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Benchmarking Sustainability for the Chemical Industry:
The AIChE Sustainability Index
Calvin CobbFormer Chair, Institute for Sustainability
Beth BeloffPresident, BRIDGES to Sustainability InstituteSustainability Consultant, Golder Associates
SEF - August 29, 2008
• A community of sustainability “practitioners” – Companies– Professionals—industry and academic– Youth
• Organized under the American Institute of Chemical Engineers (AIChE) – Professional membership organization– Non-profit 501c(3)
The Institute for Sustainability
“Sustainability is a path of continuous
improvement, wherein the products
and services required by society are
delivered with progressively less
negative impact upon the Earth”
Defined by AIChE Institute for Sustainability November ‘04-July ‘05 Grassroots Project, Earl Beaver, Chair IFS
Purpose of a Sustainability Index
• Investment guides» Ethical investment/SRI
» Long-term return (“stock picks”)
• Stock market indices
• Stakeholder ratings
• Benchmarks for company management
Examples of Financial SI’s
Investment Guide?
Market Index?
Manage-ment
Benchmark?
Consult to Companies?
DJSI
FTSE-4Good
GS- Sustain
Innovest
An Example The Dow Jones Sustainability Index (DJSI)
• Investment guide
– Includes only companies that meet DJSI criteria – governance, transparency, accountability
• Stock market index
– Track market performance of DJSI components
– Subset of corresponding broader indexes
• DJSI World, subset of Dow Jones World Index
• Benchmarking
– Inclusion, being sector leader
– Consulting services through SAM – analysis and recommendations for companies who want to be included, improve ratings
Used for Market Tracking
Source: SAM, Dec 2007
Focus of Financial SI’s
• Dow Jones Sustainability Indices
– Governance, transparency, accountability
• FTSE4Good
– Management and reporting processes commensurate with ESG (environmental, social, governance) risk exposure
• GS SUSTAIN
– “Stock picks” based on ESG performance, industry positioning, and financial returns
• Innovest
– ESG risk/opportunity assessment
Reporting of Financial SI’s
• Dow Jones Sustainability Indices– Inclusion (in or out), ‘Supersector Leaders’
– Individual company scores & analysis – to licensees only
• FTSE4Good– Inclusion (in or out)
– Individual company scores & analysis – to licensees only
• GS SUSTAIN– Ratings: leaders, average, and laggards
– Analysis for sector leaders
» energy, mining & steel, food & beverage, pharmaceutical, alternative
energy, environmental technologies, biotechnology
• Innovest– Top companies – sector leaders & Global 100 list
– Ratings (AAA to CCC) and analysis, for investor clients only
What a Company Can Get from Financial SI’s
• Dow Jones Sustainability Indexes– Benchmarking with peers, advisory
• FTSE4Good– “Guidance and support” for companies to work towards inclusion in
FTSE4Good – through EIRIS
• GS SUSTAIN– (none specific to sustainability and its ESG analysis)
• Innovest– “Confidential custom benchmarking studies” for companies –
operational efficiency and business opportunities per peer analysis
• Based on the Wright Killen Refinery Survival Index (Oil and Gas Journal)• Meant to fill a gap:
– Relies more heavily on quantitative performance indicators– Provides a heavier weighting applied to various indicators of safety and
environmental performance and to technological innovation towards SD – Available to range of sectors, company size
– The scoring: robust methodology designed to account for subjectivity in a transparent manner.
