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Earlier this year, Ford Motor Company (NYSE:F) passed ModernGraham’s Enterprising Investor requirements, so now I want to know more about how the company operates and manages natural resources, its workforce, customer, and local community relationships – also known as environmental, social and governance (ESG) data. A growing number of investors are examining a public company’s ESG performance data to make more informed investment and business decisions.

This growth complements Ocean Tomo’s primary finding in their Intangible Asset Market Value study. According to Ocean Tomo, in 1975 the market value of S&P 500 companies represented about 80% tangible assets and 20% intangible assets. In 2005, that flipped. Now, the market value of the S&P 500 is about 20% tangible assets, and 80% intangible assets. Ocean Tomo also found that a significant portion of the intangible asset value gap is attributable to patents and innovation.

ESG performance disclosures also serve as proxies to address the “value gap” -- by highlighting risks and opportunities related to material environmental, social and governance issues for specific companies and/or industrial sectors.

Analysis of Ford’s ESG performance. Ford competes in an industry that is competitive when it comes to ESG disclosures. To put Ford’s ESG disclosure performance into perspective, SPI recently analyzed key ESG metrics for the following eight top automotive companies: Ford, BMW (OTCPK:BAMXY), Nissan (OTCPK:NSANY), Toyota (NYSE:TM), Volkswagen (OTCQX:VLKAY), Hyundai (OTC:HYMPY), KIA (KMTF) and Daimler (OTCPK:DDAIY).

The data in Table 1 provides Ford’s ESG disclosure score trend for the years 2006 to 2013. ESG Disclosure Scores range between 0 (no disclosure) and 100 (full disclosure). Over the course of eight years, Ford’s ESG disclosure score has risen 11 points.

Table 1: Ford’s ESG Disclosure Score Trend for 2006-2013

2006

2007

2008

2009

2010

2011

2012

2013

37

39

45

43

45

47

43

48

Source: Bloomberg Professional Finance and ESG Platform July 8, 2014

According to current Bloomberg ESG data for the eight automakers, the average ESG disclosure score is 44. The top ESG disclosure score of 65 belongs to BMW, with Ford’s score being just above average.

The data in Table 2 below shows that Ford lags behind its peers when it comes to disclosing key environmental metrics, or the “E” in ESG. N/A means information is not available. The environmental footprint of a transportation manufacturer is of value to capital markets because it relates to operational costs and good management of natural resources.

Table 2: A Snapshot of Ford’s 2013 Environmental Performance

Name

Total CO2

GHG Intens/Sls

GHG Per Veh Sld

Wtr Intens/Sls

Total Waste

Invest in Op Sust

Average

4242

34

0.77

205

1.13

$96,106,337.89

FORD

4800

N/A

N/A

169

N/A

N/A

Source: Bloomberg Professional Finance and ESG Platform July 2014

Column 2 of Table 2 provides Ford’s 2013 carbon or greenhouse gas (GHG) emissions. Although Bloomberg’s ESG platform indicates that Ford’s Total GHG metrics have been 80% data verified -- most automakers have GHG data 100% verified. Nor has Ford has disclosed Scope 3 GHG emissions (supplier GHG data) – unlike most of the other eight automakers. This disclosure gap means that GHG intensity ratios, as a percentage of sales (Column 3) or per vehicle (Column 4), cannot be calculated for Ford, due to incomplete GHG data disclosures by Ford.

Ford has disclosed its total water usage, so its water intensity as a percentage of sales has been calculated, and is below the group average. This suggests that Ford uses less water to manufacture each vehicle compared to the group average. However, Ford is the only automaker of the eight that has not disclosed its Total Waste (Column 6). In addition, Ford has not disclosed its investment in operational sustainability, as have most of the other eight automakers. This metric provides evidence of a company’s actual investment in areas such as energy and/or operational improvements that help implement sustainability goals. By not providing this metric, Ford (perhaps unintentionally) conveys a lack of financial commitment to continual improvement in sustainable operations.

A good question for Ford is, when will it close disclosure gaps in its GHG emissions metrics? Another good question is what is Ford’s investment in operational sustainability? What priority does Ford give operational efficiency goals and objectives goal?

Further to our analysis, the data in Table 3 provides key metrics for Ford’s 2032 social and governance performance. A transportation manufacturer’s treatment of employees is of material value to the capital markets because it relates to whether a company is able to attract and retain the best and brightest employees necessary to sustain and generate innovation and market growth.

Table 3: A Snapshot of Ford’s Social and Governance Performance

`

% Women Emp

% Indep Directors

% Women Mgt

% Women on Bd

Community $ Spend

Average (8 automakers)

14

45

10

8

$31,730,743.83

FORD MOTOR CO

26

82

17

12

$37,700,000.00

Source: Bloomberg Professional Finance and ESG Platform July 2014

Ford outperforms the other automakers when it comes to employing women, women in management and women on the board. GM (NYSE:GM) stands out for having 29% women on its board, compared to Ford’s 12%. As for minorities in the workforce and in management, none of the eight automakers have disclosed these metrics yet. However, they all have Equal Opportunity Policies, so good follow-up questions for Ford are whether and how the company plans to attract and retain a diverse workforce of the best and brightest people to ensure continued success.

When it comes to governance, Ford has disclosed that 82% of its board is independent, which exceeds the industry average of 45%. Lastly, Ford’s community spending metric (Column 6) is above average for the eight automakers. Community Investment serves as a proxy to understand how well Ford exercises its unique influence to impact important issues facing its customers and the local communities where it operates. Two key issues to consider with evaluating a public company’s community spending budget are: (1) whether a company’s community spending priorities align and drive the company’s sustainability priorities; and (2) is corporate governance sufficiently independent to insure that community spending dollars are not being allocated primarily for pet projects or marketing campaigns?

Where does this data come from? Our primary source for the ESG disclosure scores and metrics is Bloomberg’s Professional Finance and ESG database (Bloomberg). Since 2009, Bloomberg has been uploading key corporate ESG metrics to its database from companies’ own financial and sustainability reports. If a company sees an error in the data, a corporate representative needs to contact Bloomberg and get it corrected, as it would with financial metrics.

Prior to Bloomberg, there was no centralized database for an individual company’s environmental and social performance on key metrics. Now, with such comparisons instantly possible, analysts and senior decision makers have a provocative platform to raise new and important questions about the business risks and opportunities of publicly traded companies – well beyond solely the financial perspective. The power of information that comes from Bloomberg’s ESG platform is only beginning to be recognized.

Expect More in ESG Disclosures.
Stakeholders can expect further development of ESG disclosures because the Sustainability Accounting Standards Board (SASB) is working on industry-by-industry ESG accounting standards to guide corporate ESG disclosures in filings to the Securities and Exchange Commission (SEC). The SASB is at various stages of developing industry-specific guidelines for the transportation, heavy machinery, and non-renewable industry sectors. Follow transportation standards development here.

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 as 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.

Disclosure: The author does not currently hold a position in Ford Motor Company and has no plans to change that position within the next 72 hours.

Source: Ford Motor Company: A Focus On Environmental, Social And Governance Metrics