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Global 100 KPI
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Calculation Methodology
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Rationale
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#1. Energy productivity
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The energy productivity score ranges from 0-100%. It is calculated by dividing an entity’s total revenue in USD for a particular fiscal period by total direct and indirect energy (GRI: EN and EN4) consumed in GJ for the same period. An entity’s energy productivity score is a function of two sub-scores: i) a group percentile score; and ii) an improvement factor score. The group percentile score is obtained by percentile ranking the entity’s energy productivity score against that of industry group peers in the same equity index as the entity in question. The improvement factor score is determined by measuring the trailing two year improvement in the entity’s group percentile score. An improvement factor score of 25% is awarded if energy productivity has increased by at least 12.5% over the preceding two years. If this condition is not met, an improvement factor score of 0 is given. The final equation for an entity’s energy productivity score is represented below:
Energy productivity score = (.75 x the group percentile score) + the improvement factor score (0 or .25)
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Energy availability and costs are one of the greatest challenges facing global corporations in the 21st Century. Rising and increasingly volatile energy costs can lead to reduced profitability, particularly in energy intensive industries and in companies with unsophisticated energy management plans.
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#2. Greenhouse gas (GHG) productivity.
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The GHG productivity score ranges from 0-100%. It is calculated by dividing an entity’s total revenue in USD for a particular fiscal period by total greenhouse gas emissions (GRI: EN 16) in metric tonnes of CO2e for the same period. Using the WRI/WBCSD GHG Protocol, only Scope 1 (Direct) and Scope 2 (indirect) emissions are included. An entity’s GHG productivity score is a function of two sub-scores: i) a group percentile score; and ii) an improvement factor score. The group percentile score is obtained by percentile ranking the entity’s GHG productivity score against that of industry group peers in the same equity index as the entity in question. The improvement factor score is determined by measuring the trailing two year improvement in the entity’s group percentile score. An improvement factor score of 25% is awarded if GHG productivity has increased by at least 12.5% over the preceding two years. If this condition is not met, an improvement factor score of 0 is given. The final equation for an entity’s GHG productivity score is represented below:
GHG productivity score = (.75 x the group percentile score) + the improvement factor score (0 or .25)
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Real and implicit carbon pricing (via cap-and-trade programs and carbon tax frameworks) is on a long-term upward trend, with established regimes in Europe, Canada and Australia. The regulation of carbon can have both positive and negative effects on company profitability, depending on individual company circumstances (e.g. allocation of permits, management plan, marginal abatement cost, etc.)
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#3. Water productivity
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The water productivity score ranges from 0-100%. It is calculated by dividing an entity’s total revenue in USD for a particular fiscal period by total water withdrawn (GRI: EN8) in cubic metres for the same period. An entity’s water productivity score is a function of two sub-scores: i) a group percentile score; and ii) an improvement factor score. The group percentile score is obtained by percentile ranking the entity’s water productivity score against that of industry group peers in the same equity index as the entity in question. The improvement factor score is determined by measuring the trailing two year improvement in the entity’s group percentile score. An improvement factor score of 25% is awarded if water productivity has increased by at least 12.5% over the preceding two years. If this condition is not met, an improvement factor score of 0 is given. The final equation for an entity’s water productivity score is represented below:
Water productivity score = (.75 x the group percentile score) + the improvement factor score (0 or .25)
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Water is a vital yet largely underappreciated input in many industrial sectors, including Oil & Gas and Mining. Global fresh water scarcity has been identified by several international bodies as a growing threat to peace and prosperity in certain regions. Interruption of water supply can lead to lowered production, with negative effects on long term competitiveness.
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#4. Waste productivity
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The waste productivity score ranges from 0-100%. It is calculated by dividing an entity’s total revenue in USD for a particular fiscal period by total waste generated (GRI: EN22) in metric tonnes for the same period. An entity’s waste productivity score is a function of two sub-scores: i) a group percentile score; and ii) an improvement factor score. The group percentile score is obtained by percentile ranking the entity’s waste productivity score against that of industry group peers in the same equity index as the entity in question. The improvement factor score is determined by measuring the trailing two year improvement in the entity’s group percentile score. An improvement factor score of 25% is awarded if waste productivity has increased by at least 12.5% over the preceding two years. If this condition is not met, an improvement factor score of 0 is given. The final equation for an entity’s waste productivity score is represented below:
Waste productivity score = (.75 x the group percentile score) + the improvement factor score (0 or .25)
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Above average waste productivity indicates more efficient processes and lower disposal costs.
