WSJ Sustainable Management Ranking Finds Tatung and Kering Topping Innovation List

WSJ Sustainable Management Ranking Finds Tatung and Kering Topping Innovation List

The category's leaders come in two kinds: tech hardware and electronics, or clothing and footwear

Customers at a Gucci store in China. Gucci's owner, Kering, says it can trace almost 90% of the key raw materials in its products. (Photo: Reuters)
Customers at a Gucci store in China. Gucci's owner, Kering, says it can trace almost 90% of the key raw materials in its products. (Photo: Reuters)

Kering, the French luxury-goods conglomerate that owns Gucci and Balenciaga, says it can trace to their origins nearly 90% of the materials used by its many brands.

The company measures and monitors the environmental impact of its supply chain and operations, and publishes its findings in an environmental profit-and-loss statement, which assigns a monetary value to the environmental footprint of its products like leather bags or cashmere sweaters.

Similarly, Tatung, a Taiwanese conglomerate whose products range from rice cookers to smart meters, has been analyzing its entire value chain -- everything from the conception to the distribution of its products -- and disclosing the carbon footprint of all its products since 2010.

These are the kinds of sustainability-focused initiatives that landed Tatung and Kering on The Wall Street Journal's new ranking of the 100 most sustainably managed companies in the world, as well as among the top 10 in the business model and innovation subranking.

Tatung claimed the top spot in the subranking and is ranked 75th overall. Kering landed at No. 2 in the business model and innovation subranking and No. 26 overall.

The ranking from the Journal's environment, social and governance (ESG) research analysts leveraged artificial intelligence to evaluate more than 5,500 publicly traded companies around the world.

It is based on data showing what programs, policies and performance metrics companies have in place for key sustainability categories defined by the Sustainability Accounting Standards Board, a nonprofit that works with companies and investors to create reporting standards that link sustainability to financial performance.

Those categories include environment, human capital (internal employee and workplace issues), social capital (external social and product issues) and business model/innovation.

Seven of the top 10 companies for business model and innovation are designers and producers of technology hardware and electronics. The other three are clothing and footwear makers.

According to SASB, more than half of the sustainability categories that are most relevant for these industries are under business model and innovation.

Stakeholder pressure has prompted companies in these industries to get to the bottom of their supply chains. By collecting and disclosing data, they can deal with the environmental or social risks they might face, avoid controversies and work toward saving money and resources in their processes.

"We've seen increasing consumer and investor pressure on [business-to-consumer] companies in terms of how goods are produced and what's going on in supply chains," says Yannick Ouaknine, head of sustainability research at Société Générale, a French bank.

Putting data to use

Companies today are providing investors more granular data on everything supply-chain related than they did in the past, Mr. Ouaknine says.

He notes that creating an environmental profit-and-loss account like the one Kering implemented in 2015 isn't an easy task for companies, but says it is the kind of innovation that resonates with investors.

Thanks to the data Kering collects to produce its environmental profit-and-loss statement, the company found that some of the herders it was sourcing its cashmere from were grazing their goats in a way that was harming the Mongolian steppe.

Kering is working with the Wildlife Conservation Society, the National Aeronautics and Space Administration and Stanford University to teach Mongolian herders good land-management practices such as rotating goats among pastures to allow the grassland to renew itself.

"Every brand uses the EP&L to find out what is their biggest environmental impact, and then they decide to work on the raw materials and production processes," says Marie-Claire Daveu, chief sustainability officer at Kering. "For one brand its environmental impact may be linked with leather, and for another it may be precious stones."

The company achieved 88% traceability for its key raw materials in 2019, she says.

The remaining 12% is still a challenge due to the complexity of its supply chain.

"You have to be sure you're getting quality data, and it also takes time to explain what we are looking for to our suppliers," Ms. Daveu says.

She says the luxury house has put sustainability at the heart of its strategy because it is essential for the continuity of the business and because younger consumers, who have become core clients for the industry, are "very sensitive" to environmental and social issues.

"We're getting more and more questions from investors and financial analysts. Gen Z and millennials are also very sensitive to topics such as animal welfare, climate change and biodiversity," she says, adding that news media and social media have thrown a spotlight on supply chains.

A vertical advantage

Other apparel firms that ranked high for business model and innovation are Gildan Activewear, a Canadian apparel manufacturer, and Industria de Diseno Textil, the Spanish fast-fashion giant that owns the retailer Zara.

They claimed the No. 6 and No. 9 spots, respectively, for this category, receiving high scores on supply-chain management, which is one of the sustainability issues considered reasonably likely to affect the operating performance of companies in the sector, according to the Sustainability Accounting Standards Board.

"When we buy a company that's involved in fashion, we want to make sure that they have the right risk-management programs on the supply chain for human rights and labor rights, and we want those supply chains to be audited independently," says Guillaume Mascotto, head of ESG investment research and stewardship at American Century Investments, a Kansas City, Mo.-based investment manager.

Gildan Activewear, a Montreal-based company that sells activewear to wholesale distributors and brands, owns and operates most of the facilities it uses to produce clothing. It says it spins its own yarns and assembles and distributes all the garments. Gildan is ranked No. 32 overall in the Journal team's ranking.

"Our vertically integrated manufacturing model means we have direct control over almost all of our Tier 1, 2, and 3 supply processes, enabling us to uncover operational and resource efficiencies that more-decentralized value chains can rarely achieve," says Claudia Sandoval, vice president of corporate citizenship at Gildan.

Seeing an opportunity

Tech hardware companies face challenges including reducing waste and minimizing the amount of natural resources that go into their products, while making sure these are sourced responsibly.

Tatung, for example, says it recycles 72% of all the waste it generates with its activities. The company says in its 2019 corporate social-responsibility report that it prefers to purchase materials from local suppliers in Taiwan to "support local businesses and to fulfill a social responsibility."

Like Tatung, Kyocera, a Japanese ceramics and electronics manufacturer that took the No. 3 spot for business model and innovation, scored high on product design and life-cycle management. The company is No. 46 overall in the Journal team's ranking.

Kyocera views climate change as a business opportunity that is inspiring new products and helping it improve the productivity of its resources. It started to develop solar cells in 1975.

"As the importance of renewable energy increases, we are not only viewing climate change as a risk, but also as an opportunity for growing our energy-solutions business," says Hideo Tanimoto, Kyocera's president.

For investors, these kinds of sustainability-focused initiatives are a sign that companies have a thorough understanding of what can pose a threat to their business and how they can adapt to the needs of the economy, the society and the environment.

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