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Welcome to the fifty-fourth edition of my weekly blog. In volume II, I look at what some of the most sustainable companies in the world are doing to be better corporate citizens.
Each week I will analyze three companies from an industry sector to see what policies and procedures they have implemented to make their companies more sustainable. I will also compare these companies’ financial ratios (valuation, growth, yield, leverage etc.) against their industry averages to see if a company can be sustainable and still outperform their industry sub-sector expectations.
Storebrand publishes various sustainability reports on its website ranging from their carbon footprint to their investing strategies. Key sustainability performance results include:
2. Sun Life Financial Inc.
Highlights from Sun Life’s 2017 Sustainability Report include:
3. Allianz SE
Allianz’s sustainability report 2017 highlights include:
Key Performance Statistics – Company Vs Industry Average
Using Morningstar data, we can compare the performance of the three companies against industry averages:
When you look at measures like Debt/Equity all three are in line with industry expectations. This isn’t really a surprise when you consider how regulated the Insurance industry with global regulations such as Solvency II that ensure Insurance have adequate levels of capital on their balance and are not over-leveraged.
Looking at Storebrand’s key financial figures for 2017 tells us that their solvency margin (172%), return on equity (11%), total assets (NKK569 Bn), equity (NKK 31 Bn), profit (NKK 2.9 Bn), earning per share (EPS) (5.28), and dividend per share (DPS) (2.10) are all stronger than their 2016, and 2015 comparators. Two of their three valuation metrics are more favourable than their industry peers according to latest Morningstar data. Revenue growth and net margin are slightly behind their industry, however, Storebrand publishes a list of companies it does not invest in. The Quarter 1 2018 list includes 191 companies, including 22 companies in the highly profitable tobacco industry. According to latest data published by Aswath Damodaran at NYU Stern, the average return on equity for the Tobacco industry is 89%, this compares with a total market average of 11%.
Total Shareholder Return (TSR) is a simple measure that captures your total investment return (capital and dividend) from a share investment in a publicly listed company. TSR = (Current Price – Purchase Price +Dividends)/Purchase Price. E.g. If you bought one share in a company for $100, the share is now worth $110 and since you purchased the share you have received a $5 dividend your TSR is (110-100+5)/5 or 15%. Sun Life’s 2017 financial highlights include a 5-year TSR of 138% exceeding comparative TSRs for the S&P 500 (108%), TSX composite (94%), and TSX Financial Sector (51%). Sun Life’s current return on equity is a healthy 10.2 and their medium-term objective is to increase this to 12% - 14%. Morningstar only provides industry comparatives for valuations and Sun Life is broadly in line with industry performance for these metrics.
Allianz SE’s 2017 return on equity (ROE) was 11.8%, its current ROE is 11.3% and above that of its industry average of 9.0%. Other financial highlights from the company’s 2017 annual results include revenue (5%) and operating profit (0.4%) growth. Both EPS (15.24) and diluted EPS (15.23) were more or less in line with 2016. Overall Allianz’s key statistics are favourable when compared with latest industry comparators published by Morningstar.
Insurance companies who are demonstrating leadership in the area of sustainability are choosing investment strategies that identify suitable companies to invest in and also ones that exclude unsuitable companies such as those in the Tobacco, Oil and Gas, and weapons industry.
From a supply chain point of view, they actively manage their procurement practices through supplier risk assessments and select suppliers who share their sustainability goals. Within their own operations, they have reduced the use of paper by embracing advances in digital technology. Documents have been updated with plain language which helps make customers more aware of what they are signing up for when they buy one of their products.
Next week’s blog will feature three pharmaceuticals companies, Johnson & Johnson Inc., Allergan Plc., and UCB SA, and the measures they have taken to be more sustainable.
If you liked this article you might enjoy reading the following information:
Week 53 Sustainability: Electricity & Gas, Enagas SA, Centrica Plc, and Iberdrola SA
Week 52 SASB: An A - Z of the Sustainability Accounting Standards Board
Week 51 United Nations Sustainable Development Goals: Brief overview of the goals
ACCA: The Sustainable Development Goals: redefining context, risk and opportunity
World Benchmarking Alliance: Corporate Sustainability Performance
The content of this article is intended to be used and must be used for informational purposes only. It is very important to do your own analysis before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find in this article and wish to rely upon, whether for the purpose of making an investment decision or otherwise.