The Industrial Goods & Services Sector: a weak energy transition score & high business ethics risks
New Vigeo Eiris report shows modest improvement in companies’ management of human rights issues, despite this being an ongoing challenge
The report provides Vigeo Eiris’ exclusive opinion on sector vulnerabilities, controversies and emerging risks, as well as strengths, innovations and best practice in terms of CSR. The report highlights sector ESG challenges and provides advanced indicators on critical issues such as energy transition, business ethics – with focus on anti-competitive practices and corruption – human capital and human rights, governance, executive remuneration, transparency on taxes, the level of sustainable products and services, and contribution to the UN Sustainable Development Goals.
- Companies in the Industrial Goods & Services sector design, manufacture, supply and distribute industrial machinery, electronic equipment and diverse industrial products and services. Companies are also involved in construction projects and services, and several have a minor involvement in the military industry through the production of armaments or the provision of military parts and services.
- Vigeo Eiris awarded an average overall score of 29.1 to companies in the Industrial Goods & Services sector, on a scale of 0 to 100. The sector’s performance remains unchanged since our previous analysis.
- The sector ranks 27th out of Vigeo Eiris’ 39 sectors, covering a total research universe of 4,500 companies. Previously, the sector ranked 25th.
- Sector leaders are spread across Europe, North America and Asia Pacific, where most of the biggest listed companies are based. Laggards are mostly concentrated in Emerging Market countries. No significant differences were identified in overall performance amongst the different subsectors (Industrial Machinery, Diversified Industrials, Electronic Equipment, Industrial Suppliers, Construction & Concessions).
- The Industrial Goods & Services sector reporting rate is 58%, slightly above the universe average (55%), with European companies reporting their ESG policies, practices and performances most comprehensively.
- ESG risk mitigation scores are limited in relation to operational efficiency (30/100), and weak in relation to human capital (28/100), reputation (28/100) and legal security (29/100). In terms of managing issues affecting human capital, companies in the Industrial Goods & Services sector display a weak average score – although this is slightly higher than the universe average (27/100). Performance in the other three areas (operational efficiency, reputation and legal security) appear slightly lower than the universe average.
- The sector faces 130 controversies. The severity level is critical for 2% of cases, high for 32% and significant for 13%. The most recurrent controversies relate to anti-competitive practices, product safety, social and economic development, audit and internal controls and corruption. 53% of companies do not face any controversies.
- Companies in the sector offer products and services that are likely to be part of large-scale contracts and part of public bidding partnerships, making companies vulnerable to business ethics risks. The sector’s performance in relation to corruption and anti-competitive practices remains limited (39.6/100 and 33.5/100 respectively); approximately 31% of the sector’s controversies concern these issues.
- Most Industrial Goods & Services companies based in Europe, North America and Asia Pacific have restructured their activities in recent years, including acquisition, divestment and relocation. However, apart from a few good examples (representing just 2% of companies), the sector does not appear to implement framework agreements with employee representatives during reorganisation, nor does it disclose measures to ensure the responsible management of the restructuring processes.
- As Industrial Goods & Services companies increasingly establish operations in countries where human rights violations are common (according to the UN and other international organisations), companies need to effectively manage human rights risks across their entire operations and supply chain. Despite positive developments in this area in recent years, the sector still shows a limited average performance (32.6/100 on fundamental human rights and 29/100 on social standards in the supply chain), with only 11% of companies displaying a robust or advanced performance and eight companies involved in related controversies.
- Companies in the Industrial Goods & Services sector are highly involved in energy intensive and carbon emitting activities through their direct operations, as well as from the provision and consumption of their raw materials. The sector’s efforts in transitioning towards a low-carbon economy is currently insufficient, with 63% of companies displaying a weak energy transition performance (22/100).
- Industrial Goods & Services workers are highly exposed to health and safety issues which could potentially result in accidents and severe occupational hazards due to the nature of the sector’s activities. Although the overall performance of the sector has slightly improved, companies’ efforts to address health and safety issues remains limited (34.9/100) with only 15% of companies setting health and safety objectives and only 25% of companies showing positive healthy and safety KPI performance trends.
Best performing areas:
o Internal controls & risk management
o Environmental strategy
Worst performing areas:
o Atmospheric emissions
o Use and disposal of products
Top Performing Companies:
o Europe: CNH Industrial (63/100)
o North America: 3M Company (48/100)
o Asia Pacific: Komatsu (45/100)
o Emerging Markets: Ferreycorp (40/100)
Companies making best progress since 2017:
o Europe: Kion Group (+8)
o North America: No progress
o Asia Pacific: No progress
o Emerging Markets: Hanwha (+8)
To view an excerpt of our 2018 Industrial Goods & Services sector report, download the document below.
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