Human Resources (HR) was a top theme for the DJSI Industry Group Leaders of 2017, in particular employee compensation and benefits, workforce diversity and inclusion, employee development and occupational health and safety...


By comparison, the new Human Capital Score developed by RobecoSAM focuses on human capital development, talent attraction and retention, as well as labour practices and human rights.

HR was followed by climate and ethics as top themes. On climate, the material topics of most interest appeared to be greenhouse gases, energy use and efficiency, as well as renewables and other alternatives. On ethics, the two dominant material topics were anti-corruption and business ethics, the second and third most emphasized topics following employee compensation and benefits in the annual non-financial and financial reporting by the Group Leaders.


graphs

sell-stock

This appears from our latest analysis of twenty four leading sustainability corporates defined by RobecoSAM based on their 2017 sustainability assessment of 867 companies for the Dow Jones Sustainability Indices (DJSI). Our own findings on key material topics this year is based on most emphasized topics in their full suite of reports – sustainability, integrated and annual reports – identified through automated analysis by our partner eRevalue using their Datamaran business intelligence platform.

The automated analysis also allows for comparison of most emphasized topics in the annual sustainability reports (18 SRs) and integrated reports (4 IRs) versus annual financial reports (23 ARs) of the DJSI Industry Group Leaders announced in September 2017. As signaled in our analysis last year, the theme of governance receives greater attention in ARs than SRs or IRs. While the only governance related theme among the top 20 most emphasized topics in their SRs and IRs is “stakeholder inclusion”, the ARs have four governance-related topics among their 20 most emphasized topics: shareholder activism (#2), executive compensation (#5), board composition (#15) and investor relations (#16).  

Our analysis last year showed that while the top 20 topics formally stated as most material in IRs or SRs include external development-related topics such as “community impact” and “access”, these topics do not feature among the top 20 topics most emphasized in the reporting narratives. This was again evident this year, even while the DJSI is showing greater interest in impact valuation to assess if companies are measuring and valuing their broader societal impacts focused on outcomes. The automated analysis showed that the external developmental dimension is most addressed by three terms appearing among the top 20 most emphasized topics in SRs and IRs, namely human rights (#12), philantrophy (#17) and community support and development (#18).

From its overall database of company reports, Datamaran does however detect a substantial increase of references to the Sustainable Development Goals (SDGs) since 2015. Looking at the 20 Industry Group Leaders, our analysis again shows that coverage of the external development-related themes is likely to be less common in ARs. The most related common topic referred to here is human rights, which appears in position #12 among the top 20 most emphasized topics in their ARs.

A newcomer theme among the most emphasized topics is that of “non-financial accounting” in SRs and IRs. This is detected through the search of terms such as true cost, balanced scorecard, integrated reporting and sustainability reporting, identified in conjunction with terms such as procedure, audit and assurance and reference to standards or frameworks for non-financial accounting or reporting. While non-financial accounting does not appear as a top theme in ARs, the topic “long-term value” does appear as #18 among the top 20 most emphasized topics in ARs by the Group Leaders. It also appears as #5 among the top 20 topics most emphasized in the four IRs published by Group Leaders.

Past analysis by Materialitytracker of reporting by the 24 Group Leaders showed that formally stated key material topics include generic business terms such as strategy execution, innovation and product excellence. Yet these terms appear less emphasized in reporting narratives. The software analysis of the narratives this year does show that the business theme of “customers” appears, more commonly in the ARs and IRs, with reference to the topics customer privacy and information security (#8 in ARs, #19 in IRs), customer satisfaction (#11 in ARs, #15 in IRs) and reputation (#13 in ARs, #18 in IRs).

The top 20 topics from our analysis are listed in the table below, showing the results from the automated analysis of the non-financial, financial and all reports combined.

