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Monday 23 September 2019

tortoise intelligence

Introducing the Responsibility100 Index

Good companies need to be good citizens – we can all work together to make that happen

By Alexandra Mousavizadeh

“What keeps me up at night is how much they say but just how little they actually do,” the United Nations official laments over the phone. “No one’s holding them to account.”

The ‘they’ refers to big companies. In recent years, and especially since the financial crash, a broad consensus has arisen that capitalism has a responsibility to respect and enhance the rights of people and to ensure that the planet remains habitable.

Yet an accountability gap exists for Britain’s most powerful companies. Their annual reports declare a commitment to sustainability goals alongside profit – but rarely are these pledges followed up fully or, in some cases, at all.

Today, Tortoise launches our Responsibility100 Index – an ambitious project to create the first ranking of FTSE 100 companies measured by their commitment to key social, environmental and ethical objectives such as carbon reduction, gender equality and good business practices.

The FTSE 100 includes the largest companies incorporated in the United Kingdom. Together they employ four million people across a network of 20,000 subsidiaries which span every sector and operate in more than 100 countries.

Last year their total revenue was more than £1.7 trillion. In short, their behaviour affects millions of people in Britain and around the world.

Using over 5,000 data points from more than 200 publicly available sources, the Index ranks FTSE members against the United Nations’ 17 Sustainable Development Goals, which were introduced in 2015 with 169 targets “to achieve a better future for all” by 2030.

The result is a ranking of the FTSE 100 companies which is intended to inform people about corporate behaviour and inspire businesses to join a “race to the top”.

Today’s Index is released in Beta mode only. The official launch will be in January. In the three months until then, Tortoise is consulting with the companies, government departments, NGOs and our members to harvest the best possible data and refine our metrics. The information available today is patchy. Part of the reason for producing the Index is to highlight that problem and encourage companies to be more rigorous in measuring their social and environmental impact.

From January 2020, Tortoise will publish the Responsibility100 Index quarterly. We expect company rankings to change over time, and act as a means of measuring how businesses deliver on the SDGs.

Among the initial findings which can be released today are:

  • 61 of the FTSE 100 reported lower emissions last year than the year before while 39 recorded increases;
  • Only about one in 10 big multinationals undertook to buy all their power from renewable sources;
  • 1 in 10 of the FTSE 100’s subsidiaries was registered in a tax haven;
  • The FTSE 100 only reduced the gender pay gap by 0.3% between 2017 and 2018 – at this rate, it would take 53 years for them to equalise incomes;
  • As of today there are 687 male directors on the FTSE 100 boards compared to just 334 women.

Andrew Mitchell, the former international development secretary, said:  “At a time when the rules based system is under threat from narrow nationalism this approach is hugely helpful and potentially moves the dial on transparency to the advantage of us all. It promotes a race to the top.”

We have ranked individual companies according to their performance. The Index shows:

  • Unilever is the FTSE 100’s most responsible company. Despite being one of the biggest emitters and plastics producers on the Index, since 2016, it has cut manufacturing emissions by 18.8%. The company aims to make all of its packaging recyclable by 2025. On gender pay, the median wage of its female employees is 2.5% higher than its male employees;
  • Diageo, the drinks giant, is ranked number two. It retained its double A rating from the Carbon Disclosure Project (CDP). The company is committed to halving carbon emissions by 2020 from a 2007 baseline;
  • Sainsbury’s came top of the supermarkets. It has a rigorous approach to sustainability reporting, backed up by strong action on emissions, waste, and, since 2005, a 30 per cent reduction in water-use;
  • Aviva is the top insurer. It helped launch the World Benchmarking Alliance, an organisation set up to incentivise businesses to adopt a sustainable future;
  • Lloyds is the best performing bank having been awarded an “A” grade by the CDP charity for climate performance. It rated less impressively on other indicators such as gender equality, but not as badly as some other banks;
  • Burberry, despite being criticised for burning millions of pounds worth of unsold clothes last year to protect its brand, is our best overall performer in the climate category. In 2017-18, the fashion company obtained 48 per cent of its energy from renewable sources.

The bottom performer on the Index at its Beta launch is Aveva, an IT software company serving the power and marine industries. It was penalised in our rankings because it has made few public commitments to sustainable development, gives only a relatively small proportion of its revenue to charity, and is not a member of any organisation set up to bolster the UN’s sustainable development goals. The company did not respond to us last week.

Other companies in the bottom 10 include the investment services company Hargreaves Lansdown, Evraz, the steel and mining business, and the gambling company Flutter Entertainment – home of Paddy Power and Betfair.

In some cases, the Index penalises those corporates who have failed to commit to any sustainable development goal. In other cases, companies received low ratings if their “talk” was more impressive than their “walk”.

We sent the rankings, data and methodology to all FTSE 100 companies a week ago. In response, Alan Jope, CEO of Unilever, emailed to say:  “Great to see we’ve come top of the list – although we are under no illusions that there’s still plenty more to do across the SDGs.”

Measuring corporate impact is intrinsically difficult. The data is unevenly collected and inconsistently reported. Companies are inherently complex and vastly different entities. Some information is ambiguous; other impacts go unmeasured.

How, for instance, should we judge the significance of investment in research and development? Some companies itemise it; most don’t.

How best to include the role played by subsidiaries and how to account for their historic behaviour? How many less tangible contributions to global well-being are businesses making through – say – job security, adult learning opportunities and family support?

The field of human rights could scarcely be more important. Human rights violations largely go unreported by companies, but are listed by NGOs which may have their own agendas or penalise companies on flimsy grounds.

So when we say the Index is in Beta mode, we mean it. Tortoise itself was started in exactly this way before our formal launch in April: a work in progress that, by design, was open and responsive to the suggestions and observations of those outside the newsroom.

Nearly a third of FTSE 100 companies – 32 so far – have already responded to the Index rankings and methodology we sent them a week ago.   We aim to speak to all 100 companies by the time we unveil our formal findings in January, so that our data and the journalism it drives have been properly stress-tested.

We know that some of that engagement will be critical of the methodology. Others will identify data sources we should be using.  Over time, we expect the rankings will move. In the process, we will be open about the information and judgments that drive those changes.

For example, since sending the Beta Index findings to the FTSE 100 last week, we have made minor updates, fact-checked data that was challenged, changed one source on CEO remuneration and set a cut-off date for inclusion of fines.

“Progress towards the SDGs is very much at the heart of our Corporate Responsibility ethos so the Index seems a positive step in the right direction,” said a spokesperson for the information analytics company RELX. “It will encourage other companies to follow suit.”

– If you represent a FTSE 100 company and would like to talk to us about the Responsibility100 Index, please contact alexandra.mousavizadeh@tortoiseintelligence.com

Illustration by Julia Allum for Tortoise


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Tortoise Intelligence

Led by Alexandra Mousavizadeh, who has more than 20 years’ experience in ratings and indices, Tortoise Intelligence brings together data scientists, data journalists and researchers with wide experience in data analysis. Team Members: Alexandra Mousavizadeh, Director of Tortoise Intelligence; Alex Clark, data journalist; Andrew Haynes, data scientist; and Luke Gbedemah, researcher