How to analyse shares in different sectors

Investing in individual shares isn’t right for everyone. That's because it's higher risk: your investment depends on the fate of that company. If that company fails, you risk losing your whole investment. If you cannot afford to lose your investment, investing in a single company might not be right for you. You should make sure you understand the companies you're investing in and their specific risks. Make sure any new investment forms part of a diversified portfolio.

If you invest in shares, it’s worth considering what best practice looks like across each sector. You can analyse how a company you’re interested in behaves, what risks or opportunities this could introduce, and whether the company aligns with your desired approach to responsible investment.

Share analysis: what to look out for in different sectors

• Basic Materials

  Companies in this sector have high ESG risk. Management of this risk varies, for example, European firms tend to outperform their Asian and North American peers and precious metal companies generally score better than those engaged in diversified mining. Emissions, Effluents and Waste are a key risk in this industry, with over a third of companies having high or severe risk and half are involved in at least one related incident. Community relations is another key risk given the impact of mining sites on local communities.

  What good looks like to us:

  • Clear and complete disclosure of tailings dams and other waste disposal practices, which should be in line with industry best-practice, including external certifications and audits.
  • A commitment to Global Industry Standard on Tailings Management.
  • A sophisticated approach to community engagement and collaboration strategies which is clearly disclosed (SDG-aligned, ‘shared value’ approach, etc.).
  • Strong human rights policies aligned to international frameworks (such as the UN Guiding Principles on Business and Human Rights) and a commitment to respect indigenous rights in line with best practice (Seek Free, Prior and Informed Consent).
  • A credible net-zero commitment that doesn’t rely on carbon credits and efforts to track and reduce scope 3 emissions on an ongoing basis.
  • Investment in less resource-intensive mining practices, particularly in places where water is scarce.
  • A site-level biodiversity management plan is in place and aligned to international best practice (such as the International Council on Mining and Metals biodiversity position statement).
  • Robust whistleblower programmes to prevent Bribery and Corruption and transparent disclosure of lobbying and political contributions.
• Consumer goods and services

  The consumer goods and services industries are medium-risk in terms of ESG, though there’s plenty of opportunity given that management of these risks tends to be sub-par. Product governance concerns are a primary driver of this risk. Environmental concerns like resource use and waste and social issues like labour relations and the impact of products on society are also risks worth considering.

  What good looks like to us:

  • Strong policies and procedures guided by quality and safety risk assessments.
  • Ongoing monitoring of product/service performance with clear measurable targets in place.
  • Regular employee training on product and service safety.
  • A comprehensive responsible marketing policy.
  • The environmental and social impact of products/services is closely monitored and assessed throughout their lifecycle, with the application of relevant programmes and policies to ensure minimal negative impact.
  • Responsible environmental and social policies should be extended throughout the supply chain and regularly monitored.
  • No major safety or waste disposal incidents. Community engagement in place for all new and developing projects and close oversight over operations in areas where there’s a high risk of human rights abuse.
  • A commitment to net zero, with measurable interim targets.
  • The use and exploration of energy efficiency measures to reduce operational emissions where possible.
• Financials

  The financials sector is medium-risk in terms of ESG. Management of this risk varies, but there is opportunity for improvement across the board with a significant proportion of risk left unmanaged. Product governance is the largest risk most companies face. This is followed by Data Privacy and Security, which is increasingly important as more companies transition their operations online. Business Ethics and labour relations also contribute to ESG risk within the sector.

  What good looks like to us:

  • Appropriate assessment of ESG factors in all financial products. This means taking into account the risks and opportunities and pricing them in appropriately. Too much or too little focus on ESG factors in underwriting, advisory, investing and lending activities can be detrimental. Best practice is to disclose how ESG risks are identified and incorporated.
  • Clarity and transparency for all products, as well as fair and balanced marketing in line with best practice. Disclosure of company policies protecting against these issues.
  • A balance between the risks and opportunities of extending financial services to low-income populations and small businesses. In order to avoid predatory behaviour, companies should complement their offerings with financial literacy tools.
  • Robust cybersecurity tools and continuous training of employees to ensure customer data is secure. Disclosure on management’s strategies to address these risks.
  • Strong policies preventing unethical business practices like price fixing, insider trading, market manipulation and other corrupt practices. A comprehensive whistle-blower programme.
  • A prudent approach to emissions risk, including a net zero policy with interim targets and the monitoring and measurement of financed emissions.
  • Meaningful engagement with key stakeholders, whether it involves communicating physical climate risk (insurers) or influencing investee decision-making through responsible stewardship (Banks and Diversified Financials).
• Healthcare

  The healthcare industry is largely medium-risk in terms of ESG, with companies in Europe and the US trending toward the higher end of the spectrum due to more stringent regulations. Risk also varies by subindustry, with Pharmaceuticals categorised as medium/high risk due to higher exposure and weaker management. Across the board, product governance is the most acute risk, with business ethics, labour relations and data privacy also contributing. Providing reasonable access to healthcare as a basic service is also a growing issue, with greater concerns surrounding the social implications of for-profit healthcare companies.

