We’ve leveraged Intrinio’s alternative data, powered by our proprietary Answers API, to determine the top sustainability challenges that S&P500 companies are facing. Here are the 10 biggest sustainability challenges that companies have reported in recent years.
Climate change was mentioned by nearly every company in the Thea-generated report, along with pledges to reduce greenhouse gas emissions, minimize carbon footprint, and improve efficiencies.
Companies overwhelmingly identified environmental regulations at the local, state, and federal level as posing a challenge to their companies, but it was widely acknowledged as a necessary one. In their 2020 10-K, Eaton Corporation specifically identified that the use and disposal of certain substances in their production process are regulated by these policies. Packaging Corp of America cited a challenge in the evolving nature of environmental compliance requirements because it poses financial risk. Southwest Airlines specifically cited US Customs and Border control-mandated procedures.
Achieving sustainability comes with long-term benefits (and profits), but in the short term, a number of firms identified a financial cost that comes with becoming more sustainable. Xerox, for example, identified compliance with legally required regulations as well as the cost of self-imposed regulations to operate more ethically and appeal to shareholders. Coca-Cola cited its implementation of packaging recycling programs and campaigns to promote recycling globally as a major, but necessary, cost.
Sustainability is a buzzword of the past decade, and this is, more than ever, requiring companies to evolve to meet consumer wants and beliefs. This occurs across all industries represented in the S&P500. Coca-Cola cited a push by consumers to see less packaging. PNC noted a change in investment strategies to exclude coal mining ventures and other environmentally harmful practices. In their 2020 10-K, Clorox mentioned a challenge in the evolution of consumer preferences, especially as they differ widely from the Baby Boomers to Gen X to Millennials.
Supply chain vulnerability poses a huge financial and reputational risk to companies; when consumers can’t get the products they want, when they want them, their loyalties often shift to competitors. For big corporations in the S&P500, this is a difficult challenge to minimize as a lot of their supplies are sourced from conflict-affected or high-risk areas. For example, Target and Microchip both encountered issues in purchasing the minerals their products use due to control of these resources by armed combatants, and the risk of financing this conflict.
Environmental regulations vary across different industries, and some appear to have clearer policies and standards. PNC identified this as a challenge in 2020 report, writing that there is “no clear definition (legal, regulatory or otherwise) of, nor market consensus as to what constitutes, a ‘social’, ‘green’, ‘sustainable’ or equivalently labeled project.” Regency Centers Corp cited a similar frustration, in that ambiguity of “environmental liability” can make it difficult to assess and protect against all risks associated with certain corporate operations.
Managing a firm’s environmental impact includes meeting local, state, and federal regulations, and large, multinational corporations often find difficulty in understanding and verifying that every part of their supply chain meets every criterion. Xerox, for example, cites the challenge of identifying all upstream sources of materials in their supply chains, despite following due diligence protocols. Target expressed a similar challenge, as well as the importance of the challenge because of a supplier’s potential effect on a brand’s equity.
Many energy and agricultural firms in the S&P 500 identified this as a top challenge. Edison International, a public utility company, noted “climate change and wildfires.” Campbell Soup cited “adverse weather conditions (such as drought, temperature extremes or floods), natural disaster, fire” as a top concern. On the retail side, Gap Inc identified “negative global climate patterns.”
Just as our commutes are affected (or were, pre-pandemic) when prices at the pump increased, companies cite rising fuel costs and other supply chain disruptions as a major sustainability challenge. While companies are actively trying to shift away from fossil fuels, a change like that does not happen overnight, and when prices rise, more resources have to be directed to meeting these costs that can’t be directed to sustainability. P&G and Exxon both noted this challenge. Lamb Weston Holdings noted a similar challenge with regards to pesticide use – as they phase out certain pesticides, demand for better ones increases, causing a major supply chain disruption.
The idea of ESG, or Environmental, Social, and Corporate Governance, matters a lot to investors and consumers today – so much, in fact, that Standard & Poor have created an S&P500 ESG Index that measures the performance of S&P500 companies that meet certain ESG criterion. Several S&P500 companies have cited increased public awareness of these principles as a challenge, as many of them come under increased scrutiny for past or current practices. Williams Companies wrote in their 2020 10-K that they “may face reputational challenges in the event our ESG procedures don’t meet standards set by certain constituencies.” Further, Delta came under fire in 2020 for failing to be transparent in environmental lobbying matters.
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