Corporate Knights’ annual Global 100 ranking of the world’s most sustainable corporations shows a continuing correlation between sustainable business practices and higher returns.
- US metal recycler Schnitzer Steel ranked as 2023’s most sustainable corporation in the Corporate Knights list.
- The Global 100 companies outperformed the MSCI All Country World Index in terms of value and revenue, among other indicators.
- Corporate Knights updated its methodology for the first time in twenty years, including the percentage of chief executive variable compensation tied to sustainable business decisions.
What is the Corporate Knights report?
The annual ranking devised by Corporate Knights quantitatively compares and ranks the world’s largest publicly traded companies, equally emphasizing the impact of a company’s operations along with its core products and services on people and the planet.
The ranking is based on a rigorous assessment of 6,720 companies with more than $1 billion in revenues, among which US metals recycler Schnitzer Steel (NASDAQ:SCHN) emerged as 2023’s most sustainable corporation. It was followed by Vestas Wind Systems (CPH:VWS), a Danish wind turbine manufacturer, and Australia’s Brambles (ASX:BXB), a supply-chain logistics company and pioneer in the sharing economy.
“The use of recycled metals is recognized as an important strategic solution for companies, industries, and governments focused on carbon reduction,” said Tamara Lundgren, chairman and chief executive of Schnitzer Steel. “It is a differentiator for metal producers and fabricators and a critical part of every community’s commitment to supporting a circular economy and decreasing material going to landfills.”
“For 19 years, Global 100 companies have been at the forefront of the sustainability transition. Today, they continue to outperform the blue-chip benchmark, the MSCI ACWI, and other ESG indices,” said Toby Heaps, Corporate Knights’ chief executive and co-founder. “If we let the numbers speak for themselves, it’s clear that businesses taking sustainability seriously are ahead of the pack when it comes to reaping financial returns.”
Global 100 companies generate 33x revenue than companies in ACWI
Despite oil and gas stocks climbing due to the war in Ukraine, the Global 100 (with only one oil and gas stock) still managed to outperform the MSCI All Country World Index (ACWI), which holds 6% in oil and gas. ACWI measures the performance of over 3,000 stocks in developed and emerging markets and is often used as a benchmark for the performance of a global portfolio.
This year’s Global 100 companies have a combined market value of $7.3 trillion, more valuable than the $6.8 trillion market value of the entire oil and gas sector (a number which is temporarily inflated due to the Russia-Ukraine war).
Global 100 companies direct nearly seven times (47% vs 7%) more capital into sustainable investments as a percentage of total investments. Their sustainable revenue accounts for 50% of the total, compared to only 5% sustainable revenue as a percentage of total revenue compared to the MSCI ACWI.
The Global 100 Index has also continually tracked higher total returns, measures in net US dollars, since its inception in 2005. Even though the Global 100 does not take risk-return into account, it also outperforms every other global sustainability index with at least a 10-year history, including through the turbulence of the last year.
With the Russian attack on Ukraine, oil prices surged to over $110 per barrel by March 2022, sending oil and gas stocks climbing. Still, the Global 100, with only one oil and gas stock – Neste, the Finnish leader in sustainable aviation fuels – still managed to outperform the MSCI ACWI, which holds 6% in oil and gas. Indeed, rising oil prices have stimulated growth in sectors where the Global 100 companies operate, such as renewables, smart buildings, electric vehicles and other climate solutions, including circular economy measures.
According to the analysis, $1 invested in an index composed of Global 100 companies on 1 February 2005 would have generated a return nearly 1.2 times larger than the same investment in the MSCI ACWI, for a total return 270.7% compared to 222.1%.
Remuneration is an increasingly important aspect to measure
For the first time since its inception twenty years ago, the Corporate Knights methodology has been extended to assess the percentage of chief executive variable compensation tied to sustainable business decisions. Of the Global 100 company, 80 implemented chief executive sustainability pay links, which further incentivises the top team.
One area where Global 100 firms do not outperform the blue-chip benchmark, however, is the ratio of taxes paid, where the two rankings are neck and neck. Similarly, ACWI firms have a slightly lower CEO-to-average-worker pay ratio and are catching up in terms of gender diversity among executives and board members.
While the Global 100 ranking focuses on highlighting the world’s most sustainable corporations, Corporate Knights said that progress across the broader universe denotes undercurrents of change, as the transition to a sustainable economy accelerates.
“While a degree of competition incentivizes innovation among the Global 100, these companies ultimately exist within an ecosystem of businesses working to advance a shared vision,” Heaps explained. “If anything, the Global 100 highlights the abundance of opportunity and reward that exists for corporations willing to authentically adopt sustainable business practices. There is room at the top for many more. In the meantime, Global 100 companies are paving the way for a new generation of sustainability leaders.”