BP, the oil major, tops a number of ESG providers' best-in-class ratings due to a combination of excellent governance policies, employee benefits, management quality and human rights policies. Importantly, ESG providers all but ignore the negative impact BP's products and services have on its customers. BP destroys value not only through the energy intensive extraction and refinement process, but also because they are selling a product to consumers that will further contribute negatively to SDG #13, Climate Action. We rank BP in the bottom 10% of our universe, due to its outsized negative environmental impact.
Util quantifies the holistic value a company creates, across stakeholders and Sustainable Development Goals. Instead of a rating or a /100 score, Util discovers a new company bottom line (Annual Value Generated), which can be compared across time and peer group, monitored by investors and reported in line with reporting periods. In this case, BP destroys almost £40bn value, across its stakeholder groups.
The below chart provides insight into where BP generates and destroys value, across its stakeholder groups.
The chart shows the value that BP generates, and destroys, across six stakeholders. The majority of BP's value destruction relates to its environmental outputs and end products. Its environmental outputs include significant Scope 1 & 2 emissions, which are translated into a natural capital costs, using a social cost of carbon metric. BP destroys value for customers, aligned to SDG #6, Clean and Affordable Energy and SDG #13, Climate Action. Util's data models align BP's revenue to each of the 17 SDGs, assigning a positive or negative weighting, depending on the classification and type of products sold.
British American Tobacco
Perhaps the most famous example of the mis-match between ESG ratings and value creation, British American Tobacco scores highly across all ESG ratings, topping the Dow Jones Sustainability Index. Many ESG funds negative screen, excluding all tobacco stocks from their portfolios. However, Util's analysis is more nuanced: British American Tobacco destroys value for its customers, aligned to SDG #3, Good Health and Well-being, but creates significant value across other stakeholder groups. Util's analysis moves beyond the limited ESG ratings approach and further than negative screening, to provide a nuanced representation of holistic company value.
Util quantifies the holistic value a company creates, across stakeholders and Sustainable Development Goals. Instead of a rating or a /100 score, Util discovers a new company bottom line (Annual Value Generated), which can be compared across time and peer group, monitored by investors and reported in line with reporting periods. British American Tobacco has an EV/Value ratio of 28x, higher than its EV/EBITDA and higher than any of its consumer, peers, suggesting an overvalued stock.
The below chart provides insight into where British American Tobacco generates and destroys value, across its stakeholder groups.
British American Tobacco generates value for its Employees, through generous salaries, low injury rates, moderate management diversity and articulated training and development investment. The company also generates value for its Shareholder stakeholders through dividends and share buybacks. British American Tobacco destroys significant value for its Customer stakeholders, assigned to Sustainable Development Goal #3, Good Health and Well-being. Customer value is determined based on how effectively a company translates its revenue into positive or negative value, across the 17 Sustainable Development Goals. British American Tobacco's revenue translates to significant negative value creation for its customer stakeholders.