A green focus on FTSE 350
Sectoral benchmarking, performance measurement and a wider sample of listed companies, brings a sharper green focus to this year's Business in the Environment survey of corporate environmental engagement. Angela Himus reports.
The extent to which the UK’s top listed companies are taking environmental responsibilities seriously is steadily improving, according to the third annual survey on the subject by Business in the Environment (BiE).
The same cannot be said of the FTSE mid-250, however, who were invited to participate in the survey for the first time this year. Only 48 companies took part and average scores suggest that there is a long way to go.
FTSE 100 results
This year, 77 of the FTSE 100 companies participated in the survey, a figure up from 73 in 1996 and 74 in 1997. “We are very pleased with the level of participation among the top companies,” said BiE director Belinda Howell.
“Given the high turnover in the FTSE 100, and the fact that there are 21 new companies in it this year, 77 out of 100 is actually very good. Together with the mid-250 companies, 61 new companies took part for the first time and they represent a combined market capitalisation of £822 billion, or 75% of the FTSE 350 total value.”
There has been a demonstrable improvement in both overall average score and on each of the ten parameters of environmental management (see right). This continues the trend set in the previous two years.
Companies have made the greatest progress in supplier (+15.2%) and employee (+14%) programmes. Fifty-four percent of FTSE 100 companies are working in partnership with their suppliers to meet their environmental requirements, while 58% have determined that a trained and accountable work force is essential for implementing an effective EMS throughout a corporation.
Despite this progress, however, supplier programmes, environmental management systems and environment audit remain the lowest scoring parameters in the FTSE 350 which parallels how the FTSE 100 looked in both 1996 and 1997.
Compared to the FTSE 100, the FTSE mid-250 showed relatively low levels of engagement and management. The average score was 37% compared to a FTSE 100 average of 75% (up from 60% in 1996 and 67% in 1997).
“While the numbers were low this year, a promising number of FTSE mid-250 companies have pledged to take part next year,” said Howell, “so we can expect the number of companies going public on environmental management to grow. BiE will be working closely with the FTSE mid-250 companies for the 1999 survey.”
BiE has long recognised that good environmental management should lead to improved environmental performance, and this year, for the first time, the survey asked the FTSE 100 how they prioritised and measured environmental impacts.
Sixty-five of the FTSE 100, representing most sectors, responded, and although there was a wide variation in the content and detail of responses, they clearly demonstrate that the top five priority impact areas are global warming/energy consumption, waste, water pollution, air pollution and transport.
“BiE wants to identify how engagement relates to environmental performance and, potentially, environmental impact through the development of environmental performance indicators (EPI),” said Howell. “Companies’ responses, particularly from a sectoral basis, highlight impact areas where there is an emerging consensus on where performance is being measured and targeted.”
Taking its lead from the quality of responses from FTSE 100 companies on environmental measurement, BiE intends to facilitate debate on the development of agreed environmental performance indicators (EPIs). At a conference earlier this month, it gave a round up of existing EPI initiatives concentrating on the measurement areas highlighted by the Index, adding two further impact areas: the indirect effects covered by the supplier/customer relationship, and eco-efficiency or sustainability indicators such as resource efficiency.
“Interestingly, the need for sustainability indicators was mentioned by only one of the survey respondents,” said Howell, “but it is clearly a key issue for the future.”
Another first this year was the decision to introduce company rankings by industry sector.
“Inevitably the Index is going to have to become more and more sector focused, especially now that we have taken the next step of relating environmental engagement with environmental performance,” said Howell.
This is where the real benchmarking takes place. The utilities sector achieved the highest average score of 88.8%, with Scottish Power, Thames Water and Anglian Water leading the pack.
Oil, gas, chemicals and minerals came in second with an average score of 77.4% with BP Company, BOC Group and ICI taking the lead out of 17 participating firms.
A tie for third was shared by the engineering and consumer goods sectors (70.9% and 70.8% respectively). Here the first FTSE mid-250 company, TI Group took first place over listed companies LucasVarity and British Aerospace in the engineering sector, while BAT Industries, Unilever and Allied Domecq topped the consumer goods sector.
The manufacturing and industrial sectors scored an average of 64.4%, but this sector is predominantly FTSE mid-250 companies and consequently first time participants in the Index. Overall, this sector put in an encouraging score, performing particularly well on board membership, targets, employee programmes and, in some cases, environmental stewardship. Here, Smith & Nephew, Thorn and Seton Scholt Healthcare led the rankings.
The retail and services, property and transport sectors show an average score of 63.2% and 60.9% respectively. This is despite the fact that the retail sector has a strong interface with the general public both as consumers and in the community. Dominated by FTSE 100 companies, the retail sector was led by Safeway, Sainsbury (J) and Dixons Group, and British Airways, Slough Estates and P&O led the services, property and transport sector.
The second lowest scoring sector was the financial sector at 57.9%.
“Some companies, mainly in the media and financial sectors, don’t believe they have the same level of environmental impact as, say, the chemicals and manufacturing sectors, so they see the Index as being inappropriate for them,” said Howell. “However, hopefully they will come to see that they have major indirect impact through suppliers and can, therefore, have significant influence on other sectors.” Howell also believes the new emphasis on sectors will largely overcome this objection given that it no longer compares ‘apples with pears’.
While scoring the lowest average in the group (45.5%), the IT, electronics and communications sector also has the widest difference between the highest and lowest scores (93.1%), making it dangerous to draw conclusions about the group as a whole. Cable & Wireless, BT and EMI Group rank first, second and third. The sector outperforms both retail and financial sectors on EMS parameters but scores lowest on the rest.
In addition to direct participation in the Index by some of the FTSE 350, the Index is also used by other companies, including BiE members and top UK non-FTSE companies to influence environmental strategy.
According to Michel Loeb, managing director of BiE member SC Johnson Wax, the Index not only shows areas of possible improvement, but also provides one way of confirming “that SC Johnson Wax may indeed be counted among a group of like-minded organisations, helping to further spread the news that good environmental practice makes good business sense.”
Stuart Sweetman, managing director of Post Office Counters Ltd, another non-listed BiE member, says, “The Index leaves little doubt where areas of weakness lie,” and “provides an invaluable benchmarking opportunity”
There are also plans afoot for the Index to be tailored to help companies with their supplier initiatives.
“As we extend the Index into the FTSE 350, we are painfully aware of the number of surveys coming at companies,” said Howell. “The Index has gained a reputation as a leading benchmarking tool for environmental engagement so I hope by developing the Index for supply chain work, it will help to standardise what customers require of their suppliers.” The final product – which is still in development – will be a CD ROM.
Corporate competition is a key driver behind the success of the Index, and the annual ranking of FTSE 100 companies has already ignited heated discussions at the highest levels. Its new focus on ranking corporate engagement by business sectors will certainly add fuel to the fire.
BiE’s next big challenge will be to help companies make the leap from engagement to improved environmental performance, by building consensus on common performance indicators and reporting.
Challenging Competitiveness Through the Environment, 1998 Survey of Corporate Environmental Engagement, price £75, tel: 020 7224 1600.