Deere (NYSE:DE) has passed ModernGraham’s Defensive Investor requirements, so now I am interested to know more about Deere’s management of operations, its people, community relations, and corporate governance. A growing number of investors are examining a public company’s ESG performance data to make to more informed investment and business decisions. ESG data is typically disclosed by companies in annual sustainability reports. Companies are voluntarily disclosing ESG data because stakeholders, especially the capital markets, value the data as a proxy for efficient operations, responsible people and community relations, and sound governance.
Analysis of Deere’s ESG performance. The chart below compares Deere’s 2012 ESG performance disclosures in 12 categories to the industry average, and to the 2012 industry group leader (CNH Industrial (NYSE:CNHI)) for ESG disclosers. Bloomberg Professional’s equity service platform is the source of the ESG metrics in the chart (read more below). “NA” in any column means the information is not available. The third column provides aggregate ESG Disclosure Scores (ESG score) that range between 0 (no disclosure) and 100 (full disclosure).
Deere’s ESG score of 29 is slightly above the industry group average of 27 – but the industry average for the heavy machinery industrial group is lagging in ESG disclosure as a whole. The best 2012 ESG discloser score for the industry group is CNH Industries, with a score of 62. By comparing Deere’s and CNH’s 2012 ESG disclosures, it is evident that Deere’s ESG disclosure score is low because it has not yet provided key ESG metrics of Total Water, Total Energy and Total Waste for its operations, whereas industry leaders have.
A Snapshot of Deere’s 2012 ESG Performance in 12 Categories
Deere has provided Total GHG Emissions (Column 4) for its operations, which are more than double the industry average. This metric may simply reflect the fact that Deere is a much larger producer than most of its competitors. But Deere’s GHG intensity/Sales (Column 5) metric of 56.27 (metric tonnes) is also more than double the industry average. Taken together, the lack of data on water, energy, and waste – and the high GHG intensity metric for Deere raises further questions in my mind about Deere’s efficient use of non-renewable natural resources, and the company’s commitment to being accountable and transparent on important ESG disclosures to the capital markets.
As you might expect, non-renewable resource use is a key area of inquiry for the capital markets when evaluating the ESG performance of the heavy machinery industrial group. In fact, the Sustainability Accounting and Standards Board (SASB) is currently working to develop ESG metrics specific to the heavy machinery industrial group as part of SASB’s ongoing work to provide industry-by-industry ESG accounting standards to guide corporate ESG disclosures in filings to the Securities and Exchange Commission (SEC).
Bottom line, Deere’s 2012 ESG metrics raise questions about operational efficiency and how the company plans to compete well into the future. Another place to look for Deere’s explanation about these questions would be its 2013 sustainability report. In that report, Deere states it has water, energy, and waste reduction goals, but does not provide the baseline usage or generation wastes that will be used to measure success. Many companies are still learning to report ESG metrics in a way that is easily understood and valued by the capital markets, and Deere appears to be one of those companies.
Lesson: Public companies (and the private companies who do business with them) need to recognize that best practices for sustainability disclosures include standard ESG aggregate data like what is presented above. When companies in an industrial sector first disclose sustainability performance, aggregate ESG scores reflect the level of disclosure. Once ESG disclosures are mature for an industry sector, intensity and productivity metrics can be calculated as proxies for operational and management efficiency. Companies that do not disclose ESG data at all risk being eliminated in a competitive situation because of the appearance of risk and lack of transparency and accountability. For a more detailed explanation of ESG data as a game-changer, read this white paper.
Where does this data come from? Since 2009, Bloomberg’s Professional equity platform has provided corporate financial and ESG performance data to the capital markets. Corporate ESG data is typically released through annual corporate sustainability reports. Bloomberg Finance dashboards now contain public corporate financial and ESG performance data, and this information is available to subscribers via nearly 400,000 Bloomberg terminals installed in investment and financial institutions throughout the world, including Fortune 500 CFO offices, academic settings, and public libraries. Anyone with access to these terminals has access to the information.
Disclosure: The author has never held a position in Deere and has no intention of changing that position within the next 72 hours.