Key performance indicators
All companies from the Global 100 starting universe that make the Global 100 Shortlist are scored on (a maximum of) 12 KPIs. In essence, these 12 KPIs serve as selection criteria for the Global 100 Index. As explained elsewhere, companies are only scored on those KPIs that have been determined to be “priority indicators” for their respective GICS Industry Group. This ensures that companies are only scored on metrics that are, relatively speaking, widely disclosed in their industry. All foreign currencies are converted to $US using average annual exchange rates. All foreign exchange data are taken from Bloomberg.
Below we explain the rationale and measurement process for each KPI:
In just about every jurisdiction on Earth, energy costs are rising. Prices are also becoming much more volatile, making it more difficult for companies to manage their energy strategy. This metric looks at how much revenue companies can squeeze out of every unit of energy they use, and shows which companies are best able to adapt to our changing energy future.
Equation: Revenue ($US) / Energy use (Gigajoules)
Greenhouse gas (GHG) emissions are increasingly being priced and regulated, creating new types of financial costs and benefits for affected companies. This metric divides a company’s total revenue by total GHG emissions, and gives us a sense of how companies are exposed to the new GHG regulatory environment.
Equation: Revenue ($US) / Greenhouse gas emissions (Greenhouse gas protocol Scopes 1 +2)
For far too long, water has been an afterthought in conventional business planning. Not any more. Water scarcity has become a bona fide board room issue, especially in heavy industries such as Mining. This indicator divides revenue by water use, providing a first level measure of how well-positioned companies are to respond to water scarcity challenges.
Equation: Revenue ($US) / Water withdrawal (cubic metres)
While less financially relevant than energy, carbon or water, waste is an increasingly important environmental indicator in its own right. With tightening disposal standards, growing land use pressures and rising transportation costs, smart companies are finding ways to recycle their waste stream, creating additional revenues and reducing costs. This metric divides revenue by total non-recycled waste, and helps identify companies that are managing their waste intelligently.
Equation: Revenue ($US) / Non-recycled/reused waste generated (metric tonnes)
In many industries, markets are won and lost based on knowledge resources, including a pipeline to channel ideas into new products and services. This metrics looks at the amount of money companies are investing in R&D as a percentage of their revenue. It is one of several measures that can be used to identify knowledge champions.
Equation: R&D Expenses / Revenue
Percentage tax paid
Authorities are increasingly eliminating loopholes that allow corporations to legally circumvent their tax obligations, and resulting changes to the tax code can hit companies hard. The metric measures the amount of tax that companies pay out as a percentage of their EBITDA, Companies that perform favourably on this metric may be better positioned to withstand the tightening of global tax policy.
Equation: Cash tax / EBITDA
CEO to average worker pay
Employee morale and productiveness can be adversely affected if the gap between employee and CEO remuneration is unusually large relative to industry norms, especially in an age of rising competition for human capital. This metric compares total CEO compensation to average employee compensation, and identifies companies with a horizontally integrated remuneration framework.
Equation: Total CEO Compensation / (Total wagebill / Number of employees)
Pension fund status
Corporate pension plans –including defined benefit and defined contribution plans- can play an important role in attracting and retaining top employees. A deeply underfunded corporate plan, or the absence of a plan in an industry or country where corporate plans are common, can have deleterious effects on corporate competitiveness. This metric analyzes the performance of corporate pension plans by dividing a plan’s unfunded liabilities by market capitalization.
Equation: Unfunded liabilities / Market capitalization
Companies with an unusually high number of fatalities or an abnormally high lost time injury rate compared to sector norms could be suffering from inadequate management systems, or generally poor management focus. This metric helps us identify companies with best-in-class health & safety performance.
Equation: Number of fatalities (absolute) and number of lost time incidents (per 200,000 employee hours)
This metric measures employee turnover, which refers to the rate at which companies lose their employees. A high rate of employee turnover relative to industry norms can signal an inadequate human capital strategy, which can reduce corporate profitability.
Equation: Number of departures / Average total employees
This metric measures the gender diversity of a company’s board of directors and senior management team. A growing body of evidence suggests that diverse boards and management teams can have positive effects on a company’s financial and stock price performance.
Equation: Female representation on the Board of Directors and Executive Management team
Clean capitalism pay link
This metric singles out companies that have a link between their sustainability performance and the remuneration of their senior executives. This test can help identify companies that incentivize management support of sustainability commitments and performance targets.
Equation: Mechanisms that link Executive Management compensation to corporate sustainability performance