By Dieter Holger and Fabiana Negrin Ochoa
A decade ago, Crown Holdings Inc. thought it would be risky to
share data about its environmental footprint. Now the packaging
maker considers it a business imperative.
"There's always that hesitation to be transparent about all of
your information," says John Rost, vice president of sustainability
and regulatory affairs at the Yardley Pa.-based company. "As we've
seen the benefits of being transparent, we've really opened
up."
Crown traces its commitment to sustainability back more than 120
years, when founder William Painter invented the bottle cap to
extend the shelf life of beverages and reduce waste. But the first
sustainability report the company published, in 2011, didn't set
any numerical targets for things like reducing greenhouse-gas
emissions
Crown says it soon found that the food and beverage firms buying
its cans and containers wanted transparency on everything from
greenhouse-gas emissions to water use and recycling. As more
companies focus on sustainability, they expect their values to be
shared by their suppliers, Mr. Rost says.
In its 2019 sustainability report, Crown said it was on track to
match all of the electricity used in its U.S. and Canadian beverage
plants with wind power by this July. It has since had to adjust
that target due to Covid-19 but says it will switch on wind power
at the end of this month. Crown also said it has met its goal of
cutting greenhouse-gas emissions from direct operations and energy
purchases associated with metal-packaging production by 10%
compared with 2015 levels.
Tip of the iceberg
The increased disclosure at Crown, the top U.S. company on the
environment in a new Wall Street Journal ranking of the world's
most sustainably managed firms, underscores how sustainability
reporting is capturing the corporate world. Not only are companies
facing demands from some investors for data on their environmental,
social, and governance (ESG) risks and practices, they are being
pressured by employees and consumers to focus on issues such as
climate change and diversity.
Last year, 90% of companies in the S&P 500 index published
sustainability reports, up from about 20% in 2011, according to
Governance & Accountability Institute, a New York-based
consulting firm.
As disclosure has improved, so has the value of corporate ESG
data, researchers say. Assets under management in funds world-wide
that weigh sustainability factors when making investment decisions
grew to $40.5 trillion this year from $22.9 trillion in 2016,
according to consulting firm Opimas. The firm says the market for
ESG data -- including financial indexes and analysis -- is expected
to approach $1 billion by 2021 from roughly $617 million last year,
with the biggest buyers of such data being money managers
developing investment products for clients.
For companies, creating a sustainability report doesn't come
cheap. A big company can expect to invest from $500,000 to $1
million to gather data and produce "a comprehensive report that
moves the needle with investors," says Hank Boerner, chairman of
Governance & Accountability Institute.
That's only the beginning. Companies also grapple with a tangled
web of data requests from investors, standards groups and
organizations that rate firms' ESG performance. There were more
than 600 such raters last year, according to SustainAbility, a
consulting firm.
"Today, having someone inside simply dedicate a few hours to
organizing sustainability disclosure isn't a winning strategy in
the intense competition for capital, marketplace and recognition of
leadership," Mr. Boerner says.
Even so, many companies are selective about the questions they
answer and the data they provide.
"We limit our time spent on requests" and respond based on the
credibility of the organization's methods, popularity among
investors and openness for feedback, among other things, says Huub
Savelkouls, sustainability chief at Philip Morris International
Inc.
To help investors and consumers sort out how companies are
performing on environmental and social issues, The Wall Street
Journal created a ranking of the world's most sustainably managed
companies. The Journal's ESG research analysts based the list on a
review of more than 5,500 publicly traded companies around the
world that meet specific disclosure standards. The ranking places a
numerical value of 0 to 100 on a company's overall performance
across 26 categories of sustainability, ranging from leadership and
governance to community engagement and environmental
disclosures.
Almost all ratings organizations review public information, and
some send surveys and questionnaires to companies to get additional
data. The Journal's ranking used publicly available data and an
analysis of media coverage by more than 8,800 sources available via
Factiva, a database information service owned by Wall Street
Journal publisher Dow Jones & Co., to create its scores.
