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oekom Corporate Responsibility Review 2012

Taking stock of sustainability performance in

corporate management and capital investment

oekom research AG 1 oekom CR Review 2012

Welcome letter ........................................................................................................................................................................................................ 2Sylvie Lemmet, Director UNEP Division of Technology, Industry and Economics, Paris

Editorial ...................................................................................................................................................................................................................... 3Robert Haßler, CEO oekom research AG

In a nutshell: a summary of the key findings .......................................................................................................................................... 4

Socially Responsible Investment in France .............................................................................................................................................. 6Dominique Blanc and Samer Hobeika, Novethic, Paris

1. The development of sustainable investment – facts and figures ............................................................................................. 9

1.1 Current market trends in various markets .................................................................................................................................... 9

1.1.1 German-speaking countries ..................................................................................................................................................... 9

1.1.2 Europe ...............................................................................................................................................................................................11

1.1.3 Sustainable investment worldwide .................................................................................................................................... 13

1.2 Performance of sustainable investment ...................................................................................................................................... 14

1.3 Outlook: no risk – more fun: sustainability ratings as risk indicator ............................................................................ 15

Digression: sustainability and government bonds ............................................................................................................................ 16

Rollback or the Future of Renewable Energies in Europe ................................................................................................................18Dr. Axel Berg, Chairman of the Eurosolar Section in Germany, Munich

2. Corporate responsibility – status and trends .................................................................................................................................. 21

2.1 Basis for the analyses: the oekom Universe ............................................................................................................................. 21

2.2 Corporate responsibility: overall performance........................................................................................................................23

2.3 Corporate responsibility in selected sectors ............................................................................................................................25

2.3.1 The sector champions ..............................................................................................................................................................25

2.3.2 Industry rating ............................................................................................................................................................................ 26

2.3.3 Industry profiles ......................................................................................................................................................................... 26

2.4 Corporate responsibility with regard to selected issues ....................................................................................................34

2.4.1 Corruption and restrictive practices .................................................................................................................................34

2.4.2 Labour rights and human rights ........................................................................................................................................36

2.4.3 Environmental violations........................................................................................................................................................39

2.4.4 Closed-loop recycling ............................................................................................................................................................. 41

2.4.5 Ageing society .............................................................................................................................................................................45

2.4.6 Digging deeper: a follow-up on the oekom Corporate Responsibility Review 2011 ................................ 48

2.5 Outlook: it’s the quality, stupid! .....................................................................................................................................................49

CSR in China – Recent Developments and Trends .............................................................................................................................. 51Rolf Dietmar, Project Director Corporate Social Responsibility (CSR) Project, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, Beijing / China

oekom inside .........................................................................................................................................................................................................54

Annex: methodology, glossary, sources and publications ............................................................................................................ 55

Imprint ......................................................................................................................................................................................................................59

Table of contents


Corporate Social Responsibility and Rio+20

Rio+20, as the United Nations Conference on Sustainable Development has come to be known, provides an unprecedented opportunity for the world to transform the current economic paradigm into one that enhances human well-being while respecting planetary boundaries and environmental limits. This will require changes in the way we perceive progress, make financial decisions and do business, to ensu-re that social and environmental considerations are fully integrated into decision-making. Business and industry, as the driving force for economic growth, will have a leading role to play.

Many in the private sector understand this and are placing increasing importance on environmen-tal, social and governance (ESG) issues. Corporate social responsibility (CSR), the phrase used to descri-be companies’ voluntary commitment to enhanced accountability for social, environmental and econo-mic impacts across company operations and pro-ducts, has become commonplace. But before CSR can play its vital role in the transition to a Green Economy, much more needs to be done.

As a founding member of the Global Reporting Initiative, UNEP promotes sustainability reporting for private and public institutions along globally applicable guidelines. UNEP works in tandem with the United Nations Global Compact, the International Integrated Reporting Council and others, to help companies better understand and address their integrated environmental and social impacts. UNEP supports life-cycle based methodologies such as resource footprinting, science-based information on critical resource flows, and capacity enhancement in developing and emerging economies.

Though many companies now publish voluntary sustainability reports, most do not disclose non-financial performance. At present, there is no global-ly accepted requirement for ESG reporting.

The lack of proper information on ESG issues in investment decision-making processes of institutio-nal investors contributes to why externality costs are not assessed, priced and accounted for in current practices. In 2008, it is estimated that 6.6 trillion US dollars of environmental damage was externalized, representing eleven per cent of the value of the glo-bal economy.1 Without action, these costs are projec-ted to increase by 62 per cent from 2008 to 2050 and the damage to our natural resources will continue.2

If we are to achieve a global transition to a green economy, increased public and private investment

will be needed in critical sectors. Large pools of capi-tal will have to be reallocated to “green“ industries and companies, predominantly from private sources such as pension and sovereign wealth funds and high net worth individuals. ESG reporting will go a long way towards creating an attractive investment environment precisely because it takes into account these externalities, providing increased security.

The governments gathering at Rio+20 could do a lot to improve this situation by agreeing to make sustainability reporting and disclosure mandatory, using a “comply or explain“ approach and requiring the integration into annual reports of information on material sustainability issues, such as information on past performance and on the strategy for future company sustainability. Similar approaches have been put in place in South Africa, Denmark, France, yielding positive results.3

Capital markets are driven by information and if the information investors receive from corporations is only about financial short-term issues, then these issues will define investments. Without reporting on broader long-term ESG strategy, risks and opportu-nities, investors cannot be expected to make infor-med decisions for the future of our economy and our planet.

Yours sincerely,

(1) United Nations Environment Programme Finance Initiative and Principles for Responsible Investment. 2011. Universal Ownership: Why environmental externalities matter to institutional investors.

(2) Idem.

(3) Ioannou, I. and G Serafeim. 2011. The Consequences of Mandatory Corporate Sustainability Reporting. Harvard Business School, Working Paper 11-100. Mandatory sustainability reporting, especially in countries with stronger enforcement and report assurance, results in increases the social responsibility of business leaders, heightens priorities of sustainable development and employee training, improves corporate governance and results in more ethical practices, and reduced bribery and corruption.

Welcome letterSylvie Lemmet, Director UNEP Division of Technology, Industry and Economics, Paris

Sylvie Lemmet


In the story “The Hitchhiker‘s Guide to the Galaxy“, the super computer Deep Thought‘s answer to the question pertaining to the meaning of life, the uni-verse and everything is “42“. These days one would have to disagree: the correct answer is 29. In other words, the number of banks which the G20 had decla-red as systemically relevant during their meeting in early November of last year.

The world had to experience the significance of the attribute “systemically relevant“ for the finan-cial world, the real economy and everything within the course of the Lehman Brothers collapse. The fact that only six of the 29 banks show sufficient commit-ment to sustainable development to be classified as “Prime” by oekom research is thought-provoking.

This is problematic for two reasons: on the one hand it is just these sustainability-oriented inve-stors who believe that the quality of sustainability management is an indicator of how well a company is managed in general. This means that those actively addressing social and environment-related questions can also be trusted to cope well with economic chal-lenges. The inversion of the argument for systemical-ly relevant but usually negatively rated banks does not bode well for corporate management as well as for the economy and society.

On the other hand, banks accrue great social responsibility for precisely the reasons which make them systemically relevant for the financial sector in the first place. Due to their economic power and their position in a globalised economy, they can active-ly drive development towards a “green economy”. During the summer of this year, the community of states will meet at the so-called “Rio+20“ conference in order to discuss how the global economy could be refashioned into such a low-carbon, raw material efficient and socially just system. The banks can and must play more of a supportive role in this process than before.

The analyses in this fourth edition of the oekom Corporate Responsibility Review show that there is

still a large amount of work to be done. This time we will, among others, illuminate the labour and human rights situation within the supply chain, non-adherence to recognised environmental standards in the various sectors and the spread of corruption and restrictive practices. Further topics pertain to the consequences of demographic change and company reactions thereto as well as the question regarding the design of a circular economy.

Although the central focus of our Reviews may be companies’ social responsibility, we cannot avoid dealing with the question of the states‘ sustainabili-ty management in light of the dramatic debt crisis in Europe and the USA. We will deal with the role played by sustainability ratings of risks in government bonds investments in a separate chapter.

We would like to thank our guest authors Dominique Blanc and Samer Hobeika (Novethic), Dr. Axel Berg (Eurosolar Germany) and Rolf Dietmar (GIZ), whose contributions deal with the development of sustainable investment in France, the challenges of the energy revolution as well as the status of corporate responsibility in China. Our thanks also go to Sylvie Lemmet, Director of the UNEP Division of Technology, Industry and Economics, for her wel-come letter.

I hope you will enjoy reading this study.

Best wishes

EditorialRobert Haßler, CEO oekom research AG


The development of sustainable investment – facts and figures

•    According to calculations made by the Sustainable Business Institute (SBI), the number of sustainable mutual funds licensed in German-speaking countries reached a historical high at the end of 2011. At this point in time, 357 funds were licensed for marketing. In contrast, losses were incurred regarding the volume, which was reduced from 34 billion euros at the end of 2010 to 30 billion euros as at 31.12.2011.

➔ p. 10

•    According to a study by the Forum for Sustainable Investment (FNG), all sustainable capital investments in German-speaking countries totalled 94.5 billion euros as at 31.12.2010, of which 51.9 billion euros were allocated to the segment “mandates, mutual funds and other financial products“. This totalled 14 billion euros more than the previous year (+37 per cent).

➔ p. 10f.

•     The number of licensed mutual funds in Europe has stagnated. 886 respective funds were licensed for marketing as at 30.06.2011 (previous year: 879). In an annual comparison, their volume had risen by twelve per cent to around 84 billion euros.

➔ p. 11

•    According to calculations by the European Industry Association Eurosif, a total of around five trillion euros were invested in Europe with consideration to ESG criteria as at the end of 2009. At this stage the market share was at around 47 per cent. An update to the market study has been announced for the autumn of 2012.

➔ p. 12

•    Even  pension funds have discovered the topic for themselves. According to a survey by Eurosif among 169 European pension funds, 56 per cent had already developed a sustainable investment strategy. 66 per cent of those questioned are convinced that a sustainability strategy is part of their fiduciary responsibility.

➔ p. 12

•    On a global scale, sustainable capital investments total around eight trillion euros, of which Europe poses the largest share with the mentioned five trillion euros. Around 2.3 trillion euros are invested in the USA, including sustainability criteria. No current figures are avai-lable for the Asian market.

➔ p. 13f.

•    Initiatives from institutional investors involving ESG topics enjoy great popularity. The num-ber of signatories of the UN Principles for Responsible Investment (UN PRI) had for example risen to around 980 as at the end of 2011 (mid-2010: 870). Their investment volume totals more than 30 trillion US dollars. Meanwhile, the Carbon Disclosure Project represents the interests of more than 550 institutional investors with agency funds of more than 71 trillion US dollars.

➔ p. 14

•    Various  studies  in  2011  also  prove  the  competitive ability of sustainable capital invest-ments. For example, a study by the asset manager RCM, part of the Allianz Global Investors, shows that the inclusion of ESG criteria in the selection of issuers derived from broadly invested indexes such as MSCI World has a positive effect on returns. The same conclusion was reached by a study performed by the Harvard Business School and the London School of Business for capital investments in US-American companies.

➔ p. 14

•    A growing number of investors use sustainability ratings as an (additional) risk indicator. On the one hand, the evaluation of sustainability performance is regarded as an indicator of how well a company is being managed in general. On the other hand, the rating of sustaina-bility performance helps identify management deficits in important social and environment related key areas. Sustainability ratings therefore contribute significantly to the reduction of performance and reputation risks.

➔ p. 15

In a nutshell: a summary of the key findings


Corporate responsibility – status and trends

•    oekom research regularly evaluates more than 3,100 companies from over 50 countries. We cover international indexes such as the MSCI World, MSCI Emerging Markets and Stoxx 600 as well as important national indexes like the German DAX family, the French CAC40, the Austrian ATX and the Swiss SMI.

➔ p. 21

•    As at 31 December 2011, 543 companies, or 17.1 per cent of the more than 3,100 companies rated, had achieved oekom Prime Status, having fulfilled the minimum requirements in terms of sustainability management defined by oekom research for their particular indus-try. Around a quarter of the companies (25.5 per cent) demonstrate sound approaches to sustainability management, but sustainability-related aspects are still not being systema-tically and comprehensively integrated into management systems. Well over half the com-panies (57.4 per cent) have taken only rudimentary action or indeed none at all in this area.

➔ p. 23

•     In the country comparison, Germany had the highest proportion of companies with Prime Status. One in two of the total of 48 German companies in the MSCI World was rated best-in-class by oekom research. In second place was Italy (with 48.2 per cent), ahead of Finland (with 47.3 per cent). The proportion for France was 31.0 per cent. In the USA and Japan, fewer than one in ten companies demonstrated a sufficient level of commitment to sustainable development.

➔ p. 24

•     Manufacturers of household products achieved the best average rating. On a scale ranging from 0 (very poor sustainability performance) to 100 (very good sustainability performance), they scored 46.5. They were followed by computer manufacturers (42.0) and car manufac-turers (40.9).

➔ p. 26

•    The list of companies which can be shown to have been involved in violations of competition regulations reads like a “Who’s Who” of the international business world: Colgate-Palmolive, E.ON, France Telecom, Peugeot – the list could go on. The proportion of companies involved in such practices is particularly high among producers of consumer electronics – two-thirds of the companies from this sector rated by oekom research were affected. They were followed by manufacturers of household goods (54.6 per cent) and of construction materials (52.4 per cent).

➔ p. 35

•     The main hotspots for labour rights violations are in emerging and developing countries. Conditions in the IT industry’s supply chain are often abysmal, particularly among manufac-turers of telecommunications equipment and computers. Here, there is evidence of labour rights violations in the supply chains of more than 40 per cent of companies. These are followed in third place by the textiles industry, where the equivalent figure stands at 30 per cent.

➔ p. 36ff.

•     Environmental violations, such as the destruction of natural environments or the pollution of bodies of water, are a particularly frequent occurrence in the mining and oil and gas industries, with their large-scale interventions in the natural world. 39.4 and 33.3 per cent respectively of the companies rated by oekom research in these sectors have committed this kind of violation.

➔ p. 39f.

•    People  in  industrialised countries are  living longer and longer – today, the proportion of over-65s in Germany and Italy has already reached 20 per cent. Elderly people have specific requirements in terms of products and services. Correspondingly, many industries are faced with the decision of whether to offer special products for the elderly or to adopt a “design for all” approach. This affects not just the obvious areas such as health and care services, but also industries such as retail, real estate and media. In all three sectors, there are companies which want to retain the loyalty of this target group, which is also becoming increasingly significant from an economic point of view, through relevant measures such as providing barrier-free access to store premises, age-appropriate housing or media services for people with impaired vision or hearing.

➔ p. 45ff.


The French SRI market is one of the most dynamic in Europe, in terms of both the volumes of assets and the numbers of players actively involved. This section aims to give an overview of the market volumes and the main players, as well as of prominent transparen-cy and certification initiatives.

SRI players in France

There are over 60 asset managers offering SRI pro-ducts in France, two-thirds of which are French play-ers. The major firms in terms of SRI assets under management include Amundi, Natixis AM, OFI Group, BNP Paribas IP and Allianz Global Investors. A num-ber of banking and insurance group subsidiaries are also involved in SRI, along with several indepen-dent asset management firms such as Edmond de Rothschild AM. Most of these have now been inve-sting in SRI funds for a decade or so and each feature as a minimum a dedicated SRI team and a full range of SRI funds. As a consequence, France is also home to several extra-financial rating agencies, including Vigeo and EthiFinance, which specialises in smaller companies. MSCI ESG Research (formerly Innovest) has an office in France, as do EIRIS and – since last year – Sustainalytics and oekom research.

Since 2004, the growth of SRI in France has been driven by a number of large institutional investors. FRR and ERAFP, both public pension schemes, are seen as pioneers in this area, as FRR was the first to launch substantial tenders for SRI mandates in 2004 and ERAFP has operated a 100 per cent SRI policy since its establishment in 2006. Both organisations are signatories to the UN Principles for Responsible Investment, the founding members of which inclu-de another influential French institution, Caisse des Dépôts et Consignations. Besides these public insti-tutions, insurers are also prominent among SRI play-ers. However, the complex joint decision-making pro-cesses of some institutions where several stakehol-ders are involved may be impeding the adoption of SRI practices; this would explain the limited number of asset owners among French PRI signatories (nine asset owners as compared to 61 investment mana-gers), as well as the scarcity of substantial SRI ten-ders in the past few years. However, the public pen-sion fund Ircantec may be about to reverse this trend, since it has issued four calls for bids for 2011-2012.

Other players involved in SRI include consulting firms such as Cedrus Partners, the French professio-nal association of asset managers AFG and the French

social investment forum FIR, as well as two more unu-sual entities: Novethic, a subsidiary of Caisse des Dépôts, which is the leading SRI research centre in France, and the CIES, an inter-trade-union committee, which promotes SRI in employee savings schemes.

French SRI assets

Novethic is the only source of statistics on the French SRI market. The research centre publishes yearly figures on the SRI assets held by investors domiciled in France, irrespective of the vehicle involved (e.g. mutual funds, employee savings schemes, manda-tes), as well as quarterly figures on SRI mutual funds offered on the French market. These two sets of sta-tistics are both indicators of the importance of and trends in SRI in France, but descriptions of the French SRI market per se refer to the former, i.e. assets of French-domiciled investors.

In 2010, SRI assets held by investors in France reached 68.3 billion euros, up 35 per cent from 2009. This figure reflects systematic approaches that have become increasingly structured over the past few years. The vast majority of these assets are subjected to positive ESG screening, the dominant approach in France, while about a quarter are covered by negati-ve screening, be it norm-based or sector-based. The engagement approach is still in its infancy, but is

Socially Responsible Investment in FranceDominique Blanc and Samer Hobeika, Novethic, Paris

The SRI market in France; in billion euros; source: Novethic (2011)


also starting to pick up. If we look at less-structured approaches, often referred to as ESG integration, the assets involved can be counted in trillions; however, such approaches, which involve looking at ESG issu-es on a case by case basis, do not have any syste-matic effect on investments and therefore cannot be included in the “core SRI” market.

