By Patturaja Murugaboopathy and Simon Jessop
LONDON (Reuters) – U.S. companies’ sustainability ratings rose in 2020, based on data from Refinitiv, as investors put more pressure on corporate boards to improve their environmental, social and governance (ESG) credentials and as authorities propose tougher disclosure rules.
Investors are demanding more information from companies on everything from carbon emissions to boardroom diversity amid a growing belief that companies which perform well on ESG issues will have a stronger performance financially over time.
To help rank companies’ efforts, a number of data providers, including Refinitiv, assess corporate disclosures and other data sources. Investors can use them as a starting point for their own analysis before deciding whether to invest.
Latest rankings from Refinitiv based on company annual reports for 2020, shows the average ESG score of 137 U.S. companies, with a market cap of at least $5 billion, is 44.2, compared with 42.8 in 2019.
The Refinitiv score ranges from 0 to 100, with a higher score indicating a stronger performance both on ESG-related disclosures and an absence of events that Refinitiv assesses as being negative for the company concerned.
(GRAPHIC: US ESG scores – https://fingfx.thomsonreuters.com/gfx/mkt/azgvoxlgypd/US%20ESG%20scores.png)
Fionna Ross, senior ESG analyst at Aberdeen Standard Investments, said: “Since the beginning of this year alone, we have been contacted by several U.S.-based companies asking for our input as they navigate through publishing their first sustainability reports.”
Pressure on companies to disclose more information relating to sustainability is increasing.
International accounting body the IFRS Foundation, for example, is planning to set out plans for rules to govern company disclosures of risks from climate change. Regulators and policymakers in the United States and Europe are looking to overhaul local disclosure rules.
The Refinitiv data showed consumer discretionary, industrials and technology companies in the United States had the highest ESG scores last year while those in the mining sector lagged.
(GRAPHIC: U.S. sector scores – https://fingfx.thomsonreuters.com/gfx/mkt/xlbpgeyaxpq/US%20sector%20scores.png)
(GRAPHIC: U.S. companies seeing big jump in their ESG scores in 2020 – https://fingfx.thomsonreuters.com/gfx/mkt/qzjvqzmrqpx/Big%20jump%20in%20ESG%20scores.png)
(GRAPHIC: Top ESG scores in U.S. – https://fingfx.thomsonreuters.com/gfx/mkt/bdwpkbywovm/U.S.top%20ESG%20score.png)
U.S. companies’ average score lagged their European peers, whose average was 58 at the end of last year, based on Refinitiv data.
“Europe was the pioneer on ESG, so you have more established reporting and adherence to ESG principles,” said Brendan Erne, director of portfolio management at Personal Capital. “With demand growing so fast, U.S. companies will eventually have no choice but to better disclose and manage ESG issues if they want to compete for the same pool of capital.”
“And I think even more companies will jump on the bandwagon when they realise they can actually improve financial results through better management of ESG issues,” he said.
The U.S. Securities and Exchange Commission in March said it would seek input on what companies might report on climate factors in a sign of the growing importance of these issues for investors.
(GRAPHIC: U.S. companies seeing declines in ESG scores in 2020 – https://fingfx.thomsonreuters.com/gfx/mkt/yxmvjdyaovr/Big%20decline%20in%20ESG%20scores.png)
Refinitiv/S-Network’s U.S. Large Cap ESG index has risen 12.3% so far this year, marginally outperforming the S&P 500 index’s gain of 11.3%.
(Reporting By Patturaja Murugaboopathy. Editing by Jane Merriman)
