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From the file

Responsibility100 |

Talk v walk

Talk v walk

Do the FTSE 100’s promises on sustainability stack up?

You can talk the talk. But can you walk the walk? Whether it’s a promise to ditch plastic, switch to renewable energy or get more women into boardrooms, Britain’s biggest businesses excel in the former category.

Why this story?

It is easy to make promises. It is hard work to keep them. So said Boris Johnson, then Mayor of London, in 2012. The phrase could equally apply to British corporate giants and specifically to their pledges to improve sustainability.

On Monday Tortoise Intelligence published its Responsibility100 Index in an attempt to rank good corporate behaviour and hold businesses to account.

Today we examine the difference between what FTSE 100 members promise on sustainability and what they deliver. The results are only in Beta and will be refined before the Index’s official launch in January.

But already they throw up uncomfortable examples. A bank announcing a gender equal recruitment strategy yet hiring only a few female directors. A mining company fined over health and safety. And a supermarket that made more pledges than its competitor but in practice performed more badly. Alexi Mostrous, editor

But what about action? Are FTSE 100 companies following through on their commitments to sustainability? Are they actually walking the walk?

These were some of the key questions asked by Tortoise when compiling its Responsibility100 Index, the most extensive attempt yet to rank the corporate giants on their social and green credentials, as defined by the UN’s Sustainable Development Goals (SDGs). The goals were introduced in 2015 “to achieve a better future for all” by 2030.

The Index, which was launched on Monday, is currently in Beta mode with the official release in January. Unilever, the consumer goods giant, came top, while a host of gambling, energy and software companies were at the bottom of the list. A full list is available here.

But the headline ranking tells us little about the gap between corporate words and actions. Today, Tortoise Intelligence releases a new analysis measuring how far the FTSE 100 members follow through on pledges to run businesses responsibly and include commitments to environmental protection and gender equality.

It is an exercise that many would find controversial.

Is it fair, for example, to penalise a company that vocally declares its commitment to sustainable development over one that says little, even when both do the same?

Can we criticise a mining company that might find it difficult to implement sustainability pledges on emissions in the same way as a food and drinks company that might find implementing change easier?

Answers to these questions are not obvious. Over the next three months we will be refining our methodology having taken soundings from experts, companies and our members themselves.

But to ignore the gap between promises and action altogether is to fail to hold companies to account and open the door to potential abuse.

“Greenwashing is rampant,” Hans Hoogervorst, chairman of the International Accounting Standards Board, said in April, referring to the companies which make themselves appear more environmentally friendly than they actually are. “We should not expect sustainability reporting to be very effective in inducing companies to prioritise planet over profit.”

How this works

We ran a keyword analysis of more than 10 million words produced by FTSE 100 companies in their annual reports, missions statements and press releases since 2016.

The analysis picked up keywords relevant to the UN’s SDG goals, collating pledges to improve gender equality, climate change or workplace conditions.

To this we added external data on the number of campaign groups joined by corporates which were relevant to sustainability, such as the UN Global Compact or the New Plastic Economy, an initiative set up to reduce plastic consumption by the Ellen MacArthur Foundation.

We then compared that dataset against one recording the FTSE 100 companies’ actual record on issues such as emissions reduction, gender pay gap and charitable donations.

Using a methodology explained more fully in the box on the right, we ranked Britain’s biggest companies from 1-100 in three categories: by how many promises they made to improve sustainability (the “talk”); by the actual action they took in these areas (the “walk”), and finally by the gap between the two previous categories.

Rio Tinto, the global mining group had the highest gap between its talk and walk in our Index. The group talks regularly about sustainability and was one of the first companies to sign up for the UN Global Compact in 2000. However, our data shows they have been fined 21 times by the Mines Safety and Health administration, the most workplace fines of any company in our data (albeit for relatively minor sums). They were also fined £27.4 million by the UK Financial Conduct Authority.

The company has also failed to report its water use to the CDP, a non-profit which runs a disclosure system for 6,000 member companies which share their environmental data. Rio Tinto has a big carbon footprint as a result of its inherent activities – a factor which dragged down the “walk” element of most big mining companies. Rio Tinto did not respond to a request for comment.

