This company is in a "multi-year re-rating cycle" and top of the pops for social license

When you think about the value of a company, chances are you think about its earnings profile, the customers it has, and its product lines. But there is another part of a company's total valuation that is less thought of. Goodwill can add millions (even billions) to a company's intrinsic value and is often determined by the stakeholders that mean the most to its future. 

You can think of goodwill in lots of ways but fund managers often think of it through a growing social license. 

• Is a company being viewed favourably by the public? 
• Is its employee base diverse and happy? 
• Has the organisation been making concerted efforts to do their part for the planet and its future inhabitants?

All the answers to these questions form part of an individual business' social licence. And it's this social licence that fund managers have been evaluating in the latest edition of MarketMeter's institutional investor research. Nearly 140 buy and sell-side institutions were invited to participate and the results are in. 

In this wire, I'll share the top 10 companies which fund managers deemed to have the strongest social license in the market. Then, we'll get the views of IML's Timothy Wood.

What is MarketMeter?

MarketMeter is an interactive market insights platform that measures and benchmarks institutional investor perceptions of Australian listed companies, who find it is a reliable risk management tool to understand their performance in the eyes of institutional investors.

Using a combination of quantitative and qualitative research (in other words, both numbers-based and non-numerical) insights, MarketMeter helps gauge the sentiment of these professional investors.

“That sentiment will ultimately affect a company’s share price, depending on what area of the company we’re talking about,” says Nicholas Coles, managing director and co-founder at MarketMeter.

Top 10 Companies for Social License

The list appears in order based on the results of the most recent MarketMeter research.

1. Brambles Limited (ASX: BXB)
2. Xero Limited (ASX: XRO)
3. REA Group (ASX: REA)
4. Macquarie Group (ASX: MQG)
5. Ramsay Health Care (ASX: RHC)
6. QBE Insurance (ASX: QBE)
7. Fisher & Paykel Healthcare (ASX: FPH)
8. IGO Limited (ASX: IGO)
9. The Lottery Corporation (ASX: TLC)
10. Coles Group (ASX: COL)

Fundie's Take

Wood: The one that probably surprises us is The Lottery Corporation. We think Lottery Corp's a really good business, with monopoly licences in most states in Australia. But I think because they're involved in gambling, I wouldn't have expected to see them on a list of top 10 in the social space.

We think it's that senior management team, diversity of backgrounds, diversity of gender, diversity of just way that they think about the world is really, really important and Brambles certainly ticks that box.

Wood: CSL Limited (ASX: CSL) for us have a really strong social licence. Their whole business model is around creating new medicines and therapies for what are mostly rare, hard-to-cure diseases.

It’s easy for people to say drug companies charge too much for their drugs. While we can all have sympathy for that , if you are one of the patients that's receiving these lifesaving treatments, it's only possible because of the billions of research and development dollars that companies put into their research.

Wood: For us at IML, we put a lot of focus on the governance side and genuinely, we don't think you get good E or S outcomes if you don't have strong governance. So that's why we focus so much on the governance side of things but social is really important.

Brambles' View

Lachlan Feggans is the Director for Sustainability, Corporate and Asia Pacific at Brambles. Feggans holds a Bachelor's degree in natural resource management from Macquarie University and a Masters of Sustainability at the University of Sydney. 

LW: Why do you think you have been ranked so highly by investors when it comes to social licence?
I think one of Brambles’ greatest strengths and natural advantages is that we have an inherently circular business model, which means we are producing tangible environmental benefits just by going about our normal course of business.

So our growth aims to create more circular supply chains, moving away from wasteful linear systems, which is a fundamentally sustainable business model. The global footprint of our business also means we’re able to scale those benefits across supply chains around the world.

Equally as important has been our continual pursuit of transparency in disclosure and reporting, which is underpinned by materiality, all of which are highly valued and have helped Brambles establish strong credibility. Materiality and ‘Double Materiality’ in particular will become more critical with the new ISSB standards as investors and regulators want to know how the business impacts both the financially material sustainability issues and broader social and environmental issues for a specific company.

LW: As part of the “Communities Positive” programme, Brambles has set a 2025 target whereby it “commits to adopting or developing natural and social capital accounting approaches to transparently measure and validate performance...” 

You have stated that there has been some progress with regards to natural capital accounting, but how are you progressing on the social capital accounting approach?

The Communities Positive programme in Brambles’ 2025 targets was built around the Natural and Social Capital concept to recognise and account for ‘economic externalities’ - those impacts that have a cost on society and the environment but are not valued or accounted for in conventional business balance sheets. 

For example, creating pollution - be it carbon emissions or un-recyclable plastic waste - or gender inequity and ethical sourcing, are respectively examples of environmental externalities and social externalities that commonly apply to businesses.

Frameworks to account for natural capital have been in development for some time but have only recently now taken shape through the TNFD. Social capital frameworks are further behind, but the success of the TCFD has been a benchmark for the nature/biodiversity framework, the TNFD standard and will also inform the social impact accounting systems.

Given that Brambles’ value creation model is directly dependent on natural resources, it makes sense that this is where the greater focus has been. For instance, we are currently testing a draft Greenhouse Gas Protocol (GHG) standard for Land Sector Removals (LSR) to understand how we can account for stocks and flows of biogenic carbon regarding the use of timber pallets in our circular business model. Throughout FY24, Brambles will be exploring in greater detail what the TNFD framework means for our business.

LW: Another 2025 target is to collaborate with food banks to serve rescued food to 10 million people. However it appears you have already surpassed this target with over 16m meals served in FY22 alone. 

You have indicated that this target is under review. Are you in a position to update us on progress of the review?

We are so proud to have reached this target ahead of schedule. I think much of its success can be credited to the fact it was a goal we could share across our stakeholder base. We’ve been able to involve our customers – from growers and producers to packaged food manufacturers - who donate their goods on our platforms, while also encouraging our employees to donate their time, by accessing the corporate volunteering days they’re entitled to each year.

The role food banks play will only grow in importance as we move into a period of greater food insecurity and poverty, so it’s incumbent upon organisations like ours to maintain our support. 

That’s why we have recently recommitted to a partnership with The Global Foodbanking Network, which will see us continuing to provide in-kind donations and financial support for a further three years. Brambles will be reviewing all targets in our program in FY24 to prepare for 2025 and beyond.

LW: What will Brambles be doing over the next 12-24 months to maintain its position as a leader in this area?

We’re now just past the halfway mark to our 2025 sustainability targets, so it’s mission-critical that we put our efforts into meeting those commitments, not just because we as employees or management are scored against it but because doing what we say we will do is how we maintain the trust and confidence of our investors, customers and partners.

While we are in a strong position and are receiving positive feedback from investors on our ESG program, we are already preparing for the recently released ISSB standards. This means revising and aligning our materiality, improving our data collection and reporting systems, and building the sustainability expertise we will require to stay ahead of expectations. 

For Brambles, like most organisations, this means deeper integration of sustainability into the four core pillars that underpin the TCFD framework: governance, finance, strategy, metrics and targets.

Beyond meeting our own targets, our focus over the upcoming period is to step up the momentum we’ve built in pursuing regenerative supply chains. It’s a vision that our customers and partners have shown great support for and want to align more closely with as they review their own sustainability targets and goals.