Artificial-intelligence systems supporting the ranking were
co-developed with data-service, advisory and technology provider
Arabesque S-Ray, which also supplied the company data used for the
scores. To qualify for the list, companies need to have publicly
disclosed a minimum of 20 data inputs -- at least two per
financially material category -- since 2018.
Crown, as well as French miner Eramet SA, pharmaceutical giant
Johnson & Johnson and semiconductor firm Texas Instruments
Inc., were among the top 25% of companies in the WSJ ranking that
reported the most sustainability data.
Uneven results
The ESG ratings business is in its early days, and firms say
it's possible to get a good grade from one rater and a poor grade
from another.
That's partly because raters assign different weights to various
ESG metrics, say researchers at the Massachusetts Institute of
Technology and the University of Zurich who reviewed ratings across
924 companies.
In addition, large companies tend to have an advantage because
they can devote more resources to collecting and reporting ESG
data, some experts say.
"For a mid- to small-size company, it can be harder to be
transparent," says Christina Wong, principal consultant at
SustainAbility.
Adding to the complexity, ESG standards organizations have
multiplied in recent years, and each has a different framework
through which companies can format and report sustainability data.
Two of the most popular are the Global Reporting Initiative and the
Sustainability Accounting Standards Board, or SASB. CDP, formerly
the Climate Disclosure Project, and the Task Force on
Climate-Related Financial Disclosures focus on environmental
data.
Johnson & Johnson, No. 43 in the Journal research team's
overall ranking and in the top 10 for social-capital management,
says it reports via all four of these standards.
"J&J has increased its ESG reporting and disclosure over the
past decade to keep pace with the dramatic increase in stakeholder
interest and expectations," says Dirk Brinckman, vice president of
regulatory law, supply chain & procurement at the New
Brunswick, N.J.-based company.
J&J works through the year to prepare its ESG data for
auditors, Mr. Brinckman says, adding that data collection is
complicated by the fact that the multiple frameworks have different
metrics.
To cover the disclosure needs of stakeholders in its
pharmaceuticals, medical-devices and consumer-goods segments, the
company has a process to identify and give priority to the ESG
topics that matter most, he says. This lets it "meet the demands of
the multiple frameworks against which we report," he says.
SASB encourages companies to disclose data on what is most
important to their bottom lines and investors. The Journal's ESG
researchers use the SASB framework to ensure their scores are
focused on categories considered financially material to each
company.
Regulatory angle
Regulators, meanwhile, are starting to request sustainability
data from companies, too.
In 2020, there were more than 600 mandatory and voluntary
provisions across 84 countries requiring or encouraging disclosure
of sustainability metrics, according to a report by the Global
Reporting Initiative and the University of Stellenbosch Business
School in South Africa. That compares with 383 in 2016.
The European Union, which already requires large companies to
disclose information on how they manage social and environmental
challenges, is now readying the world's first-ever "green list" --
a classification system for sustainable economic activities. The
idea is to create a common language to help investors direct money
toward more-sustainable projects.
In the U.S., a Securities and Exchange Commission subcommittee
in May recommended that the agency start requiring companies to
report sustainability data, with the goal being to create uniform
disclosure standards. While the SEC appears far off from doing
that, in August it amended rules on nonfinancial disclosures to
require that companies "describe human-capital resources, including
any human-capital measures or objectives the company focuses on in
managing its business" to the extent they are material to its
business.
For now, however, most of the pressure to disclose comes from
investors.
Trillium Asset Management LLC, which manages some $3.2 billion
of sustainable investments, has waged several campaigns that
compelled companies to disclose more data on topics such as gender
and ethnic diversity and greenhouse-gas emissions.
Jonas Kron, chief advocacy officer at the Boston-based firm,
acknowledges that companies face a lot of demand for data, but he
has little sympathy.
"To use the old trope, what gets measured gets managed," he
says.
Mr. Holger is a Wall Street Journal reporter in Barcelona. Ms.
Negrin Ochoa is a Wall Street Journal reporter in Singapore. Email
them at dieter.holger@wsj.com and
fabiana.negrinochoa@dowjones.com
(END) Dow Jones Newswires
October 13, 2020 16:55 ET (20:55 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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