• Designed to avoid the ‘black box’ problem of other indices• Intended for executives and directors to manage company business lines• Global, initially focusing on major chemical companies• Publication remains silent on individual company ratings• Companies find it useful to benchmark themselves relative to a set of
companies
Research funded by United Engineering Foundation
Concept of the AIChE Sustainability IndexTM
Advisory Panel
• Mission – to protect and promote the soundness, credibility and utility of
the AICHE Sustainability Index™
• Advisors:– International financial community– Industrial sector experts– Media– Non-governmental Organizations (NGO’s)
Status
• Needs analysis completed in the Fall of 2005• Pilot study performed in 2006• Launch
– Methodology Published June ‘07 – Index for Fortune 500 CPI November ’07
• Additional pilots underway for Engineering Construction and Energy/ Power Sectors underway
• Companies are interested in participating on individual basis
• First industry roundtable on SI – Nov. 19 in Philadelphia
Research funded by United Engineering Foundation
Strategic Commitment Safety Performance Environmental Performance
Resource Use Waste & Emissions Environmental liabilities
Product Stewardship Innovation
Product and service innovation – meeting social needs Process innovation
Value Chain Management EHS Management Supply Chain Management Stakeholder Engagement
Elements of the Index
Strategic Commitment Safety Performance Environmental Performance
Resource Use Waste & Emissions Environmental liabilities
Product Stewardship Innovation
Product and service innovation – meeting social needs Process innovation
Value Chain Management EHS Management Supply Chain Management Stakeholder Engagement
Unique Elements
Calculations Use Existing Data Sources
• Company reports – Annual Corporate Reports – SEC 10-K Filings– Sustainability/EHS Reports
• Government Agencies – EPA– CSB– U.S. Patent & Trademark Office
• Company websites • Media reports • Independent NGO reports
AIChE Sustainability IndexTM for the Chemical IndustryNovember 2007
0
1
2
3
4
5
6
7
Strategic Commitment
Safety Performance
Social Responsibility
Value Chain ManagementSustainability Innovation
Product Stewardship
Environmental Performance
Net Revenue > $10 Billion USD
Net Revenue < $10 Billion USD
0
1
2
3
4
5
6
7
Strategic Commitment
Safety Performance
Social Responsibility
Value Chain ManagementSustainability Innovation
Product Stewardship
Environmental Performance
Net Revenue > $10 Billion USD
Net Revenue < $10 Billion USD
Effects of Size
Comparing Sub-Sectors
Drill Down View
Strategic Commitment to Sustainability
0 1 2 3 4 5 6 7
Overall
Third-Party Ratings
Sustainability Goals &Program
Sustainability Reporting
Commitment to VoluntaryCodes
Stated CommitmentStated Commitment
Commitment to Voluntary Codes
Sustainability Reporting
Sustainability Goals & Programs
3rd-Party Ratings
Overall
Strategic Commitment to Sustainability
0 1 2 3 4 5 6 7
Overall
Third-Party Ratings
Sustainability Goals &Program
Sustainability Reporting
Commitment to VoluntaryCodes
Stated CommitmentStated Commitment
Commitment to Voluntary Codes
Sustainability Reporting
Sustainability Goals & Programs
3rd-Party Ratings
Overall
0 1 2 3 4 5 6 7
Overall
Third-Party Ratings
Sustainability Goals &Program
Sustainability Reporting
Commitment to VoluntaryCodes
Stated CommitmentStated Commitment
Commitment to Voluntary Codes
Sustainability Reporting
Sustainability Goals & Programs
3rd-Party Ratings
Overall
0 1 2 3 4 5 6 7
Overall
Third-Party Ratings
Sustainability Goals &Program
Sustainability Reporting
Commitment to VoluntaryCodes
Stated CommitmentStated Commitment
Commitment to Voluntary Codes
Sustainability Reporting
Sustainability Goals & Programs
3rd-Party Ratings
Overall
AIChE Sustainability IndexTM
• Drills down, but remains broad enough
• Based on public data
• Targeted for managers and corporate executives, not investors
• Focused on
– Environmental – performance metrics
– Safety – performance metrics (workplace, process)
– Product stewardship – mgmt system, history
– Value chain management – mgmt system
– Sustainability innovation – initiatives, tools, results
• Social performance and strategic management also covered
– Less than other indexes
• Benchmarked to peers and best practices
Corporate Subscription Program
• Annual individual company benchmark reports– Benchmark sustainability performance to peers– Comparison of company’s performance to industry best
practices– Third-party feedback on public information on the company– Provide a reference for sustainability planning and review
activities
A Comparison of ScopeA Comparison of Scope
How is your Company’s Sustainability Performance Viewed?
• By the community?• By your shareholders?• By your customers?• Versus your peers?
The AIChE Sustainability IndexTM
