Barron’s 100 Most Sustainable Companies (with Calvert Research)
Every weekday, instead of a private car, Benno Dorer takes Bay Area Rapid Transit from San Francisco to Clorox’s headquarters in Oakland. The Clorox CEO buys sustainable products, including his company’s Brita water filters, and separates his trash diligently, teaching his children to do the same.
For a company best known for a toxic product—bleach—Clorox has become one of America’s greenest companies, publishing goals on greenhouse gas emissions and energy use, phasing out controversial substances, and adding lines of natural products like Burt’s Bees. “As a CEO, I don’t think I can be credible without walking the walk,” Dorer says. “At the end of the day, the company’s commitment to sustainability starts with the CEO.”
Sustainability is mission-critical to Clorox, which ranks No. 9 in Barron’s first annual list of most sustainable companies. The investing world is increasingly agreeing with Dorer’s public-spirited views, as it redefines its roles as a fiduciary and steward of capital. The issue exploded onto center stage this year, when CEO Larry Fink of BlackRock, the world’s largest asset manager, told companies in which the firm invests that they need to “not only deliver financial performance, but also show how [they] make a positive contribution to society…benefit[ing] all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”
It’s in this spirit that Barron’s offers our first ranking of the most sustainable companies in the U.S. We have always aimed to provide information about what keenly interests investors—and what affects investment risk and performance. The term “sustainability” doesn’t have a single definition, but for years now, European investors have looked at environmental, social, and governance factors—qualitative measures that people believe promote a company’s long-term health and growth prospects. Thus, what began as an expression of values is finding wider currency as good corporate practices. That view has made its way to the U.S., as Fink’s letter makes abundantly clear.
And more U.S. investors are signing the United Nations guidelines that commit to incorporating ESG criteria. Last year, Paul Smith, chief of the CFA Institute, wrote: “Consensus is emerging in many countries that it is asset managers’ fiduciary duty to incorporate ESG factors into their financial analysis, especially when material to a company’s long-term prospects.”
To create our ranking, we turned to a sustainable-investing stalwart: Calvert Research and Management, an arm of Eaton Vance (EV). Calvert ran one of the first U.S. socially responsible mutual funds and has been applying ESG factors to company research for decades. “What’s essential for investors, the planet, and communities is that sustainability work be done in a way that works within our capitalist system,” says Calvert CEO John Streur. In other words, peeking at our list doesn’t mean you’re eschewing capitalism. Cisco Systems tops the list, followed by Salesforce.com, Best Buy, Intuit, HP Inc., Texas Instruments, Microsoft, Oshkosh, and, after Clorox, Xylem.
To Ascertain Sustainability, Calvert began by taking the 1,000 largest publicly held companies by market value, with headquarters in the U.S., as of Dec. 31. It excluded real estate investment trusts and master limited partnerships because their sustainability data remain uneven. Then, Calvert looked at 300 performance indicators for each company from data providers including Institutional Shareholder Services, Sustainalytics, and Thomson Reuters Asset4 in five categories: shareholders, employees, customers, planet, and community. The shareholders category included items like accounting policies and board structure; employees, workplace diversity and labor relations; customers, business ethics and product safety; planet, greenhouse-gas emissions; and community, human rights along the supply chain.
Then came the secret sauce: For every category, Calvert’s analysts ranked the companies from zero to 100. (Many sustainable investors exclude weapons manufacturers or gun makers; Calvert included such companies, but they generally have low rankings.) Then, the analysts adjusted the weighting of each category for how material it was for each industry. For example, the planet category is more material for chip makers, which use a lot of water in manufacturing, than it is for banks. Each company then got a weighted average score.
Read the complete article and see the chart of the 100 most sustainable companies with stock symbols here – https://www.barrons.com/articles/barrons-100-most-sustainable-companies-1517605530
Article by Leslie P. Norton, Barron’s