ESG Reporting, ratings & rankings can bring recognition and improve performance, if we manage the complexities

What a great kickoff to 2022!

I was delighted that Corporate Knights included Henkel in the "Global 100 Most Sustainable Corporations in the World" again earlier this month. Following the assessment of about 7,000 companies, they ranked Henkel as #2 in the “personal product companies” category. ?

While we are proud of such achievements, ratings and disclosures hold a deeper significance for our business.

?ESG ratings foster transparency and confirm that we are successfully implementing sustainability along the value chain and meeting our stakeholders’ expectations. Especially during the continued volatility of the pandemic, it’s important that Henkel closed out another strong year of recognition for its environmental, social and governance performance. One of a few successful ratings I feel is worth highlighting is EcoVadis, which again awarded us a platinum medal. This is their highest category that places us among the top 1% of all companies assessed. Another of note is the Sustainalytics, in which Henkel was rated as one of the world’s leading companies in the household products sector comparison and placed once again in the “low risk” category.???

But ESG ratings mean more than recognition. They are an important way to integrate the assessment of our ESG performance into our core business. For example, in 2018, we were the first German company to conclude a syndicated sustainability-linked loan, a credit line with terms tied to Henkel’s ratings performance. Three different sustainability rating agencies were included to ensure a balanced and comprehensive assessment our performance: EcoVadis, Sustainalytics and ISS ESG. Building on this debut, we announced our new Sustainable Finance Framework in 2021, which aims to align our sustainability strategy with our funding strategy more closely. This is one of many ways in which Henkel strives for innovation as a first mover – in this case, continuously pushing new boundaries in sustainable finance.

Finally, participating in disclosure is a way to validate our understanding of the leadership benchmark on key sustainability issues to inform our risk assessments and roadmaps going forward. For example, Henkel once again successfully participated in the Carbon Disclosure Project (CDP) in 2021. The CDP assesses qualitative and quantitative disclosure on the topics of climate change, water and forests. This year, we improved into the A- category in climate and forest/palm oil, and B for forest/timber and for water. These are great results that demonstrate our commitment to continuous improvement while highlighting some areas where we can still go further.

The diversity of recognition in ratings and rankings confirms we are in a good position to kick off 2022. We aim to continuously enhance our performance and drive our sustainable transformations with integrity.

For 2022, I expect ESG to gain further momentum and dynamics on multiple levels. New topics like the EU taxonomy, supply chain due diligence and reporting regulations will need to be integrated into company processes, reporting and resource allocations. New solutions for data management and evaluation will be vying for corporate and investor attention. More funds will be invested based on ESG factors, as Larry Fink recently indicated in his famous CEO letter. ESG performance and ratings will gain importance as a factor in companies’ sourcing decisions.

While this holds a lot of potential, it also poses challenges. Companies will face an ever-increasing demand for and complexity of information requests. Simultaneously, users of ratings and rankings will receive an ever-growing portfolio of perspectives and opinions on the companies they are considering for their investment or sourcing decisions. There is a potential for information overload.

Therefore, it will be essential to strike the right balance between innovation and continuity, diversity of opinion and standardization as well as artificial and human intelligence. We must work together to build a common understanding of where we can converge on standardization and strengthen materiality.

If we get this right, ESG ratings will help ensure that we and others move ahead meaningfully and transparently for years to come.

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