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Feature Article

Full Disclosure: Key Takeaways from ESG Ratings

By Roger S. Conrad on Dec. 10, 2017

Reviewing Bloomberg’s ESG disclosure ratings for this month’s update to the Utility Report Card confirmed what management teams have told us at industry conferences: The majority aim to improve their disclosures as a best practice while improving their environmental, social and governance scores.

Some industries are well ahead of others in terms of disclosure. The 25 companies in our coverage universe with the highest ESG disclosure scores disproportionately come from Europe, a region where investors have demanded greater clarity on these issues than in the US.

ESG Ratings

Integrated oil and gas companies also feature prominently on this list. Six years after the Deepwater Horizon blowout in the Gulf of Mexico, BP (LSE: BP, NYSE: BP) has the fourth-highest ESG disclosure rating in our coverage universe. Eni (Milan: ENI, NYSE: E) ranks sixth, Total (Paris: FP, NYSE: TOT) comes in at No. 16, Exxon Mobil Corp (NYSE: XOM) takes the 18th spot, and Royal Dutch Shell (LSE: RDSA, NYSE: RDS A) occupies the 19th position.

Long accused of hiding evidence of global warming caused by the burning of fossil fuels, big oil companies have become champions of carbon taxes. Exxon Mobil CEO Darren Woods and his predecessor, US Secretary of State Rex Tillerson, have supported the Paris Accord on CO2 emissions, going against the White House.

Exxon Mobil has also joined BP, Eni and others in pledging to curtail methane emissions from drilling and energy infrastructure.

One could argue that the major integrated oil companies have taken these actions for public-relations reasons and to facilitate the transition from coal to natural gas. Whatever the motivation, these moves increase the sustainability of their businesses.

Among the midstream companies in our coverage universe, only Conservative Income Portfolio holding TransCanada Corp (TSX: TRP, NYSE: TRP) boasts a high ESG disclosure rating. Although much of the news flow related to the company focuses on the Keystone XL pipeline’s controversial cross-border leg, the Canadian company also owns power plants and renewable-energy assets.

Kinder Morgan (NYSE: KMI) takes second place, but earns a relatively low score (25.5) because of its lack of environmental disclosures and a 25 percent absentee rate at board meetings. But this ESG disclosure rating easily outshines Energy Transfer Partners LP’s (NYSE: ETP) score of 16.9 and Enbridge Energy Partners LP’s (NYSE: EEP) rating of 6.2. Not surprisingly, operating issues and unitholder-unfriendly actions have plagued the latter two master limited partnerships.

Exelon Corp (NYSE: EXC) earns the highest ESG disclosure rating among US electric utilities, with sharp improvements in each category over the past five years.

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