- April 29, 2014
Executive Summary
KEY FINDINGS
Leadership and Responsibility Starts at the Top
The ultimate responsibility for a company’s direction, accountability and success comes from its board of directors and top-level executives—this is also where leadership for sustainability strategy and performance must originate.
Boards of directors are not taking enough responsibility for overseeing sustainability efforts.
Thirty-two percent (198) of the 613 companies’ boards of directors formally oversee sustainability performance— up from 28 percent in 2012.
Industry insight: The Utilities and Materials sectors, with their high exposure to environmental and social risks, and environmental, health and safety regulatory compliance obligations, continued to lead among their peers.
A growing number of companies are incorporating sustainability performance into executive compensation packages.
Twenty-four percent of companies (146) link executive compensation to sustainability performance—up from 15 percent in 2012. Yet only 3 percent (19 companies) link executive compensation to voluntary sustainability performance targets, such as greenhouse gas (GHG) emissions reductions.
Company leadership: At Alcoa, 20 percent of executive cash compensation is tied to safety, environmental stewardship (including GHG reductions and energy efficiency) and diversity goals.
Engagement with Stakeholders is Critical to Success
From investors to the companies’ employees, more corporations are seeing the value of formally engaging stakeholders around the world to maximize sustainability efforts and drive meaningful results. Leading companies are looking to gain recognition from investors for their sustainability actions, inspire their workforces by integrating sustainability into the company culture, and incorporate the insights of external stakeholders into decision making processes.
Companies are increasingly engaging investors on sustainability issues.
Fifty-two percent (319 companies) are engaging investors on sustainability issues, up from 40 percent in 2012. The three percent (20 companies) in Tier 1 are using multiple tactics to engage investors including the integration of sustainability information into mainstream investor communications, highlighting sustainability performance and innovations at annual meetings, and directly engaging with shareholders on sustainability topics.
Company leadership: PepsiCo actively engages with investors by presenting its sustainability strategy and goals during its annual shareholder meeting. The company also identifies and discloses climate change, water scarcity and public health issues as core sustainability challenges in its annual financial filings.
Stakeholders are not consistently involved in the sustainability planning process.
Only 36 percent of companies (219)—up from 29 percent in 2012—are disclosing information on how they formally engage stakeholders on sustainability issues. The seven percent (45 companies) in Tier 1 engage stakeholders in the materiality assessment process and disclose the insights gained from stakeholders.
Industry insight: The Food & Beverage sector demonstrates the strongest commitment to stakeholder engagement, with 46 percent of companies in the sector achieving Tier 1 or Tier 2 performance.
More companies are actively engaging employees on sustainability issues.
Forty percent (248 companies) have some programs in place to engage employees on sustainability issues— an increase from 30 percent in 2012. The six percent (37 companies) in Tier 1 go further by systematically embedding sustainability into company-wide employee engagement.
Company leadership: intel provides training to help employees consider sustainability in business decision making, and incentivizes its employees by linking compensation directly with sustainability performance targets.
Corporate Accountability Drives Social and Environmental Performance Improvements
Companies that perform well on governance, stakeholder engagement and disclosure, such as baxter, eMC and Starbucks, are also leaders in driving sustainable performance improvements. Tackling sustainability helps companies reduce costs in a carbon constrained world, modify business practices to require less water, and avoid conflicts in supply chains. Integrating sustainability into procurement and sourcing decisions is an effective tool for addressing these risks, and it is essential that companies engage their suppliers through dialogue, training, and capacity building. While 33 percent of companies (205) have established some form of program to engage suppliers on sustainability performance, just 14 percent have formal supply chain engagement programs in place and fall into Tiers 1 and 2.
While many companies are taking action to reduce GHG emissions, few have set time-bound targets.
More than two-thirds of the companies evaluated (438) are taking steps to reduce GHG emissions, but only 35 percent (212 companies) have established time-bound targets for such reductions. This is an increase from 32 percent in 2012. In terms of renewable energy, 37 percent of companies (224 companies) have implemented a program, compared to 35 percent in 2012. Yet only six percent have quantitative targets to increase renewable energy sourcing.
Industry insight: More than half of the companies falling into Tier 1 for this expectation are Technology companies, including hewlett Packard, which has not only set time bound targets for reducing GHG emissions and increasing renewable energy sourcing, but also sources more than 10 percent of its primary energy needs from renewable sources. Companies in the Oil & Gas and Energy Service sectors lag behind their peers. Only 13 percent of Oil & Gas companies (4 of the 30 companies) and just nine percent of Energy Service companies (2 of the 23 companies) have adopted formal, time-bound GHG emission reduction targets.
Companies are not doing enough to address water risks, especially in stressed regions.
Of the 103 water-intensive companies evaluated, 50 percent assess water-related business risks, a slight decline from the 55 percent in 2012. Only 26 percent (27 of 103 companies) are prioritizing efforts in water stressed regions.
Company leadership: Since 2004, The Coca-Cola Company has improved the efficiency of its water use by 20 percent. However, as water risks intensify globally and investor and stakeholder expectations continue to grow, Coca-Cola identified the need for a rigorous third-party evaluation of its water management approach. Throughout 2012 and 2013, the company used the Ceres Aqua Gauge™ tool to assess the strengths and weaknesses of its water stewardship strategy and to inform new targets and goals. The company is also sharing the Aqua Gauge tool with suppliers and customers to help these partners improve their own water management.
Additional innovation is needed to drive sustainable products and services.
Of the 419 companies evaluated for this expectation, 14 percent (57 companies) have formal programs to invest in and promote sustainability products and services, compared to 10 percent in 2012.
Company leadership: Nike integrates sustainable design across its product portfolio—including new product innovations such as the FlyKnit running shoe, which creates two-thirds less waste in production than its counterparts. Seeking to raise the industry bar, Nike created the MAKING app in 2013 allowing the data in its Materials Sustainability Index to be public. This lets designers from across the industry and beyond make more sustainable design decisions, and ultimately, lower-impact products.
More companies are setting clear sustainability standards for suppliers.
Fifty-eight percent (353 companies) have supplier codes of conduct that address human rights in supply chains, compared to 43 percent in 2012.
Company leadership: Ford Motor Company has established requirements for first tier suppliers. These requirements drive Ford’s environmental and social expectations down its supply chain. Ford gathers information on supplier climate risks and GHG emissions and works with suppliers to establish GHG emissions reduction and energy efficiency targets.
Industry Insight: To better understand how companies are addressing specific environmental and social challenges in their supply chain, Gaining Ground features two in-depth case studies examining the critical issues of forced labor and sustainable agriculture. While our analysis shows that companies and investors are increasingly aware of these challenges, many are just starting to get informed about how to address them. Read more about our findings and recommendations in the full report.
