Rethinking Value, Emerging Risks and Revealing ESG Leaders

Take-Aways from S&P Global’s Sustainability Yearbook 2021
Rethinking Value, Emerging Risks and Revealing ESG Leaders
Publ. date 9 feb 2021
Early February, the S&P Global Sustainability Yearbook 2021 was published - highlighting the sustainability leaders and key industry trends, which have emerged from the 2020 Corporate Sustainability Assessment (CSA). In addition, the Yearbook provides interesting reflections on the new challenges and trends brought about during the last year. This article gives a brief summary of the take-aways from the Yearbook, with a deeper view on rethinking value, and identifying and managing emerging risks.

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Highest participation rate in Corporate Sustainability Assessment 2020

The S&P Global Sustainability Yearbook is a worldwide reference published annually at the beginning of the new year, containing an overview of the results of the organization’s annual CSA of the previous calendar year and highlighting leading companies and key trends for each analyzed industry.

In 2020, there was again a record participation in the CSA, and a total of 7,032 were assessed across all 61 assessed industries - either based on their own input, or based on public information. As Douglas L. Peterson, President and CEO of S&P Global comments in the foreword: “This new level of disclosure is testimony to one of the silver linings of 2020. The convergence of the COVID-19 pandemic, increased consciousness of race, diversity and inclusion in our communities and the devastation created by extreme weather and climate change have cemented the theme of sustainability as the business community’s No. 1 priority.”

In addition, the S&P Global Sustainability Yearbook 2021 contains five insightful articles, covering among others valuation (in investment portfolios, corporate performance and national economies) and emerging risks, which are summarized below.

Rethinking the value of everything

In this article authored by Jacob Messina and Jan Anton van Zanten, respectively Senior Sustainable Investing Strategist and SDG strategist at Robeco, the shortcomings of our current metrics to capture a myriad of environmental and societal costs and benefits are presented. These caveats means that new policies will fall short of creating inclusive and sustainable societies coming out of the Covid-19 crisis.

While several models and frameworks to better quantify value on the society’s front have been developed, such as the Gross Environmental Damages (GED) measure, and Kate Raworth’s Doughnut, new policies and accounting standards are needed to reflect these principles in companies’ financial statements, and valuation approaches used by investors also need to change.

According to the authors, “many valuation models start with these incomplete or flawed inputs, then discount the future so highly that the net present value for a project is higher if you degrade a forest or allow farmland soil to erode instead of managing the assets to make sure they remain healthy forever.” This distortion means that from a long-term perspective, it makes more sense to invest in assets with a lower, but more sustainable, internal rate of return.

Therefore, creating better measurement systems that account for sustainable decisions is fundamental to developing a sustainable economy. The authors stress that an active collaboration and industry-wide standardization is needed in that regards. Finally, the authors suggest monetizing and valuing these impacts and externalities so that financial incentives align with sustainability principles in order to steer towards an economy that is sustainable and resilient, and one that creates well-being for people within our planetary boundaries.

Identification and management of new risks: Key gaps and recommendations

Related to the chapter Risk & Crisis Management in the CSA, S&P Global’s Isabelle Stauffer explains in this second Yearbook article that the current health crisis is placing companies in a position they have never experienced before and reinforces the need for effective risk management practices.

As revealed in the 2020 CSA, the identification of new and emerging external risks is still underdeveloped: while most companies report risks that they consider to be emerging, only 12% were able to present at least one emerging risk that fulfilled the CSA’s criteria. Conversely, there is a growing demand from investors to identify and report on such topics as part of a holistic risk management approach.

The article also touches upon the benefits having a strong risk culture, which is important to both identify emerging risks in a timely manner and enable companies to be better prepared for controversies.

The author concludes by writing that the current unprecedented crisis is setting very high expectations for companies and requires them to rethink their strategy, operations, and culture, with a particular focus on risk management practices. However, she remarks that the current crisis offers a unique opportunity to shape a better world by quoting the WEF’s COVID-19 Risks Outlook: “As economies restart, there is an opportunity to embed greater societal equality and sustainability into the recovery, accelerating rather than delaying progress towards the 2030 Sustainable Development Goals and unleashing a new era of prosperity.”

The three other articles in the S&P Global Sustainability Yearbook 2021 are on gender equality in the workplace, the energy transition and electrification of transport and, the challenges of packaging in the circular economy.

Eager to be in the Sustainability Yearbook 2022?

Eligible companies looking to be included or improve their position in the Yearbook next year (or the Dow Jones Sustainability Index, which is selected based on the same data) are advised to start preparing for the release of the new S&P Global Company Sustainability Assessment.

Accelerate your approach by joining our free ESG Acceleration Webinar on The Human Side of ESG, hosted in collaboration with S&P Global. Or, if you are looking for personal guidance in the assessment process, please contact Josée van der Hoek, Director and DJSI expert at josee@finchandbeak.com or call +34 6 82 04 83 01.

Photo by Loic Leray on Unsplash

About Agathe Letzelter

Young professional enthusiastic about helping businesses integrate and benefit from sustainability. | agathe@finchandbeak.com