Unicharm and McDonald's HD: 3rd and 9th Places in Japanese ESG Ranking

Unicharm (8113) rose to 3rd place in the ESG score rankings of Japanese companies as of 31 January by German ESG evaluation firm Arabesque S-Ray. This was up from a tie for 14th place as of 31 December 2020. OMRON (6645) and Tokyo Electron (8035) remained unchanged at 1st place and 2nd place, respectively.

OMRON (Japan's top company) and Tokyo Electron (Japan's 2nd company) are ranked in the world's top 20.

Two Japanese companies held positions in the worldwide top 20 ESG score rankings as of 31 January. OMRON, Japan's top-ranked company on the list, came in at 6th place, while Tokyo Electron, at 11th place, was Japan's 2nd-highest-ranked corporation. Looking at the distribution of the 566 Japanese companies in 10-point increments, 269 companies scoring between 50 and 60 points accounted for the largest such number, followed by 132 companies that scored between 40 and 50 points. The average score was 52.68, which was lower than the 31 December 2020 average of 52.81 for 569 companies.

Arabesque S-Ray automatically collects data necessary for ESG assessment from public information on more than 7,000 companies in over 70 countries and regions, as well as from sources around the world. It updates the ESG score daily using a unique method based on artificial intelligence (AI). The ESG score is based on a 100-point scale and consists of three sub-scores: E (environment), S (society) and G (corporate governance).

Unicharm rose from a tie for 14th place at the end of December 2020

Unicharm's ESG score as of 31 January was 70.90 (3rd highest among Japanese companies), up from 67.93 (tied for 14th place) as of 31 December 2020. Looking at the sub-scores, all three areas saw an increase from a month ago: environment from 71.96 to 73.86, society from 67.97 to 68.61, and corporate governance from 64.76 to 70.09. The ESG score as of 31 January 2020 was 61.07, up nearly 10 points from a year ago. The ESG score as of 31 January 2020 was 61.07, representing an increase of 10 points from the previous year.

Unicharm's website has a "Sustainability" tab between the "Corporate Information" and "Investor Relations" sections. On this page, the latest information, a message from the top management and information on important CSR themes and initiatives by ESG can be found. In October 2020, the company announced the Unicharm Group's mid- and long-term ESG goals in "Kyo-sei Life Vision 2030." By implementing this vision, Unicharm aims to contribute to solving environmental and social issues, assist consumers and local communities, and achieve sustainable business growth. These efforts seem to have led to the company's ESG score.

McDonald's HD Japan jumped from a tie for 49th place at the end of December 2020.

The ESG score for McDonald's Holdings Japan as of 31 January 2021 was 68.59 (9th position in Japan), up from 64.41 (where it was tied for 49th place) as of 31 December 2020. The company's sub-scores in the 3 areas of environment, society, and corporate governance all improved from a month ago, and its ESG score a year ago was 61.75, a significant move upward.

McDonald's HD Japan website has a tab titled "ESG Initiatives" along with "Corporate Information" and "IR Information." The five pillars that the company focuses on are "Sustainable Food Procurement," "Packaging & Recycling," "Commitment to Families," "People Empowerment" and "Climate Change Initiatives."

For example, in the area of "Packaging & Recycling," in 2016, the company began using paper instead of plastic for iced coffee containers, and the cups were made of FSC-certified paper, an international standard for forest conservation. For take-out orders, the company basically uses paper bags to reduce the use of plastic. It is believed that these various measures have been well received.

ESG score as a the measure for evaluating companies

Unicharm's stock price closed at JPY4,700 on 29 January, down 2.9% from 30 October 2020, but up 24.6% from 31 January 2020. On the other hand, McDonald's HD Japan closed at JPY5,100 on 29 January, up 3.0% in the last three months, but 1.5% lower than a year ago.

It is difficult to say that the stock price increase is linked with the high ESG score, but more and more investors seem to be interested in the ESG initiatives of companies. It would be better to look at the ESG score as a measure for evaluating companies along with their profitability and investment indicators.

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