking a step back, Wilkinson argues, “The big, long-term objective for progressive politics, as well as dealing with sustainability, has got to be to democratize our economic institutions, to extend democracy by pursuing all forms of economic democracy. I do regard the bonus culture as an indication of a lack of any democratic constraint on people at the top. They think they can do just what they like.”

When The Spirit Level was published in 2009, it was predictably lauded by the left and lambasted by the right. As Pickett and Wilkinson write in a postscript to their 2010 edition, the criticism has often been political, not scientific. They maintain that mental health, physical health, obesity, educational performance, teenage births, violence, social mobility and imprisonment all relate to levels of inequality.

The authors dedicate a chapter of their book to the connection between inequality and sustainability. “Given what inequality does to a society, and particularly how it heightens competitive consumption, it looks not only as if the two are complementary, but also that governments may be unable to make big enough cuts in carbon emissions without also reducing inequality,” they write. Interestingly, according to data cited in The Spirit Level, business leaders in more equal countries tend to be more positive towards public policy that complies with international environmental agreements than their peers in more unequal countries.

MacLeod says he doesn’t expect every company to agree with the worldview Wagemark represents, but he’s not necessarily going after the Fortune 500. His focus instead is on medium-sized organizations that have hundreds of employees, not tens of thousands; that have tens and hundreds of millions of dollars in revenue, not billions; and that have strong corporate cultures where people still have a sense of being a part of the same organization.

He also doesn’t expect Wagemark to be a silver bullet for workplace inequality, but more of a long-term contribution to a broader movement for societal equality. Included in this movement are Pickett and Wilkinson’s organization, the Equality Trust, and other national and international advocacy groups and policy initiatives, such as those pushing for increases to minimum wage or “living wage” levels.

It’s a work in progress, and adjustments could become necessary in some scenarios. Take outsourcing. What if a profitable company meets Wagemark’s standard within its own facilities, but not when taking into account the factory workers who produce the company’s product through a contractual arrangement?

“We can’t write a licence that prohibits explicitly all sorts of business activities,” says MacLeod. “But to be perfectly frank, I don’t think those kinds of businesses are going to be attracted to Wagemark initially.”

Some big American companies, on the other hand, have demonstrated a commitment to maintaining modest wage gaps relative to others in their industries since long before Wagemark. Costco is one frequently cited example. In the midst of the economic downturn, while competitors struggled and tightened belts, Costco raised employee salaries, which are over double minimum wage – yet the company has thrived. According to Businessweek, the company plans on expanding internationally, opening outlets in France, Spain, Japan, Taiwan and South Korea over the next five years.

But falling within Wagemark’s 8:1 pay ratio will be a huge challenge for big companies, more so in specific sectors that have a proportionately higher number of low-skilled, lower-paid workers. According to data compiled by Corporate Knights Capital – which looks at CEO compensation relative to a company’s average worker pay (as opposed to an average of the bottom 10 per cent) – the global average ratio is 133:1 and 113:1 for consumer discretionary and consumer staples, respectively.

At 139:1, Costco is above the global average, according to U.S. union federation AFL-CIO. But compared to Walmart, which comes in at 597:1, Costco still looks like a champion of the people. On the other hand, ratios for the high-skilled utilities and health care sectors are 57:1 and 53:1, respectively.

“We completely accept that in different industries it could be more difficult,” says MacLeod. “We’re starting with 8:1, and it’s our hope and intention over the next two years to bring on several thousand organizations. On the issue of how we evolve the standard, it’s a question we’ll have to pose to our membership, so stayed tuned.”

Already, Wagemark is preparing this fall to unveil its Tier 2 certification designed to appeal more to larger companies. The pay ratio standards would range from 9:1 to 30:1 depending on a company’s revenues. The higher the revenues the wider the allowable pay gap.

Small and medium-sized companies, meanwhile, continue to sign up to Wagemark. Mike Clark, co-owner of Bellwoods Brewery, doesn’t see the current standard too much of a burden. As one of the more than 20 companies that have so far joined, the brewery is aiming to have a pay gap of between 3:1 and 4:1 over the next few years. Today, it has 35 employees, but Clark has plans to expand. Complying with Wagemark, he says, shows employees they are being treated fairly and with respect, and helps retain them.

“It just makes me feel so good about the people that I’m working for and the fact that they’re conscious of building a team that’s going to progress together,” says Bellwoods staffer Kristi Porter.

