As Carbon Clear launches its sixth report on the sustainability reporting performance of the FTSE 100, its CEO Mark Chadwick discusses the four key traits that the top performing businesses share.
For the third year in a row BT Group ranks first place. Marks and Spencer Group (M&S) scored a very close second, missing the top spot by one percentage point. Both of these companies have paved the way in climate change best practice with holistic and extensive approaches to their sustainability strategies.
Ranking third was Unilever, due to their innovative approach to managing sustainability performance and engagement.
For the past six years, we at Carbon Clear have carried out research into how well FTSE 100 companies report on their sustainability performance. Using publicly available information, we score the 100 largest listed companies in the UK against a set of criteria that examines reporting performance, engagement with stakeholders, carbon reductions, overall strategy and innovation in wider sustainability management.
We aim to recognise and highlight those businesses that are taking real action towards meeting ambitious sustainability plans and environmental targets. This is critical when we consider the significant risks climate change poses to businesses, communities and financial systems across the world. Companies that already report on how they are managing their impacts and assess the risks of climate change are helping future proof their business operations for a low carbon and resource constrained future.
As we release the findings from our latest report, what we have found are that the top performers all share four key traits, or business behaviours.
Engaging with supply chain to reduce indirect emissions
Indirect emissions from a company’s upstream and downstream supply chains – also called Scope 3 emissions - often make up the largest source of emissions, and can sometimes comprise almost all of a business’s carbon footprint.
66 of the FTSE 100 are reporting on these emissions, with over 70% of these going beyond reporting just on business travel. Encouragingly, 80 companies are also engaging with their supply chain on sustainability issues. While the transition from reporting to actually reducing these emissions is often challenging, leading companies are successfully engaging with their supply chain to reduce emissions, and are seeing benefits for the businesses within the supply chain as well as themselves.
One example is Kingfisher, in fifth place in the 2016 rankings. The company raised the bar on delivering results through supply chain engagement, by setting a new target during 2015 of working with its top 40 suppliers to put in place waste, carbon and water reduction plans to manage the impacts of their footprints. Now 24 of their suppliers participate in WWF’s Low Carbon Manufacturing Programme (LCMP) in China, collectively avoiding over 13,813 tonnes of carbon, an estimated 11.3% reduction in carbon emissions compared with business as usual.
Setting ambitious, science based targets
Companies have begun to set themselves more ambitious targets, which align with climate science and the global aim to keep warming below 2°C. Last year BT Group became the first FTSE 100 company to commit to a science based target (SBT). This year, five more companies* set SBTs, with a further six committing to set them in the next two years. SBTs are inherently ambitious, and as such tend to drive innovation with changes made in energy use and other efficiencies throughout the value chain driving economic as well as environmental benefits.
BT, who ranked first in the report this year, pioneered the approach among FTSE 100 companies; its science based approach to target setting helps them determine the level of greenhouse gas emission reduction necessary within the business’s scope to combat climate change. They have successfully met their SBT ahead of the 2020 goal, achieving an 81% reduction in net emissions compared to their 1996/97 baseline.
Integrating climate change risk analysis into core business strategy
Within the FTSE 100, awareness of climate change as a risk to business as well as an environmental issue is becoming more widespread. Since last year there has been an 11% rise in the number of companies assessing the risks that climate change pose to their business.
This has translated into 58 companies now actively adapting their business strategy in order to address these potential issues, including 11 of the top twenty ranking companies. Interestingly, a number of fossil fuel intensive industries also scored highly on reporting their approach to climate change risk management, perhaps reflecting demand from investors to see oil and gas companies assessing the sustainability of their business model in a world that is increasingly becoming lower carbon.
M&S stood out for their approach to climate change risk, stating that climate risk issues can’t be considered in isolation and so integrating them into existing corporate risk management processes. The principal risks and uncertainties are then included in the M&S Annual Report, giving full transparency. The company is also carrying out work to assess some of the different ways to translate social and environmental impacts into financial values, making these activities part of the long-term sustainability of the business.
As resource scarcity and reliability of energy access become more pressing issues, there is more need for innovative and holistic approaches to sustainability. The businesses who are leading the way are innovating across areas such as natural capital accounting, the circular economy, management of water use and co-innovation with suppliers.
Unilever, ranked third, scored 100% for innovation; they have developed policies around sustainable agriculture, sustainable palm oil, biodiversity in the supply chain and a sustainable sourcing programme for raw materials. They are committed to sourcing 100% of agricultural raw materials sustainably by 2020, achieving 60% in 2015. They also nurture open relationships with suppliers to encourage co-innovation. Their research and development teams work with suppliers on new technologies and innovations with the primary focus being that projects will make a difference to managing and reducing resource use rather than pure profit generation.
These four traits are key for any business, regardless of size, that wants to implement a robust sustainability strategy. The benefits of doing this extend to both the bottom line and the planet. To see more in depth analysis, read Carbon Clear’s report: Sustainability Reporting Performance of the FTSE 100, released today.