Royal Dutch Shell, the energy giant, was the second worst company measured in terms of the difference between its talk and walk.

In its annual reports, Shell mentions the SDGs to a greater extent than most of the FTSE 100. But it is also the biggest emitter on the FTSE 100, having produced 71 million tonnes of CO2e from its operations in 2018. Shell also received the highest number of fines in our data: 115 penalties since 2016. The company declined to comment for this story but said it would engage with Tortoise about methodology in advance of the Index’s January launch.

Despite announcing a 50/50 gender recruitment target at the end of 2015 for senior executives in its UK banking division, HSBC has appointed 23 male directors and 5 female directors across its UK holding company and two UK banking subsidiaries, Companies House records show.

HSBC’s gender pay gap also regressed by 0.4% year on year, according to the bank’s gender pay gap report released in June. HSBC said that the 50/50 target applied to its UK bank only and that its holdings board was 35.7% female.

Tesco beats its arch rival Sainsbury’s in the battle for the most ethical supermarket – but only when measured on promises, rather than on  action.

Tesco uses 20% more buzzwords such as “renewable” and “poverty” in its annual reports than Sainsbury’s, says it is working towards all 17 of the UN’s sustainability goals, and is a member of UN Global Compact, an organisation that encourages businesses to adopt sustainable policies.

But, in our final rankings we found that it was Sainsbury’s who came out on top. Not only does it have a smaller gender pay gap than Tesco (3.8% vs 8.9%), Sainsbury’s gap improved between 2017 and 2018, while Tesco worsened. Sainsbury’s emitted a third of what Tesco did in 2018 and had cut carbon emissions by 24% as opposed to 16%.

Sainsbury’s score was boosted further this June when it announced it would remove plastic bags from the fruits and vegetables sections.

Sainsbury’s also has not paid a single fine to authorities since 2016, whereas Tesco has paid £149 million in penalties including £129 million from a deferred prosecution agreement reached in 2017 over false accounting practices. Tesco did not respond to a request for comment.

Television company ITV, London Stock Exchange and JD Sports are the most humble companies in our Index, performing well across all our indicators but saying little about their good work.

Mark Malloch Brown, former head of the United Nations Development Programme and Chair of the Business and Sustainable Development Commission praised the purpose of the Responsibility100 Index, calling it “a truly important step to create a transparent accountability framework open to management, shareholders and other stakeholders alike.”

There are still many questions to answer as we move towards 2020. We hope to communicate with all 100 FTSE companies in time for the Index’s official launch in January.

The ranking cannot be lightly dismissed. Collectively the FTSE 100 were fined £20 billion between 2016 and 2019; pay a corporate penalty for wrongdoing every four days; reduced CO2 emissions by only 2.2% between 2017 and 2018; are on track to pay women equally only by 2075, and only 35% are accredited with the Living Wage Foundation, which requires companies pay staff an hourly rate of £9 across the UK or £10.55 in London.

Catherine Howarth, chief executive of the non-profit Share Action, said: “Getting at the unvarnished truth behind companies’ statements on sustainability is badly needed. It’s particularly valuable to prize open the gap between pledges and action.

“This new analysis should be of huge interest to professional investors but also to anyone with a pension fund investing in the FTSE 100 companies and will be absolutely critical going forward in holding companies to account.”

These figures will only improve if businesses are held accountable. We all need to up our game.

All photographs Getty Images

What next

We will be hostingThinkIns in October and November so our members can discuss the findings and we can generate new ideas to refine the Index.

We have given advance notice of the Index to all FTSE 100 companies. We will work to engage with all 100 by January. We have already consulted with the World Benchmarking Alliance, the UN Global Compact, the Good Country Index and others. In the coming months, we will seek further inputs from government departments and non-government organisations.

In January, we will formally launch the Index – and report quarterly throughout 2020 to monitor companies’ progress. Responsibility100’s Beta edition is only the start of the conversation.

Tortoise Intelligence

alexandra@tortoisemedia.com

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.