Moody's ESG Solutons - Sustainable Industry Barometer 2022

Although Social Risk Management is improving incrementally among European companies, social risk exposure is still high. Social controversies account for approximately 64% of all ESG controversies faced by European companies, linked to online interactions between businesses and their stakeholders, misleading marketing practices, reported breaches of data privacy and concerns over the protection of freedom of expression.

EUROPEAN SECTORS DEMONSTRATE A LIMITED CAPACITY TO SUPPORT A JUST TRANSITION

While European companies and sectors outperform other regions of the world in the preparedness to manage a Just Transition, our data shows little indication that companies from high carbon and labor-intensive sectors have management practices in place that would allow for a socially acceptable transition to a low carbon economy. The clearest area of poor performance is the lack of transparency over how workforce restructuring is managed.

SOCIAL RISK MANAGEMENT IS IMPROVING INCREMENTALLY IN EUROPE

Over the last five years, our data have recorded a steady increase in European companies’ scores on the topics of human rights, labour rights and supply chain labour standards integration. European scores on these topics are higher than in other regions. While the pace of improvement within the region appears slow, regulations such as supply chain due diligence may provide further headwinds.

THE DUE DILIGENCE GAP APPEARS LARGE

Looking at how European companies are addressing human rights in their operations as well as their supply chains, our findings reveal a clear supply chain due diligence gap. Policy commitments are more extensive than disclosures over actual due diligence practices. While strategy and direction setting are important, there is limited evidence that companies are prepared to respond to various regulatory initiatives related to supply chain due diligence that are on the horizon in some European countries.

THE UN SUSTAINABLE DEVELOPMENT GOALS (SDGS) ARE NOT CONSISTENTLY USED AS A HOLISTIC FRAMEWORK FOR ACTION

In what the UN calls the ‘decade of action’ to attain the SDGs and in the context of increased economic hardship in Europe, companies face several challenges to find new and more innovative pathways to support the UN SDGs. Our research indicates that corporate contributions towards the SDGs show uneven progress, demonstrating a lack of consistency in how the framework is being utilised. On the socially tilted goals, SDG2 ‘Zero Hunger’ and SDG 4 ‘Quality Education’, only a limited number of companies from a handful of sectors have positively contributing business models in place.

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