In the past few years, SRI growth in France has relied heavily on institutional investors: their share of the market (as against that of retail investors) increased from 46 per cent in 2003 to 70 per cent in 2010. The retail segment did grow significantly during this period, but at a slower rate. It is important to highlight two aspects of this segment’s growth: first-ly, it has been very much driven by the adoption of SRI approaches by existing funds, rather than by inflows, and secondly, employee savings schemes have been much more dynamic than traditional retail distributi-on vehicles. Indeed, their relative share of SRI assets grew from 25 per cent in 2003 to 46 per cent in 2010, and the proportion of global employee savings inve-sted in SRI funds reached a staggering 18.5 per cent in 2010. For comparison, less than four per cent of mutual funds in France are SRI funds, and for institu-tional mandates the figure is about half that.

Transparency and certification: a framework that is unique in Europe

As retail clients, and specifically traditional distribu-tion networks, form the “weakest link” in SRI growth, several initiatives aimed at this segment have been implemented in France in recent years.

In 2009, Novethic launched its SRI label, a certi-fication scheme for mutual funds offered to retail cli-ents in France. In order for a fund to be awarded this label, the fund’s managers need to comply with four criteria, one pertaining to the existence of a systema-tic SRI process and the other three relating to trans-

parency: process explanation, extra-financial reporting and periodic publication of a comprehensive list of holdings. In the third year of this annual process, Novethic certified 156 funds with assets totalling 25 billion euros, which equates in terms of numbers to half of the 300+ SRI funds offered in France and in terms of assets to 60 per cent.

Another initiative which focuses on transparency is the AFG-FIR transparency code for retail SRI funds, which was launched in 2005. It is the French version of the European transparency code created by Eurosif in 2004, and as its name suggests, is run jointly by the French SIF and the French professional associa-tion for asset managers AFG. It is interesting to note that compliance with this code and publication of a corresponding report has been mandatory for all French retail SRI funds since early 2010. The trans-parency code is also central to Novethic’s SRI label, as the second criterion of this label concerns comp-liance with the code.

Finally, mention should be made of the system of certification for employee savings schemes launched in 2002 by the “Comité Intersyndical de l’Épargne Salariale”, an inter-trade-union committee which was established in the same year. It utilises criteria relating to SRI processes as well as to fees and to employee representation in the governance structure of funds. After a modest start, with barely 100 million euros in 2004, certified assets rose to over 3.3 billion euros in 2010, representing over a third of total SRI assets in employee savings schemes.

Leaving the niche?

These initiatives show that there is a clear will on the part of fund managers to attract retail clients to SRI funds. The recent crisis, which led the public to distrust and to question the practices of financial players, was seen by many managers as an incenti-

ve to promote SRI products as more responsible and transparent alterna-tives to traditional funds. However, the effect that this has had has yet to be measured in terms of new sub-scriptions. Recent studies and opini-on polls reveal a lack of knowledge generally and an emphasis on SRI funds in retail distribution networks. Will transparency and certification schemes such as Novethic’s SRI label help socially responsible investment to leave its niche and reach more retail investors? The answer lies in distribution networks and in the way in which banks and insurance compa-

nies see SRI as part of the solution to the crisis.SRI mutual funds distributed in France; source: Novethic based on Morningstar and AMF data


Since 2008, Dominique Blanc, Head of SRI Reseach, has run Novethic’s SRI research studies. In this capacity, he analyses the SRI market from a quantitative perspective (funds, mandates, assets under management, etc.) as well as from a qualitative one. As an expert on socially responsible investment, he is a frequent speaker at events. Co-founder of EthiFinance in 2004, he was an SRI analyst until 2008. At EthiFinance, he was in charge of methodological developments (rating benchmarks, databases) pertai-ning to the analysis of businesses. He also spearheaded developments in the area of corporate gover-nance. Dominique Blanc holds a Master‘s of Science in Mechanical and Industrial Engineering from the Ecole Nationale Supérieure d‘Arts et Métiers (ENSAM) in Paris.

Samer Hobeika, SRI Research Manager, joined the SRI Research team in March 2008, and contributes to Novethic’s SRI research studies, which involve a quantitative survey of the SRI market, an assessment of asset managers’ SRI processes and transparency, as well as in-depth studies of various issues such as environmental funds, SRI money market funds or employee savings schemes. A graduate of Ecole Polytechnique engineering school, Samer holds a master’s in sustainable development economics. Since December 2008, he has started a PhD in economics under a “thèse CIFRE” agreement bet-ween Novethic and the Economics and Management Research Pole (PREG) of Ecole Polytechnique and CNRS.

Novethic, part of Caisse des Dépôts et Consignations, is the leading research centre in France on Corporate Social Respon-sibility (CSR) and Socially Responsible Investment (SRI) and a sustainable development media expert.


After the rapid growth during the past few years, the market for sustainable capital investment took a break in some areas in 2011. The range of respective mutual funds has there-fore stagnated not only in German-speaking countries but also on the European level. In contrast, the inte-rest of institutional investors has increased, which is shown not only through respective surveys but also through the continuously growing numbers of signa-

tories of the UN Principles for Responsible Investment (UN PRI). Further intense discussion prevails around the question of competitiveness of sustainable capital investments. While the main focus was predominant-ly on the returns of respective investments for many years, more attention is recently being paid to risk aspects. This and further interesting developments in sustainable investment are documented on the fol-lowing pages.

➔

1.1 Current market trends in various markets

1.1.1 German-speaking countries

Private investors’ interest in sustainable monetary investments remains high. According to a survey by Union Investment among 500 private investors from the spring of 2011, almost every third investor (31 per cent) regards sustainable investments as attractive. The proportion of those favouring sustainable invest-ments is thus eight percentage points higher than the proportion of those who see little appeal in them (23 per cent). In comparison, in the first quarter of 2010, the proportion of investors finding them unattractive had stood at 27 per cent. 45 per cent of respondents deem ecological aspects more important than social aspects, and 49 per cent regard social aspects as having the highest priority.

At the same time private investors feel that they receive too little information regarding sustainable investments. This was found out during a Forsa study which, among others, was conducted on assignment

of the German GLS Bank. According to the study, only every third questioned investor has even heard of “socio-ecological“ or “ethical/social“ investments in the first place. Only three per cent of respondents have so far decided to invest in “green“ investments, while around ten per cent are at least considering a social/environmental investment.

Among the institutional investors however, sus-tainable investment is already enjoying a significant-ly wider spread. Among 218 major German investors such as pension funds, insurance companies, foun-dations, banks and major companies, which Union Investment had questioned in June 2011, almost two thirds (64 per cent) had specified taking sustaina-bility criteria into consideration when deciding on investments. The topic does currently not play a role for around 36 per cent.

1. The development of sustainable investment – facts and figures

Sustainable mutual funds in Germany

According to a market survey by ECOreporter, as at 31 December 2011 German investors had a total of 289 sustainable mutual funds to choose from, 17 fewer than at the end of 2010 (-5.6 per cent). During the past year, some sustainability funds were amalgamated with other funds, while others were closed due to an insufficient volume of investment. Sustainable equity funds form the largest group, with 153 products, fol-

lowed by sustainable bond and mixed funds, with 37 products each. The total volume of all funds stood at 28.11 billion euros, more than twelve per cent below the value for the previous year. The fund report inclu-des data on sustainable equity, bond, mixed, umbrel-la, money-market and renewable energy funds as well as on sustainable exchange-traded funds (ETFs) and microfinance funds.


Sustainable certificates in Germany

The range of sustainable investment certificates avail-able in Germany remains relatively limited and the numbers manageable. According to preliminary figu-res from ecofin Verbund in January 2012, there were a total of 312 certificates, representing issue volumes of 10.2 billion euros, on the market as at 31 December 2011. This constituted a significant increase in both number (+18.2 per cent) and volume (+28.6 per cent) on the 31 December 2010 levels. There is a discernible split in the market here: some issuers are systema-

tically expanding their range, while others are with-drawing from the market. This matches the trend in the market for certificates as a whole, which was mar-ked in 2011 by high levels of issuing activity. In 2012, the major issuers of sustainable certificates were the Austrian Volksbank (50 certificates), DZ Bank (35) and UniCredit (34). By way of comparison, Commerzbank alone issues between 80,000 and 100,000 conven-tional certificates every year.

Sustainable mutual fundsin the German-speaking countries

According to data from the Sustainable Business Institute (SBI), a total of 357 sustainable mutual funds were licensed for marketing in Germany, Austria and Switzerland as at 31 December 2011. The total volume of assets in the funds stood at 30 billion euros. While the number of funds has risen slightly compared with the 2010 year-end (up by three), their volume has fal-len by 11.8 per cent (from 34 billion euros as at 31 December 2010).

The SBI recorded a total of 36 new funds in 2011. Some of these were new launches, some were existing funds that had switched to a sustainability-oriented strategy and some were funds that had previously been licensed in other countries and have now been licensed for marketing in Germany. 33 funds were closed or amalgamated with other funds in 2011.The 197 equity funds, in which around 18.2 billion euros were invested, constituted the largest group in numerical terms. The volume of the 53 bond funds

stood at 5.5 billion euros, with 4.6 billion euros in-vested in the 60 mixed funds and just under 0.6 billi-on euros in the 17 umbrella funds.

Volume of sustainable mutual funds in German-speaking countries; as at 31.12.2011; in bn. euros; source: SBI (2012)

The overall market for sustainable investments in German-speaking countries

According to a study by the Forum for Sustainable Investment (FNG) published in December 2011, the sustainable investment market has continued to grow in Germany, Austria and Switzerland throughout 2010. According to the FNG, the sustainable invest-ment volume of these three countries amounted to a total of 51.9 billion euros in the market segment of mutual funds, mandates and other financial products alone. This totals 14 billion euros more than the pre-vious year (+37 per cent). If we add other market seg-ments not previously recorded in this form, a total of 94.5 billion euros were sustainably invested in 2010. Customer and proprietary investment of specialised banks as well as sustainable closed funds were con-sidered for the first time.

The majority of the sustainable investment volu-me for mandates and mutual funds still originates from Switzerland with a total of 33.6 billion euros, followed by Germany with 15.9 and Austria with 2.4 billion euros.

Mandates, mutual funds, other financial products 51.9

Customer and proprietary investment ofspecialised banks

40.3

Certificates (only in Germany) 1.2

Closed funds 1.1

Total 94.5

Sustainable investments in German-speaking countries; as at 31.12.2010; in bn. euros; source: FNG (2011)


The distribution of initially recorded positions diffe-red significantly. Of the 40.3 billion euros of sustain-able investments for or from specialised banks such as the GLS or the Umweltbank, 97 per cent alone are allocated to Germany, with an additional 1.1 billion euros in sustainable closed funds, which the FNG also examined for the first time. Sustainable certificates with a sales volume of 1.2 billion euros could further

be identified with the help of an external study.According to the FNG study, the Engagement

approach has become the quantitatively most important investment strategy in Germany, while Switzerland and Austria most frequently apply exclu-sion criteria. According to study statements, the best-in-class approach holds 2nd place in all three countries.

1.1.2 Europe

Sustainable mutual funds

According to a study by Vigeo Italia, 886 sustainabili-ty funds were licensed for distribution in Europe as at 30.06.2011, i.e. seven funds more than in mid-2010, with their volume having risen by twelve per cent to 84.4 billion euros. This corresponds to a market share of 1.42 per cent in all mutual funds licensed in Europe.

As in the previous year, Belgium (240), France (220), Great Britain (95) and Switzerland (87) together account for 72 per cent of all funds included in the study. The Netherlands displayed the largest growth with 13 percent. The number of funds in Belgium rose by six per cent and by two per cent in France. With a total volume of 31.5 billion euros, France is by far the largest market for sustainable mutual funds in Europe, ahead of Great Britain (12.3 billion euros) and Switzerland (11.1 billion euros).

The proportion of assets invested in pension and money-market funds has continued to grow. After 33 per cent in 2009 and 38 per cent in 2010, mid-2011 saw it at 40 per cent. Less than half of the capital (48

per cent) was invested in equity funds, whereas in 2007 it had still been at 67 per cent. Around twelve per cent of the capital had been invested in mixed funds.

Volume of sustainable mutual funds in Europe; as at 30.06.2011;  in bn. euros; source: Vigeo Italia (2011)

European asset owners‘ ESG strategies

At the end of November 2011, the French research institute Novethic published the results of its annual study “European Asset Owners’ ESG Perceptions and Integration Practices”, now in its second year. As part of this study, over 250 asset owners (including pension funds, insurance companies and foundations) from eleven countries, with assets valued at 4,540 billion euros, were asked to what extent they factored ESG criteria into the management of their assets.

Most of the institutional investors surveyed understood sustainable investment as a combination of selecting issuers according to ESG criteria (66 per cent), monitoring activities in the area of sustainable development (59 per cent) and applying exclusion criteria (59 per cent). The main motive for taking ESG criteria into account was, as in the previous year, to contribute to a more sustainable development model (51 per cent). Risk management played an important role for a quarter of respondents, while almost one in five gave protecting their own reputation as a motive.

53 per cent of the investors surveyed were of the opinion that all issuers should be subjected to an ESG analysis in order to make it easier to assess the opportunities and risks of an investment. The respondents expressed the view that rating agencies specialising in sustainability represented the best source of informa-tion on sustainable investment strategies.


The overall market for sustainable investment in Europe

The European Industry Association Eurosif only collects market data for the entire European region every two years. The last available figures are there-fore related to the status as at the end of December 2009. A total of around five trillion euros had been invested at this time with consideration to ESG criteria. According to Eurosif, the market share of sustainable capital investments was at around 47 per cent.

The study distinguishes between a stringent (“Core SRI“) and a basic (“Broad SRI“) approach to sustainabi-lity. The detailed analysis shows that approximately three-quarters of the sustainable investments can be viewed as following a broad SRI approach, with the lion’s share of these following an „integration“ strategy. This involves fac-toring ESG criteria into a conventional financial analysis.

Eurosif is currently reviewing the categories; the next study with data as at 31.12.2011 will presumably be published in the autumn of 2012.

Volume of capital invested according to sustainability criteria in Europe; as at 31.12.; in bn. euros; source: Eurosif (2010)

European pension funds bank on sustainability

The extent to which corporate pension funds in Europe take into consideration sustainability aspects in capital investment was initially analysed within the scope of the study “Corporate Pension Funds and Sustainable Investment“ published by Eurosif. 169 pension funds, pen-sion pools and other corporate old-age provision facilities from twelve European countries participated. Central results:

•    56 per cent of the pension funds (94) specify that they have a strategy for sustainable investment. Of the 68 respondents without sustainability strategy, 16 specified that they would like to develop a guideline for sustainable investment within the next twelve months.

•    60 per cent of the respondents are of the opinion that sustainability criteria have a positive influence on the long-term performance of a pension fund.

•    111 pension funds (66 per cent) believe that a sustainability strategy is part of their fiduciary responsibility.

Source: www.eurosif.org


1.1.3 Sustainable investment worldwide

Current data on the development of sustainable investments is only available from a few non-Euro-pean states or regions.

Canada

According to calculations by the Canadian Social Investment Organization as at mid-2010, around 379 billion euros (531 billion Canadian dollars) were managed in Canada with the inclusion of sustainability criteria down from 386 billion euros in 2008. This equalled a market share of 19.1 per cent. The largest proportion was held by pension funds with an investment volume of over 324 billion euros. The sustainable mutual funds had a volume of 18.1 billion euros.

Source: www.socialinvestment.ca

South Africa

The “Code for Responsible Investing in South Africa“ (CRISA) was passed in South Africa in mid-2011. It serves to encourage investors to consider ESG criteria in their investment decisi-ons. The code, encompassing five points, supports investors in implementing the King Report on Corporate Governance in South Africa (King III) and the UN Principles for Responsible Investment (UN PRI). The Code is aimed at institutional investors such as pension funds and insurance companies as well as their service providers such as fund managers and financial advisers.

Source: www.iodsa.co.za

Asia

Unfortunately, data on the current total volume of sustainable capital investments in Asia is still not available. The Industry Association ASrIA only pub-lishes an overview of sustainability funds licensed in various Asian countries but makes no statements on the administrated volume therein. At first glance it is surprising that more than one third of all 419 funds registered by ASrIA are licensed in Malaysia, which only involve so-called “faith-based“ investments. Apart from Malaysia, Japan, South Korea and Hong Kong have a comparably large scope of sustainability funds.

Number of licensed SRI funds in Asia; as at 2010; source: ASrIA (2010)

Brazil

An IFC study from the year 2009 – Investimento Sustentável no Brasil 2009 – estimates the total volume of sus-tainable capital investments in Brazil at the end of 2008 to have been around 54 billion euros. Around 60 per cent of these investments were managed by pension funds. The Brazilian stock exchange BM&FBOVESPA requests that all listed companies of the country publish a sustainability report or explain why they do not comply. This serves the stock exchange as a preliminary impulse for more economic sustainability in the run-up to the Rio+20 Summit during the summer of 2012. However, the recommendation is not binding for the companies.


Global

Based on a multitude of available studies from the various regions, the global volume of sustainable capital investments totals more than 7.8 trillion euros.

According to estimates of oekom research, this figure tends to represent a lower figure. Especially in Asia, the sustainable capital investment volume ought to be far higher now than it was in the study from the year 2007.

When interpreting the data, it should be noted that there is currently no valid standard for the defi-nition and interpretation of stainable investments. The attribution of individual capital investments into sustainable investments can therefore vary from re-gion to region.

Region As at Volume

EU 2009 5,000 bn.

