Yesterday, Metro Group was named industry group leader in the Food & Staples Retailing category of the Dow Jones Sustainability Indices by the Swiss sustainability agency RobecoSAM for the second time. I surely should congratulate them for that. But – wait a minute: What are the congratulations about anyway? A guest commentary by Arved Lüth, managing owner of :response
Who carried out the assessment?
SAM, the service provider and asset managing firm (today: RobecoSAM) launched an innovation in 1999: The approach was amazingly simple – the best companies in terms of their share price performance were now also rated based on environmental and social criteria. It was not the assessment of companies or investments in terms of sustainability that was new about this approach, but the cooperation with one of the best known brands in the international capital market, the Dow Jones. In the early years, the founders had to apply some hindsight economics – the initiators of the new index claimed that with their new sustainability index, they had outperformed traditional indices over a period of 10 years. This retrospective logic (because of course one is always wiser afterwards) was criticised by experts – probably involving a bit of envy, since the coup had outshone all projects that had been working on a sustainable capital market and company ratings for decades.
For the first time, it was also the management board and the investors – people with a lot of focus on short-term shareholder value – who took notice of the Dow Jones Sustainability Index. The innovation prevailed: Today the Sustainability Indices are realised by the largest provider of capital market indices, the American S & P Dow Jones Indices, as well as the asset management firm Robeco, originally Dutch, now the Japanese Orix Group is the majority shareholder.
What exactly is assessed?
For the uninitiated, it is not easy to understand that there are also companies in the index that one wouldn’t expect there. Also there were exclusions, for example BP (which had been an industry leader in oil & gas for years) following the events in the Gulf of Mexico. So how does a company get a good score? In addition to the financial performance and – as it is customary in the capital market – the future prospects of the company (risks and opportunities), something else is assessed as well. Since there are very few indicators that are recognised internationally as performance indicators in terms of sustainability (mostly CO2 emissions), the assessment especially looks at strategies, management systems, processes and – very important – transparency in the corporate governance, finance, environment and social categories.
For example, “scandals” that show up in media monitoring have an adverse effect. Meaning that the assessment is not a judgement about which company is the most sustainable. So far no rating has been able to accomplish this, because the degree of knowledge and transparency, which would be necessary for this purpose, is still impossible to achieve today. In fact, the result of this RobecoSAM assessment means this: An industry leader is the company in a certain industry, which is the best (listed) company in a certain region with respect to the share price performance and the transparency of the management of its financial and non-financial issues. It is called a best in class approach. Metro Group was assessed as an industry leader in the trade sector in Europe as well as worldwide .
So what can we congratulate them for?
Being named an industry leader is a recognition of management’s sustainability performance, meaning the efforts within the company, as well as transparency to the outside world. However, the inclusion in this most important sustainability index also represents an ongoing challenge in terms of managing the business: The requirements increase each year. In addition to certain aspects that Metro Group reaches exemplary scores in, one aspect strikes me as particularly important: Its performance on this dynamic index affects the remuneration of the executive board and senior management. This is exceptionally audacious and raises the bar for other companies. Clearly, Metro Group’s management has understood one thing: Besides shifts in social values, a capital market aiming at sustainability is the biggest lever to trigger the transformation towards sustainable business. This insight and the determination to continue on the way towards sustainable business management are definitely aspects Metro Group should be congratulated for.
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