As the fascination that comes from watching the planet’s top athletic talent in Rio begins to fade, let’s turn our attention to an even more important contest: the medal count for the world’s most responsible corporate citizens. While at first, it may appear that America has much to celebrate, a deeper dive reveals that other regions actually offer the most fertile ground for businesses that sustainable and responsible investors can be proud to own.
Responsible corporate citizenship is evidenced by management’s measured attention to all stakeholders. For starters, this means transparency and measurement. Responsible investors gain valuable insights when companies share data on employee turnover, supply chain audits, board of director compensation, green house gas emissions and a whole host of other data points that are more industry specific. When the globe’s largest corporations fail to disclose this data, investors must assume that they either have something to hide or they don’t care.
A responsible corporate citizen sees itself as part of a much larger ecosystem. The industry’s assessment of a corporation’s positive and negative contribution to this ecosystem comes in the form of Environmental, Social and Governance (ESG) scores. Nearly every publicly traded company is scored against their industry peers by several different research analysts including MSCI, Sustainalytics, CDP, and others.
The following chart lists the percentage of market capitalization by country of companies scoring in the top 15%. These companies are considered best-in-class corporate citizens relative to their industry peers.
The United States had 35 out of a total of 296 top performing corporations and their total market capitalization represents—just north of 26% relative to the rest of the world. In second place, the United Kingdom best-in-class represents 11.1% of market cap, but this is spread across 55 companies who all received top marks.
On one hand, these results could appear like another American victory, but I’m much more impressed with those countries that outperform their expected potential. If you compare each country’s top performers relative to their market capitalization, the US becomes a significant underperformer. Without any ESG filter, the US makes up 51% of the global market. With only 26% representation on the top performers list, this means the US underperforms its expected potential by nearly 50%.
Relative to size, Norway comes out on top by exceeding their market cap by over eight times on the best-in-class list. For example, Norway’s integrated oil and gas company, Statoil, receives top ranks for the best carbon emissions performance in the industry and strong commitments to achieve further reductions. The Nordic region, which also includes Sweeden, Denmark and Finland, is especially fertile soil for best-in-class businesses. A randomly selected business in the Nordic region is ten times more likely than a randomly selected US company to make this best-in-class list. All the while, Nordic markets have been a strong performer which is another bit of evidence suggesting that SRI investing makes financial sense as well.
Among developed nations, the US only comes out ahead of Japan, who gets extremely low governance marks because the Japanese corporate system is riddled with unhealthy oligopolies that deter accountability. Japanese technology companies were also recently highlighted for failing to do enough to tackle forced labor (human slavery) as Canon, Hitachi and Japanese factory automation manufacturer Keyence Corp all scored at the bottom of a recent research report highlighting failures in supply chain oversight. The emerging markets of China, Brazil, and India also score poorly but this isn’t unexpected. As countries develop, so do expectations.
We can’t simply hope and pray for a brighter future for all. We’ll need to act like more responsible investors by harnessing the engine of the marketplace. Global corporations are providing jobs for employees and wealth for investors, but they can do a better job of limiting negative externalities that often fall hardest on a people or a section of the planet that has less powerful advocates.