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#5. Innovation Capacity
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The Innovation Capacity score ranges from 0-100%. It represents the ratio of 3-year average R&D expenditures to 3-year average total revenue.
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Companies at the forefront of innovation are better positioned to capture emerging market opportunities and to control risk. This metric is a particularly revealing financial indicator in knowledge and science based industries, including Pharmaceuticals and Technology.
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#6. % Taxes Paid
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The % Taxes Paid score ranges from 0-100%. It is the percentage of taxes paid in cash (trailing four year average) to the amount of taxes owed at statutory rates (trailing four year average) in USD. Companies score a 0% in the event that their statutory tax amount (trailing four year average) or taxes paid in cash (four year average) is zero or lower. Companies score a 100% in cases where the amount of taxes paid in cash is greater than the amount of tax owed at statutory rates.
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In the current era of large government deficits and austerity measures, tax authorities are clamping down on legal tax loopholes and other vehicles that permit tax minimization. Against this backdrop, determining which companies pay substantially lower cash tax as a per cent of their reported statutory tax rate relative to their industry peers provides insight into a host of risk factors that could impact future cash flows.
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#7. CEO to Average Employee Pay
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The CEO to Average Employee Pay score ranges from 0-100%. It is the ratio of CEO compensation[1] for a particular year in USD divided by the average employee compensation in USD over the same time period. Average employee compensation is calculated by dividing the company’s total wage bill for a particular year divided by the total number of employees over the same period. The CEO to Average Employee Pay score is obtained by percentile ranking a company’s ratio against that of every company in the equity index under consideration irrespective of industry group. The higher the ratio, the lower the pay equity score.
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A disproportionate share of compensation expenditure going to one person can lead to lower overall workforce motivation, and can also be indicative of potential governance risks, or misalignments of interests.
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#8. Safety Productivity
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The Safety Productivity score ranges from 0-100%. It is calculated by dividing an entity’s total revenue in USD for a particular fiscal period by the total number of fatalities (multiplied by $1,000,000 USD) and by the total number of lost time injuries (multiplied by $1,000 USD) for the same period.[2] An entity’s safety productivity score is a function of two sub-scores: i) a group percentile score; and ii) an improvement factor score. The group percentile score is obtained by percentile ranking the entity’s safety productivity score against that of industry group peers in the same equity index as the entity in question. The improvement factor score is determined by measuring the trailing two year improvement in the entity’s group percentile score. An improvement factor score of 25% is awarded if safety productivity has increased by at least 12.5% over the preceding two years. If this condition is not met, an improvement factor score of 0 is given. The final equation for an entity’s safety productivity score is represented below:
Safety productivity score = (.75 x the group percentile score) + the improvement factor score (0 or .25)
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The BP Gulf incident (Deepwater Horizon Oil Spill) in 2010 brought safety to the forefront as a core factor in corporate valuations and competitiveness.
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#9. Employee Turnover
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The employee turnover score ranges from 0-100%. A company’s employee turnover score is obtained by percentile ranking its retention rate (defined as 1 - employee turnover rate) against that of all companies, irrespective of industry group, that trade in the entity’s equity index.
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Low employee turnover is positively associated with employee morale and productivity, efficient preservation of human capital and reduced transactions costs.
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#10. Leadership Diversity
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The Board Diversity score ranges from 0-100%. It is calculated as the percentage of women on the entity’s board of directors multiplied by two, up to a maximum of 100%.
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An emerging body of research suggests that companies with more diverse boards, especially with respect to gender, have higher performance on key financial metrics such as Return on Equity, Return on Sales and Return on Invested Capital. CalPERS, the largest pension fund in the U.S., calls it the Diversity Return on Investment (DROI).
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#11. Clean Capitalism Paylink
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The Clean Capitalism Paylink score ranges from 0-100%. It is designed to award companies that have set up mechanisms to link the remuneration of senior executives with the achievement of clean capitalism goals or targets. A score of 100% is given to companies that describe such a mechanism in detail (e.g. the company specifies the proportion of a particular named executive's compensation that is linked to the achievement of certain clean capitalism performance targets). A score of 50% is given to companies that provide a high level description of such a mechanism (e.g. the company mentions the existence of a link between executive compensation and the achievement of certain clean-capitalism performance targets without specifying the proportion that is linked, the nature of the link, etc.). A score of 0% is given to companies that do not report any linking mechanisms.
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Evidence of sustained management focus on clean capitalism business drivers can be found in mechanisms that link the remuneration of senior executives with the achievement of clean capitalism goals and targets.
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