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Photo: Reuters
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The 100 most sustainably managed companies in the world

A new ranking by The Wall Street Journal puts Sony at the top, as hardware companies claim 18 of the 100 positions on the list

When Sony Corp. Chief Executive Kenichiro Yoshida took the helm in 2018, he declared it his mission to ensure the company’s long-term sustainability.

Mr. Yoshida stepped into the role after four years of squeezing out costs as chief financial officer, so he understood all of the challenges facing the electronics, entertainment and financial-services giant. After two years of losses, the company had hit rock bottom in 2014, the first year in its history that it failed to pay a dividend, Mr. Yoshida says.

Now Sony is at the top of The Wall Street Journal’s list of the 100 most sustainably managed companies in the world. This ranking was produced by the Journal’s environment, social and governance research analysts, who assessed more than 5,500 publicly traded businesses based on sustainability metrics in such areas as business model and innovation, external social and product issues, employee and workplace issues, and the environment. The ranking’s methodology takes a broad view of sustainability, one which assesses a company’s leadership and governance practices for their ability to create value for shareholders over the long term.

Sony got serious about sustainability measures in 2018 as Mr. Yoshida doubled down on generating social value while maintaining high profits at the company, says Shiro Kambe, the company’s sustainability chief. Core to Sony’s strategy then and now, he says, is working to be part of the solution for sustainability risks at large, and not just for issues it faces within the company.

“For us to continue with this kind of business, the planet and society must be sustainable and healthy. Otherwise, Sony cannot exist," says Mr. Kambe.

Hardware makers like Sony are the most common type of businesses found in the WSJ sustainability ranking, claiming 18 positions in the top 100 list. Hardware companies tend to focus on business areas that our sustainability-management measures weigh heavily, such as supply chain, materials sourcing and efficiency, and product design and life cycle. The next most heavily represented group, chemical makers, with 10 spots, includes Arkema SA and Solvay SA. Semiconductor makers such as Intel Corp. and Nvidia Corp. took seven spots.

Thanks in part to strong disclosure practices and policies to manage their direct environmental impacts, heavy industry is also well represented. Companies ranked include Japanese glassmaker AGC Inc. at No. 13, French construction materials maker Cie. de Saint-Gobain SA at No. 20 and oil-and-gas companies Eni SpA and Royal Dutch Shell PLC at Nos. 25 and No. 33, respectively.

By country, U.S. companies took 23% of the slots, followed by Japan at 16% and France at 9%. By region, Asian and European companies each garnered 36%, North American 26% and African 2%.

The Journal research team’s assessments followed the framework of the Sustainability Accounting Standards Board, or SASB, which determines financial materiality of data points for each industry based on categories that are considered reasonably likely to affect the operating performance of a company. Those material categories were given greater weight in calculating the aggregate score that determined a company’s rank.

Each company was scored by combining up to 165 company-reported data items with an analysis of media coverage by more than 8,800 sources available via Factiva, a database information service owned by Wall Street Journal publisher Dow Jones & Co. Artificial-intelligence systems supporting the ranking were co-developed with data-service, advisory and technology provider Arabesque S-Ray, which also supplied the company data used for the scores.

For all of the companies, transparency was key. Scores reflect the amount of publicly available information about each company’s policies, initiatives and performance metrics—all of which can be important indicators of a company’s long-term financial performance and the effects it could have on the planet and people.

John Bremen, managing director of human capital and benefits at London-based consulting firm Willis Towers Watson PLC, says he has spoken to many companies that wonder why they aren’t included in any sustainability rankings. He points to their lack of disclosures. Companies reporting more sustainability data typically find it beneficial, he says.

“Companies that once upon a time were afraid of transparency learned to embrace it, and they actually found this quite a powerful force to help them evolve," he says.

Indeed, making sustainability issues a core part of business practices is a defining characteristic of the WSJ ranking. Around the world for the past decade, many corporations have built out sustainability-related programs, often in response to pressure from customers, employees, regulators and investors. Climate change and inequality are among the biggest concerns, according to interviews with more than two dozen officials at the top 100.

“Companies that are managed in a responsible and sustainable way actually provide a better return and have fewer mishaps along the way," says Frans van Houten, chief executive at Philips NV, the Dutch health-technology company, which took the No. 2 spot in the Journal’s ranking.

Philips takes back and resells almost every medical machine in its lineup, including costly diagnostic and interventional equipment. It adopted this practice in the early 1990s both to extend the life of the equipment, through refurbishment, and to offer some customers lower prices without compromising on quality. New imaging machines, for example, can cost millions of dollars.

Issues such as access and affordability, which the ranking addresses under the heading “social capital," are particularly important for companies like Philips, in the medical equipment and supplies industry.

Refurbished Philips equipment plays a key role in a clinic in Grand Rapids, Mich., where Jihad Mustapha, a cardiologist, treats patients with heart and arterial disease. In his office, Dr. Mustapha keeps a photograph of one of his patients, a proud father with his daughter on the day of her wedding. Dr. Mustapha and his imaging machine helped save the man’s leg, the doctor says. The clinic bought the system for half the price of a new one, he says, adding that the clinic couldn't have afforded a new one. The same system purchased new could cost as much as $2 million.