USA 2010 2,310 bn.

Canada 2010 379 bn.

Australia 2010 68 bn.

Brazil 2008 54 bn.

Asia 2007 21 bn.

Global ca. 7,832 bn.

Volume of capital  invested according  to sustainability criteria  in different regions; in euros; sources: ASrIA, Eurosif, IFC, Responsible Investment Association Australasia, Social Investment Forum, Social Investment Organization

The investment volume of UN PRI signatories rises to over 30 trillion US dollars

According to the UN Principles for Responsible Investment (UN PRI), the number of signatories had risen to around 980 by the end of 2011. In mid-2010 it was still at around 850. Their investment volume now totals more than 30 trillion US dollars, which equals around 20 per cent of the estimated global capital market, whereby more than half of the signatories (56.7 per cent) are investment managers, with the proportion of asset owners being 25.7 per cent, and service providers such as oekom research denoting 17.6 per cent. (➔ www.unpri.org)

1.2 Performance ofsustainable investment

A study by the asset manager RCM, part of the Allianz Global Investors, shows that the inclusion of ESG cri-teria does not have a negative effect on the perfor-mance of a portfolio but on the contrary even enab-les outperformance in the long run. For the period between 2006 and 2010, RCM analysed the effect of included ESG criteria on the performance of portfolios containing titles from the indexes MSCI World, MSCI Europe or MSCI US. The MSCI World Equal Weighted Index (MSCI EWI) was used as a benchmark. It showed that investors could have increased their pro-fits by 1.6 per cent per year over a period of five years if they had invested in companies with above average ESG performance.

A study published by the Harvard Business School and the London School of Business concluded that consideration to ESG criteria in the selection of shares generates positive outperformance after three years and rises continuously with a longer invest-ment horizon. The statement is based on an analy-sis of 180 US-American companies over the period between 1993 and 2010. One US dollar invested in a sustainable company in 1993 will have increased to 22.60 dollars by the end of 2010. In the case of

investment in a company with inferior sustainabili-ty performance, this only resulted in an increase to 15.40 US dollars. The analyses by the two renowned universities emphasises the medium and long-term time horizon of sustainable capital investments.

Risklab, a subsidiary of Allianz Global Investors and specialised in capital investment strategies and risk management, finally used the study “Responsible Investing Reloaded“ to find out that by taking sustainability factors into consideration, investors can decisively improve portfolio efficiency and there-fore significantly decrease the risk in their investment portfolio. The ESG factors are particularly suitable to minimise extreme loss risks, especially for emerging economy shares. Furthermore, ESG factors are also important for core investment categories such as industrialised country shares. If one compares the expected extreme loss risks of an ESG-optimised strategy with the broad MSCI World Equity Index, this would result in a possible improvement from -38.1 per cent to -25.7 per cent per annum. All investment cate-gories display even greater differences if a portfolio with strongly increased ESG risk exposure is applied as a respective comparable scale.


1.3 Outlook: no risk – more fun: sustainability ratings as risk indicator

The massive growth of the market for sustainable capital investments during the past decade went hand-in-hand with a certain shift in investor moti-ve. Although sustainable investment was initially strongly characterised by religious-ethical motives, we can observe that these days many institutional investors emphasise risk-return considerations. The quoted risk analysis by Risklab is a good example of how the integration of sustainability aspects into capital investments can structurally reduce their risk. The aspects, which can be proven statistically for the overall portfolio, are easily understood by means of individual examples. oekom research’s rating history contains several examples of how investors have avoided financial loss by using the – in these cases negative – assessments of oekom research as guidance for their investments. Investors guided by the oekom Prime Status for their investment decisi-ons. for instance, did not invest in Parmalat (insol-vency in 2003), AIG (nationalised in 2008), Lehman Brothers (bankrupt in 2009) and BP (slump after acci-dent on the Deepwater Horizon oilrig in 2010). And their depots do not contain any dead-weight Greek bonds, either.

Conventional investors and those oriented to sustainability basically have to deal with two great risks: the performance risk and the reputational risk. With regard to performance, sustainable investment needs to deal with the theoretical prejudice that every limitation of the investment universe – be it through exclusion criteria or best-in-class selection – has to lead to limited return opportunities and a greater risk. This is probably the oldest argument against sustainable investments. However, this is not only contradicted by the displayed Risklab study. Many sustainable investors are also convinced that precisely these additional criteria on social and envi-ronment related performance as risk indicator help to understand the risks of an issuer more extensive-ly, whereby we can distinguish between two levels. On the one hand, an increasing number of investors are convinced that the quality of the sustainability management is an indicator for how good the com-pany or the state is managed in general. So those coping well with their energy and raw material con-sumption, those treating their employees, suppliers and customers fairly and ensuring their product‘s ecological and social quality will be trusted to manage their entire company well. Sustainability manage-ment therefore becomes an indicator for the quality of the overall management.

The reverse applies: a bad sustainability rating is an indication of bad corporate management and there-fore of increased risks.

On the other hand the rating of sustainability per-formance enables the identification of management deficits in important key areas. If for example there are blatant deficits in the “plant security“ area, as was the case with Tepco or BP, these will simultaneously denote great risks for the financial success and the share price, whereby sector-specific key areas need to be defined. Companies from the raw material and energy intense sectors for example, not attuning their energy and resource consumption to efficien-cy, are at a cost disadvantage and more dependent on the development of raw material prices than their competitors. And companies from consumer-related sectors, whose products do not comply with rising consumer requirements to social and environmental quality, are on an off-market path. The list of exam-ples from totally different areas of corporate activity could be continued endlessly.

The second investor risk concerns reputation. Massive and partly malicious criticism of the Dutch Cancer Foundation, which had, among others, incor-porated the shares of a tobacco manufacturer into its depot, is only one example of how a non-value conform investment policy can damage the reputa-tion of an organisation. Especially principle-guided investors such as churches and foundations, but also other large investors such as insurance companies and pension funds are under intense scrutiny with regard to their capital investments. One example is the critical report on the capital investments of Riester pension products, which contained manufacturers of ostracised weapons such as landmines. In this case it is not sufficient to be only a little sustainable. Only an all encompassing application of sustainability crite-ria tailored to the organisation and its social environ-ment in the selection of issuers for their own portfolio will protect from reputational damage.

In general, the following applies: the knowledge gained by including social, environmental and gover-nance related criteria into the analysis of issuers will more than compensate a possible diversification disadvantage through the limitation of the invest-ment universe. Performance and reputational risks in capital investment can be reduced by consistent inclusion of sustainability criteria. This is a weighted argument for sustainable investment, especially in time of great insecurity regarding the financial and the real economy.


Digression: sustainability and government bonds

“Sustainability should be the true measure of US cre-ditworthiness“ was the title of the renowned British daily “The Guardian“ in a comment on 15 August 2011. They went on to say that sustainability ratings capture the true potential of states to successfully economise on a long-term basis far better than con-ventional credit ratings by Standard & Poor‘s and other agencies.

The Guardian comment takes up an issue, which is not only discussed ever more intensely among sustainable investors. As is the case regarding shares and corporate bonds, the consideration to social and environmental criteria also gains in signi-ficance when purchasing government bonds. In this case the motives are of a different nature: on the one hand, investors want to consider their own values in capital investments. Exclusion criteria are of parti-cular significance for these “principle-guided“ investors, frequently churches or foundations, invol-ving, for instance, the issue of whether a state applies the death sentence or systematically disre-gards human rights. At the same time these investors ask the question of whether a state behaves like a responsible member of the international communi-ty by constructively advocating global climate pro-tection. States which do not comply with investor requirements are excluded from investment.

On the other hand investors presume that a policy aligned to sustainability principles will have a posi-

tive effect on the creditworthiness of the states, i.e. the ability to avail themselves of issued bonds (inte-rest payment and principal repayment). And indeed it can be shown that many of the states currently dealing with huge economical problems have a tradi-tionally bad sustainability rating. Greece for example, being currently bombarded with criticism, has never reached the oekom Prime Status. Investors who have oriented their capital investments in government bonds on respective country ratings in the past were and are not invested here.

How can this correlation be described? States investing in education, promoting research and development, for example in renewable energies, and allowing citizens access to modern information and communication media, lay the foundation not only for the country‘s positive economical develop-ment but also for its citizen‘s good living conditions and development opportunities. The basic legal and social conditions are just as important. A pluralistic society in which civil and human rights are extensive-ly assured, in which there is freedom of the press and speech and in which all citizens have access to public services irrespective of their ability to pay bribes, will find mechanisms of conflict solution different to those of states in which these rights are limited. All these are factors which have a positive effect on the efficiency of a state and therefore on its creditwor-thiness.


oekom Country Rating

The oekom Country Rating evaluates the sustainability related efficiency of states in the equally weighted areas of environment and social matters on the basis of around 150 individual criteria. In both areas the criteria are based on internationally recognised concepts:

The social area builds on the concept of the Seven Freedoms of the United Nations Development Programme (UNDP), which contains a definition of the right of mankind to the protection of fundamental rights and from treatment contrary to human rights. Among others, the subject of discussion encompasses freedom of speech, legal security and discrimination.

On the one hand, oekom research evaluates basic political conditions, i.e. a state’s activities to lay the foun-dations for sustainable development and a high quality of life by creating effective frameworks in the areas of human and civil rights, the job market and social politics as well as the social infrastructure (e.g. education, health care). On the other hand it documents and evaluates the actual social conditions.

Criteria in the environmental area are based on the Pressure-State-Response-Concept developed by OECD. The evaluation of the environmental situation of a state is based on the following causal effects:

•    Pressure-criteria describe the pressure on the natural environment, e.g. through pollutant emissions or land use;

•    State-criteria display the condition of the environment, which changes under the pressure of human influence, e.g. information on air and water quality;

•    Response-criteria  document  and  evaluate  the  reaction  of  politics,  society  and  the  economy  on  the threats to the environment, e.g. air and water cleansing actions and climate protection initiatives.

The rating employs not only qualitative criteria, e.g. to evaluate the adherence of basic rights, but also quantitative criteria, e.g. the budget proportion of educational expenditure. Depending on the topic, the evalua-tion of qualitative and quantitative criteria is based either on best practice or on absolute targets. Fiscal indicators are considered if they are directly connected to social and environmental criteria, such as expenditure rela-ted to education and health care, for example.

oekom research evaluates 51 states, including all EU and OECD mem-bers, the so-called BRIC States and important emerging Asian markets, as well as the EU. This covers more than 90 per cent of globally outstanding government bonds.

Position Country Prime Status

1 Norway yes

2 Sweden yes

3 Denmark yes

4 Finland yes

5 Austria yes

6 Germany yes

..

21 France yes

..

27 Italy no

..

32 Greece no

..

44 USA no

..

52 India no

Excerpt from the oekom Country Rating; as at 31.12.2011; source: oekom research AG (2012)

oe-quote“There are more and more connections between social and environmental topics and their economic significance. For a long time, differences in income were deemed an important prerequisite for a functioning market economy. Meanwhile large differences between rich and poor are regarded as the cause of many problems – from social instability to the lack of purchasing power.“

Oliver Rüter, Research Director at oekom research


The world after Fukushima

Europe wonders about Germany, where those people talk about the acceleration of renewable energy deve-lopment who – since the 1980s and until Fukushima – had been explaining the need for nuclear power as a bridge, as such rapid development of renewables was not possible. The hectic energy-political U-turn is perceived as a product of “German angst“. In other words, as a knee-jerk reaction, hardly exemplary for others.

Europeanising German consensus

The red-green nuclear consensus of the year 2000 stood on two legs: controlled nuclear phase-out and impetus for renewables. For Germany, this triggered a notable success story: around five gigawatts in added capacity per annum (which equals four nuclear power stations), an export boom and system leadership for renewables, almost 400,000 qualified new jobs and a far-reaching consensus regarding the future of ener-gy after endless controversy in the past.

But far more importantly: a large and renowned industrial country has successfully led the way away from the use of nuclear energy. Those not wanting to leave the major proportion of the global renewables market to the Germans had to jump on the bandwagon – the whole of Europe and countries such as the United States and China reacted, albeit without nuclear phase-out. This nonetheless set industrial policy signals, and the renewables also gained glo-bal weight through competition and the “Economies of Scale“. Meanwhile, numerous reputable expert opinions and model calculations have proven that an ambitious Europe could be fully supplied with renew-ables within only 20 years.

Current politics in the EU

Hardly a day passes without flustered lamentations regarding the allegedly exploding costs for renew-able energies. Most European countries answer with extensive subsidy cutbacks. Surprisingly, the cost argument does not apply for power from offshore wind power plants. This clearly displays the European strategy: decentralised generation from the sun, water, wind and biogas does not conform to the inte-rests of major electricity companies. The actors of the decentralised development of renewable energies –citizens, medium sized companies or public utility

companies – are to hand over the reins. In return the continuation of fossil-nuclear generation structures is secured and regenerative power generation adju-sted to these centralistic structures.

EU Energy Commissioner Günther H. Oettinger goes a big step further. He recommended the har-monisation of the conveyor system; just after the European guideline regarding renewable energies had been implemented as national law and had initi-ally failed. The plan was not an adjustment to the suc-cessful German system but rather the introduction of a system in which the feed-in tariff is replaced by EU-wide trade with green certificates. The fact that a conveyor system was selected which had been inef-fective in Great Britain for years speaks volumes. The British system has failed completely, not only con-cerning the costs but also the development speed and especially the development of a local renewable energy industry. Just as power companies profit from the working life extension, so would the introduction of a harmonised conveyor system for regenerative power with certificate trade and quotas only serve the interests of the major power companies and dealers. Conveniently, this conveyor system would also only work once thousands of kilometres of new power ca- bles are in place, so that the energy turnaround would move far into the future.

It is ultimately a matter of control over the ener-gy systems of the future. Feed-in laws such as the German EEG, which has meanwhile been adopted by more than eighty countries, are emancipatory laws: away from decentralised energy generation in the hands of a few major companies towards a large num-ber of actors all providing regenerative power. Costs, network expansion and negative prices are only excu-ses to halt the reconstruction of the European energy system which has already been going on for a while. Opponents of the renewables are no longer recog-nisable by their open opposition but by the fact that they look for reasons for postponement.

The network

Commissioner Oettinger says that insular solutions would have no future and presumes an integrated European energy market as early as the next decade. In total, Oettinger banks on 45,000 kilometres of new power lines in Europe, with approximately 200 billion euros required for the extension of the energy infra-structure for power and gas.

This is a gift to the power companies, not only

Rollback or the Future of Renewable Energies in EuropeDr. Axel Berg, Chairman of the Eurosolar Section in Germany, Munich


to make the entry into offshore wind power plants appealing with high feed-in tariffs and cheap credits but also to integrate renewable energies in general into the model of the fossil-nuclear energy supply. This is an attempt to extend the system conflict be-tween regenerative and conventional energy gene-ration as long as possible and to protect the inte-rests of energy companies. It is significant that many opponents to an extension of onshore wind power only seem to have no problems in building enormous power line through the country.

Massive expansion of the maximum voltage network damages decentralisation

If only one to two per cent of Europe‘s territory were designated for the development of wind power, the available capacity could be expanded quickly with wind power plants optimised for non-coastal sites in the next few years. This would also make the necessi-ty of transporting large amounts of power all the way through Europe obsolete. The alternatives are also new storage technologies and capacities, intelligent networks and production management, optimised transport capacities and new transfer technologies. However, changes in the production structure will also become necessary. The fleet of power plants must become more flexible in general, so that the increasing volumes of fluctuating renewable energies can be permanently integrated.

Decentralisation instead of centralisation

Now the main focus should be on the volatility of energy production in order to enable the provision of a dynamic counterpart to the variable output of wind and solar power. However, Günther Oettinger says: “In order to keep costs low, we should build more wind power plants where the wind blows and install more solar systems where the sun shines…“ However, this is not the case; the most efficient use is always the one closest to consumption. Especially offshore wind production has revealed that this form of energy production is significantly more expensive than onshore wind power production. Onshore plants have clear cost advantages in comparison to offshore wind parks through lower costs in installation, net-work connection and operation, while allowing eco-nomic participation in European regions.

According to Oettinger, the production of ener-gy should remain in the hands of a few instead of many energy producers. Entire stretches of land are turned into outbacks for a transport infrastructu-re with gigantic power lines to relocate power from the Sahara to Hammerfest. As is the case with all of these major projects, the costs of the power lines will go far beyond the assumptions made today. Central

photovoltaics will however provide power in only a few years, the costs of which will be below those of offshore wind power and below grid parity, close to consumers and without long transport routes. The current debate is aimed at disguising this develop-ment, because – with new sponsors – photovoltaics in particular can rise from a niche position to become a crucial element of future power supply.

Income from energy production continues to flow into the pockets of established players and EU-citizens are supposed to pay for the fact that the corporations are even provided with the appropriate infrastructure, the “supergrid“. A rapid energy tur-naround which allows as many people to participa-te economically as possible and which prevents the persistence of the current power structures, requires setting a different, systemic course which goes bey-ond a purely quantitative development of renewable energies and enables the creation of a regenerative energy system. This paves the way to 100 per cent of renewable energies and utilises the newly developed regenerative energy economy‘s willingness to invest.

What still needs to be done

We need a European agency for renewable energies and the expansion of these agencies into all member states and regions, which enables interlinkage, pro-vides help and develops concrete scenarios for the European planning regions.

We would need a monetary shift for fusion ener-gy and CCS towards a preference for renewables in regional planning. If states have to report flora-fauna-habitat regions to the EU, why not demand that re-gions are reserved for renewables?

Instead of building power lines across borders, it would be more interesting to consider energy produ-cing trans-European projects. An example would be to connect the promotion of new infrastructure pro-jects such as highways and railways with the inter-linkage of an energy infrastructure along these power lines, i.e. the development of wind, water, solar and biomass power plants along these corridors. This would follow European lines of thought but would still be the responsibility of the regions and would relie-ve the networks. The EU does not need a top-down approach but rather professional potential analyses and action programmes on a regional level.