  What good looks like to us:

  • Low number of recalls and safety issues for products and services, including a low number of readmissions or hospital-acquired conditions among hospitals.
  • A strong product safety programme with a chain of command, regular training, risk assessments, external audits and third-party certifications, as well as regular disclosure as appropriate.
  • A clearly disclosed code of ethics including a responsible marketing policy, with adequate training on ethical marketing practices.
  • Remuneration policies that encourage responsible behaviour, low turnover rates and goals tied to staff recruitment and retention. Sales representatives’ remuneration should be tied to carefully considered KPIs to avoid misaligned incentives.
  • A strong data protection policy with regular employee training on proper use and handling.
  • A commitment to fair and transparent pricing and billing, with no evidence of controversy.
  • For companies in the Pharmaceutical industry, programmes should be in place to enhance affordability, particularly in low-income areas. This can include licencing agreements with generic manufacturers, a policy to avoid patent enforcement in low-income countries or a commitment to promote a value-based approach.
  • A strong whistle-blowing policy. Transparency for trial data and clear policies on controversial topics like animal testing and political involvement.
  • All payments made to healthcare professionals should be disclosed and promotional materials should be regularly reviewed.
  • Comprehensive net zero policy in place including near and long-term targets.
• Industrials

  Industrials are medium risk in terms of ESG but can trend up to the higher end of the spectrum depending on subindustry. The primary risks can include Labour Relations, emissions (either product or production-based), Business Ethics and Product Governance.

  Management of these ESG risks is average, although it’s generally stronger in Europe and North America. Other risks facing the industry include waste and health & safety.

  What good looks like to us:

  • A credible net-zero commitment with medium and long-term targets.
  • Strong environmental management systems and relevant environmental certifications, with data collection, monitoring, and public reporting.
  • High level of recycled material use where possible and a clearly disclosed water management programme.
  • Hazardous waste disposal policies and measurement and reduction of non-greenhouse gas emissions.
  • Strong employee health and safety policies with regular training.
  • Disclosure of employee incidents with reduction targets in place where necessary.
  • Regular quality and safety audits as well as third-party certifications where relevant.
  • Disclosure of employee turnover rates.
  • Strong diversity and inclusion policies in place with regular employee training and talent development programmes.
  • A strong code of ethics that addresses common industry pitfalls like price fixing and corruption.
  • Regular employee training and strong governance structures with internal controls to avoid ethics breaches, in addition to a strong whistleblower programme.
• Oil and Gas

  The oil and gas industry is high-risk in terms of ESG. Environmental concerns are a primary driver of this risk, categorised most significantly by the carbon emissions of a company’s own operations and its products and services, as well as pollution and waste management. Health and safety, community relations, and ethical governance are also material contributors to this industry’s high-risk profile.

  What good looks like to us:

  • A commitment to net zero for scope 1 and 2 emissions with a detailed transition plan including both short and long-term targets. A company should be able to prove progress toward net zero on an annual basis. We’d expect progress toward net zero to accelerate over time.
  • A portfolio that’s shifting away from reliance on oil toward completely divesting all oil sands assets, with increasing output from renewable sources. Tangible progress on this shift should be evident on an annual basis.
  • No major safety or waste disposal incidents. Community engagement should be in place for all new and developing projects and close oversight over operations in areas where there’s a high risk of human rights abuse.
  • No major ethical incidents, with controls in place to avoid improper relationships with foreign governments. Balanced engagement with legislators taking all stakeholders into account.
• Real Estate

  Real estate is relatively low-risk in terms of ESG. However, people are increasingly concerned about sustainable building certifications and more scrutiny from regulators means carbon emissions reduction and physical climate risk is becoming more of a priority. Product governance is also gaining importance as hybrid working reduces the demand for commercial property and customer satisfaction becomes a top priority. Other risks to monitor include labour relations, business ethics, and emissions and waste.

