For several years, researchers have been exploring the hypothesis that successful sustainability performance (ESG: Environmental, Social and Governance) has a positive impact on the financial success of companies. A meta-analysis of the NYU-Stern University addressed this question and analyzed over 1.000 studies from 2015 to 2020 to discuss this possible correlation. The university concluded that positive financial performance through ESG primarily occurs over a long time horizon, and that sustainable initiatives strengthen companies' financial performance through factors such as optimized innovation capabilities and improved risk management.
ÖBAG sustainability agenda from concept to implementation
As part of the ÖBAG Sustainability Agenda, a strategy for ESG focus in the active investment management of the portfolio was developed in 2020. As the custodian of Austrians' assets and a key player in the Austrian economy, it is our mandate, responsibility, and obligation to promote, promote, and support sustainable and climate-friendly technologies and business areas.
In the spirit of active investment management, ÖBAG delegates expert representatives to the supervisory boards of its portfolio companies and actively sets priorities for the sustainable development of the companies and for the benefit of Austria. At the end of 2020, with renewed vigor, a cross-portfolio sustainability monitoring system was established and the dialogue with the portfolio companies was intensified. By increasing the focus on sustainability issues and increasing the level of detail in the discussion, ÖBAG can support supervisory boards with in-depth analyses in a sparring function.
An attempt to understand ESG performance
Similar to the well-known credit ratings of S&P, Moody's & Co in the financial sector, rating agencies are increasingly focusing on assessing the ESG performance of companies. Study by the American MIT Sloan School of Management A 2020 study found that there were significant differences in the ESG performance rankings between the ratings of the major ESG rating agencies. This divergence in the rating metrics leads, for example, to a company being ranked as the industry leader by rating provider A, but being ranked in the lower midfield by another agency. This effect is primarily due to the fact that rating agencies use different metrics with different weightings.
To provide a holistic picture of the sustainability performance of ÖBAG's investments and reduce dependence on individual rating agencies, a dedicated sustainability performance indicator system was established. This monitoring system takes into account key industry-specific metrics while also providing an industry-agnostic perspective on the sustainable development of the overall portfolio. To achieve the goals of ÖBAG's sustainability agenda, a process model for ESG analysis of portfolio companies was developed.
Four steps to sustainable positive development
With the goal of identifying levers for sustainable value creation, a four-step process model was developed to establish an ESG monitoring system. By focusing on sustainability aspects and initiating discussions, concrete ESG goals can be discussed with ÖBAG's key subsidiaries in the future.
- Design concept
In collaboration with international experts, an ESG portfolio monitoring system was developed that makes performance in environmental areas (e.g., CO2 emissions, energy consumption), social aspects (e.g., diversity, health & safety), and governance (e.g., ESG compensation systems) measurable and manageable. Performance is then compared with international industry peers to identify potential opportunities and potential for individual improvement.
2. Start a dialogue with stakeholders
The strengths and potential for improvement identified from an outside-in perspective during international benchmarking are discussed in sparring sessions with experts on supervisory boards, portfolio companies, and NGOs.
3. Show responsibility
The work of the supervisory boards promotes the proactive setting of ESG targets in management compensation systems. All listed ÖBAG holdings have now anchored ESG targets in their compensation systems. This means that management compensation is based not only on financial performance but also on ESG criteria. A look across the Atlantic Ocean shows that around one in five of the 250 largest S&P companies already includes ESG targets in their management compensation incentive plans. A comparison with the largest US companies clearly shows that companies such as Austrian Post, VERBUND, OMV, and A1 Telekom Austria are already one step ahead in this area.
4. Create added value
ÖBAG sees itself as a driver for the further development of cross-portfolio sustainability initiatives. Leveraging synergies (Example hydrogen OMV/Post) between the investments and providing a platform for sharing best practice models are instruments that support sustainable progress in the individual companies.
Many of ÖBAG's portfolio companies are already pioneers in the areas of renewable energy, e-mobility, and diversity compared to other international industries.
Stefan Setzger
The ESG environment is currently characterized by increased regulatory efforts towards climate neutrality and the ongoing consolidation of Standards and norms characterized by high dynamics and change. In order to continue to meet these adjustments in the future, the analysis of ESG performance is carried out according to the principle of ambidexterity. For this purpose, already measurable variables, such as the reduction of CO2 emissions, are further monitored and promoted. In parallel, future developments, for example in connection with topics such as biodiversity and the circular economy, are observed and will be integrated into the monitoring system in the near future. A true game changer for the harmonization of ESG investments could be the EU taxonomy which was released in the first expansion stage in April 2021.
Many of ÖBAG's portfolio companies are already pioneers in the areas of renewable energy, e-mobility, and diversity compared to other international industries. Sustainability is also a key focus of ÖBAG's portfolio management. The goal is for ÖBAG's investments to create not only financial, but also ecological and social added value for Austria, both now and in the future.
Stefan Setzger is responsible for analyzing the ESG performance of the ÖBAG portfolio across all investments. Before joining ÖBAG, he worked in management consulting with a focus on strategy consulting. Study trips to Ireland, Chile, and China shaped his understanding of global economic interrelationships.
