ESG. Net zero. Sustainability goals. Scope 1 emissions. Scope 3 emissions.
You'll find these terms somewhere in nearly every public company's reports — but not in a standardized way. That makes it harder to hold the firms accountable for meeting international benchmarks.
ESG stands for environment, social and governance. Investors, employees and other stakeholders over the last decade increasingly pushed companies to improve goals in these areas and be transparent about their progress.
Stoking even more disclosure are plans to require standardize reporting on some measures by the European Union and likely the U.S. Securities and Exchange Commission.
Among the 30 largest Minnesota public companies, all but one have an ESG report or website. The exception, New Brighton-based APi Group, is a relatively new public company and plans to release its first sustainability report in the third quarter.
Nationally, 96% of S&P 500 companies issue updates in either their annual reports or specific ESG takeouts.
The reporting has increased over time — as has its use by investors — despite a wave of pushback from conservative political interests, according to an analysis of more than 3,500 corporate reports published in the fall by a trio of professors from Harvard, Northwestern and Rice universities.
"ESG has just become such a part of the cultural language of business that I don't really remember a time when there were no firms doing this," said Ethan Rouen, one of the authors of the analysis and an assistant accounting and management professor at Harvard, in an article on the university's business school site.
The problem is few reports use the same measures. Some companies compare data to industry groups, instead of goals set by national or international bodies. Others pick and choose measures where they are making progress.
"ESG reports are vastly different from financial disclosures, given that they cover numerous subjects and appeal to several stakeholders," according to the analysis.
So it's hard for investors to find apples-to-apples comparisons when researching company reports — and also indexes created to track ESG. Some measure the level of risk ESG factors are likely to have on stock value; others measure progress toward environmental goals.
Emissions goals becoming more transparent
Sustainability goals cover everything from greenhouse-gas emissions and energy and water usage to encouraging efficient use of products by customers. The closest similarity is with emissions because those are likely the first to be tracked by governments in a standardized way.
A report last year from As You Sow — a nonprofit advocating for improved ESG — tracked how transparent a group of large public companies was with emissions disclosures because that is the measure the SEC is concentrating on.
Two Minnesota companies were included. Ecolab — which ranks 11th on the Star Tribune's list of the state's largest public companies — received an "A-," with only Microsoft and PepsiCo scoring higher. UnitedHealth Group — the state's largest public company and one of the five largest in the nation — was in the bottom 10 and received an "F."
Disclosures are for Scope 1 (direct emissions from plants or other assets); Scope 2 (a company's own indirect emissions, for example, from the energy it uses); and Scope 3 (indirect emissions from suppliers' or customers' practices).
St. Paul-based Ecolab — which makes sanitation and water conservation and cleanliness products — has 3 million customer locations around the world, so officials said they feel they can have an impact through their products.
For CEO Christophe Beck, it's the economic pitch that Ecolab has to make, emphasizing a "green benefit" instead of a "green premium." The idea, he said, is choosing environmentally friendly solutions can fit a budget and in fact be cheaper in many ways.
"Our view and how we've built the company, over 100 years, has been based on the fact that using less natural resources, means a lower total cost, means a higher return for the customer," Beck said in an interview.
The Governance & Accountability Institute (G&A), a corporate sustainability and ESG consulting firm, started looking at corporate ESG reporting in 2012 when only 20% of the S&P 500 companies had such reporting. By their most recent 2022 report, 96% of S&P 500 companies and 81% of the Russell 1000 companies had an ESG report.
"We are moving from voluntary to mandatory disclosure environment around the world for ESG/sustainability," said Louis Coppola, co-founder and executive vice president of G&A.
The reporting follows several common reporting frameworks from organizations such as Global Reporting Initiative, Sustainability Account Standards Board and Task Force on Climate-related Financial Disclosures. Companies also reference Sustainable Development Goals and the Science-Based Target Initiative.
Coppola said the frameworks are constantly evolving but doubts they'll merge into a single universal framework.
Until they do, though, it's buyer beware when it comes to investors, the analysis by Rouen and the other professors found.
"I wouldn't bet all my money on regulation coming to solve this problem, at least in the short term," he said in the Harvard Business School article. "And it is very much a problem that needs to be addressed immediately."
Emissions goals tied to science targets
In 2018, Eden Prairie-based Tennant Co. was among the first 103 companies to have Science-Based Target Initiative-approved greenhouse gas reduction targets. The company — ranked 37th on the Star Tribune 50 — recently accelerated net-zero targets.
The maker of equipment to clean floors stands apart from most other companies by reporting on its Scope 3 emissions, where other larger companies have chosen not to.
Part of the reason is the nature of the business. Tennant's products help customers achieve their own ESG targets while saving on labor costs and achieving better cleaning results. In turn, Tennant gets credit for improvements through Scope 3 reporting.
"When you mechanize cleaning, the next best alternative is a mop and bucket," said Dave Huml, Tennant's chief executive. "We have technologies that allow our customers to clean more efficiently to use less water, to rely less on chemicals."
Yet Huml said the company won't reach its goals without new technology making batteries and engines more efficient.
More regulations coming
The European Union recently issued new corporate sustainability reporting requirements for companies doing business in its member countries. And individual states like California are passing their own mandates on corporate actions related to climate change.
The official actions add to pressure started by activist investors and a new generation of individual investors who value environmental and social goals. Big investors including institutional funds continue to have discussions with corporations to push their views — and vote at annual meetings based on what they discover.
Meanwhile, momentum toward clean energy overall has helped companies meet more of their sustainability goals.
Pentair, with operational headquarters is in Golden Valley, is ahead of the pace needed to meet its goals of reducing greenhouse gas emissions for Scope 1 and Scope 2 in half by 2030 to achieve carbon neutrality by 2050, said Karla Robertson, Pentair's general counsel and chief social responsibility officer.
Pentair — which ranks 19th on the Star Tribune 50 — provides water solutions, including pool maintenance, for both residential and industrial settings. Its Scope 3 goals, like Ecolab's, are helped by its products, Robertson said.
Scope 3 biggest challenge for companies
In the same way, Eden Prairie-based C.H. Robinson might have even more influence on greenhouse gas emissions. It's one of the world's largest logistics companies, and transportation accounts for one-fifth of global carbon emissions.
"We work with about 200,000 different customers and contract carriers. The potential to make a real impact on carbon emissions globally is enormous," said Angie Freeman, who oversees human resources and ESG at the company.
C.H. Robinson, Minnesota's sixth largest public company, offers Emissions IQ, a data tool that allows customers to evaluate emissions for all of its freight services from ocean shipping to rail and trucking to find alternatives that would lower the score.
C.H. Robinson offered the example of one tech manufacturer that leveraged Emissions IQ data to lower freight emissions by 30%, which saved 2.7 million pounds of carbon dioxide from entering the atmosphere.
General Mills, eighth on the Star Tribune 50, estimates more than 95% of its emissions are outside of its direct control and like other food companies is incentivizing and expanding within its suppliers regenerative agriculture — which includes practices like no-till farming and cover cropping.
Even a software company such as SPS Commerce without a heavy carbon footprints can take steps.
"Making a supply chain more efficient can radically reduce carbon footprint," said CEO Archie Black. "To have documents all electronic instead of paper — I mean it's like a 100 million documents we process. The documents we process would be like a forest."
Staff writers Brooks Johnson and Catherine Roberts contributed to this report.
