This digital poster looks a lot like Interbrand’s annual list of the Top 100 Global Brands, but this version includes the environmental, social and governance (ESG) disclosure score for the company behind each brand.  Cornerstone Capital thought its readers would value an ESG analysis of the top global brands in sports, media and entertainment, which include Sony, Disney, Microsoft, Nike, Adidas, Nintendo and MTV (owned by Viacom).

Our primary source for this ESG analysis is Bloomberg’s Professional Finance and ESG database. Since 2009, Bloomberg has been uploading key corporate ESG metrics to its database from companies’ own financial and sustainability reports.  If a company sees an error in the data, a corporate representative can contact Bloomberg to make a correction, as it would with financial metrics.

For readers not familiar with the Bloomberg ESG platform, it has nearly 800 defined ESG data points.  Of these 800 data points, 10 to 12 are considered key ESG metrics for all companies to disclose to the capital markets.  Here are 10 key ESG performance categories which are automatically generated in a typical Bloomberg report that compares the relative ESG value of one company to another:

  • Total Carbon Dioxide Emissions
  • Total Greenhouse Gas Emissions
  • Total Water Usage
  • Total Waste
  • Energy Consumed
  • Fuel Used
  • % Women Employed
  • Community Spend in $s
  • % Independent Directors
  • Investment in Operational Sustainability in $s

Sustainability Partners Inc. (SPI) thinks the Bloomberg platform points to where the market will lead corporate behavior and ESG reporting.  The database also provides public companies with a central depository for corporate ESG metrics disclosed through annual sustainability reports (including those prepared according to Global Reporting Initiative (GRI) framework), the Carbon Disclosure Project (CDP), and several other reporting practices and programs.

Prior to Bloomberg, there was no centralized database for a company to log key environmental metrics.  Now, while the collection of high quality comparable data is still in its early stages, such comparisons become instantly possible. Analysts and decision makers have a provocative platform to raise new and important questions about the investment risks and opportunities of publicly traded companies –beyond the near-term financial perspective.  And the power of information that comes from Bloomberg’s ESG platform is only beginning to be recognized.

So here is a key point: the breadth and depth of Bloomberg’s ESG platform is making it increasingly possible to compare public companies on specific ESG performance metrics that serve as proxies for well-managed operations; employee, customer, and community relations; and, internal governance. At a minimum, Bloomberg’s ESG metrics provide portfolio and investment managers with credible data and an entry point for further intelligent inquiry.

As you’ll see from the seven brands benchmarked below, there is still an information gap between what public companies disclose about ESG performance and what is valuable to the capital markets. Our experience is that many companies (both CFOs and CSOs) still do not know that corporate ESG data gets uploaded to 400,000 Bloomberg data terminals around the world, and can be analyzed. Portfolio managers have a lot of influence when it comes to encouraging publicly traded companies to disclose key ESG metrics. For companies that are leading, however, sustainability strategies and ESG metrics go together hand-in-glove to show continuous improvement on those strategies, and demonstrating to stakeholders that the company is accountable and transparent when it comes to material risks and opportunities.

Analysis of Seven Brands

The ESG data in Tables 1 through 3 (beginning on the following page) reflects corporate performance during 2012, which the companies disclosed during 2013. Public companies will release 2013 ESG performance throughout 2014. In Column 2, we see the ESG Disclosure Score for each company, and these scores range between 0 (no disclosure) and 100 (full disclosure); N/A means the information is not available.  From an ESG disclosure perspective, Sony and Nike are tied in this benchmark based on ESG disclosure scores of 50.

Table 1: Environmental Performance

Table 1

Data Source: Bloomberg Professional Finance and ESG Platform, May 2014

In Columns 3 and 4, notice that all seven companies, except Viacom, have disclosed carbon emission to some extent. Four brands – Sony, Nike, Adidas, and Disney – have disclosed Total GHG emissions.  For a company to get credit for disclosing Total GHG emissions, it must account for at least 8o% of the company’s total direct (Scope 1, e.g. combustion on-site) and indirect (Scope 2, e.g. purchased electricity) GHG emissions.  Also notice that Microsoft, Nintendo and Viacom have yet to fully disclose their Total GHG emissions. Total GHG emissions are a key metric because it makes possible the calculation of a variety of GHG Intensity ratios, which can become very competitive between similar brands or products. With environmental intensity metrics, lower sores (less intense) are favored over higher scores.

For example, in Column 5, Sony’s GHG intensity expressed as a % of sales is impressively low compared to the other brands. However, Sony’s ratios are best be interpreted when compared with companies that have similar product mixes or services, and that does not include the other brands.  According to SPI’s recent Bloomberg ESG analysis of 10 top peers in the high tech sector – Intel, SAP, Samsung, Texas Instruments, Advanced Micro Devices, Sony, Cisco, IBM, Nokia, Microsoft and Oracle – Sony is a middle of the road ESG discloser.

A better comparison is Nike versus Adidas. Take a look at the difference between the two brands comparing GHG intensity (Column 5) and water usage (Column 8). Even though most of us might think the two companies have a similar product mix, in fact it seems that the two companies may be very different – at least based on these two environmental metrics. Perhaps Adidas’ reporting is not yet as robust as Nike’s. One thing we do know is that when one company’s GHG Intensity is nearly 8 times greater and water use 150 times greater than a near competitor, the situation is ripe for further inquiry. We suspect that data points to gaps in Adidas’ ESG disclosures.

