BlackRock announces full ESG compliance, FTSE 100 constituents still have work to do

This year, London-listed firm will be forced to comply with tightened regulations on ESG, but a report found some of the FTSE 100 constituents are far from sustainable or transparent

BlackRock - BlackRock announces full ESG compliance, FTSE 100 constituents still have work to do
BlackRock's Manhattan office is on board with greener propositions

BlackRock Inc’s (NYSE:BLK) decision to screen its active investments against a series of sustainability measures may be seen as sop to campaigners.

Yet the move by the world’s largest asset manager is part of a broader movement – one that will see London-listed companies forced to comply with tightened regulations on environmental, social and governance issues (ESG).

READ: No one wants to be the bad guy: the path to ESG compliance

It’s been argued that benchmarking in this way brings with it expensive additional regulation.

But as Ashna Yarashi, portfolio manager at Royal Bank of Canada, pointed out: “Companies that actually focus on ESG factors tend to have much higher and more sustainable returns.”

Her research showed ESG allows firms to position themselves to deal with challenges, whether it is complying with workplace safety standards or emission caps.

In the eyes of an investor, there is long-term value in determining financial risks against external factors, she added.

Here in the UK, a firm called Tortoise Media helped compile a Responsibility Index assessing just how well the UK’s top 100 listed firms are meeting challenges such as climate change and diversity.

Based on the study, there is room for improvement.

Tortoise ranked the blue chips against the UN Sustainable Development Goals by consulting publicly available reports, but many players could not score high due to lack of data.

An example was Melrose Industries PLC (LON:MRO), third to last because it missed key information on employee diversity, training and wellbeing.

On the opposite end, Unilever PLC (LON:ULVR) came first thanks to gender balance in senior positions, its recycling effort and posting the lowest levels of energy consumption per employee.

The people

The fashion industry scored a mixed performance.

Burberry Group PLC (LON:BRBY) performed well in the climate category as it is mostly powered by renewables, but showed 33% gender pay gap in bonuses.

Similarly, Next PLC (LON:NXT) was praised for its transparency and environmental performance but only had 32% of women in senior managerial positions.

Women are underrepresented, as they are 51% of the UK population, but only 33% of FTSE 100 boardrooms, 27% of its senior managers and 38% of the workforce.

READ: One less Dave and one less Willie: Departure of Tesco and IAG bosses raises issue of diversity at the top

The companies are at loss, as gender diverse firms tend to outperform their less diverse peers globally, according to Morgan Stanley.

Ethnic minorities performed slightly better, being 14% of the population and 10% of senior managers in the index for 15% of the total workforce.

The environment

The pollution issue was a big one, shining a dark light on many sectors.

Tesco PLC (LON:TSCO), Wm Morrison Supermarkets PLC (LON:MRW), J Sainsbury PLC (LON:SBRY) and Ocado Group PLC (LON:OCDO) ranked in the bottom half because in 2018 their combined food waste reached 96,624 tonnes.

Royal Dutch Shell PLC (LON:RDSB) and BP PLC (LON:BP), the biggest polluters in the index, were called out for “too modest” goals to improve their footprint.

“Shell… committed 10% of its research budget to renewable energy and around a quarter of development spending on low-carbon initiatives,” Russ Mould, investment director at AJ Bell, told Proactive

“Admittedly this means that 90% of research & development is still focused on non-renewables but it is certain that the firm will continue to look at areas such as carbon capture and storage and fuel efficiency.”

For a behemoth like Shell, the question is whether shareholders will remain faithful.

“Investors are actively reconsidering the thesis of Milton Friedman that the primary purpose of a company is to create profit and shareholder value and taking a broader view, with the views of stakeholders – employees and customers – becoming a far greater area of focus,” Mould concluded.

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