The current central structure also maintains the central position of only a few on the energy market: nobody will claim that the costs of energy supply are independent of oligopoly structures and the lack of competition. Competition arrives together with decentralisation. Decisions on energy policies should not be left to listed anonymous corporations; energy networks and supplies should rather be in the hands of European citizens.


Dr. Axel Berg, 52 years old, Solicitor and Political Scientist, Assistant to the Board in the Transport In-surance Sector. Directly elected member of the Bundestag from 1998 to 2009 in the electoral district of Northern Munich, holding the only direct mandate of the SPD in Bavaria in 2002 and 2005. Member of the Economic Committee, SPD Representative in the Enquete Committee of Enquiry on Climate and Energy, Co-author of the Renewable Energy Law (EEG), representative spokesman for energy issues of the SPD parliamentary group, initiator of the task force Sustainable Power Industry at the Friedrich-Ebert-Foundation, founder of “energiewerk“. Initiator of the export initiative for renewable energies. Member on numerous advisory committees and boards of trustees such as federal associations Bio-Energie and Erneuerbare Energien, Dena, Deutsch-Mosambikanische Gesellschaft, e-Parliament, Green City Energy, Max-Planck-Institute, energiewerk-Stiftung, Chairman of the Eurosolar Section in Germany since November 2009. Berg lives in Munich and works as a consultant on strategy and policy solutions relating to energy issues.


2. Corporate responsibility – status and trends

2.1 Basis for the analyses:the oekom Universe

oekom research has been evaluating companies and countries according to social and environmental cri-teria since 1993. We currently have 33 analysts, from a variety of professional backgrounds, who collect relevant data from companies and from indepen-dent sources and then evaluate this on the basis of industry-specific lists of criteria. Our ratings are used by more than 75 clients from nine countries in the management of their capital investments and for designing appropriate investment products. Our ratings currently influence the management of invest-ments valued at over 140 billion euros.

The oekom Universe currently comprises around 3,100 companies from over 50 countries. We cover major international indexes such as the MSCI World,

MSCI Emerging Markets and Stoxx 600 as well as national indexes like the Austrian ATX, the Belgian BEL20, the French CAC40, the German DAX family and the Swiss SMI. The oekom Universe can be subdivi-ded into three categories of issuers:

1. large listed companies from conventional sectors;

2. listed companies from sectors closely linked to sustainability, e.g. education and training, rene-wable energies and recycling; these are general-ly small and medium-sized enterprises (“oekom Potentials”);

3. non-listed issuers of bonds.

On the following pages, we will examine how far com-panies have already come along the road to this type of green economy. Our analyses will focus firstly on general developments in companies and industries. We will then look in more detail at a few issues which have been the subject of intense public debate or which we feel will become increasingly significant in the future. As in past years, we will analyse the situation as regards labour and human rights and the

spread of corruption and violations of competition regulations. This edition will also include observa-tions and evaluations concerning closed-loop recy-cling and the needs of an ageing society as well as companies‘ violations of recognised environmental standards. In this year’s outlook section, we will be looking at the question of what makes a good sustainability rating.

The investment of two per cent of global gross domestic product (GDP) – currently around 1.3 trillion euros – would, according to calculations by the United Nations Environment Programme (UNEP), be sufficient to finance the tran-sition from a high-carbon “brown” economy to a “green” economy. In summer 2012, 20 years after the

first Earth Summit, the countries will meet in Rio de Janeiro to discuss the outlook for sustainable devel-opment. The key issue will be the question of how to make the transition to a “green” economy which can be described as being low-carbon, resource-efficient and socially just.

➔

Please note:

The following analyses relate to different parent populations. Please refer to the relevant notes in the respective analyses.

The terms “corporate responsibility (CR)” and “sustainability”, as well as “CR management” and “sustainability manage-ment”, are used synonymously in the study.


In a two-stage process, we identify from a parent population those securities which meet the require-ments of sustainability-oriented investors, i.e. those which perform well in terms of sustainability and/or do not breach the exclusion criteria selected by the investors.

As a first step, the oekom Corporate Scouting process identifies the companies which can demon-strate that they meet minimum requirements in terms of social and environmental measures and of trans-parency about these. Companies which do not meet

these admission requirements are grouped together in the oekom Scouting Universe. These currently make up approximately 2,100 of the total of 3,100 companies rated. oekom research’s analysts conduct an indicative rating of these companies. The Scouting Universe is updated annually. Companies which clear this first hurdle are included in the oekom Rating Universe. In a second step, these issuers of shares and bonds, currently numbering around 1,000, are evaluated in the oekom Corporate Rating (see next section).

oekom Corporate Rating

Companies which meet the admission requirements for an oekom Corporate Rating are grouped together in the oekom Rating Universe and comprehensive-ly analysed. This process utilises approximately 100 separate industry-specific indicators drawn from a pool of around 500 indicators, in order to take account of the specific sustainability-related chal-lenges facing each industry. Management structures and performance are evaluated in six thematic areas, including employees & suppliers, corporate gover-nance & business ethics, and products & services.

oekom research employs an absolute best-in-class approach. Under this approach, the only companies

which qualify for best-in-class status are those which have achieved a minimum rating score set by oekom research on its rating scale, which ranges from A+ (highest score) to D-. In this context, oekom research uses the term “Prime threshold”, which is set separately for each industry. The greater the industry‘s (potential) adverse impact on the envi-ronment, employees and society, the higher the threshold. Companies whose performance exceeds this threshold are awarded Prime Status by oekom research. The industry-specific lists of criteria are regularly updated in order to take into account new technical, social, legal and other developments.

Exclusion criteria

For all the companies in the oekom Rating Universe, oekom research carries out a comprehensive analysis in respect of possible breaches of a total of 18 exclusi-on criteria. These include on the one hand controver-sial business areas, such as the classic “sin stocks” – alcohol, gambling, military, pornography and tobac-co – but also issues such as a company’s involvement in the areas of nuclear power or agricultural genetic engineering. On the other hand, there are also exclu-sion criteria relating to company behaviour, e.g. in the areas of labour and human rights, corruption and environmental pollution. These violations will be looked at in detail in section 2.4.

Top 10 of the exclusion criteria used by oekom research‘s clients; as at 31.12.2011; in %; source: oekom research AG (2012)


2.2 Corporate responsibility: overall performance

More than two-thirds of listed companies in Germany see the issue of sustainability as being crucial to their own future development. This was one of the findings to emerge from a spring 2011 survey of 86 listed German companies, carried out by the Deutsches Aktieninstitut and the German Sustainable Business Institute (SBI). In an earlier survey, conducted in 2003, the equivalent figure had been just under 40 per cent.

According to a survey by the auditing and adviso-ry firm KPMG of 378 companies in Europe, the USA, Canada and the Asia-Pacific region, since 2008 the proportion of companies pursuing a sustainability strategy has risen from 50 to 62 per cent. 61 per cent of those surveyed are convinced that implementing sustainability programmes has paid off, either by cutting their costs or by increasing their profitability.

Finally, Deloitte has revealed that around two-thirds of the Chief Financial Officers (CFOs) surveyed by the consultancy firm are convinced that sustaina-bility will in future play an increasingly important role as a factor in companies’ financial performance. One-third of the CFOs surveyed stated that they were fully involved in all aspects of sustainability strategy and governance, a little over one-third said that they were periodically involved, while a further third were rarely or never involved.

These are striking figures. However, thanks to the

direct contact between our analysts and the compa-nies rated, we know that the way companies percei-ve themselves is not always in line with our analysis of them. In fact, only just over one in six companies currently fulfils the minimum requirements in terms of sustainability management laid down by oekom research for the award of oekom Prime status. As at 31 December 2011, these included:

•    302  large  companies  from  conventional  sec-tors;

•    181  “oekom  Potentials“  from  sectors  closely linked to sustainability;

•    60 non-listed bond issuers.

The proportion of issuers with Prime status has fallen slightly, from 18.5 per cent in 2010 to 17.1 per cent in 2011. The reason for this is the expansion of the oekom Scouting Universe; in absolute terms, the number of companies awarded Prime status by oekom research has remained constant. Around a quarter of the total of 3,100 companies rated by oekom research (25.5 per cent) demonstrate sound approaches to sustainability management, but sustainability-rela-ted issues are still not being systematically and com-prehensively integrated into management systems. Well over half the companies (57.4 per cent) have taken little or no action at all in this area.

Evaluation of the sustainability performance of companies from the oekom Universe; in %; source: oekom research AG (2012)

31.12.2010 31.12.2011


A comparison of the companies from various coun-tries listed in the MSCI World gives the following pic-ture: Germany, with 50 per cent, has the highest pro-portion of companies awarded oekom Prime Status, and 24 of the total of 48 companies listed in the MSCI World with their main offices in Germany fulfil the industry-specific minimum requirements in terms of sustainability management.

Italy follows in second place (with 48.2 per cent), ahead of Finland (with 47.3 per cent) in third place. In France, almost one-third of companies achieve Prime Status, while a good quarter of Swiss and Austrian companies manage to do so. In two industrialised countries, the USA and Japan, fewer than one in ten companies show a sufficient level of commitment to sustainable development, while not a single compa-ny from Singapore makes the grade.

CountryNumber of companies listed in MSCI World

Companies with Prime Status (in %)

Germany 48 50.0

Italy 27 48.2

Finland 17 47.3

Denmark 11 45.5

UK 96 42.7

Netherlands 23 39.1

Sweden 32 37.5

Spain 27 33.3

France 71 31.0

Switzerland 43 27.9

Austria 8 25.0

Australia 68 11.8

USA 554 9.4

Japan 336 6.3

Canada 96 6.3

Hong Kong 39 5.1

Singapore 32 0.0

Proportion of companies with oekom Prime Status in various countries; basis: MSCI World; as at 31.12.2011; source: oekom research AG (2012)

oe-quote“The ambitiousness of sustainability management systems varies significantly between indi-vidual companies, sectors and countries. Precise analysis of these is therefore essential. On the whole, however, it has to be said that action in this regard falls far short of what is required from the point of view of sustainability. In order to achieve the goal of a green economy, efforts will have to be stepped up significantly.“

Matthias Bönning, COO and Head of Research at oekom research


2.3 Corporate responsibility in selected sectors

2.3.1 The sector champions

As a sustainability rating agency, we sometimes tend to emphasize companies’ shortcomings in exercising their social responsibilities, in order to highlight the risks and call for the necessary improvements to be made. However, in all the sectors we looked at there are a number of committed companies which syste-matically tackle the challenges posed by sustainable development and are far from being merely what under the best-in-class approach are sometimes referred to as “the short-sighted leading the blind”. The following table gives an overview of the best com-panies in selected sectors. The best-in-class rating

from the oekom Corporate Rating serves as the basis here.

In six of the 20 sectors, the top company has changed since 2010. In three of these six cases, the previous leader has been replaced by the former number two. The 20 leading companies include six from the UK and three from Germany. The bad news: the best companies in this list achieved a score of B+ in the oekom Corporate Rating. So even the best in the industry still need to make improvements when it comes to sustainability.

The best companies in selected sectors as at 31.12.2011; basis: oekom Universe; source: oekom research AG (2012)


2.3.2 Industry rating

In the conventional sectors, manufacturers of household products achieved the best rating for their sustainability management, scoring 46.5 on a scale ranging from 0 (very poor sustainability performance) to 100 (very good sustainability performance). They were thus the most successful in fulfilling oekom research’s industry-specific minimum requirements for sustainability management. Computer manufac-turers, with an average rating of 42.0, took second place. At the same time, with a decrease of 5.8 per-centage points since the end of 2010, Apple, Dell and co. have seen the greatest deterioration in the rating of their sustainability management. As in the previous year, the automotive industry came in third place, but with an average rating of 40.9, it too failed

to perform quite as well as in the previous year.Languishing at the bottom of the rankings, as in

the previous year, were the commercial banks, oil and gas companies and the real estate sector. While the commercial banks did show some signs of progress, the situation as regards real estate companies has actually deteriorated even further.

Only five of the 15 industries assessed here have improved their average rating, the greatest impro-vement having been made by the energy and water suppliers and chemical companies (up 1.6 percen-tage points in each case). By contrast, there was a sharp fall in the ratings of computer manufacturers (as mentioned earlier), as well as in those of telecom-munications and insurance companies.

Average score of companies from selected industries on a scale ranging from 0 (very poor sustainability performance) to 100 (very good sustainability perfor-mance); as at 31.12.2011; basis: MSCI World; source: oekom research AG (2012)

2.3.3 Industry profiles

A number of industries will be portrayed in detail below. Together with a statistical overview of the industry‘s results, the profiles will contain a compre-

hensive assessment of the status of and outlook for sustainability management in that industry.


Auto Components

The industry at a glance Outlook

Auto components suppliers are facing great chal-lenges in terms of sustainability, both on the pro-curement and production side and on the demand side. On the demand side, the automotive industry is undergoing a process of transformation which will have a direct impact on the services provided by sup-pliers. Challenges here include firstly the constant-ly increasing demands for more environmentally- friendly vehicle design which are being placed on the industry by politicians as well as consumers. Here, the focus is currently on fuel consumption and CO2 emissions, but reducing noise emissions from ever- growing volumes of traffic will also become increa-singly important. Secondly, alternative drive systems, first and foremost the use of electrically-powered vehicles, which is favoured by politicians, will lead to changes for suppliers in the demand from car manu-facturers.

Car manufacturers need to come up with convin-cing solutions in response to both these develop-ments. This will entail comprehensive investment in research and development, as well as continuous development of their product ranges. The companies in the auto components industry are thus at the cen-tre of the shift taking place throughout the automoti-ve sector towards new forms of personal mobility and alternative drives. Many auto components suppliers are failing to address these challenges actively – perhaps because they are buoyed up by the recent upswing in the automotive industry.

On both the procurement and production side, the task of differentiating their supplier relation-ships poses a great challenge for auto components suppliers. One of the key objectives here is to ensu-re good labour and safety standards. Only a small number of auto components suppliers have systems in place to ensure that their suppliers comply with appropriate labour standards, and the monitoring of such guidelines is generally sketchy. As for the quali-ty of processed raw materials in terms of sustainabi-lity, that is something the industry is only just begin-ning to address.

Analyst responsible for this sector:Reinhold Windorfer

Total number of companies 41

Number of Scouting companies 25

Number of Rating companies 16

Key sustainability issues

•   Business focus on a sustainable product port-folio

•   Environmental quality of products

•   Social and environmental issues in the supply chain

oekom Prime Status

Number of companies 8

Proportion of companies 19.5%

n=41

Top 3 companies

Johnson Controls (US) B-

Pirelli (IT) B-

Denso (JP) C+

Average score of all companies D+

Most frequent breaches of exclusion criteria

Controversial business practices 6.3%

Labour rights 6.3%

n=16

As at 31.12.2011; source: oekom research AG (2012)


Information Technology


The incredibly fast pace of innovation in the IT sec-tor shows no sign of slowing down. This means that products which have only just been hailed as being “ultra-modern” all too often become obsolete just as quickly. While this short product lifecycle does lead to improvements in the energy efficiency of products, such progress comes at a huge cost in terms of other environmental considerations, such as the total con-sumption of raw materials and energy in manufac-turing and also the drastic increase in quantities of electronic waste. IT companies need to find appro-priate solutions to both these problems as quickly as possible. For example, suppliers must be obligated to cut their CO2 emissions and the levels of raw-mate-rial and energy consumption during production must be reduced. So far, only a very few IT companies are expressly demanding specific reductions in this area.

In order to alleviate the e-waste problem, it will also be necessary for rigorous efforts to be made to eliminate hazardous substances, over and above the demands of the Restriction of Hazardous Substances (RoHS) Directive. In addition, in order to close product lifecycle loops, companies should set more targeted incentives for their customers. Product lifecycles could be significantly lengthened through the buy-back and subsequent refurbishing of used products, through leasing and renting systems and by making it easier for products to be repaired. However, to date there are no comprehensive programmes addressing this issue.

There must also be an easy and free way for custo-mers to return their used products to the manufactu-rer, in order to minimise the illegal export of e-waste to developing countries. Manufacturers of mobile phones are taking the lead here, but the necessary customer information is not yet available industry-wide. The increasing scarcity of raw materials and the associated costs mean that in the medium term it will be commercially advantageous for companies to close their product lifecycle loops to the greatest possible extent.

From a social point of view, it is important to sustain and intensify efforts to improve working con-ditions in suppliers’ operations. Furthermore, just one fair trade initiative could provide the momentum needed for change and offer a genuine alternative for sustainability-minded consumers.

Analyst responsible for this sector:Philipp Rühle





•   Working conditions in the supply chain

•   Reduction/substitution of hazardous compo-nents

•   Return, recycling, reuse

•   Customer information on potential energy sa-   vings and hazardous substances

oekom Prime Status



n=205

Top 3 companies

Ricoh (JP) B+

Intel (US) B+

Motorola Mobility (US) B



Labour rights 18.5%


Military 3.7%

n=54



Paper & Forest Products


The leading companies in the industry have recog-nised that it is not sufficient merely to invoke the industry’s “nature-based” merits, but that over and above this, it will also be necessary to make signi-ficant efforts to minimise the negative impacts of their operations. For, despite all the romanticisation of the forest which even these companies are often prone to, forestry involves the industrial exploitation of resources, with all the risks that this entails.

Reporting in the companies rated focuses on the key issues in the industry. However, the quality and scope of the measures implemented still vary con-siderably and range from isolated “lighthouse pro-jects” to programmes that are implemented group-wide. The leading companies also report transpa-rently on land use conflicts and their dealings with affected stakeholders.

Transparency regarding the buying in of wood and pulp via certified traceability systems and from certi-fied sources, by contrast, is still in its infancy. In futu-re, companies will have to put even more effort into checking the provenance of the wood they use and proving its legality. The USA and the EU have already passed relevant laws on the import of wood products.