  What good looks like to us:

  • Comprehensive ESG reporting in line with industry best-practice, including on physical climate risk.
  • Alignment with proposed regulatory changes to reporting and careful consideration to ensure compliance across all jurisdictions in which they operate.
  • Commitment to using low-impact or recycled materials and low-carbon energy systems, with targets and deadlines.
  • A credible net-zero commitment with medium and long-term targets.
  • A proactive approach to energy and water efficiency, with targets and deadlines to measure progress.
  • The inclusion of Green Leases, where applicable, to promote energy efficiency and responsible stewardship.
  • A strong code of ethics that addresses common industry pitfalls like bribery and corruption.
  • Regular employee training, strong governance structures and internal controls in place to avoid ethics breaches.
  • Regular quality and safety audits as well as third-party certifications.
  • Investment in employee development and retention programmes and close monitoring of supplier treatment of unskilled labourers.
• Technology

  The technology industry is low risk in terms of ESG, though some segments are more exposed, like Electronic Components (environmental risks) and data monetisers (social risks). Business ethics tend to be a material risk within the tech sector, ranging from anti-competitive practices to intellectual property rights. Historically the sector has flown under the radar when it comes to regulatory oversight, but more recently we’ve seen regulators keen to get involved given the high-profile of some of the “big tech” names. Other key risk drivers include labour relations, data privacy, product governance and resource use.

  What good looks like to us:

  • Effective management of intellectual property in a way that protects the competitive advantage but does not restrict innovation in the industry.
  • Transparency in accounting and tax payments, and a commitment to making fair tax contributions and not abusing regulatory loopholes.
  • Credible net zero commitment with medium and long-term targets in place.
  • The environmental and social impact of products/services is closely monitored and assessed throughout their lifecycle. Responsible environmental and social policies should be extended throughout the supply chain and regularly monitored.
  • An efficiency-led approach to energy and water use, with risk assessments, investment in alternative technologies where possible and engagement with affected local stakeholders.
  • Proactive management of customer data protection with up-to date security programmes and continued investment in innovation.
  • Forward-looking employee management with high retention rates. Programmes and policies in place to protect workers’ rights and promote diversity as well as commitments to pay and benefits that go above and beyond what’s legally required.
• Telecommunications

  The telecom industry’s ESG risk falls on the lower end of the spectrum. Management of these risks tends to be about average, with European firms outperforming their overseas counterparts. Data privacy and security is by far the largest risk driver, not only because customers are increasingly concerned about privacy, but also because cybersecurity breaches can be costly. Product quality is another key risk, particularly given the networks they manage are considered critical infrastructure. Carbon emissions, human capital and business ethics are also risks worth monitoring.

  What good looks like to us:

  • Clear and transparent policies about customer data usage, including how, when and why data is provided to third-parties.
  • Consistent spending on improved cyber-security, ongoing training and preparation to respond to breaches quickly and efficiently.
  • A credible net zero strategy in place with clear, measurable targets disclosed.
  • Regular, ongoing quality and safety assessments including external audits and certifications.
  • Comprehensive climate change risk assessment to determine company preparedness to cope in areas prone to extreme weather events.
  • Investment in employee upskilling, strong policies to protect employees and a commitment to go above and beyond the legal minimum wage requirements.
  • Careful management of overreliance on market dominance.
  • Strong policies on political involvement, bribery and corruption and whistleblowing, all clearly disclosed.
• Utilities

  The utilities industry is high-risk in terms of ESG. Management of these risks tends to be strong, with European firms outperforming their overseas counterparts. Environmental risks like carbon emissions, resource use and non-carbon emissions and spills tend to be the most significant risks for this industry. Employee health and safety and community relations are also key risks to monitor.

  What good looks like to us:

  • A credible net zero commitment with short and long-term targets in place.
  • Careful planning to invest in infrastructure capable of delivering necessary utilities while still meeting emissions targets. Strong energy management to ensure efficiency.
  • A record of successful interaction with customers, receiving community feedback on plans for new infrastructure.
  • Reasonable and affordable pricing to ensure access and affordability to all members of the community.
  • Careful management of non-carbon emissions and spills with regular maintenance and employee training. Clear and transparent disclosure of all emissions and spills.
  • Water management strategies in place, particularly for companies engaged in power generation.
  • Foster a culture of safety through training programmes and investment in safety checks and quality protection for employees. Clear disclosure of employee accidents.
  • Less than 20% of revenue derived from thermal coal power generation, unless an appropriate coal-free commitment has been made and managers are incentivised to achieve this commitment.
  • Management programmes related to product governance are certified and in line with best practice.