Adidas’ ESG data gap is evident in Columns 6 and 7, where Adidas has not yet accounted for its Scope 3 emissions, which include a company’s supply chain and travel emissions. Nike, on the other hand, is developing this metric. Many companies have extensive supply chains that can account for a significant portion of a corporate environmental footprint.

Sony has also gone further than the other brands when it comes to measuring Scope 3 emissions.  Columns 7 and 8 show that Sony has verified 80% its GHG data from its supply chain for submission to the Carbon Disclosure Project (CDP). Microsoft is the only other brand to quantify Scope 3 emissions, but has only had 20% of its supply chain’s GHG emissions verified.

Disney has the most intense GHG Intensity per sales ratio of the seven brands. Good questions to raise with Disney include inquiry about its efforts to improve energy, operational and/or process efficiencies throughout the Disney enterprise. These efficiencies often reduce costs and improve profit margins, making them important low hanging fruit opportunities for many companies.

When it comes to water usage (Column 8), four of the seven brands have disclosed total water usage, which raises the question of why Disney, Microsoft and Viacom have not disclosed. Water usage, accessibility and efficiency is already a hot 21st century topic, and likely to remain so given the confluence of expert opinion that a global fight for access to water is underway, and although very much driven by regional circumstances, is already resulting in some global companies re-assessing the “true value” of water to operations.

Our last point about the environmental metrics is that only Sony disclosed the ESG metric, “Investment in Operational Sustainability.” This metric provides evidence of a company’s actual investment in areas such as safety, energy and/ or process improvements that help implement sustainability goals. By not providing this metric, the other brands (perhaps unintentionally) risk conveying a lack of financial commitment to continual improvement in sustainable operations.

Further to our analysis, Table 2 focuses on key ESG metrics for the social performance of the seven brands during 2013.

Table 2: Social Performance

Table 2

Data Source: Bloomberg Professional Finance and ESG Platform, May 2014

While Sony’s performance in key environmental metrics is robust, Nike’s performance in key social metrics is impressive.  Nike – along with Adidas, and Disney – disclose ESG metrics that show parity in their workforce when it comes to total men versus women employed.  Nike, along with Disney, is also near parity when it comes to the percentage of women in management. Only Disney, however, is close to reaching parity with 40% of its board directors being women.

Nike, Disney, and Microsoft disclose key metrics about the percentage of minorities in their workforce. Only Disney discloses the percentage of its management that is a minority. At this time, Bloomberg does not have an ESG data point for % Minorities on the Board. Good follow-up questions for these brands would be to learn more about the effectiveness of any internal leadership training programs for women and minorities.

Table 3 focuses on key ESG metrics related to corporate governance for the seven brands during 2013.

Table 3: Governance

Table 3

Data Source: Bloomberg Professional Finance and ESG Platform, May 2014

When it comes to community engagement, four of the seven brands disclose their financial investment in local communities.  Microsoft’s community investment is almost three times that of the next nearest brand. That discrepancy raises a question about what expenditures Microsoft reports and allocates in its community-spending budget. Microsoft’s most recent sustainability report states that $112M of the $907M in community spending are cash donations, and the remaining $795M is the in-kind value of software donations to various youth education and non-profit organizations around the world.

Although Microsoft’s community spending budget seems generous, from SPI’s perspective, Microsoft’s low ESG disclosure score of 36 and the continuing disclosure gaps for key metrics suggest that Microsoft has not yet fully embedded sustainability as a strategy into its enterprise.  Two key issues for portfolio managers and investors to consider when they see disproportionate community spending dollars are: (1) whether community spending priorities align and drive the company’s sustainability priorities; and (2) is corporate governance sufficiently independent to insure that community spending dollars are not being allocated primarily for pet projects or marketing campaigns.

Lastly, Adidas has a 100% independent board, which we rarely see. Disney has a 90% independent board. The remaining five brands fall well below 90% independence.  In the case of Nintendo, not a single board director is independent. Could Nintendo’s lack of board independence have something to do with their reluctance to disclose social metrics when it comes to employing women and minorities?

The ESG Data Raises Questions for Investors

We hope this article helps portfolio managers gain confidence and new insights on the growing value of corporate ESG data to evaluate non-financial risks and opportunities facing companies in the areas of the environmental, social issues and internal governance. We hope the financial community uses its influence when it comes to encouraging publicly traded companies to disclose key ESG metrics. In our experience, many sustainability executives cannot get the budgets they need to conduct ESG measurement. That is why it is so important for CFOs and professionals to hear from the professional investors that key ESG metrics are valued and desired by the capital markets.

Expect More in ESG Disclosures

Investors should expect further development of ESG disclosures because the Sustainability Accounting Standards Board (SASB) is working on industry-by-industry ESG accounting standards to guide corporate ESG disclosures in filings to the Securities and Exchange Commission (SEC).  SASB has already issued industry-specific guidelines for the healthcare, finance, and technology and communication sectors.  According to SASB, Sony and Disney are included in the Services sector, and Sony, along with Microsoft, also competes in the High Tech and Communication sector.  Nike, Adidas, Disney, Viacom, and Nintendo compete in the Consumables sector, for which standards will be developed during 2014-2015.

As SASB develops and finalizes sector guidelines, the ESG metrics will likely improve and deepen for each industry in time. For now, best practice includes public companies disclosing key ESG performance metrics that help the capital markets make broad and important insights and inquiries about individual companies and industry sectors.   

Kate Schrank is the Founder & CEO of Sustainability Partners Inc. (SPI) and a former corporate environmental attorney.