Social value top 25 Dutch companies: Minus 30 percent

Research by RSM/Erasmus University, Nyenrode Business University, and ftrprf provides financial insight into the social and ecological impact of AEX companies for the first time.

The 23 largest AEX–listed companies in the Netherlands collectively cost society more than they yield. The total financial value of these companies is offset by a negative social and ecological balance of minus 30 percent. Two out of three AEX companies do make a positive contribution. The negative total balance is mainly caused by a small number of companies, including steel producer ArcelorMittal and Shell. Heineken also scores ‘red’, and Unilever is also remarkably low. Philips, on the other hand, is doing very well and is in first place in the ranking.

This is evident from a recent study by Rotterdam School of Management/Erasmus University, Nyenrode Business University, and strategic agency ftrprf. Led by Professor Dirk Schoenmaker (RSM/Erasmus), Professor of Finance Willem Schramade (Nyenrode), and econometrician Wander Marijnissen (ftrprf), a team of 400 master’s students tested the AEX companies using a new calculation method. The new yardstick combines the financial, social, and ecological value of the companies into one number: integrated value. If a company makes an overall social contribution greater than the financial value, the professors say that company is futureproof. The basis of the analysis: financial and sustainability reporting and additional source research. The major data and calculation operation results are included in the AEX Futureproof Index Report published today.

What are the social costs of a glass of beer?

What makes this study special is that for the first time, researchers have succeeded in calculating the social and ecological impact of a group of companies into actual costs and benefits. They did so for a wide range of sub-areas that together determine the social impact of a company. In a sense, the researchers are thus answering the question: What are the social costs of a glass of beer? Or, what are the returns of a company training course in euros? This makes it possible to calculate the integrated value of a company as the sum of financial, social, and ecological value. In addition, the relationship between social impact and financial value can be determined. This ratio—the Futureproofing Ratio—offers both companies and investors insight into the futureproofness of the company. The greater the social value, the greater the potential.

Based on the results, the researchers ranked the 23 companies studied in the so-called AEX Futureproof Index (two companies from the AEX top 25 fell outside the scope of the study). The list leader is Philips, with a Futureproofing Ratio of 4.86. This means that Philips's social value is almost five times higher than the company's financial value. ArcelorMittal is at the bottom with a negative social return of minus 12.01. Shell and Heineken also score ‘red’. The good news is that 15 of the 23 companies studied score a Futureproofing Ratio above 1. This category includes many financial institutions. Five companies in the ranking, including AkzoNobel and Unilever, do have a positive integral value, but this is lower than their financial value.

An intrinsic appreciation in the language of business: hard euros

The fact that Philips, but also Ahold, Randstad, and KPN score high, does not surprise the researchers, given their position in the areas of health, food, and employment. The negative impact of steel producer ArcelorMittal is also in line with expectations. “But the extent of the negative impact is greater than expected”, says Willem Schramade, professor of Finance. “The health effects of particulate matter for the region and the ecological consequences of CO2 emissions are much more extreme than we thought.” An important nuance that Schramade wants to highlight: “The same applies to the companies at the top of the ranking: they do something that is very valuable to society, but there is often also a significant negative footprint attached to their business activities. For example, the students discovered that ASML has a major issue in the area of water pollution, which is necessary for cleaning computer chips. But a company like Ahold Delhaize also still has its fair share of challenges. The issue of obesity has received insufficient attention in the current research. I expect Ahold Delhaize will, therefore, ultimately end up lower.”

Fellow researcher Dirk Schoenmaker (professor of Banking and Finance) points out the low position of stock market darling Heineken. “Remarkable. Because everyone loves Heineken. But in the meantime, there is a very big problem: alcohol. Our research shows that the social costs of alcohol are actually incredibly high. We literally see it before our eyes, we have been able to financially quantify the costs in our research.” According to Schoenmaker, that is the main significance of the AEX Futureproof Index. “Our research offers a standardized framework to finally express the social impact of companies in monetary terms.”

In doing so, the researchers address one of the disadvantages of conventional sustainability ratings and impact analyses: the results are always relative. Companies can only compare their scores with those of their competitors in the same category. Schramade: “The results from our research are absolute. We give an intrinsic valuation in the language of business: in hard euros. This company has a value of 80 billion, but the negative value of the emissions is three times as large as the financial value.”

Call to the Minister of Economic Affairs: use this information

Willem Schramade, Dirk Schoenmaker, and Wander Marijnissen hope that their new standard—the AEX Futureproof Index—will make the management of AEX companies, their current shareholders, and potential investors think and act. Schramade: “Ultimately, you want to do this for many companies, for hundreds, thousands of companies, so that large investors and pension funds will use this information when making their investment decisions. If you can choose from thousands of companies, you better choose those companies that create the most value for society. I hope this research will make companies look at their activities and strategic decisions in a different way. Also in mergers and acquisitions.”

Schoenmaker: “I would like to broaden the results of the research. We contribute to a futureproof economy. We identify where the opportunities lie, but we also make visible which business models are outdated. This research gives an indication of where both the past and the future of our economy lies. It is about the earning capacity of the Netherlands about our industrial policy. We will certainly take this to the Minister of Economic Affairs. Please use this information. Stay away from the Chemourses of this world. Look at companies like Philips. That is where the potential lies. It is not in steel producers like ArcelorMittal or in the Netherlands: Tata Steel. That is a broken business model.

AEX INDEX REPORT - DEF