Table 1: Top twenty issues for 24 DJSI Industry Group Leaders of 2017

Methodology: Automated Analysis (using narrative data analytics)

An automated analysis of the same reports (SRs, IRs and ARs of the same 24 companies) was performed by the Datamaran narrative data analytics platform, covering the same reporting year. This detected the topics most emphasized. The Datamaran ontology is dynamic i.e. topics are amended and more topics included over time to ensure results reflect current developments for continuous relevance. Topic emphasis is described as High, Medium, Low or No Mention. High topics are those with a high number of hits in each source and/or frequently included in key sections of the source. Medium topics are those with a moderate number of hits in each source and/or included in key sections of the source, though found rarely otherwise. Low topics are those with a low number of hits in each source and are not included in key sections of the source.

Related terms (such as GHGs, CO2, carbon) are detected and aggregated. The related count is then normalized with reference to the size of the report, prevalence relative to other topics mentioned in the same report, plus a weighing is performed. The weighing is based on the location of a term within the report (e.g. mention of GHGs in environmental chapter; or mention in CEO Foreword). eRevalue has an online database of 55,000 corporate reports of publicly listed companies, and can provide further sectoral analysis for clients. For more information on the analysis contact Erin Levey, Head of Research and Investor Strategy at Datamaran.

Figure 1: Most emphasised topics in reports by DJSI Industry Group Leaders of 2017 (Source: Datamaran)

.

How they manage their people, energy and climate were the top material issues for leading sustainability corporates of 2016. This was accompanied by high prioritization of human rights (diversity and inclusion), ethics and corruption, the health and safety of employees, and related standards in supply chains…

Human resources (including talent management) again moved to the top of the list for the 24 DJSI Industry Group Leaders of 2016. Second position among the top 20 topics across sectors was taken by Supply Chains (including responsible management and traceability), followed this year by climate and energy in third position

There were some important differences between what companies formally state to be their top material topics and what topics they most talk about in their annual sustainability reports (SRs) and integrated reports (IRs). An automated content analysis of the reports by the 24 Industry Group Leaders shows that five out of the top eleven most emphasized topics relate to climate and energy (including GHGs, energy efficiency and renewables). The automated analysis was done as MaterialityTracker adds machine learning capabilities to its analysis of the key material topics of the DJSI Industry Group Leaders.

The automated analysis was performed by our new Materialitytracker partner eRevalue, using their Datamaran business intelligence platform. The results of the automated analysis identify topics with the highest level of emphasis in non-financial reports (defined as SRs and IRs in this analysis). These results were compared with our manual analysis of what leading corporates formally state (for example with a Materiality Matrix) to be their top material topics of the year. With eRevalue, we also assessed the topics with the highest level of emphasis in the 24 Industry Group Leaders annual financial reports (ARs). This illustrated important differences between conventional ARs and their more recent non-financial peers.

Leading corporates devote more attention to Corporate Governance in ARs, with higher emphasis placed on the topics employee benefits, shareholder activism, investor relations, board composition and executive compensation (found among the top 20 topics).

Figure 1: Most emphasised topics in non-financial reports by DJSI Industry Group Leaders of 2016 (Source: Datamaran)

While the top 20 topics formally stated as most material in IRs or SRs include external development-related topics such as community impact, environmental stewardship, improved access, food and nutrition as well as public health and education, these topics do not feature among the top 20 topics more emphasized in both annual financial and non-financial reports. They are rather addressed in an internal, business operational context (for example employee health and training) or addressed broadly through a reference to human rights. This implies that external developmental issues (and by implication the SDG agenda) are not addressed in much detail in reporting by the 24 sustainability leaders. This finding is likely to look different if the analysis were done on specific sectors such as the natural resource extractive industries.

Other than people, energy and climate, consistency in top issues formally stated as material and also most emphasized in non-financial reporting by the 24 Leaders included the generic topic of Responsible Business, Strategy and Execution with ESG in mind. Relative consistency was also found on the topics of Water (ranked 17th from our manual analysis versus 12th from the software analysis) and Resource Productivity (including materials management, waste and recycling, ranked 14th from our manual analysis versus 10th, 14th and 19th from the automated analysis). The same can be said of customer satisfaction (ranked 15th and 13th from the two analyses). A surprising consistency between formally stated material topics in non-financial reporting versus most emphasized topics in financial reporting, was the topic of information security and privacy. This topic ranked 13th from our manual analysis of SRs and IRs and 9th from the automated analysis of ARs.

