Companies around the world are improving their environmental, social and governance (ESG) performance, suggests a new report from ISS ESG, the responsible investment division of proxy advisory firm Institutional Shareholder Services Inc.
ISS ESG released its latest annual analysis of companies’ adherence to ESG criteria, which found that the proportion of companies ranked as “good” or “excellent” increased to 20.4% on a global basis, from just over 17% last year.
Additionally, more than two-thirds of companies in developed markets (67.5%) were rated as “medium” or above, which represents an all-time high, it said.
Ratings trends are also improving for companies in emerging markets, albeit from much lower levels, it said.
The report also found that 41% of the companies reviewed contribute “positively” to the United Nations Sustainable Development Goals with their products or services, including 8% of firms that contribute to a “significant” extent.
Conversely, it found that 27% are seen as detracting from the achievement of the UN’s goals.
And the firm also noted that research to track reports of companies violating standards of responsible business conduct is up by 40% across all ESG categories.
Human rights and labour violations accounted for 56% of these ESG “controversies,” the firm said.
By sector, it reported that the materials, energy and utilities sectors are most exposed on environmental issues. Materials and energy also lead in exposure on social matters. Banks, capital goods and pharmaceuticals/biotech have the most governance-related controversies.
“The positive developments highlighted in this report notwithstanding, there is still a long way to go as reflected in the increase number of controversies,” said Robert Hassler, managing director with ISS ESG.
“In many respects, however, this is not surprising and stems from both corporate failures to prevent and mitigate harm and growing public awareness and scrutiny of corporate activities and escalating standards around responsible business conduct,” he said.