Paint is Not Transparent

Uncovering the Coating Industry's ESG Potential
Paint is Not Transparent
Publ. date 22 mei 2019
Coating companies seem to underleverage their ESG performance in comparison to their peers from the chemical sector. And with more than a quarter of assets under management across the globe now invested according to ESG principles, listed companies within both sectors are well advised to increase their sustainability performance. What lessons can be learned from comparing to similar but also different sectors in different ESG Benchmarks?

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A high-level sector analysis on ESG Essentials

While results from the growing number of ESG ratings and rankings can form a rich source of feedback, their different scopes and approaches make it difficult for companies to interpret their results in a meaningful way. To get the most out of the hard reporting work, a holistic analysis of multiple ESG ratings can give meaningful insights that uncover blind spots from rating-level limitations or biases. Such a holistic analysis of the different ESG benchmarks or streamlining is recommendable to further enhance the ESG performance, monitor progress, and guide decision making for further improvement of the company’s sustainability program.

As a case in point, a mini-sector analysis on high-level ESG Essentials was conducted. As a starting point, five of the world’s largest stock-listed coating companies were selected based on revenue and their publicly available ranking in the RobecoSAM Sustainability Yearbook 2019, their Sustainalytics ESG scores as well as their CDP Climate Change scores were analyzed:

The first thing that draws attention is that only one out of the five coating companies is visible in the RobecoSAM Yearbook. This company is AkzoNobel, which at the time of the assessment was still including its specialty chemicals branch that in October 2018 was introduced as a separate company called Nouryon.

The scoring of the other members of the selected set of coating companies indicates that AkzoNobel/Nouryon is an exception. The coating companies score on an average Sustainalytics total ESG score of 60 points. All five companies are also rated in the CDP Climate Change program, where even sustainability champion AkzoNobel does not top the C-level. Sherwin-Williams and PPG only achieve the D-status and Nippon Paint and RPM receive an F-score for not responding.

ESG Essentials in chemicals: outperforming coating peers

To put the results from the coatings top 5 in perspective, they were compared to the wider chemical industry. Again, five of the world’s largest stock-listed (specialty) chemicals companies were selected based on revenue.

A few things stand out looking at this selection. Four out of the five are included in the RobecoSAM Yearbook, while the average Sustainalytics total ESG score stands at 67 points. Remarkably, the chemicals top 5’s average scores on the different dimensions of the Sustainalytics assessment do not show much variation. All five chemicals companies respond in the CDP Climate Change program, where BASF has made into the Climate A list and DuPont (which here was still reported separately from Dow) lags behind with the only C score in this selection.

Overall, it appears that a more mature level of sustainability performance can be observed when comparing the chemicals companies against the coating companies across these three ratings. However, in some areas, the differences between the two are bigger than others: chemicals companies are much better represented in the RobecoSAM yearbook and in CDP, while the average total ESG score by Sustainalytics only shows a 12% variance between the two sectors. Perhaps the coatings industry is just not as effective in disclosing its sustainability performance.

Turning sector ESG analysis into concrete actions for improvement

This is a first flavor of the differences that emerge across the different ratings in different sectors. Comparing the outcomes of multiple assessments against each other can help to create a more complete picture of the company’s sustainability performance and overcome potential biases from specific rating methodologies.

By studying the individual feedback that companies receive from the different ratings, sustainability executives can translate it into a functional action plan. This way, the company can address gaps that were identified across the different ratings, and help to determine which follow-up actions will deliver the most bang for the buck.

Are you looking to increase the impact of your ESG Benchmarking efforts and are you running out of resources? Order your ESG Essentials today and receive your analysis in time for reallocation of your 2020 budget. It helps to get more insights in the gaps of your sustainability approach, with concrete recommendations for improvement and a better leverage of your efforts. Please contact Josée van der Hoek, Director, at josee@finchandbeak.com or +34 6 82 04 83 01 to get more information or a custom quote on the ESG Essentials service.

About Nikkie Vinke

Multidisciplinary advisor in ESG benchmarking, sustainability strategy development and execution. | nikkie@finchandbeak.com