The credibility of forest and wood certification standards will in future continue to be an important issue for the industry. Varying degrees of strictness in sub-standards at country level within global cer-tification systems, together with isolated incidents where certification guidelines have been breached, risk damaging the credibility of these certifications.

Another important issue will be the industry’s stance on the commercial use of genetically modi-fied trees and the risks associated with this. Already, three of the 13 companies analysed in detail have bre-ached the “agricultural genetic engineering” exclu-sion criterion because they are involved in field trials of genetically modified trees either through their sub-sidiaries or through other holdings.

Overall, the picture in this industry will remain ambivalent for as long as, for example, well-managed, species-rich forests are countered by the clear-felling of primary forest and the destruction of other eco-systems deserving protection.

Analyst responsible for this sector:Ellen Mayer





•   Sustainable management of forests/planta-tions

•   Sustainable fibre procurement

•   Reduction of environmental impacts in further processing of wood/fibre

•   Protection of human rights and livelihoods

oekom Prime Status



n=21

Top 3 companies

Stora Enso (FI) B

Holmen (SE) B

Svenska Cellulosa (SE) B

Average score of all companies C


GMOs 23.1%

Tobacco 23.1%

Nuclear power 15.4%

n=13



Pharmaceuticals & Biotechnology


The large pharmaceutical companies have for years stood out for the comprehensive sustainability initiatives they have introduced, particularly in the social sphere, but it is the frequent controversies arising out of their product marketing which con-tinue to attract public attention. In the case of the biotechnology and generics companies, which tend to be newer and smaller, the scope of sustainability activities is often still very limited and the reporting less detailed. Despite positive developments such as greater transparency about the results of clinical trials and increased research into drugs for develo-ping countries, the large companies often fail to take a proactive approach to new sustainability challen-ges. The failure to put sufficient emphasis on studies in developing countries is an example of this.

The recently observed increase in research into tropical diseases means that improvements in treat-ment provision in developing countries can be expec-ted over the medium term. However, it remains to be seen whether – and if so to what extent – barriers to access, for example regarding delivery, can be over-come.

The issue of drug testing in developing countries will become increasingly important, as growing num-bers of studies are being carried out outside coun-tries with properly functioning regulation and control mechanisms. In order to counter the considerable risks involved, the manufacturers will increasingly have to take special precautionary measures which go beyond those required in industrialised countries.

In the environmental sphere, too, the industry restricts itself too severely to complying with regula-tory requirements, only sporadically adopting more far-reaching measures. For example, no company has yet developed cogent strategies for reducing environ-mental pollution consistently across all stages of the product cycle.

As regards marketing practices, the increasing penalisation of violations by national authorities means that the industry is likely to be faced with a growing number of fines. As well as legislation being enforced more rigorously, in recent years the amount of regulation has also increased, so more and more of the grey areas exploited by the pharmaceuticals industry are being eliminated. For the companies, this will mean an increased need for training on compliance measures.

Analyst responsible for this sector:Marlen Rürup





•   Improving access to medicines and vaccines in developing countries

•   Sales and marketing practices

•   Design and transparency of clinical studies

•   Sustainable water management

oekom Prime Status



n=81

Top 3 companies

GlaxoSmithKline (GB) B-

Novozymes (DK) B-

Novartis (CH) B-



Embryonic research 52.4%


GMOs 9.5%

n=21



Retail


The oekom Corporate Rating of retailers shows that most of the companies rated have identified major social and environmental problems in the industry. However, there are huge differences in terms of the commitment and consistency with which sustainable company development is being pursued.

While the majority of retailers offer at least some products with environmental or social added value, such as fair trade or organically certified foods, only a few have so far adopted a comprehensive strategic approach aimed at promoting sustainable consump-tion. Here, companies need to think more carefully about “choice editing”, i.e. withholding products from consumers due to their environmentally harmful or other socially undesirable properties.

Although retailers do not normally cultivate or manufacture their products themselves, they bear a great deal of responsibility for environmentally dama-ging or inhumane cultivation and production methods in the supply chain. For this reason, the industry must ensure greater transparency and traceability in their often extremely complex supply chains, for example as regards the origins of raw materials. Where labour rights are concerned, compliance programmes should increasingly include not just direct suppliers but also sub-suppliers further down the supply chain. The so-called “Ruggie process”, which at UN level focuses on companies’ responsibility for ensuring respect for labour rights and human rights along the entire value chain, could act as a stimulus here.

It would also be in retailers’ own interests to inte-grate sustainability more fully into their corporate strategies in future. At a time when resources are growing increasingly scarce, it will be necessary to use cultivation methods that conserve raw materials so that these continue to be obtainable in sufficient quantities and at good prices in the future. For their own-brand products, some companies are therefore increasingly looking to form direct and long-term relationships with farmers. This also gives them a more powerful lever for pushing through improved working conditions and more environmentally-friend-ly production locally.

Analyst responsible for this sector:Lisa Häuser





•   Working conditions in the company and in the supply chain

•   Providing customers with information on pro-duct attributes

•   Promotion of products with additional environ-mental or social benefits

•   Sustainable cultivation and production condi-tions in the supply chain

oekom Prime Status



n=133

Top 3 companies

Coop Genossenschaft (CH) B+

Migros Genossenschaft (CH) B-

Marks & Spencer (GB) B-



GMOs 85.7%

Alcohol 67.9%

Tobacco 53.6%

n=26



Transport & Logistics / Rail


In future, technological achievements will make rail transport even safer and more environmentally friendly. Automatic safety systems will reduce fatal accidents and environmental pollution resulting from accidents, and freight trains will be quieter and emit fewer pollutants (e.g. nitrogen oxides and fine par-ticulates). This development is being promoted by means of appropriate regulations. However, delays by member states in implementing some of the EU directives – such as in the case of noise mitigation – and lobbying by rail companies are putting the brakes on the progress that could be being made. In addi-tion, the long lifetime of rolling stock prevents rapid replacement of the fleet, and high investment costs lessen railway companies’ willingness to take proac-tive measures. They are interested primarily in tap-ping the still considerable potential for energy saving through changes in operation or the use of new tech-nologies, e.g. driver assistance systems, more efficient air conditioning, hybrid drives and mobile sto-rage technologies.

Most rail operators are well positioned in the growth area of intermodal logistics solutions, as they recognised early on the need for transport solutions that combine the climate-friendliness of railways with the flexibility of roads. Demand in this area has also been fuelled by manufacturing companies, which are endeavouring to cut their transport-related green-house gas emissions as part of their climate protec-tion programmes.

However, in order to position themselves in the long term as providers of an environmentally-friend-ly means of transport, rail operators need to take a closer look at their impact on biodiversity and, most importantly, must not miss out on the transition to renewable energies. So far, only a few pioneering companies are offering their customers truly climate-friendly transport by operating electric locomotives which run on electricity generated from wind or water power. Without a greater level of commitment, for example in the development of electric drives with no overhead wires, which could replace diesel locomo-tives on non-electrified lines, shorter lines could in the medium term face competition from road vehicles powered by renewable fuels.

Analyst responsible for this sector:Marlen Rürup





•   Development of sustainable transport solutions

•   Improvements in transport safety

•   Noise mitigation

•   Biodiversity

•   Prevention of accidents due to fatigue

oekom Prime Status



n=27

Top 3 companies

Deutsche Bahn (DE) B

CP – Comboios de Portugal (PT) B-

Canadian Pacific Railway (CA) B-

Average score of all companies C


Alcohol 17.7%

Tobacco 17.7%


n=17



Utilities


The legal constraints on the already heavily regulated utilities sector are likely to tighten further in the next few years, particularly in relation to competition. It is anticipated that the energy-supply industry will face further high fines and increased constraints. In some cases, this could mean companies having to sell enti-re branches of their business.

At the same time, legal constraints with regard to climate protection, renewable energies and energy efficiency will continue to rise. Besides the European Union Emission Trading System (EU ETS), sever-al US states already have similar systems in place, and further initiatives are planned, for example in Australia, Canada and New Zealand. Companies with low carbon intensity and proactive strategies regarding low-carbon energy sources are exposed to significantly lower risks. For energy suppliers which traditionally rely heavily on coal or other fossil fuels, this may in the short term lead to significant falls in profit and in the medium to long term necessitate fundamental restructuring of their business model. These companies will also feel the growing scarcity and rising price of fossil fuels keenly. The industry also faces additional challenges in the area of ener-gy efficiency. Through the trade in so-called “white certificates”, energy suppliers will be obliged to implement energy efficiency measures for electricity consumers and to achieve specified savings targets.

There is also likely to be an increase in regulatory pressure due to water scarcity. For example, UK water suppliers already have to explain to the authorities how they plan to guarantee water supplies in the next 20 years and how they intend to prevent overuse of water.

Many countries have set themselves concrete targets for hastening the expansion of renewable energies. Although many utility companies are alrea-dy active in this area, it will be necessary to step up this expansion in the years to come. The same applies to the upgrading and expansion of electricity net-works. As regards the feasibility of building urgently required new renewable energy generating plants and additional power lines and implementing energy savings, the crucial factor will be ensuring adequate public support.

Analyst responsible for this sector:Susanne Marttila





•   Climate protection through increased use of renewable energies and increased energy efficiency

•   Secure and reliable energy and water supply for all sections of the population

•   Environmentally sound operation of plant and infrastructure

•   Fair business practices

oekom Prime Status



n=157

Top 3 companies*

EDP – Energias do Brasil (BR) B

Suez Environnement (FR) B

EDP – Energias de Portugal (PT) B

Average score of all companies C-

* In the energy and water supply sector. Overall, the network operators Terna Rete Elettrica Nazionale (IT), REN – Redes Energéticas Nacionais (PT) and Red Eléctrica Corporación (ES) were the top performers, each achieving a score of B+.


Nuclear power 62.7%


Controversial environmental practices 19.6%

n=51



2.4.1 Corruption and restrictive practices

Corruption

In November 2011, Transparency International published the 2011 Bribe Payers Index (BPI), the companion publication to its well-known Corruption Perceptions Index. The BPI measures the extent to which companies in the leading economies are pre-pared to pay bribes abroad. Altogether, the beha-viour of companies from 28 countries was examined. The study was based on a survey of 3,016 managers.

Dutch companies achieved the best ranking, with a score of 8.8 on a scale from 1 to 10. Switzerland and Belgium took second and third places. Germany, with a score of 8.6, once again came in fourth place, as it did in the 2008 BPI. Companies in Russia and China are the most likely to pay bribes abroad.

2.4 Corporate responsibility with regard to selected issues

As in previous years, in this section we will document and analyse interesting trends in selected areas. These include the issues of corruption and restric-tive practices as well as labour and human rights, which have been subject to regular scrutiny since the second edition of the Corporate Responsibility Review. In future, this category will also cover the issue of environmental violations, which we are inclu-ding for the first time in this edition.

This edition will also include an analysis of the current situation with regard to activities in the area of closed-loop recycling as well as of measures taken by companies to address the issue of an ageing socie-ty. Under the heading “Digging deeper”, we will also look at some of the issues we highlighted in the Corporate Responsibility Review 2011 and document what has been done since then.

Rank Country Score

1 Netherlands 8.8

2 Switzerland 8.8

3 Belgium 8.7

4 Germany 8.6

5 Japan 8.6

10 USA 8.1

11 France 8.0

27 China 6.5

28 Russia 6.1

Bribe Payers Index 2011; scale: 1 to 10; source: Transparency International (2011)

From a sectoral perspective, producers of communi-cations equipment, the aerospace industry and com-puter manufacturers are those most conspicuous for their involvement in corruption cases. In the machi-nery industry, too, at least one in ten companies has been shown to be involved in corruption. Here, there was a significant rise compared with 2010, of +2.4 percentage points. The proportion of offending companies has also risen among internet and soft-ware suppliers (+5 percentage points) and manufac-turers of communications equipment (+1.8 percen-tage points). The construction industry recorded the greatest reduction in proven cases of corruption, with the proportion of companies affected falling from 15.3 to 7.7 per cent.

Bearing in mind that experts put the number of corruption cases that are detected and investigated at between five and 20 per cent, it must be assumed that the actual corruption rates in all the industries featured are even higher.

Percentage of companies in selected industries with breaches in the area corruption; as at 31.12.2011; basis: oekom Rating Universe; in %; source: oekom research AG (2012)


Restrictive practices

The list of companies which were fined in 2011 for restrictions on competition and antitrust infringe-ments reads like a “Who’s Who” of the international business world: Colgate-Palmolive, Daimler, E.ON, Enel, France Telecom, Henkel, Hyundai, JP Morgan, Kraft Foods, L‘Oréal, Peugeot, Procter & Gamble, Unilever – and the list could go on.

As in the previous year, producers of consumer electronics had the dubious honour of taking the “top spot“ for restrictions on competition and anti-trust infringements, with 66.7 per cent (last year: 75.0 per cent). The proportions for manufacturers of household goods and construction materials have remained unchanged, at 54.6 per cent and 53.4 per cent respectively.

The proportion of companies involved in viola-tions of competition regulations has risen in both the food industry (+4.1 percentage points) and com-mercial banking (+2.5 percentage points). In contrast, reductions were recorded in the chemicals industry (-17.4 percentage points), the oil and gas sector (-7.4 percentage points) and the metal industry (-6.1 per-centage points).

Case study: Telekomunikacja Polska

In June 2011, the European Commission fined France Telecom’s Polish subsidiary Telekomunikacja Polska (TP) 127.6 million euros for abusing its dominant position on the Polish telecommunications market. As a dominant company, TP has to allow other providers in downstream telecommunications markets access to its telecommunications network and its wholesale broadband services, against payment of an appropriate fee. According to the European Commission, it is clear from the ex-tensive evidence that TP deliberately attempted to reduce competition on the broadband markets in Poland by intentionally placing obstacles in the way of other suppliers from August 2005 until at least October 2009. For example, TP proposed un-acceptable terms and conditions, delayed negotiations, turned down orders with no explanation and refused to give reliable and accurate information. According to a statement from France Telecom, the company voluntarily rectified all the abuses revealed by the European Commission as soon as they became known.

Percentage of companies in selected industries with breaches in the area restrictive practices; as at 31.12.2011; basis: oekom Rating Universe; in %; source: oekom research AG (2012)

oe-quote“Corruption is often wrongly dismissed as a problem of emerging and developing economies. However, there are also many companies in the supposedly developed industrialised coun-tries which operate on the basis of Cicero’s maxim that no place is so strongly fortified that money could not capture it.“

Dietrich Wild, Research Director at oekom research


2.4.2 Labour rights and human rights

Labour rights

Although it is important not to ignore the issue of labour rights in the industrialised countries in the wake of the increase in temporary work contracts and precarious working conditions, the emerging and developing economies are currently the main focus of attention here. On the one hand, many companies from industrialised countries have in recent years outsourced parts of their production to such countries or procure raw materials, as well as intermediate and finished products, from suppliers based in emerging or developing countries. On the other hand, the international division of labour has led to the appearance of multinational companies in emerging and developing countries. The UN puts the current number of “emerging market multinationals” at 20,000.

Labour rights violations here often relate to the core labour standards of the International Labour Organization (ILO) in the areas of discrimination, child labour and forced labour, as well as freedom of association. Further key issues include workplaces hazardous to health and excessive working hours and overtime. The following figures illustrate the pro-blems affecting these labour rights:

•    Every  year,  according  to  the  ILO,  around  2.3 million employees lose their lives through accidents at work or work-related illnesses.

•    According to ILO data, the proportion of wor-kers globally who, together with their families, are living below the poverty line of less than two US dollars a day stands at 39 per cent.

•    A 2010  ILO study on child  labour shows  that there are 215 million children working world-wide. More than half of these are engaged in work which is classified as hazardous.

•     According  to  the  NGO  Oxfam,  75  per  cent  of workers in the textile industry in Bangladesh (working on an hourly basis) have no written contract, and 89 per cent do not know what their basic wage without overtime is. 68 per cent of labourers in Morocco’s agricultural industry earn less than the legal minimum wage. In the shrimp industry in Thailand, 40 per cent of migrant workers regularly work shifts of more than twelve hours.

•    The  International Trade  Union  Confederation (ITUC) rates South America as being the most dangerous part of the world to engage in trade union activities. In 2010, 90 trade union mem-bers were murdered, 49 of them in Colombia alone.

Working conditions in companies manufacturing computers remain a particular concern, even though the proportion of companies violating labour rights fell from 50 per cent at the end of 2010 to 42.1 per cent. The same applies to manufacturer of mobile phones. And even the textiles industry, where this issue has been a bone of contention for decades – the first calls to “boycott Nike” were issued in the mid-1990s – has still not managed to bring about a significant improvement in working conditions across the industry. Even now, the proportion of compa-nies which have been rated by oekom research and where this kind of (supplier-related) violation has been recorded stands at 30 per cent. However, the proportion has at least fallen by 7.5 percentage points compared with the previous year.

Labour rights violations are also comparatively frequent in the retail sector and the mining industry, where around a quarter of companies are implicated. There have been sharp increases in the automotive sector (+6.2 percentage points) and the chemical industry (+5.5 percentage points). By contrast, the proportions of companies in the food industry (-8.4 percentage points) and among telecommunications providers (-4.2 percentage points) involved in labour rights violations have fallen.

