Global and Corporate Sustainability Indices: The Challenges and Benefits for Singapore

Kenneth Richards Musim Mas Professor of Sustainability NUS Business School, National University of Singapore School of Public and Environmental Affairs, Indiana University

Chartered Institute of Management Accountants and CGIO, NUS Business School Sustainability Breakfast Forum 15 November 2012

Top 25 from CGIO’s Governance and Transparency Index 2012

Sustainability Indices for Singapore– Definitional

Questions

• What is Sustainability?

What is Sustainability?

• "Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs." (Bruntland Commission 1983)

• “The need to ensure a better quality of life for all, now and into the future, in a just and equitable manner, whilst living within the limits of supporting ecosystems.” (Agyeman et al. 2003)

• “Sustainability implies the ability to sustain and maintain a process or object at a desirable level of utility…sustainability is nothing more than prudent resource utilization.”(Adedeji B. Badiru 2010)

• Sustainability is the set of conditions under which one generation will not be envied by subsequent generations. (Woodward 2012)

• “Sustainability is a process which tells of a development of all aspects of

human life affecting sustenance. It means resolving the conflict between the various competing goals, and involves the simultaneous pursuit of economic prosperity, environmental quality and social equity.” (Wikipedia)

Timeline of When Sustainability Issues Emerged

Sustainability Indices for Singapore – Definitional

Questions

• What is Sustainability? • What is an Index?

What is an Index?

A. An indicator, sign, or measure of something – e.g., exam results may serve as an index of the teacher's effectiveness

B. A figure in a system or scale representing the average value of specified prices, shares, or other items as compared with some reference figure – e.g., the hundred-shares index closed down 9.3

C. A derived number giving the magnitude of a composite property – e.g., the oral hygiene index was calculated as the sum of the debris and calculus indices

Sustainability Indices for Singapore – Definitional

Questions

• What is Sustainability? • What is an Index?

• What is Singapore?

What is Singapore?

A. A city-state in Asia

What is Singapore?

A. A city-state in Asia

B. An economic success story

What is Singapore?

A. A city-state in Asia

B. An economic success story

C. A corporation

What is Singapore?

A. A city-state in Asia

B. An economic success story

C. A corporation

D. A port with some buildings in the middle

What is Singapore?

A. A city-state in Asia

B. An economic success story

C. A corporation

D. A port with some buildings in the middle

E. The only shopping mall with a seat at the United Nations

What is Singapore?

A. A city-state in Asia

B. An economic success story

C. A corporation

D. A port with some buildings in the middle

E. The only shopping mall with a seat at the United Nations

F. All of the above

National Indices of Environmental Sustainability

World Wildlife Fund: Ecological Footprint

• The ecological footprint provides “comprehensive data on humanity’s demand on nature”

• Combines countries’ demands for crops, forests, grazing, fishing, buildings, and carbon emissions to estimate implicit demands on the Earth’s land

• Index in hectares per capita, low scores are better

Singapore land area: 0.013 hectares per capita Singapore footprint: 6.0 hectares per capita

National Indices of Environmental Sustainability

World Wildlife Fund: Ecological Footprint

• The ecological footprint provides “comprehensive data on humanity’s demand on nature”

• Combines countries’ demands for crops, forests, grazing, fishing, buildings, and carbon emissions to estimate implicit demands on the Earth’s land

• Index in hectares per capita, low scores are better

Yale: Environmental Performance Index

• Ranks countries on performance indicators tracked across policy categories that cover both environmental public health and ecosystem vitality

• Tracks 22 performance indicators in two broad categories - Environmental Health and Ecosystem Vitality

• EPI score from 0-100, high scores are better

2012 ENVIRONMENTAL PERFORMANCE INDEX 16

Figure 2.1. The Indicator Framework of the 2012 Environmental Performance Index. The percentages indicate the weightings used for aggregation (discussed in Section 2.4).

Yale: Environmental Performance Index

Yale: Environmental Performance Index

EPI R

ank

What is Corporate Sustainability?

• Business that contributes to an equitable and ecologically sustainable economy. Sustainable businesses offer products and services that fulfill society's needs while contributing to the well-being of the earth's inhabitants.

• Corporate sustainability means creating long-term value by adopting a business approach that is equally mindful of economic, social, and environmental implications. (Capar and Neville 2012)

• “The activities, demonstrating the inclusion of social and environmental aspects in the normal business operations of a company and in its interaction with its stakeholders.” (Cadelli and Parmigiani 2004)

• To be sustainable, a company must maintain on its balance sheet an

undiminished level of total net assets (natural plus manufactured), measured at their true social costs.

