How Companies Manage ESG Issues

By Lisa Hayles, our London Correspondent

The financial sector is the worst performer in terms of managing environmental, social and governance (ESG) risks, and has shown the least improvement over the last three years, according to a study from Experts in Responsible Investment Solutions (EIRIS).

The UK-based research company examined how 2,200 companies in the FTSE All-World Index managed ESG risks, comparing the results with data from 2005.
The study looked at 4 broad issues to measure the management of ESG issues: board responsibility for ESG issues; risk management systems; identification of ESG risks; and discussion of potential liabilities and opportunities. It gave companies one of five grades – from ‘no evidence’ of ESG management to ‘advanced’.
It found that almost one quarter of financial institutions failed to disclose any evidence of ESG risk management – at least twice the level of any other sector. It also found that only one sixth could be categorised as ‘good’ or ‘advanced’.
Overall, the report found, companies have demonstrated a “small improvement” in ESG risk management, with the number of companies achieving an average overall score for their risk management systems increasing by 7.4% between 2005 and 2008.
Japanese companies were the best performers in 2008, and showed the biggest improvement, with 19% demonstrating an improvement in their risk management systems. In contrast, companies in Australia and New Zealand – the formerly best performing region – showed very little progress (only improving by 0.4%).

The report found significant regional variation with, for example, Canadian companies – of whom 32% were ranked ‘good’ or ‘advanced’ – outperformed their US peers, of whom 19% reach those ranks.

The resources sector was the best performer in both years, the report found, with 41.5% of companies scoring either ‘good’ or ‘advanced’ in 2008.
The financial sector also showed the smallest improvement between 2005 and 2008, with just a 4.2% increase in score. Technology was the worst performing sector in 2005 but improved more than any other sector (9.5%) by 2008. Click here to download a copy of the research or contact Lisa Hayles at lisa at eiris.org

Lisa Hayles works with investors in North America and the UK on behalf of EIRIS (Experts in Responsible Investment Solutions) www.eiris.org