The top 20 topics from our analyses are listed in the table below, showing the results of our manual analysis of what is formally stated in non-financial reporting by the 24 Industry Group Leaders, and the results from the automated analysis of respectively non-financial and financial reports.

Table 1: Top twenty issues for 24 DJSI Industry Group Leaders of 2016

Methodology:

Manual Analysis

The manual analysis was done of reporting by the 24 DJSI Industry Group Leaders as announced by RobecoSAM in September 2016. A manual analysis was done of the reporting (mostly SRs and IRs, and ARs in complementary analysis) to identify what the 24 companies formally state to be their most material topics for the reporting year (2015-2016). The core of the analysis was focused on (based on availability) three companies with IRs, four companies with AR only (but including sustainability information), 14 companies with one AR and one SR, one company with only an SR (alongside quarterly financial reports), and two companies with only an AR (one releasing an SR biennially and one with only web-based sustainability reporting to complement the AR).

Automated Analysis (using narrative data analytics)

An automated analysis of the same reports (SRs, IRs and ARs of the same 24 companies) was performed by eRevalue’s narrative data analytics platform, covering the same reporting year. This detected the topics most emphasized. The Datamaran ontology is dynamic i.e. topics are amended and more topics included over time to ensure results reflect current developments for continuous relevance. Topic emphasis is described as High, Medium, Low or No Mention. High topics are those with a high number of hits in each source and/or frequently included in key sections of the source. Medium topics are those with a moderate number of hits in each source and/or included in key sections of the source, though found rarely otherwise. Low topics are those with a low number of hits in each source and are not included in key sections of the source.

Related terms (such as GHGs, CO2, carbon) are detected and aggregated. The related count is then normalized with reference to the size of the report, prevalence relative to other topics mentioned in the same report, plus a weighing is performed. The weighing is based on the location of a term within the report (e.g. mention of GHGs in environmental chapter; or mention in CEO Foreword). eRevalue has an online database of 45,000 corporate reports of publicly listed companies, and can provide further sectoral analysis for clients.

DJSI Industry Group Leaders 2015

Climate change and energy moved to the top of the list of material topics reported by the DJSI Industry Group Leaders of 2015. Second was Human Resources, top theme of the previous year…

The Paris climate conference of late 2015 clearly had an impact in setting the agenda. A myriad of business climate initiatives created over the last decade was given further momentum by more recent investors initiatives such as the Montreal Carbon Pledge of the Principles for Responsible Investment (PRI), the Portfolio Decarbonisation Coalition and the Institutional Investor Group on Climate Change (IIGCC).

Listed below are the top 10 out of 40 material topics reported by the 24 Industry Group Leaders of the Dow Jones Sustainability Index (DJSI) of 2015. The list was compiled by examining their 2014 sustainability or integrated reports. Compared to the previous year, Resource Efficiency and Improved Access dropped from the top 10 while Human Rights and Strategy & Execution moved up into the top 10.

The Human Rights agenda continues to be driven by debates on diversity, gender and follow-up to the UN Guiding Principles for Business and Human Rights. The focus on Strategy & Execution reflects interest in performance in terms of finance, business and sustainability. For the different leaders it is illustrative of varying degrees of integrated thinking.

The top ten topics reported for 2014-2015 were:

  1. Climate Change & Energy
  2. Human Resources
  3. Product Excellence
  4. Community impact
  5. Ethics
  6. Supply Chains
  7. Human Rights
  8. Strategy & Execution
  9. Environmental stewardship
  10. Labour (health & safety)

All of the 2015 Industry Group Leaders reference use of the GRI Guidelines (G4). Seven published Annual Reviews or combined sustainability / integrated reports, of which two referenced use of the IIRC <IR> Framework. Eight reference use of the AA1000 standard in their materiality determination, usage that in combination with GRI facilitates much greater clarity on process and key material topics identified.

