Ethical Performance
inside intelligence for responsible business


Firms getting better at dealing with ESG risks

June 2009

Companies worldwide have improved their performance on environmental, social and governance (ESG) risk management over the past three years, according to new research.

A study of more than 2500 businesses by Ethical Investment Research Services (Eiris) has found that improvements in ESG risk management have increased the average score of companies by 7.4 per cent – with ten per cent fewer companies graded as showing little or no evidence of managing risk in this area.

In Europe, nearly 70 per cent of graded companies were given an ‘advanced’ or ‘good’ rating, compared with 55 per cent in 2005. In Japan the figure jumped from about 40 to 70 per cent.

However, there were also less encouraging results. The financial sector showed the poorest performance, having made little improvement during the past three years. Nearly a quarter of companies in the industry disclosed no evidence of ESG risk management – more than twice that of any other sector analysed. Regionally, Australia and New Zealand showed fewest signs of making progress.

The best-performing companies were likely to be in health or resources, and French companies were the best ESG risk managers.

Within the generally improved picture, there were mixed results. Companies performed well on risk identification, for instance, but less well on management, although there have been significant improvements in the latter since 2005. Nearly half of companies displayed no evidence of board responsibility for ESG management (see graph below).

Overall, only 4.5 per cent of companies achieved the highest ‘advanced’ grade, and the report emphasizes the need for continued improvement in all sectors.

It concludes: ‘The financial crisis is an opportune moment to refocus on how companies are managing ESG issues. This is not just an issue for financial institutions but for all companies and their shareholders.

‘Investors, both from the responsible investment and mainstream communities, are increasingly looking to companies to better integrate ESG issues into their business decisions and this trend is likely to continue.’

Another Eiris study has concluded that charitable trusts and foundations are ‘still lagging behind other asset owners when it comes to responsible investment’, leading to ‘significant conflicts between their mission and their investments’.

Ethical Investment Research Service | Global | Risk management

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