At hardware companies, some of the most financially important sustainability issues are sourcing of materials and data security. Sony and Cisco Systems Inc., No. 3 in the ranking, both earned high scores in these areas.

Both companies make devices that gather a lot of information, so data security is a key risk. For Sony, outperformance in data security came about the hard way. After suffering bruising hacks in 2011 and 2014, the company revamped its security systems and became more proactive in guarding against potential threats.

Cisco, in addition to addressing data-security needs, has tracked the environmental impacts of select products over their life cycles since 2008: 91% of the greenhouse emissions associated with its blade servers, for example, comes from the servers’ use, while 9% comes from their manufacture, according to Cisco’s most recent 2019 sustainability report.

The company received its high WSJ ranking for supply-chain management, product design and data security.

Irving Tan, chief operating officer at the San Jose, Calif.-based network-equipment provider, says Cisco conducts an ecological assessment of targeted products, like popular desk phones, routers and servers, to learn where it can make the biggest difference. Cisco says its products are similar enough that an assessment doesn’t have to be done for each one.

Mr. Tan says it is important to pay attention to where a company can make an outsize impact. In Cisco’s case, that is sourcing materials and making its products more circular—that is, how resource-efficient, durable, reusable, repairable and recyclable they are. By 2025, Cisco says, it will have standards in place to make sure all of its new products are made with circular design principles.

Cisco has also required 80% of its suppliers—determined by its spending—to set emission-reduction targets by 2025 as part of its goal to cut 30% of its emissions from its supply chain, which fall under so-called scope 3 emissions, those coming from both the products a company sells and companies in its supply chain.

“They need to be part of the solution with us," Mr. Tan says.

Other companies, such as Taiwanese electronics maker Tatung and Kering, the French luxury house that owns Gucci, also have been working on quantifying environmental impacts through their products’ life cycles.

Kering has developed an app that can be used to calculate the environmental impact of making one of its products—say, a leather bag. Tatung and Kering were ranked first and second, respectively, in the business model and innovation category of the WSJ ranking, which captures how companies integrate environmental and social factors into their value-creation processes.

Many of the more than two dozen corporate leaders interviewed for the overall ranking say their environmental and social disclosures and programs keep them ahead of the regulatory curve. Spain’s Melia Hotels International SA, which operates more than 400 destinations across 40 countries, is No. 7 in the overall ranking mostly because of its environmental programs and disclosure policies, including managing energy, water and ecology at its properties. It has invested more than $15 million in environmental projects since 2016.

Alejandra Sierra De La Rosa, corporate responsibility manager at Melia, says strong sustainability policies save time and money when new regulations arrive. For example, a Spanish law has required sustainability reporting for companies with more than 250 employees since 2018.

Ms. Sierra says some companies had difficulty meeting the rule and had to hire new people, but Melia had already been voluntarily reporting that information since 2008.

“Being ahead of the regulation is definitely a competitive advantage," she says.

Investor pressure is a big reason European companies do better on environmental management, says Leslie Samuelrich, president of Green Century Capital Management, a Boston-based investment firm that is focused on climate change.

Ms. Samuelrich points to how European money has made up most of investments into funds that hold stocks based on their environmental performance over the past five years, according to fund tracker Morningstar Inc.

“When companies know investors have specific environmental expectations, they tend to improve their practices," she says.

Companies based in Asia have increased disclosure and ESG policies, mostly in response to demands from regional and global investors, says Stefen Shin, principal investment officer for capital markets and structured products at the Asian Infrastructure Investment Bank in Beijing.

Some of the biggest Asian companies in the ranking are South Korea’s LG Corp.’s subsidiary LG Electronics, at No. 6, and semiconductor company Samsung Electronics, which landed at No. 28.

Mr. Shin says increased interest in sustainability by Asian companies was bolstered by a decision this year by the China Securities Regulatory Commission to require listed companies to disclose more, and guidance from authorities in Shanghai and Shenzhen. In 2016, Hong Kong’s stock exchange also started requiring companies to report ESG data or explain why they couldn’t.

As companies in Asia “wake up" to the imminent physical dangers of climate change, such as more typhoons and rainfall, says Mr. Shin, there is a pressing need for those companies “to tackle ESG and sustainability issues."

Globally, trillions of dollars have flowed into investment funds and portfolios that reward and punish companies based on how they manage ESG issues.

Investors view sustainability as a company’s ability to generate strong business results while navigating the environmental and social challenges its industry faces today and in the future, from supply-chain disruptions and increased frequency of extreme weather events to growing competition to attract and retain diverse talent.

“What we’re trying to understand is whether a company has a sustainable business model or not," says Andrew Howard, global head of sustainable investment at Schroders, a U.K. asset manager. “Is this a company that will be able to change and adapt and a company that will be able to thrive in the world that we will be in 10 years from now?"

Ms. Negrin Ochoa is a Wall Street Journal reporter in Singapore; email fabiananegrin.ochoa@wsj.com. Mr. Holger and Ms. Sardon are Journal reporters and Ms. Lindsay a Journal publishing editor, all in Barcelona. They can be reached at dieter.holger@wsj.com, maitane.sardon@wsj.com and catherine.lindsay@wsj.com.

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