Percentage of companies in selected industries with breaches in the area labour rights; as at 31.12.2011; basis: oekom Rating Universe; in %; source: oekom research AG (2012)


Case study: Zara

According to a study published in August 2011 by the NGO Repórter Brasil, a Brazilian supplier of the Inditex subsidiary Zara is alleged to have been involved in forced labour. In São Paulo, 15 illegal migrant workers, including a 14-year-old girl, were discovered and freed during an inspection carried out in July 2011 by the Brazilian authorities. The migrant workers came from Bolivia and Peru and were working in two textile factories under conditions tantamount to slavery. Both factories were supplying AHA Indústria e Comércio de Roupas and sewing clothes for the Zara brand. The workers had allegedly been working as bonded labourers, as they had to pay back their intermediary fees and travel costs and were not allowed to leave the factory site without special permission. The source also stated that migrant workers were living under dangerous and unhygienic conditions in the factory buildings. Furthermore, the workers were working in areas which were full of fabrics and where there were virtually no windows and no fire extinguishers, increasing the fire hazard. According to the study, the workers were working 12- to 16-hour shifts and receiving a monthly wage of between 274 (119 euros) and 460 Brazilian reals (200 euros), below the statutory minimum wage of 545 Brazilian reals (236 euros). The 14-year-old girl was looking after children and serving food and had not attended school since 2010.

oe-quote“Worldwide, large numbers of people continue to work under inhumane conditions. Companies which profit from the global division of labour must therefore ultimately take full responsibility for working conditions in their global supply chains.“

Lisa Häuser, Senior Analyst at oekom research with responsibility for the issue of labour standards in the supply chain


oekom World Map of Global Labour Rights Hotspots

The world map below gives an overview of internatio-nal hotspots of violations of labour rights. The map does not claim to be complete, but illustrates exam-

ples of the nature and scale of such labour rights vio-lations.

1 USA: anti-union behaviour in the private sector

2 Central America: restrictions on freedom of association and discriminatory practices in free trade areas

3 Colombia: persecution and murder of trade union members; generally poor health and safety conditions in mines, inadequate workplace safety

4 Brazil: cases of forced labour in agriculture

5 Spain: poor working conditions for migrant agricultural workers

6 Egypt: child labour in agriculture

7 Ivory Coast: child labour and forced labour in the cocoa industry

8 DR Congo: forced labour and child labour in the mining of coltan, cobalt, tin and gold

9 Malawi: bonded labour on tobacco plantations

10 South Africa: frequent serious accidents and widespread occupational diseases such as silicosis in gold mines

11 Uzbekistan: child labour in the cotton industry

12 Kazakhstan: bonded labour on tobacco plantations; serious accidents due to poor safety standards in coal mines

13 India: generally poor occupational safety conditions in mines, inadequate workplace safety

14 Bangladesh, China, India: forced overtime, below-subsistence-level wages, inadequate health and safety standards in the manufacturing industry

Selected cases of labour rights violations; source: oekom research AG (2012)


Human rights

In 2011, oekom research recorded serious cases of human rights violations in companies in four indu-stries it had rated. As before, the companies most heavily involved were those in the mining sector, even though the proportion here had fallen from 39.4 per cent (2010) to 27.3 per cent. As far as human rights are concerned, the main issues tend to be conflicts following the opening up and expansion of opencast mines, involving in particular threats to, forced dis-placement of and inadequate compensation for local residents, as well as adverse effects on local people’s livelihoods.

If energy suppliers are one of the main users of coal which is extracted from opencast mines where there is large-scale abuse of human rights, their joint responsibility for the practices concerned means that they should also be counted as having been compli-cit in and/or profited from the relevant human rights violation. Overall, 7.8 per cent of energy and water suppliers have committed a violation in the area of human rights. There were also isolated cases of human rights violations in the paper and forestry industry and among oil and gas companies.

Percentage of companies in selected industries with breaches in the area human rights; as at 31.12.2011; basis: oekom Rating Universe; in %; source: oekom research AG (2012)

2.4.3 Environmental violations

According to a ranking by the Russian statistics office, Norilsk, where the Russian company Norilsk Nickel is based, is the city with the heaviest environmental pollution in Russia. The emissions from nickel pro-duction cause smog and acid rain and have led to the emergence of a “death zone” around the town, which for kilometres is bare of vegetation and looks like a moon landscape. According to the NGO Blacksmith Institute, the concentration of heavy metals in the topsoil is so high that it would actually be profit-able to reprocess it. The children in Norilsk often suffer from respiratory diseases, and life expectan-cy is lower than elsewhere in Russia. Norilsk Nickel employees get regular “health holidays”, which they are supposed to take well away from the town, in order to restore their health and strength so they are ready to return to work.

This is just one example of the enormous impacts that companies are still making on the surrounding natural environment. One source of environmen-tal destruction is the operation by companies from industrialised countries of their own plants and asso-ciated infrastructure. These operations are frequently located in emerging and developing countries, where legal environmental standards are as a rule not so high. It is thus particularly important here that com-panies from industrialised countries set themselves

uniformly high environmental standards worldwide, to which they then adhere.

Environmental violations are particularly common in the mining industry and the oil and gas sector, where interventions in the natural world sometimes take place on a massive scale. As regards the mining industry, the main issue is the impact of opencast mining, but the effects of the use of toxic substances, for example mercury and cyanide in the extraction of gold, are also a concern.

Environmental destruction in the oil and gas in-dustry results from the exploration for and extrac-tion of oil and gas and the associated construction of the necessary infrastructure. Production often takes place in sensitive natural environments, for example in Alaska or in the Niger Delta. The construction and operation of plant such as pipelines has an adverse impact on the environment, particularly due to leaks. For example, in the winter of 2011 the Trans-Alaska Pipeline was shut down for several days because an oil leak had occurred. Alyeska Pipeline, the operator of the pipeline, is majority owned by the oil company BP. ConocoPhillips, Exxon Mobil, Chevron and Koch Industries also hold shares in it. In summer 2011, a leak in a pipeline operated by Shell created an oil slick off the North Sea coast of Scotland which was 31 kilometres long and up to 4.3 kilometres wide.


Case study: HidroAysén

In May 2011, the Chilean Environmental Evaluation Commission (Comisión de Evaluación Ambiental, CEA) approved plans for the controversial HidroAysén dam project in Patagonia, Chile. Endesa Chile, itself a subsidiary of Enel’s subsidiary Endesa, is the company leading the HidroAysén consortium. The project comprises five dams on the Baker and Pascua rivers, with a total capacity of 2,750 MW. An international campaign against the project has been set up, involving NGOs such as Interna-tional Rivers, the Natural Resources Defense Council and Greenpeace. Opponents of the project are particularly critical of the construction of a 2,450-km-long high voltage power line, for which a swathe 120 metres wide will have to be cleared. The route would pass through virgin forest and damage a number of protected areas, including Hornopirén and Corcovado national parks. In addition, the dams and the transmission line would pose a threat to a number of endangered animal species, such as the Chilean huemul (South Andean deer). Local environmental authorities had designated both rivers as biological corridors and called for priority to be given to their protection. According to a 2011 survey, over 61 per cent of Chileans are against the HidroAysén project.

Environmental violations are also very common among energy and water suppliers, affecting almost one in five companies (19.6 per cent). Concrete examples of these include grave safety deficiencies and the occurrence of serious accidents at nuclear power plants, as well as large-scale dam projects in developing and emerging countries, often in South America, where disregard of environmental stan-dards threatens to cause or has already caused seve-re environmental damage.

Low environmental standards in (supplier) com-panies in emerging and developing countries are another cause of environmental pollution. According to press reports in autumn 2011, for example, ten per cent of all China’s agricultural land is polluted by lead, mercury, cadmium or other heavy metals from industry. These factories are often manufactu-ring finished or intermediate products to supply the European, Japanese or North American markets. By introducing appropriate environmental standards in the procurement of raw materials and intermediate products, industrial and commercial companies in industrialised countries can exert an influence on manufacturers in emerging and developing coun-tries and thereby improve environmental protection measures in such companies.

Percentage of companies in selected industries with environmental viola-tions; as at 31.12.2011; basis: oekom Rating Universe; in %; source: oekom research AG (2012)

The guest article by Rolf Dietmar, from the Beijing office of the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), deals with environmental and social standards in Chinese companies.


2.4.4 Closed-loop recycling

The three Rs of the waste management mantra, “Reduce, reuse, recycle!”, have succeeded in redu-cing the amount of waste being thrown away, at least in some countries. The proportion of consumer goods disposed of at landfill sites has fallen in recent years. At the same time, measures for reducing and reusing/recycling waste have been intensified. This trend could lead in future to a situation where there are only two types of products: consumer goods that are fully biodegradable and consumer durables that can be endlessly reused. The terms closed-loop recy-cling, materials flow management or cradle-to-cradle are used to describe the latter group. Closed-loop recycling takes the cycle of materials found in nature as its model and attempts, through intelligent, casca-ding use with zero waste and zero emissions, to keep using materials and energy for as long as possible and in an environmentally and socially responsible way.

In the case of consumer goods such as mobile phones, televisions and cars, work is being done on designing products so that after they have fulfilled their function they can easily be disassembled into their component parts and these can then ideally be reused in the production of new articles. However, the cradle-to-cradle principle can be carried even

further. For example, the renaturation of large-scale post-industrial landscapes resulting from e.g. open-cast lignite mining or following the closure of entire plants or industrial sites can be carried out on the same principle.

Product responsibility lies at the heart of waste management policy. It embodies the basic idea that waste reducing and recycling can best be achieved if the producer of the goods, and therefore also of the waste, is held accountable for it. Accordingly, manufacturers must design their products in a way that reduces the amount of waste generated during manufacture and subsequent use and that enables the environmentally-friendly recycling and dispo-sal of the residues. Appropriate legal provisions on the recyclability of products and appropriate quotas apply to a number of products, e.g. automobiles and electrical/electronic equipment. The recycling of residual materials can also benefit companies: for example, recycling secures access to raw materials and makes the company less dependent on the world market. At the same time, the use of recycled mate-rials, for example in the production of copper and alu-minium, reduces energy consumption and thus also CO2 emissions.

Automotive industry

Manufacturing a car weighing 1.5 tonnes requires around 30 tonnes of raw materials. It is therefore no surprise that legislators have been working on impro-ving the recycling of vehicles for some years now. Directive 2000/53/EC of the European Parliament and of the Council of 18 September 2000 on end-of-life vehicles regulates the reuse of materials from motor vehicles through recycling within the European Union. It includes bans valid since 1 July 2003 on sub-stances such as chromium (VI) and heavy metals. The  directive aimed/aims to increase the reuse and reco-very rate to 85 per cent of the average vehicle weight by 2006 and to 95 per cent by 2015. The targets for reuse and recycling are 80 and 85 per cent respec-tively. The recycling costs must be borne completely or at the very least predominantly by the manufac-turers.

In Japan, the Automobile Recycling Law, under which purchasers of a new car must bear the costs of subsequent recycling, has been in force since 1 January 2005. Manufacturers and importers are

responsible for recycling and must take back their own vehicles. In this way, it is intended that by 2015, 95 per cent of cars will be being recycled, with air-bags, metals and other “ingredients” being sepa-rated from the auto shredder residue (ASR), which consists among other things of glass, rubber, plastic and liquids. From 2005, the target was for 30 per cent of ASR to be recycled, since 2010 the figure has been 50 per cent, and from 2015, 70 per cent of ASR is to be recycled. The USA does not have any equivalent legislation.

In this context, oekom research evaluates both measures for taking back end-of-life vehicles and the use of recycled materials in the manufacture of vehicles. Best practice is currently demonstrated by BMW (DE) and Renault (FR). Both have Europe-wide takeback networks and use comparatively high levels of recyclates in production. At BMW, around 15 per cent of the plastic installed in vehicles currently con-sists of recyclates, and Renault aims to use 50 kilo-grams of recycled plastic per vehicle by 2015.


oe-quote“Despite the comprehensive legal guidelines on recycling vehicles in Europe, there are still huge discrepancies between European manufacturers in the proportions of recycled materials used in vehicles.“

Reinhold Windorfer, Senior Analyst at oekom research with responsibility for the automotive industry.

Third and fourth places were taken by Toyota (JP) and Ford (US), with VW (DE) and Daimler (DE) coming in mid-table positions. Peugeot (FR) and Nissan (JP) were ranked bottom in terms of recycling.

Evaluations of measures for recycling; scale from 0 (no measures) to 100 (comprehensive measures); as at 31.12.2011; source: oekom research AG (2012)

IT sector

The high level of innovation in the IT sector is leading to an ever growing number of terminal devices in cir-culation. Large quantities of toxic materials are en-tering the environment worldwide due to the impro-per disposal of waste equipment. The result of this is that industry is losing not only valuable raw materials, but also functional components, which at a rela-tively small cost could be installed in new devices.

The European Union, among others, has helped to create the statutory framework for a closed-loop recycling system in the electronics industry (WEEE Directive). However, there are still huge differences in companies’ attitudes toward providing a free take-back service, recycling and the reuse of old equipment. Prolonging service life could make an important contribution to reducing material inten-sity, for example through longer guarantees, long-term availability of spare parts, leasing programmes or upgrade services. However, overall this still plays a fairly subordinate role. Companies like Dell (US) and Hewlett-Packard (US) do at least offer worldwide take-back guarantees for their products. Other produ-

cers, such as NEC (JP) and Ricoh (JP), go even further, refurbishing old appliances they have taken back so that they can put them on the market again with a renewed guarantee.

Raw materials in mobile phones

Every mobile phone contains on average 60 raw materials, including:

•   Copper: 9 grams

•   Cobalt: 3.6 grams 

•   Silver: 250 milligrams

•   Gold: 24 milligrams

•   Palladium: 9 milligrams

Just 41 mobile phones contain the same quantity of gold as a whole tonne of gold ore.

Source: Messe München / IFAT ENTSORGA, 25.08.2010


Ricoh, for example, brought out its first digital colour copiers based on reused components in September 2009. The proportion of reused components in the production of these devices was 80 per cent, measu-red by weight. This enabled a 93 per cent reduction in CO2 emissions in the manufacture of the copier.

On a broad level, the industry as a whole does appear to be making progress in the reuse of used materials (e.g. plastic and metal). An increasing num-ber of companies are reporting that they are incorpo-rating significant quantities of recycled materials in new products.

Ricoh’s comprehensive measures meant that in the oekom Corporate Rating it achieved full marks in the evaluation of measures to integrate used parts and recycled materials into new products. The same is true of two other Japanese companies, Konica Minolta and NEC. Apple (US) was ranked bottom. It provides no information on the reuse of used compo-nents in new products.

Metal industry

Although many metals can be recycled without loss of value or quality, seen from a global perspective recycling rates for many metals are still very low. A United Nations study published in May 2011 showed that only around a third of the more than 60 metals looked at had end-of-life recycling rates above 50 per cent. These included gold, silver, aluminium, copper and tin. In the case of 34 of the metals, less than one per cent was recovered. These included a large number of metals which are crucial to clean techno-logies such as batteries for hybrid cars and wind tur-bines. The causes of the low recycling rate was seen as being firstly a lack of infrastructure and secondly the inadequate development and availability of rele-

vant technologies. In addition, the increasing dispersal of raw materi-als, i.e. the use of raw materials in minute quantities in a large num-ber of products, makes their reuse more complicated.

The advantages of recycling metals are obvious: the environ-mental and social impact of re-using industrial metals that are pro-duced in very large quantities, such

as aluminium, iron and copper, is significantly lower than that associated with their extraction from prima-ry raw materials. For example, the energy efficiency of recycling metals is higher by a factor of between 2 and 10 than that of producing metals from primary raw materials. Particularly in view of rising energy pri-ces, this gives huge competitive advantages in terms of cost to companies which place an emphasis on recycling. In the case of metals which are processed in comparatively small quantities, such as antimony, beryllium, gallium, magnesium and tantalum, indu-strial recycling of relevant amounts would reduce dependence on imports. However, the recycling costs for many of these metals, e.g. tantalum, are currently still well above the purchase prices.

In this context, oekom research has evaluated the measures taken by companies to promote the reco-very of metal raw materials and the use of secondary raw materials (scrap metal) in production. The top performer here was the German copper producer Aurubis. The company claims to be one of the largest copper recycling companies in the world. In 2010, recycled copper made up 14 per cent of total copper production at its main site in Hamburg. In 2009, the proportion across the group as a whole stood at 30

Trend in the proportion of reused / recycled material in new products (trend evaluation); scale: 0 (proportion falling / no data provided) to 100 (proportion rising); as at 31.12.2011; source: oekom research AG (2012)

Source: www.unep.org


per cent. Of the aluminium producers, the Norwegian com-

pany Norsk Hydro received the best rating. In 2010, the company recycled 260,000 tonnes of aluminium, which equates to 18.4 per cent of its total production.

The proportion of the source material for steel production at the Finnish steel producer Rautaruuki accounted for by scrap metal stood, depending on the steel grade, at between 20 and 30 per cent, which in 2009 corresponded to as much as 451,000 tonnes of scrap metal. The company also has impressively high environmental standards relating to the procu-rement of primary and secondary raw materials from its suppliers.

oe-quote“The use of secondary raw materials is as a matter of principle always to be preferred over the extraction of primary raw materials through mining and ore processing, as the former conser-ves natural resources and is less damaging to people and the climate. However, the growing dispersal of rare metal raw materials in technical applications is increasingly complicating recovery and in many cases is equivalent to losing the raw materials.“

Kristina Rüter, Research Director at oekom research

Evaluation of measures to promote the recovery of metal raw materials and increase the use of secondary raw materials in production; scale from 0 (no measures) to 100 (comprehensive measures); as at 31.12.2011; source: oekom research AG (2012)


2.4.5 Ageing society

“Design for all” or special products for the elderly – this is the decision facing companies in numerous industries in the light of the growing proportion of older people in many industrialised countries. By 2040, according to calculations by the US Census Bureau, more than 1.3 billion people worldwide will

be 65 or older. This will represent a doubling to 14 per cent from the current level of around seven per cent. The number of people over 80 is increasing par-ticularly rapidly. It is anticipated that by 2040, world population across all age groups will have grown by 35 per cent, with the over-80s increasing by around 300 per cent over the same timeframe.

Elderly people present particular challenges in terms of the design of products and services, for which the economy must find solutions. The “design for all” approach is intended to ensure that products will be usable by people with different levels of abi-lity.