Source: van Marrewijk and Were 2003

The Internal Principles

35

RANK COMPANY COUNTRY INDUSTRY SECTOR INDUSTRY

RANK IMPACT MANAGEMENT DISCLOSURE GREEN SCORE

2011 GREEN SCORE

RANK CHANGE

1 Santander Brasil Brazil Financials 1 88.5 88.4 61.5 85.7 75.3 16

2 Wipro India Information Technology & Services 1 70.2 100 88.3 85.4 73.4 33

3 Bradesco Brazil Financials 2 87.9 75.9 99.9 83.7 82.2 1

4 IBM United States Information Technology & Services 2 78.9 87 82.9 82.9 82.5 -2

5 National Australia Bank Australia Financials 3 82 79.5 99.8 82.7 82.2 -2

6 BT Group United Kingdom Telecommunications 1 77.3 84.2 99.8 82.7 80.4 0

7 Munich Re Germany Financials 4 87.6 78.2 79 82.5 83.6 -6

8 SAP Germany Information Technology & Services 3 80.7 78.9 99.8 81.8 75.2 12

9 KPN Netherlands Telecommunications 2 76.1 81.3 98.3 80.6 72.9 27

10 Marks & Spencer Group United Kingdom Retailers 1 65.7 92 95.8 80.5 73.9 23

11 Tata Consultancy Services India

Information Technology & Services 4 74.9 81.8 98.9 80.4 79.1 -4

12 Generali Group Italy Financials 5 84.8 78.4 67.1 80.1 74.1 18

13 Bell Canada Enterprises Canada Telecommunications 3 74.3 83.2 91.5 80 76.5 -1

14 Nokia Finland Technology Equipment 1 68.3 88.2 95.2 79.9 75.1 7

15 Telefonica Spain Telecommunications 4 75.1 80 99.7 79.8 72.4 24

16 Santander Spain Financials 6 81.4 73.6 99.7 79.8 65.7 94

17 Fujitsu Japan Technology Equipment 2 68.6 88 91.9 79.7 76.1 -4

18 NKSJ Holdings Japan Financials 7 86.2 73.6 70.5 79 N/A N/A

19 Infosys India Information Technology & Services 5 64.6 88.5 99.9 78.9 77.3 -11

20 Telefonica Brasil Brazil Telecommunications 5 74.8 83.4 76.1 78.8 N/A N/A

21 RBS United Kingdom Financials 8 83.3 73.6 81.4 78.7 75.2 -2

22 Hewlett-Packard United States Technology Equipment 3 67.2 91.9 68.7 78.5 75.8 -7

23 Philips Netherlands Industrial Goods 1 60.7 92.2 91 77.9 77.2 -14

24 Commerzbank Germany Financials 9 73.3 78.9 91.5 77.6 N/A N/A

25 Telecom Italia Italy Telecommunications 6 74.3 75.9 98.4 77.4 74.9 -2

Newsweek’s 2012 Green Rankings of 500 Global Companies

Source: http://www.thedailybeast.com/newsweek/features/2012/newsweek-green-rankings.html

Three Examples of Corporate Sustainability Indices

• Dow Jones Sustainability Indices (DWSI) – in cooperation with SAM • FTSE4Good Index • MSCI ESG Indices

Basic Approach of All Corporate Sustainability Indices

Identify Universe of Corporations

Evaluate Sustainability Performance of Each Firm

Construct Sustainability Assessment Structure

Construct Sustainability Funds

Dimensions of Sustainability Assessment Frameworks

• Economic • Environmental • Social

• Environment • Social • Governance

• E- Environment • S- Community and

Society • S- Employees and

Supply Chain • S- Customers • G- Governance

and Ethics

What is the Underlying Basis for Weight Allocation?

The DJSI/SAM Indicators for Three Key Industries

Structure of the SAM Corporate Sustainability Assessment

How Objective is the Score?

The Supersector Leaders 2012

Supersector DJSI Supersector Leaders FTSE4Good Supersector Leaders

Automobiles & Parts Bayerische Motoren Werke AG (BMW) Peugeot

Banks Australia & New Zealand Banking Group Ltd UBS AG

Basic Resources UPM-Kymmene OYJ Norsh Hydro

Chemicals Akzo Nobel NV Royal DSM

Construction & Materials GS Engineering & Construction Corp Geberit

Financial Services Itausa - Investimentos Itau SA Nomura Holdings

Food & Baverage Unilever NV Diageo

Health Care Roche Holding AG GlaxoSmithKline

Industrial Goods and Services Siemens AG ABB

Insurance Swiss Re Aviva

Media Telenet Group Holding NV Vivendi

Oil & Gas Repsol SA Eni

Personal & Household Koninklijke Philips Electronics N.V. Koninklijke Philips Electronics N.V.

Real Estate GPT Group Commonwealth Property Office Fund

Retail Lotte Shopping Co. Ltd. Sainsbury

Technology Alcatel-Lucent SA Nokia

Telecommunications KT Corp. BT Group

Travel & Leisure Air France-KLM Tabcorp Holdings

Utilities Iberdrola SA National Grid

DJSI and FTSE4Go 2012 Supersector Leaders

Supersector leader in red is leader for both DJSI and FTSE4Good DJSI supersector leaders in green are in the top five of FTSE4Good

Conclusions Regarding Construction of a Sustainability Index

• Carefully define sustainability to guide index construction

• Choose dimensions for the index that reflect the users’ questions

• Select indicators that are good measures of each dimension

• Dig for data to estimate the indicators

• Assign weights that reflect the users’ balancing of values

• Document everything – strive for transparency

• Educate users

Conclusions Regarding Interpretation and Use of a Sustainability Index

• There is a tradeoff among simplicity, completeness and usefulness

• Indices that are similar on the surface can provide very different results

• The more dimensions in an index the more range for variation in results

• It is easy to misuse and abuse indices

• To interpret an index understand how it was constructed

• The real value of sustainability indices is in the discussions they start

Thank you!