UK investors often describe the FTSE 100 as a collection of “old economy” stocks, which face heavy scrutiny over environmental, social, and governance concerns. But is the London Stock Exchange inherently high risk from an ESG perspective and how does it compare to rival markets?

Morningstar’s Sustainalytics company-level ESG Risk Score measures the extent to which a company’s economic value is put at risk by relevant ESG factors.  

The ESG Risk Score looks at a company’s exposure to specific material risks and it evaluates how well it is managing those risks.  

When looking at the iShares Core FTSE 100 ETF (ISF), a proxy for the FTSE 100, according to Sustainalytics data, the corporate percent of the portfolio covered by a negligible, low, medium, high or severe ESG Risk score was 4.39%, 31.73%, 41%, 22.88% and 0% respectively. So more than half of the index has an ESG risk of medium and above.

And out of the top 10 companies by market capitalisation in the Morningstar UK index, four out of the 10 leaders have a high ESG risk rating.

Glencore (GLEN), one of the world’s largest commodity traders in markets for metals and minerals, led the pack with a score of 37.

The company is followed by BP (BP), Shell (SHEL) and Rio Tinto (RIO), which reported a high ESG risk of 33.8, 32.4, and 32.3 respectively. 

Why Are These Stocks Controversial?

Glencore is allotted a severe controversy rating by Sustainalytics, with its top ESG issues being bribery and corruption, community relations, emissions, effluents and waste, as well as occupational health and safety.

Of late it has come under scrutiny for recording a huge increase in carbon emissions last year, despite its low emissions targets.  

Its emissions rose 8.8% in 2023 to 432.8 million tonnes of carbon dioxide after it expanded coal production and reopened an oil refinery in South Africa.  

Although BP and Shell have similar ESG risk scores, the oil and gas conglomerates diverge on their controversy rating. 

BP finds itself with a “significant” controversy rating whilst Shell is seen as more problematic with a high controversy rating.   

Although the two oil and gas majors share ESG issues ranging from emissions to occupational health and safety, bribery and corruption is a theme that blemishes BP’s record whilst one of Shell’s top ESG issues is community relations.   

In 2019, BP was found to have promised around $10 billion (£7.82 billion)