Special products for the elderly, by contrast, are built to meet the specific needs of older consumers, e.g. in terms of sensory qualities such as visibility and audibility or of ease of use and intuitiveness. However, experts criticise the fact that in doing so, design is often neglected.

It is important that consideration be given to the needs of the elderly not just in the traditional areas of health and care services, but also in many other industries.

Retail

Since 2010, German retailers have been able to apply for a “generation-friendly shopping“ label. The inspection for the award of the label looks at the range of services provided, the furnishing of the busi-ness premises and accessibility. Inspectors look at the accessibility of the business, e.g. even paths and clear signposting, unimpeded access to the business and the layout of the store, for example sufficient lighting, the width of walkways and the legibility of price labels.

In its Corporate Rating of the retail sector, oekom research evaluates measures taken by companies to enable people with restricted mobility to access their store premises and services. Besides elderly people, these also include parents with pushchairs as well as people with mobility difficulties and visually impaired people.

There are very marked differences here between individual companies. Coop Genossenschaft (CH) has made particular efforts to tackle this issue. The company has drawn up comprehensive guidelines on store design, which specifically address the needs of people with restricted mobility. Coop has also fit-ted trolleys with magnifying glasses to make it easier to read the small print on packaging, and has intro-duced larger price labels on its shelves.

Country Proportion

Japan 21.6

Italy 20.0

Germany 20.0

Greece 19.1

Sweden 18.3

Austria 17.7

France 16.3

UK 16.0

Switzerland 16.0

Norway 15.0

Over-65s as a proportion of the total population; 2008, in %; source: US Census Bureau (2009)

Evaluation of measures to ensure access to store premises for persons with restricted mobility; scale from 0 (no measures) to 100 (comprehensive measures); as at 31.12.2011; source: oekom research AG (2012)


The UK retailer J Sainsbury has also implemen-ted comparatively good measures in this area. For example, it has installed technical aids in the majo-rity of its stores to help hard-of-hearing customers talk to sales assistants. Wheelchairs are available in all branches, and the larger stores even have electric ones. The company states that all its employees are

given training on the specific needs of elderly and disabled people. Migros Genossenschaft (CH) and the UK retailer Kingfisher came in joint third place. The Swedish textiles chain Hennes & Mauritz and the US retail group Wal-Mart have not so far provided any information about measures in this regard.

Real Estate

Real estate companies, and in particular landlords of residential properties, face the question of how, in the light of demographic change and the antici-pated oversupply of properties in particular regions, they can avoid vacancies. The appropriate design of properties is therefore of direct economic relevance. Two strategies can be identified here: firstly, adap-ting residential properties appropriately to the needs of elderly people, and secondly, designing properties to enable flexible use (multifunctionality). The main emphasis in so-called age-appropriate housing is on unobstructed access to the accommodation and appropriate usability of the accommodation, e.g. with regard to bathroom fixtures and furnishings.

Designing housing to meet the needs of the elder-ly is an even higher priority given that nowadays more elderly people than ever want to avail themselves of the opportunity to carry on living independently in familiar surroundings for as long as possible. It is therefore important not only to ensure that new housing complies with appropriate standards, but also to make relevant structural alterations (e.g. installing stairlifts and walk-in showers, widening bathroom doors) when carrying out renovations.

In its Corporate Rating of the real estate sector, oekom research evaluates the strategies and measu-res adopted by companies to ready themselves for socio-demographic change and the associated shift in demand. Besides making properties suitable for old people, it is also necessary to take into account changes such as the increase in single households and migration in and out of a particular region.

Companies’ actions in this area are predominantly still on a very modest scale. Only the UK real estate company Segro has so far tackled this issue in depth. It focuses primarily on multifunctionality. British Land (GB) makes explicit reference to the needs of older people and states that it takes the needs of people with restricted mobility into account when designing housing.

Evaluation of measures for factoring socio-demographic trends into the design of housing; scale from 0 (no measures) to 100 (comprehensive measures); as at 31.12.2011; source: oekom research AG (2012)

oe-quote“The companies which are currently already adapting their property portfolio to the demands of a changing society and are providing maximum possible flexibility of spatial design are the ones that will be successful in the long term. Until now, however, the issue has been approached only very hesitantly and seldom strategically.“

Susanne Schwind, Senior Analyst at oekom research with responsibility for real estate


Media

If you count television, radio, internet and telepho-ne, Germans spend almost nine hours a day using media, according to an analysis by the industry asso-ciation Bitkom. Television still tops the tables as far as media consumption is concerned, at around four hours a day, but the average German now spends 100 minutes a day on the internet. The French spend almost seven hours a day using TV, radio and inter-net. Elderly people often face particular problems in using various media, e.g. with regard to the clarity and readability of websites or their ability to hear television programmes.

In order to reach this growing public, which is becoming increasingly attractive to advertisers, media companies are making greater efforts to address the needs of older people. Particularly in the case of media funded by advertising, such as com-mercial television and also newspapers and maga-zines, the reasons for acquiring and retaining the custom of elderly people are chiefly economic. This is something of a departure from the current view of 14-49-year-olds being the key advertising target group.

Here, oekom research evaluates the scope and quality of relevant measures. These include: for tele-vision, subtitles in TV programmes, for newspapers and magazines, special large-print publications, and accessible internet which can be used by all users, irrespective of physical or technical ability, e.g. through adjustable font sizes. The best ratings were achieved by ITV (GB), British Sky Broadcasting (GB) and Bertelsmann (DE).

ITV  provides  access  to  its  programmes  for  peo-ple with impaired vision and hearing through the use of subtitles and audio description, for example. The target audiences are informed about these services through appropriate advertisements in the relevant media. British Sky Broadcasting provides special remote controls for people with restricted motor con-

trol or visual impairments. Programme guides are available in large print, and many TV programmes are subtitled. According to information from the compa-ny, it has a specially trained service team to deal with queries from elderly and disabled people.

Bertelsmann offers individual publications, e.g. articles from Stern magazine, as podcasts and audio files for people with visual impairments. RTL Group, which is part of Bertelsmann, has also introduced subtitles for various programmes. On Channel Five, for example, 80 per cent of programmes now have subtitles. Bertelsmann, together with Radiocenter Berlin, runs a “Radio for the deaf” website.

Evaluation of measures to ensure access to media for elderly and disabled persons; scale from 0 (no measures) to 100 (comprehensive measures); as at 31.12.2011; source: oekom research AG (2012)

oe-quote“The importance of the media’s role in providing information and entertainment does not decrease as people get older. When people retire, they also have more time available to spend using various media. Making media content easily accessible for old people is therefore an important task facing media companies, which they have so far tackled to varying extents.“

Ellen Mayer, Research Director at oekom research


2.4.6 Digging deeper: a follow-up on the oekom Corporate Responsibility Review 2011

Remuneration structures: integration of sustainabi-lity criteria is making slow progressThe German Federal Government’s 2009 law on the appropriateness of management remuneration was intended to correct misguided managerial pay incentives and to achieve greater transparency and a reduction in short-term thinking. The union-linked Hans Böckler Foundation in Germany has produced an evaluation of the annual business and remuneration reports of the DAX 30 companies in order to review how successful the law has been. According to this, all the DAX 30 companies are increasingly linking the short-term performance-based pay of their management boards to economic indicators which have to be attained over a period of two or three years. Many of them have also lengthened the periods used for calculating longer-term variable remuneration. Financial indicators continue to be the dominant criteria used to measure corporate success and to calculate variable remuneration. In 2010, just seven of the DAX companies also used criteria such as customer and employee satisfaction or environ-mental considerations.

Climate change: CO2 emissions and risks for inve-stors risingAccording to November 2011 data from the US Energy Department, global CO2 emissions rose more sharply in 2010 than ever before. According to the Department’s projections, more than 33,500 million tonnes of CO2 were released into the atmosphere in 2010. This represents an increase of six per cent on 2009 figures, or a good 1,900 million tonnes more. These figures are even higher than the pessimistic forecasts made by the UN Intergovernmental Panel on Climate Change (IPCC) in 2007. The rise has been accelerated principally by the emerging economies of China and India, which are still satisfying their

growing hunger for energy largely by building new coal-fired power stations. In China, for example, an-other new power station is being connected to the grid almost every week.

A study commissioned by the management con-sultancy firm Mercer together with 14 of the world’s major institutional investors found that the continu-ing delays in implementing policy measures to coun-ter climate change and the lack of international coor-dination could cost institutional investors billions of euros over the next 20 years. According to Mercer’s calculations, climate change may in future account for ten per cent of the investment risk associated with long-term capital investments. Another survey car-ried out by Mercer, of 46 asset managers and 44 asset owners, found that the respondents were well aware of the significance of climate change. Most investors see climate change as a considerable risk, but also very much as an opportunity for their investments. 87 per cent of asset managers and 98 per cent of asset owners say that data on climate change is important to their investment decisions. However, many inve-stors still lack the knowledge and resources to enable them to take climate-related risks and opportunities into account in their portfolios. Half of the investors surveyed say that they are already investing in “green funds”, with a further 15 per cent of asset managers and 45 per cent of asset owners considering doing so in the next few years.

In mid-June 2011, the European-based Institutional Investors Group on Climate Change (IIGCC), the North-American-based Investor Network on Climate Risk (INCR) and the Investor Group on Climate Change (IGCC) from Australia/New Zealand published the “Global Investor Survey on Climate Change” report. This sets out the investment approaches being pur-sued by asset managers and asset owners in relation to climate change.

Demographic change in the world of work

The German car manufacturer BMW has been looking at the impact of demographic change on the workforce. In its “2017” project, the assembly of rear axles at the BMW works in Dingolfing was, as it were, transported into the future. 40 employees with an average age of 47 were selected to work on one particular production line. This was to simulate the forecast 2017 age profile. In order to ensure the productivity of the older wor-kers, around 70 individual measures were implemented, including load-based rotation of staff, the provision of seating to relieve strain on the musculoskeletal system, wooden floors and special orthopaedic shoes for better cushioning, and adjusting the angle of and enlarging fonts on computer screens. BMW says that its aim is to become a “demography-proof” company.


2.5 Outlook: it‘s the quality, stupid!

The market for sustainability ratings has been under-going change for a number of years now. For example, we have seen MSCI assimilating long-estab-lished suppliers like KLD and Innovest, the SiRi Company transforming itself into Sustainalytics, and large news providers like Bloomberg and Thomson Reuters beginning to incorporate social and envi-ronment-related information into their range of pro-ducts. In parallel with these developments, competi-tion between the sustainability rating agencies has intensified. Some agencies are responding to this by specialising in particular services such as corpo-rate engagement, while others are focussing on the size of their universe, on the diversity of the services they offer or on providing sophisticated technical solutions. Individual providers are trying to cut their personnel costs by outsourcing research services to third-party suppliers or by establishing subsidiaries in low-wage countries.

So it’s just like any other business then? Well, yes and no. No, because for the pioneering sustainability rating agencies in particular, a key motivation was and still is to initiate, through their ratings, a process of change in the economy toward greater sustainabi-lity and responsibility. Accordingly, they see sustain-able investments not as an end in themselves, but as a means to an end. The conventional information providers now thronging onto the market see things very differently. Yes, because only an economically viable business model can provide the basis for an independent sustainability rating and because, as in other areas, there is one factor that is of overriding importance: to misquote the legendary words of Bill Clinton, it’s the quality, stupid!

The quality of sustainability ratings manifests itself in three areas: in the structures of the sustaina-bility rating agencies, in the rating processes and finally in the effects of the ratings. As far as the structure of the agency is concerned, one aspect is of paramount importance, namely the agency’s inde-pendence – and this is important in many respects. What is critical here is the agency’s position vis-à-vis the issuers (i.e. companies and countries) being evaluated. Only complete independence allows it to evaluate their social and environmental perfor-mances objectively. This precludes a sustainability rating agency from rating companies and at the same time advising them on how to improve their sustaina-bility management systems. Michel Barnier, the EU Commissioner for Internal Market and Services, made a similar statement in November 2011 on the duality of auditing and consulting by the major accountancy firms.

Cases where rated companies are among the shareholders of the agency should be viewed equally

critically. However, independence also has an inter-nal component: here, what are commonly known as “Chinese walls” must be used to ensure that when companies from among the agency’s (potential) customers are being rated there are no conflicts of interest between the analysts and the account mana-gers. In a best-case scenario, the independence of individual analysts, e.g. with regard to their own capi-tal investments, will also be regulated by strict codes of conduct.

As far as the processes are concerned, what mat-ters are methodology and competence, a dialogue-oriented approach and transparency. The evaluation of social and environmental issues requires analysts to have wide-ranging knowledge of legal, technical, social and market-related developments in a wide variety of fields. Such developments must always be seen in the context of the industry, which is why a rating methodology that does not factor in indus-try-specific requirements, criteria and weightings doesn’t really make sense. There can be no “one size fits all” approach here. The dynamic nature of these developments makes both constant updating of the methodology and criteria and continuous training of the analysts essential.

The latter should also be able to discuss and defend their evaluations in an open dialogue with representatives of the companies concerned. Actively involving companies in the preparation of ratings in this way through feedback processes enormously increases the resilience and meaningfulness of the ratings and therefore also their quality. Maintaining a comprehensive dialogue with companies thus con-stitutes one of the key quality features of the rating process. However, it is not only with the companies themselves that the sustainability rating agen-cy needs to establish good links, but also with the various stakeholders in those companies, i.e. envi-ronmental organisations, consumer associations, human rights organisations and trade unions. These are important sources for finding out about things which the companies themselves are not keen to report on, for example labour rights violations in the supply chain.

Transparency is, after all, the third vital factor in the process. The companies rated, the rating partners and above all the users of ratings must be able to understand how a rating is arrived at. In other words, there must be no “black box”, but rather maximum transparency about criteria, weightings and sources as well as detailed justifications for the rating of each individual indicator. Only in this way can investors see whether the rating approach covers the sustaina-bility aspects that are important to them. At the same time, this approach makes it clear to companies


where their weak points lie, which in turn puts them in a position to improve their sustainability perfor-mance.

This brings us to the third quality-relevant fac-tor: the effects of sustainability ratings. Here, too, a distinction needs to be made between a number of different dimensions. Firstly, there is the question of the effects for investors. They are striving for a “dou-ble dividend”, namely a capital investment that takes into account their specific individual values while at the same time turning in a financial performance that is at least comparable to that of conventional invest-ments. The positive effects of sustainability ratings as risk indicator have already been referred to else-where in this report.

Secondly, there is the question mentioned pre-viously of the effects on the economy. If, using the capital market as a lever, sustainable investors suc-ceed in getting companies across the board to move toward greater sustainability, they will have achieved one of their main goals. The more capital is invested taking social and environmental criteria into account, the more effective this lever will be. However, the pre-cise effects of sustainability ratings on companies are as yet not very transparent. While it is well known that some companies have now begun to link their managers’ bonuses to a good sustainability rating, it remains generally unclear what specific changes this has brought about. The sustainability rating agencies all still have some work to do here in terms of raising awareness.

Against this background, sustainable invest-ment, and therefore also the market for sustainabi-lity ratings, now stands at a crossroads. The crucial question will be how investors define the benefits of sustainability ratings for them. Two quite contrasting approaches are currently discernible, and these can be described – with a slight degree of exaggeration – as follows: One group of investors integrates social and environmental criteria into its capital investment decisions primarily out of reputational considerati-ons. Their chief concern is to maintain the good image their stakeholders have of them. They are unwilling to accept the restrictions on diversifying their port-folio that the use of exclusion criteria and the best-in-class approach might entail. To implement this strategy, they use sustainability ratings and indexes that are freely available on the market. They make no demands as regards the quality of the sustainability ratings and accordingly they are unwilling to pay for them. This corresponds with the strategy adopted by a number of sustainability rating providers of placing their ratings on the internet free of charge.

The other group sees sustainability criteria as for-ming an integral part of their investment strategies, as the positive impact these have on reputation and performance is abundantly clear to them. The degree of improvement in their risk-return ratio is determi-ned by two aspects: the extent to which such criteria are integrated – selectively or comprehensively – and the quality of the sustainability analyses used. These investors make high demands in terms of quality and are (more) willing to pay for it.

The reputation-focused approach will not work in the long term for two reasons: firstly, a half-hearted commitment to sustainability will not only – as shown in chapter 1.3 – not protect you against reputational risks, but will actually exacerbate them. Secondly, the investors will be losing out on the positive effects on the risk and return of their investments that have been documented in numerous studies. In oekom research’s view, there is a positive correlation bet-ween the quality of sustainability analyses and the benefit to investors. The quality of sustainability ratings, defined in terms of these three elements “structures”, “processes” and “effects”, will there-fore in future become an increasingly important con-sideration for investors. oekom research believes that it is well positioned to compete successfully on quality.Source: oekom research AG (2012)


Toxins in children’s toys, suicides in the electronics industry, illegal pirating of goods – the list of nega-tive headlines relating to products „Made in China“ is a long one. This has reinforced the prejudices held by many people: European consumers are sceptical both about Chinese products themselves and about the conditions under which such products are manu-factured. There is a general conception that Chinese companies are lax about employment and environ-mental regulations, and that they are interested first and foremost in the pursuit of profit. In short: labour rights and human rights are being disregarded and the environment is being polluted.

In the wake of the globalisation that has taken place over the last two decades and in particular since China joined the World Trade Organisation in December 2001, China has become the “factory of the world”. A large number of Chinese companies work closely with customers and trading partners abroad, and Chinese suppliers often form an integral part of the value chains of their foreign business partners. Furthermore, an increasing number of Chinese com-panies are actively investing funds internationally and are buying holdings in or acquiring ownership of foreign companies. Chinese companies are engaging in projects in developing countries, where they are building urgently needed infrastructure, e.g. roads, hospitals and dams. Chinese investments in the com-modities sector have also risen significantly. This combination of circumstances helps to explain the growing interest in the CSR performance of Chinese companies.