The top 10 of 40 material topics reported is listed below, with numbers of reporters added. Its more complete topic descriptions give further detail on the terminology used by the DJSI leaders in their reports. Of the complete list of 40 topics, the bottom 10-15 topics reflect themes that are more specific to individual industry sectors, including topics such as sustainable mobility, deforestation and demographic change.

Materialitytracker also analyzed the top material topics reported for 2014-2015 by the full list of DJSI Industry Leaders, a list of 65 companies published at the beginning of the year versus the smaller group of Industry Group Leaders published by RobecoSAM in September. Interestingly, the top 10 material topics for the 65 were the same as the core 24. Only the order of topics changed. While climate and human resources still appeared at the top for the 65 Industry Leaders, these were followed by labour occupational health & safety (OHS) at position 3 versus position 10 among the 24 Group Leaders.

Table: Top 10 material topics reported by DJSI leaders (2015)

DJSI Industry Leaders 2015

DJSI Industry Group Leaders 2014-2015:

(Examples, indicating Presentation of Material Topics and Description of Materiality Determination Process. Click each for links to PDF extracts)

DJSI Industry Group Leaders 2014

At the top of the list of 2014 is human resources. The combination of common ESG themes and generic business themes signals steps towards integration, but does not imply integration per se…

Listed below are the top material topics identified and disclosed by the 24 Industry Group Leaders (2013-2014) of the Dow Jones Sustainability Index (DJSI). The list was compiled by examining their 2013 sustainability or integrated reports, listing the top material issues reported from the materiality determination process of each. This involved noting the top quadrant issues displayed in a Materiality Matrix, or the top material issues listed in cases where not a matrix but alternative graphic or listing was published. These are areas where both management and stakeholders agreed that the issues are highly significant.

Almost all (23) of the industry group leaders have used the GRI Guidelines in their reporting, whereas four “Annual Reviews” or “Integrated Reports” also refer to the IIRC. Furthermore, five of them also referred to using AA1000 in their materiality determination process. As far as generic social responsibility standards are concerned, noteworthy is the reference (membership) to the UN Global Compact by 20 industry leaders. These references influence the initial menu of subjects they start with in their process of identification and prioritization.

Of special interest looking at the top ten is not so much the suggestion that they are “the most important”, but rather the fact that they tend to be top material topics across all industry sectors. The umbrella headings used in the top ten brief listing below is expanded on in the full table (bar chart below), giving more indication of the terminology used by the industry leaders.

The top ten topics reported for 2013-2014 were:

    1. Human resources
    2. Product excellence
    3. Climate change
    4. Environmental stewardship
    5. Community impact
    6. Supply chains
    7. Labour (health & safety)
    8. Resource efficiency
    9. Ethics
    10. Improved access

The top ten signals that employees and customers (incl consumers), as well as suppliers and local communities are central. Furthermore, the trend towards integration in reporting is also reflected in the combination of known ESG themes such as climate change with generic business themes such as business growth and competitiveness. This combination – in the absence of for example linking non-financial and financial performance – does not by definition signal integration.

Debates on development and equity globally clearly have an impact, as can be seen in frequent reference to “Improved Access (to services in finance, health, information and communication technologies, electricity)”. Some less mentioned topics are inevitably specific to individual sectors of the 24 industry group leaders, for example responsible investment, responsible R&D and responsible gambling.

Varying preferences for specificity can be seen from the total of 35 topics reported, ranging from different dimensions of human resources (such as talent, attraction, retention, engagement) to a very generic “social responsibility”. The presentation by the 24 individual companies of the results of their materiality determination processes, for example in Materiality Matrix format, can be found below. These are extracts (PDFs) from their  reports. In as far as disclosed, indication of the process followed is also provided.

Table: 35 material topics reported by DJSI leaders (2014)

big-graph

DJSI Industry Group Leaders 2013-2014:

(Click each for links to PDF extracts)