Northern Europe leads the world for capital market ESG, reveals analysis

Apr 29, 2019
Finland is the world’s most sustainable stock market

Northern Europe leads the way on ESG among the world’s indices, according to the Morningstar Sustainability Atlas, with Denmark scoring highest on social criteria.

The Netherlands scores highest on governance and Portugal tops the environmental criteria.

Denmark’s high score is driven by top holding Novo Nordisk, which is viewed as a leader within the global pharmaceuticals industry, while the Netherlands’ high position is owed to ASML – an ESG leader within the global semiconductor industry – and ING Group, an ESG banking leader.

Portugal scores well thanks to oil and gas producer Galp Energia, viewed as being on top of emissions, effluent and waste, and utility EDP, which has embraced environmental best practices.

But it’s Finland that ranks as the world’s most sustainable stock market, mainly because of the number of ESG-leading stocks: Nokia – identified as an ESG tech leader – KONE, an ESG leader in the machinery sector, and oil and gas group Neste.

Interestingly, Colombia is the world’s highest-scoring non-European market for sustainability. The US ranks in the fourth quintile of global sustainability leaders because of a number of issues involving Amazon, Apple and Microsoft, and poor governance scores from Facebook and Alphabet, Google’s parent company.

China is last in global ESG rankings due to poor corporate governance among companies like Alibaba and Tencent relative to their global peers.

Other Asian markets like Japan and Korea score poorly on governance due to underperformance from companies such as SoftBank and Toyota in Japan and Samsung in Korea. Taiwan is the top Asian market in terms of sustainability, thanks to TSMC, a global ESG leader.

Hungary is a top-performing emerging market thanks to MOL, considered to be a leader among global oil and gas production companies.

Germany scores well on ESG criteria, with several index constituents – including SAP, Allianz and Siemens – considered to be global ESG leaders. The UK finds itself in the second quintile, with companies like Royal Dutch Shell and GlaxoSmithKline classified as outperformers.

Morningstar analyzed its suite of global equity indexes, representing 97 percent of global market capitalization, to assess the respective ESG criteria of each market.

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