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In September last year, some 300 workers died in a garment factory fire in Pakistan, many because they were trapped behind locked emergency exits. Six months later, another 1,100 seamstresses were crushed to death when an eight-storey building collapsed in Bangladesh, despite warnings it was unsafe.

As the multi-trillion-dollar textile industry struggled to respond to these tragedies, the much smaller global toy industry was able to call on a resource no other consumer product industry can match.

In short order, big toy brands and retail members of the International Council of Toy Industries (ICTI) were able to tap into a one-of-a-kind database they have built over the past decade known as the ICTI CARE (Caring, Awareness, Responsible, Ethical) Process (ICP).

The trove of data, which includes wage rates, hours worked, worker age and 200 or so other metrics at thousands of toy factories, allowed big toy buyers to rapidly identify manufacturers located in the areas affected by the recent labour disasters for focused follow-up. Within weeks, industry executives started to develop and roll out tougher rules to all of the factories in the ICP network, guiding inspectors to enforce stricter requirements for fire escapes and building integrity.

The quick response was made possible by a combination of ICP’s carefully cultivated industry collaboration together with a recent decision to port its unique database onto a web-based platform provided by Enablon, a supply-chain software service provider founded in 2000.

“Not long ago, this sort of information was considered proprietary. A single factory might have two dozen clients, but they didn’t want to talk to one another, for fear of competitive disclosure” says Philippe Tesler, co-founder and CEO of Enablon North America.

A combination of factors has rewritten these habits. There’s a growing recognition that risks can be lowered and costs minimized through collaboration. “Reporting has gone from a defensive response to a more proactive process,” says Tesler.

Back in 2002, the toy industry was facing a series of relatively small-scale labour mishaps at overseas factories. “Pressure was building from retailers, from consumers, NGOs [non-governmental organizations] and investors to boost regulation,” recalls Christian Ewert, president and CEO of the ICTI CARE Foundation, which oversees the supply chain program.

Instead, the industry group pushed for self-regulation and established the ICP, a framework in which toymakers would share and compare information towards the end of “ensuring safe and humane workplace environments for toy factory workers worldwide,” says Ewert.

Notably, the ICP was established as a standalone not-for-profit, overseen by a board that includes NGO and civil-sector experts, and on which active toy industry executives are in a minority.

Streamlining inspection efforts has been a central priority from the beginning. When Ewert started in the toy industry in the 1990s, he worked with a manufacturer that faced 64 audits per year, each asking for similar information. “I’d much rather have seen those auditors inspecting 64 different factories, rather than the same factory 64 times,” he says.

The move to Enablon’s platform has helped transform this process from a cumbersome paper chase into a more scalable, easier to use and fast-evolving technology. On a factory floor in China, auditors and factories can input data wirelessly. On the other side of the planet, ICP members can log in and tweak standards on the fly, and do deep data analysis across the factories they are working with.

Today, the system tracks data on roughly 2,500 factories that employ some one million workers. Most are based in China, home to a vast majority of the world’s toymakers. Just 1,600 factories are currently certified as meeting ICP’s criteria. New factories join each year, but year to year about 13 per cent lose their approved status.

The most frequent causes for such a loss? A lack of transparency about whether workers are paid correctly or companies are demanding too many hours of work, says Ewert. Picking up such malpractice early can nip bigger problems in the bud, lowering the risk to corporate reputation.

“Companies don’t want to be named and shamed,” says David Metcalfe, CEO of Verdantix, an independent analyst firm focused on energy, environment and sustainability issues.

Over time, Metcalfe adds, the best employee health and safety plans can evolve to do more than protect workers. They can also proactively improve supply chain operations by identifying potential trouble spots, focusing corrective responses and avoiding the cost and hassle of switching factories following a crisis.

ICP, for example, goes beyond simply tracking auditors’ reports. It reaches out to workers directly. Factories are required to post a hotline to which workers can anonymously phone in problems. The organization receives up to 350 such calls per month. When the software detects a spike in calls from a given factory, ICTI CARE can increase its training efforts with both staff and management, before a crisis breaks.

And if early action doesn’t work, the threat of being de-certified is a potent motivator, says Ewert. After all, it’s not a single buyer pulling out, but the entire ICP network. Ewert is confident the transparency will continue to grow as technology advances.

“Workers can call us today,” he says. “In time, they’ll be able to send pictures of dangerous conditions too,” as smart phones emerge as another tool to help the industry identify and repair risks before they become tragedies.

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