Against this background, what is the significance of corporate social responsibility in China? Is the worldwide trend toward socially responsible com-pany management manifesting itself there at all or will we continue to hear about scandalous conditions in production? The fast-changing developments of recent years, which have seen the widespread disse-mination of the idea of corporate social responsibility or CSR, provide justified grounds for optimism. The Chinese central government is aware that the image that has evolved abroad of China’s non-compliance with international labour, environmental and ethi-cal standards in manufacturing is detrimental to the reputation of Chinese companies and could thus inflict substantial damage on the Chinese economy.

In the early years of this century it was primarily foreign companies in China which focussed on com-plying with CSR standards; it is only since around 2006 that the issue of CSR has been the subject of

more widespread attention. The government is now emphatically pursuing a policy of supporting CSR, and Chinese leaders have repeatedly stressed com-panies’ social responsibility in public speeches. There was initial resistance, even on the part of the government, to the widespread use of international-ly recognised auditors to monitor Chinese suppliers’ compliance with social and environmental standards. Implementing the standards demanded by foreign companies was deemed to constitute a non-tariff trade barrier. Now, however, China realises that the pressure on Chinese companies to introduce measu-res to improve their CSR performance means that they are better able to meet international expecta-tions, while at the same time also making them more competitive.

A guideline issued in January 2008 requires the 117 major state-owned companies (such as China Mobile, State Grid and Sinopec) that are regula-ted by the State-Owned Assets Supervision and Administration Commission to take effective steps to implement CSR in their organisations, which between them employ over 100 million workers. The aim is for them to lead by example and, through their pionee-ring CSR performance, to motivate other companies to follow suit. Moreover, all central state-run enterpri-ses must comply with the guideline and publish their own CSR reports by the end of 2012.

The publication by companies of data and infor-mation in CSR reports represents a paradigm shift.

CSR in China – Recent Developments and TrendsRolf Dietmar, Project Director Corporate Social Responsibility (CSR) Project, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, Beijing / China

Number of CSR reports published in China; source: China WTO Tribune (2011)


At the end of the 1990s, it was still the case that nei- ther state-run nor private enterprises in China were very keen to make data and information available on demand on a voluntary basis. The picture has now altered considerably. In 2006 and 2008 respectively, the stock exchanges in Shenzhen and Shanghai insti-tuted CSR reporting regulations for listed companies.

A steadily growing number of state-run and pri-vate enterprises is recognising the added value of transparent sustainability reporting, and the number of CSR reports has soared. In 2006 there were just 32 reports, but by last year the number of CSR reports had risen to 898. Most of these were in Chinese, alt-hough some companies with an international focus also published English versions. At least 21 of these were based on the ISO 26000 criteria, while 164 of the reports published were based on the Global Reporting Initiative (GRI) guidelines.

This trend has led to the development of a limited but specialised training and consultancy market. This is a particularly pertinent development, as the quality of the reporting varies considerably. The specialist magazine China WTO Tribune systematically analyses all reports published against quality criteria and each year presents awards for particularly good reporting to 30 companies.

This positive trend in CSR reporting reflects com-panies’ proactive efforts to provide information on their CSR performance. At the same time, it is an impressive illustration of the increasing importance of CSR in the Chinese corporate landscape.

The Chinese Ministry of Commerce is the body principally responsible for promoting CSR in Chinese companies involved in exporting and/or operating internationally, and has issued a series of CSR gui-delines. It also cooperates closely on CSR matters with international partners. For example, a collabo-rative project between Germany and China on CSR (www.chinacsrproject.org), which is being imple-mented by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), jointly with the Chinese Ministry of Commerce, has been running since April 2007. A similar collaborative project on CSR with Sweden has also been in place since 2007. The Ministry for Industry and Information Technology bears the pri-mary responsibility for measures to improve manage-ment systems in the more than 43 million small and medium-sized enterprises in China, and it holds regu-lar information events on CSR.

Besides institutions at central government level, numerous municipal governments have also laun-ched CSR initiatives. Notable among these is the government of Pudong District in Shanghai, which has set up a differentiated CSR programme which involves evaluating all the enterprises in its area of

jurisdiction against a set of criteria. Depending on how companies perform, they are either rewarded with appropriate subsidies or required to come up with improvement measures. The Wenzhou munici-pal government and the Weihai and Yantai Economic Development Zones have all introduced similar eva-luation systems.

The promotion of CSR by Chinese industry associa-tions and chambers of commerce also plays an impor-tant role. For example, the China National Textile and Apparel Council was the first industry association in China to publish its own guideline, CSC9000T, and to promote this internally within the association. In a further notable development, in December 2010 the China International Contractors Association adopted a guideline for implementing CSR in its member companies, of which there are over 1,300. These companies primarily handle overseas contracts, e.g. infrastructure projects such as bridges and roads in Africa. The guideline is currently being trialled in 29 pilot companies. This has to be seen as a good sign, not least because there are frequent reports in the international media that, in developing countries, Chinese companies fail to comply with internationally required standards. It is therefore clear that Chinese companies will have to allow themselves to be judged against the requirements of this guideline.

Engagement by Chinese companies, in the con-text of the United Nations Global Compact, provides a further indicator of their growing awareness of CSR. Although the Global Compact has been formally represented in China since December 2001, the num-ber of participants in the network has not increased as much as was originally anticipated. At the end of 2011, the cumulative total for the previous decade stood at just 260, or around 2.6 per cent of the parti-cipants registered worldwide. However, a relaunch of the network at the end of 2011 is expected to provide a fresh impetus. For comparison: at the same point

CSR policies CSR evaluation systems

Shanghai Pudong (2007) Changzhou (2004)

Zhejiang Province (2008) Shanghai Pudong (2007)

New District Wuxi (2008) New District Wuxi (2008)

Economic Zone Yantai (2008) Economic Zone Yantai (2008)

Shenzhen (2008) Shandong Province (2008)

Wenzhou (2008) Yiwu (2008)

Yiwu (2008) Shanghai (2009)

Shaoxing (2008) Wenzhou (2009)

Hangzhou (2009) Economic Zone Weihai (2010)

Economic Zone Weihai (2010) Hangzhou (2010)

Yucheng (2010)

Source: Sino-German CSR Project (2012)


in time, Germany, with a smaller overall number of companies, had approximately 240 participants.

Chinese investments are also increasingly being made dependent on companies’ compliance with sustainability criteria. Since 2007, China has ope-rated a Green Credit Policy, under which loans are not supposed to be granted to companies which are managed in an energy-inefficient way or which pollute the environment heavily. In 2009, the Shanghai Stock Exchange introduced the first Social Responsibility Index, and the China Banking Regulatory Commission called upon all the commercial banks to factor com-panies’ environmental, social and governance risks into their lending. Investors are making more and more use of companies’ CSR reports, but the problem

remains that many CSR reports do not yet meet the standards required for sound and reliable analysis by investors. Shortcomings in companies’ CSR perfor-mances mean that there are an increasing number of consultancy firms drawing up risk studies for respon-sible investors.

Due to the rapid growth of the internet, which currently has over 485 million users, news about controversial issues and conflict situations now spreads far more quickly than it did just a few years ago. This has also led to steadily increasing pressure on companies to recognise their CSR responsibility, from the media, consumers and the Chinese general public. In particular, the series of suicides at Foxconn, which supplies products to companies including Dell, Nokia and Apple, attracted a great deal of attention and aroused strong reactions on the internet. Cases with this level of exposure, like the recurring food scandals, are helping to raise awareness among the public at large. This has given rise to a number of risks for companies, some of which had not been foreseen. For example, many talented young Chinese people are choosing their employers according to whether or not they recognise their social responsi-bility and are punishing companies which fail to live up to their expectations by withdrawing their custom or resigning their jobs.

To summarise: overall, it can be assumed that the dynamic trend toward the spread and implementa-tion of CSR in China will continue and that there will be increasing demands on companies to adhere to CSR standards. This will on the one hand have a posi-tive effect on the transparency and responsibility of Chinese companies, and on the other increase the competitiveness of Chinese companies both dome-stically and internationally.

Rolf Dietmar studied economics and agricultural sciences at the University of Bonn and graduated in 1989 with a degree in agricultural engineering. After a research project in Rwanda for the University of Bayreuth, he joined the Environment Ministry of the State of Brandenburg. In 1998 he moved to Beijing to work as a Senior Advisor at the Administrative Centre for China’s Agenda 21 (ACCA21) under the Ministry for Science and Technology. From 2002 to 2008 he headed GIZ’s programme “Environment-Oriented Advisory Services for Enterprises Zhejiang” and in 2007 became Director of the Sino-German CSR Project which the Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH (GIZ), on behalf of the German Federal Government, is implementing jointly with the Chinese Ministry of Commerce. This paper represents the personal opinion of the author.

Number of UN Global Compact signatories from China per year; source: UN Global Compact


oekom research AG is one of the world‘s leading rating agencies. Since 1993, oekom research has actively helped to shape the market for sustainable investments. Our research universe comprises the world‘s major companies and countries. On this basiswe offer a comprehensive package of research ser-vices for the integration of ethical, social and environ-mental aspects in the investment management of ourclients. In 2011, we have significantly enlarged our client base, which now comprises more than 75 asset managers and institutional clients from a total of nine countries. At the end of 2011, we opened an office in Paris to enable us to provide better support to customers in the growing French market. We provide research for assets totaling more than 140 billion euros.

Key to the success of oekom research AG is the credibility of our analyses. In order to guarantee this, there are in our view two particular aspects that are of crucial importance: independence – both at agen-cy and at analyst level – and a sophisticated quality management system. In both these areas, oekom research has followed a consistent path since its founding in 1993 and has put appropriate standards

in place on various levels. For example, we do not permit any companies which we evaluate, nor any financial market players, to be shareholders in oekom research. We also consciously refrain from providing any form of consultancy to the companies which we evaluate.

With regard to the quality of our rating processes, the market has for years acknowledged our leading position over our competitors. Nonetheless, over the last year we have subjected our rating system to a detailed audit by external auditors of our compliance with the internationally recognised quality standard CSRR-QS 2.1 of the Association for Independent Corporate Sustainability and Responsibility Research (➔ www.csrr-qs.org).

At the moment the interdisciplinary team of oekom research consists of 45 members.

In all our activities, we try to put the basic princip-les of corporate responsibility into practice, especial-ly in the way we treat our employees as an employer, and in the way we treat our clients and competitors as a market participant. We take appropriate measures to minimise the load on the environment which our business activities give rise to.

oekom inside

References

Institutional investors:•  Bayerische Versorgungskammer •  Central Mission of the Franciscans•  Deutsche Bundesstiftung Umwelt•  Deutsche Welthungerhilfe  •  Diocese Linz

•  Diocese Rottenburg-Stuttgart•  ERAFP•  Evangelisches Johannesstift •  Evangelical Lutheran Church in Bavaria•  Foundation EVZ

•  Munich Re•  Religious Orders•  Novartis Pension Fund•  VBV Pensionskasse

Financial services companies:•  AGICAM•  Allianz Global Investors France•  AmpegaGerling Investment•  Amundi Asset Management•  AXA Investment Managers •  Baden-Württembergische Bank•  Bank für Orden und Mission•  Bank für Sozialwirtschaft•  Bankhaus Jungholz•  Bankhaus Schelhammer & Schattera•  Bank Vontobel•  BayernInvest•  BNP Paribas Asset Management•  BÖAG – Börsen AG Hamburg/Hannover•  Close Brothers Seydler •  CM-CIC Asset Management•  Coninco Wealth Management•  Daiwa Asset Management•  DekaBank•  Deutsche Bank

•  DJE Investment•  DZ Bank•  Erste Sparinvest•  European Investors•  Evangelische Darlehnsgenossenschaft•  GLS Gemeinschaftsbank•  Groupama Asset Management •  Hamburger Sparkasse•  HSBC Global Asset Management•  HypoVereinsbank•  Kaiser Partner•  KD-Bank•  Kepler Fonds•  La Banque Postale Asset Management •  Landesbank Baden-Württemberg•  LBBW Asset Management•  LIGA Bank•  MEAG•  Metzler•  Metzler Asset Management

•  Natixis Asset Management•  Nord/LB Kapitalanlagegesellschaft•  ÖkoWorld Lux•  Pioneer Investments•  Proventus•  quirin bank•  Raiffeisen Capital Management•  Sal. Oppenheim•  Schwyzer Kantonalbank•  SEB Invest•  SGSS Deutschland •  Sparkasse Oberösterreich•  Sparkasse Schwyz •  Steyler Bank•  Umweltbank•  Unicredit•  Universal-Investment •  VINIS•  VKB-Bank•  Wilhelm v. Finck Deutsche Family Office  


In order to be able to analyse comprehensively the diverse environmental and social challenges relatingto the activities of companies, oekom research AG has developed a pool of indicators. These currently number approximately 500. For each company, an average of 100 indicators are selected from this poolon an industry-specific basis so that a targeted eva-luation of the problems specific to that company canbe carried out.

To build up a comprehensive picture of each com-pany, our analysts collect the information relevant to the rating both from the companies being analysed and from independent experts. The work of oekom research’s analysts is supported by a network of international experts from the fields of sustainabili-ty, human rights, employment rights and consumer protection:

•    evaluation  of  company  documentation  such as annual and sustainability reports, as well as interviews with company representatives;

•    media screening;

•    assessments from independent experts  from NGOs, governmental and public institutions, business associations, research institutes, etc.

The overall analysis is graded on a twelve-point scale from A+ (extraordinary performance) to D- (little engagement). Only companies which achieve a mini-mum score set on an industry-specific basis in advan-ce of the rating are awarded Prime Status by oekom research and are deemed by oekom research to be suitable for investment from a social and environ-mental point of view, subject to the use of exclusion criteria (best-in-class approach).

Methodology


Glossary

Best-in-class approachUnder the best-in-class approach, the best companies in an industry are selected for investment, best here being defined as particularly committed to social and environmental matters. A distinction can be made between the relative and the absolute best-in-class approaches. Under the relative approach, a set percentage of the best companies in an industry are selected, irrespective of their effective sustainability performance, for example, always the top 20 per cent. Under the absolute approach a minimum threshold is also taken into account and only companies which satisfy these minimum requirements can be best-in-class.

CSRCorporate Social Responsibility; including social and environmental aspects.

EngagementAlso: active shareholding, approach which is widespread particularly in the Anglo-American world, in which investors attempt through direct dialogue with companies to rectify grievances about the companies’ social and environmental performance. This approach is now also gaining in momentum in continental Europe.

ESGThis abbreviation stands for Environmental (E), Social (S) and Governance (G) and describes three dimensions of sustainability that are routinely integra-ted into sustainability ratings and sustainable capital investments.

Exclusion criteriaApproach, common among sustainability investors, whereby companies which are active in certain areas of business (e.g. relating to alcohol, pornography, military or tobacco) or which attract attention through controversial business behaviour (e.g. human rights and labour rights violations), are excluded from investment.

MaterialityThe financial relevance of individual environmental and social criteria and of the sustainability concept as a whole is examined under the heading of “materiality”. There continues to be the widely held preconception that sustainable investors have to make do with lower yields than conventional investors. However, numerous studies have provided evidence that sustain-able investments exhibit no systematic disadvantage in terms of yield, and some studies even see a yield advantage in such investments.

SRISocially Responsible Investment.

UN PRIThe United Nations Principles for Responsible Investment (UN PRI) comprise six principles for sustainable investment. Signatories to the UN PRI under-take to implement these principles in their capital investment.


Sources

Eurosif (2010)European SRI Study 2010

Eurosif (2011)Corporate Pension Funds and Sustainable Investment

ECOreporter (2012)Marktdaten nachhaltige Publikumsfonds in Deutschland; www.ecoreporter.de

Forum Nachhaltige Geldanlagen (2011)Marktbericht Nachhaltige Geldanlagen 2011

GIZ (2011)Fast Growth and Big Impacts: How Emerging Market Multinationals are Advancing Sustainable Development

GLS / Forsa (2011)Grünes Geld im Trend – was Frauen wollen und Männer machen, press release, 05.08.2011

Harvard Business School / London School of Business (2011)The Impact of a Corporate Culture of Sustainability in Corporate Behaviour and Performance

IFC (2009)Investimento Sustentável no Brasil 2009

Novethic (2011)European Asset Owners‘ ESG Perceptions and Integration Practices

KPMG International (2011)Corporate Sustainability: A Progress Report

Social Investment Organization (2011)Canadian Socially Responsible Investment Review 2010

Stefan Schneider / ecofin Verbund (2012)Studie zum Markt für nachhaltige Zertifikate und Exchange Traded Funds in Deutschland

Sustainable Business Institute (2012)Marktentwicklung Nachhaltige Publikumsfonds bis Ende 4. Quartal 2011; www.nachhaltiges-investment.org

Vigeo Italia (2011)Green, Social and Ethical Funds in Europe. 2011 Review

UNEP (2011)Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication

Union Investment (2011a)Anlegerbarometer Nachhaltigkeit 2011

Union Investment (2011b)Nachhaltiges  Vermögensmanagement  institutioneller  Anleger  –  Ergebnis-bericht zur Nachhaltigkeitsstudie 2011


Publications

The following publications have been published by oekom research in 2011, some in cooperation with partners.All publications are available at oekom research on request.

oekom Position Paper Controversial Weapons (6/2011)

oekom Position Paper Working Conditions in the Supply Chain (12/2011)

oekom Corporate ResponsibilityReview 2011 (3/2011)

Theme Report Eco-Efficiency (in coopera-tion with Eurosif) (4/2011)

oekom Industry Focus Pharmaceuticals & Biotechnology (8/2011)

oekom Industry Focus Utilities (10/2011)

oekom Industry Focus Information Technology (12/2011)

Further Industry Focus‘ were published in 2011 for the following sectors:

•    Auto Components

•    Paper & Forest Products 

•    Retail

•    Transport & Logistics / Rail


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