Since 23rd November 2020, Hera is part of the selected group of 323 companies included in the Dow Jones Sustainability Index World, a basket consisting of listed companies that are in the top 10% of the ranking for their sector. The assessment, i.e., the process to operate the selection to be included in the index, is conducted by S&P Global on the basis of a detailed survey, composed by 540 questions and submitted to the leading 2,500 issuers in the world.
Given the high score achieved (87/100), Hera has also entered the selective Dow Jones Sustainability Index Europe, composed by European players that are real champions in sustainability performances. In Europe, the ESG awareness of both issuing companies and asset managers dedicated to Socially Responsible Investing have a more developed and consolidated tradition compared to other continents.
Lastly, based on the score of 87/100, Hera has positioned itself as the absolute ESG leader in its segment, “Multi and Water Utilities”.
What does that mean to be recognised as the top multi-utility in the world? How was the path to achieve this goal? What are the benefits for Hera?
We discuss those issues with Jens Klint Hansen, Head of Investor Relations at Hera Group. He actively participated in building this success story. Together with the Department of Shared Value and Sustainability, he contributed to collect, screen, and organize the information for the survey aimed at selecting the companies for the inclusion in the S&P Global equity index.
In the last two years Hera was invited to undergo the assessment process for the DJSI World membership. In 2020, it was promptly included in the index. What made this path possible?
Hera moved very fast, indeed. On average, to invited companies it takes eight and a half years to enter the index. In the Utility segment – which is “virtuous” by the very nature of its business, as it is directly involved in the achievement of circularity and decarbonisation – the average inclusion time is five and a half years. By entering the most important sustainability index, the DJSI World, within two years, Hera has set a record. How was this possible? Such accomplishments cannot come out of the blue; they come a long way. We have capitalised on a constant commitment to ESG issues that has been going on for 18 years, since our Group establishment. Then, specifically with regard to the DJSI assessment process, membership has been achieved through a rapid climb of questionnaire scores over the last three years: starting from a position of 24 points out of 100 in 2018, we reached 68/100 in 2019 and arrived at the top of the global industry ranking in 2020, achieving 87/100. This is an excellent result, considering that on average the companies included into the index in 2020 scored 81/100.
The 87/100 score represents an average of different aspects under valuation. What were Hera’s excellence areas in the dimensions of the ESG valuation?
A premise: in the methodology adopted by S&P Global for the construction of the scores, the greatest weight is assigned to the Environment area, which accounts for 42% of the total score, while the Governance & Economic aspects have a weight of 32% and the Social themes 26%. Hera outperformed all other players in the Multi and Water Utility sector in the two dimensions with the highest weighting, scoring 92/100 points in Environment and 89/100 points in Governance & Economic. In the Social dimension, the one with the lowest weighting, Hera scored 76 points out of 100.
What does it mean to be leader in the Multi and Water Utility sector?
It means that Hera achieved the highest score in the industry. So, in the ranking it precedes companies such as Veolia, Engie, Sempra Energy and Suez Environment, whose market capitalization ranges between 10 and 40 billion euro. Basically, despite its smaller size, Hera proved to offer higher quality in ESG issues.
With the inclusion in the DJSI, today this leadership has been proven by an external recognition that is the most prestigious and meaningful in the world. However, our leadership, is based on the pioneering role that Hera has always played.
Just think that we were the first Italian company to issue a green bond, back in 2014, and one of the first to adopt the Shared Value reporting in 2016.
What concrete benefits does the DJSI World membership bring to Hera, beyond the legitimate satisfaction of seeing full recognition of the efforts made to adopt excellent sustainability policies and practices?
In recent years, significant amounts of savings have been flowing into funds managed by institutional players whose portfolios are built accordingly to ESG criteria. Passive funds directly replicate the composition of sustainability indices; among these, the DJSI World has a leading position. The attention to ESG issues from ‘asset owners’ – those who own the savings that are managed by ‘asset managers’ – has accelerated in the most recent period, driven by the climate emergency and the Covid-19 pandemic.
Those with money to invest increasingly aim to fund worthy companies or initiatives that contribute to a more sustainable world and are managed pursuing effective governance criteria.
This is an impressive phenomenon. According to the most recent data available, at the end of 2018, $30,683 billion – meaning more than a third of the assets managed by institutional investors on the equity markets – were SRI products. Even on the bond side, around one third of debt is green.
You are on a virtuous path. Can this lead you to additional achievements?
For sure. At the beginning of February 2021, Hera received the Gold Medal in the S&P Global’s Sustainability Award following its recognition as an industry leader in the DJSI. The award came together with a special mention as “Industry Mover”, since Hera is the company that has achieved the most significant improvement in its score in the past year.
Any other positive effect of this serious ESG commitment?
Undoubtedly, being under the lens of assessors that examine our ESG policies and practices independently and with a structured approach, comparing them with the new requirements of a changing Planet, is encouraging us to always look further in setting our priorities. It also encourages us to make increasingly challenging commitments, to have an ever more dedicated commitment to “execution”. Finally, this kind of screening requires us to follow more transparent communication methods and pushes us to adopt an increasingly engaging attitude towards our stakeholders. Being committed to answer the 540 questions in the S&P Global questionnaire has allowed us to provide the entire market – SRI investors, ESG analysts and all stakeholders interested in Hera’s sustainability – with a serious picture, which is necessary to make an all-round assessment of Hera.
It is indeed very complex to establish the value of an intangible asset such as sustainability, as demonstrated by the fact that the quality of our ESG performance, associated with a low risk profile, is today only marginally reflected in the price at which Hera shares trade.
Even in a year dominated by the pandemic like 2020, we proved the full effectiveness of our consolidated business model, which can generate solid economic and financial performance even under stress. A business model that has allowed us to fulfill our ESG objectives, ensuring, for example, the continuity of services to all customers, even in the hardest moments of the health emergency.
Thank you. In one of the next issues of this newsletter we will surely also explore the importance of a strong customer relationship, with the aim of continuing to examine the true value of Hera’s intangible assets.