German pharma and life sciences giant Bayer has attributed its improved ESG ratings over the past couple of years to investor engagement.
Earlier this month, the company took the unusual step of publishing a joint statement with a €4.6 trillion investor group led by Generali Insurance Asset Management on the fruits of the “bilateral dialogue” between the two sides since late 2021.
The collaborative engagement – the only other named members of which were Union Investment and Northern Trust Asset Management – focused on reducing the environmental impacts of the company related to “crop protection, product safety and stewardship in crop protection, and sustainability governance, amongst others”, the statement said.
Among the announced outcomes of the dialogue were enhanced transparency around Bayer’s sustainability processes and governance and it’s “integration of ESG factors into M&A due diligence”.
In a LinkedIn post on the statement last week, Bayer’s head of public affairs, science, sustainability and HSE, Matthias Berninger, revealed that the period of dialogue between the company and the investor group also coincided with an improved ESG rating.
“There is now clear recognition that we have made very serious moves towards a fully integrated sustainable business strategy based on solid governance,” he wrote. “Engagements with investors have played a crucial role on this journey.”
When asked for more details on the improved ratings over the past two years, a spokesperson for Bayer told Responsible Investor that “basically all ESG-related rating in our primary scope have improved”.
Most relevant, they added, were the removal of the red flag in MSCI’s controversies report and the data provider’s decision to upgrade Bayer from BB to A in its ESG ratings.
MSCI’s red flag, which was added in 2018, was over concerns related to Bayer’s production and marketing of genetically modified (GMO) crops. In July 2022, the company published a report on the issue, referencing MSCI, which responded to “GMO related concerns”. The following month, MSCI raised Bayer’s rating to A, which is deemed to be “average” along with but above its BBB and BB ratings.
In May, Bayer also published a report on neonicotinoid insecticides, describing its “stewardship and risk mitigation measures” on the issue.
Bayer’s spokesperson also told RI that it has received “strong feedback from individual investors” that the changes it has introduced have “significantly improved” how investible it is. As have the removal of red flags against the company, which “had served as a basis for portfolio exclusion strategies in the past”.
Earlier this month, RI reported that industry groups, including Germany’s Deutsche Aktieninstitut, had raised concerns about the influence of controversy scores on investor allocations in their responses to the European Commission’s consultation on ESG rating firms.
Deutsche Aktieninstitut flagged the risk of portfolio exclusion for “even a single controversy”. Adding that it was of “high importance” for reports to be produced to the highest standards, the group called for controversy reports to be explicitly included in the scope of the regulation and for complaints to be handled with high priority.