S&P Global Inc. (SPGI) Earnings Call Transcript & Summary

Hello, everyone, and welcome to today's webinar. My name is Lawrence Choy, and I'm a Director for the Corporate segment at S&P Global Market Intelligence. It is my pleasure to moderate today's live webcast on ESG and its intersection with M&A transactions. For those that have joined us before, welcome back. For those participating for the first time, we host webinars to address the challenges identified by our clients or to present thought leadership on a relevant timely topic. At the end of our webinar, please fill out the short survey as we will provide feedback on other topics of interest, which we will consider for future webinars. Please note that the activities of S&P Global Market Intelligence and S&P Dow Jones Indices are independent and separate from Standard & Poor's rating services. We want this to be an interactive session. [Operator Instructions] We will answer as many questions as time permits. Some of you have already submitted questions upon signing up for the webinar, so we will cover some of those throughout the discussion today. In addition, if you're interested in any of the S&P Global Market Intelligence suite of products, you can simply confirm your interest with the pop-up on your screen. For today's panel, we're happy to have joining us Robert Dornau, Director of Corporate Engagement, ESG from S&P Global; Riva Krut, Vice President and Chief Sustainability Officer from Linde; and Paula Ordonez, Global Head of Corporate Sustainability from SGS. Robert is S&P Global's Director of Corporate Engagement related to the SAM Corporate Sustainability Assessment, which S&P Global acquired in January 2020 from asset manager RobecoSAM. At RobecoSAM, Robert was a senior manager in the sustainability services team, working with hundreds of companies on benchmarking for ESG performance against global peers. Before that, Robert worked on different roles in climate change and sustainability, including as Vice President, Global Head, Climate Change Service at technical verification and inspection from SGS, Deputy to the CEO of the International Emissions Trading Association and consultant to the World Bank as Conference Director for Carbon Expo. Robert holds a Master in Economics from the University of Konstanz, Germany, and a BSc with Honors in Digital Technology, Design and Innovation Management. Riva Krut is a Vice President and Chief Sustainability Officer for Linde since December 2012. She leads the company's integration of sustainable development into the overall corporate strategy and leads the development of corporate-wide metrics as well as targets and performance management, which is most recently their 10-year climate change and sustainable development targets. She is responsible for maintaining Linde's external reputation or sustainability excellence in addition to identifying and engaging with relevant stakeholder groups. Under her aegis, Linde and its predecessor has been named a component of the Dow Jones World Sustainability Index chemical sector for 18 consecutive years. She also leads Linde's community engagement program. Riva holds a PhD in History from the University of the London, U.K. and a Bachelor's degree from the University of the Witwatersrand South, Africa. Paula oversees the Corporate Sustainability Program at SGS, working closely and advising with company leadership on the sustainability agenda. She conceptualizes and delivers on the 2023 to 2030 corporate sustainability strategy, along with sustainable supply chain and IT strategies, working closely with procurement and IT departments. Previously, Paula was a sustainability lead auditor and consulting with Deloitte. She holds a Master's Degree in the Environmental Science from Universidad Alfonso Diez El Sabio and a Master's Degree in sustainability from EOI Business School Madrid. For today's webinar, our experts will share their thoughts on how ESG has and will continue to shape company strategies. The importance of ESG is an ever increasing -- is ever increasing as environmental, social and governance changes affect companies globally. Incorporating these factors could be the critical component between being a market leader and having a struggling business model. When looking at potential and completed transactions, ignoring these factors may undermine the transaction's success. How are other experts and professionals looking at and utilizing ESG factors as part of the corporate strategy or M&A analysis? What trends can be identified with the appropriate action taken? During this session, you will understand more about the CSA score, its value and benefits in shaping corporate strategy. You also hear from corporate leaders focused on ESG on what key areas they look at when identifying potential M&A deals and recommendations on how to successfully integrate companies with ESG considerations in mind. Before we get started, I'd like to ask a poll question to the audience to gain a stronger understanding of our audiences' responsibilities. So the question is, what statement most accurately describes your focus? You'll see 5 answers in front of you. Select 1 of the 5 answers, and we'll give you guys about 3 to 5 seconds to enter which focus best describes you, and then we'll look at the answers before I hand it off to Robert. So we're seeing some live answers come in. It looks like it's a fairly even -- fairly close between the first and second answer, which is C and D. You're either -- you're most likely either M&A or corporate development professional or consulting and professional services or advisory professional, followed closely by other, which would be really interesting if you could fill in what that would be. And then followed up by sustainability or ESG professional, and lastly, investment or investment banking professional. So it's really great. We seem to have a wide range of focuses amongst our audience today, with the lowest percentage being 11.6%. So thank you for your answers. And with that being said, I'll hand it off to Robert Dornau.

Thank you for the introduction, Lawrence. I'm really looking forward to the webcast today as it is a chance to learn from companies with a very strong sustainability performance, both here, Linde and SGS are longtime participants in the corporate sustainability assessment and consistently achieve top scores in the assessment. These companies use the CSA to inform their ESG strategy and most importantly, to get an outside view. And I will never forget a quote that Riva Krut once gave me. And when I interviewed her some years back, she said, "to keep our sustainability strategy relevant into the future, our company cannot simply look into the mirror. We need a way to be able to look into the future and the CSA is one of our key tools to do that." Obviously, as much as possible, you want to look into the future when you conduct M&A activity. And Linde went through a massive merger that was completed in 2018 of the U.S.-headquartered Praxair and the German-headquartered Linde company. And SGS, you might have heard in the introduction, I worked for them some 10 years back. At that time, they had 45,000 employees. I think now they have 80,000 something, and that is growth through acquisition largely. So we hear from 2 companies that really know what they are talking about when the topic of M&A comes up. And I'm really curious what they want to say. So the next couple of minutes, I would like to provide some information on the corporate sustainability assessment. As you can see on the next slide, the unique points really for the CSA are that we look at underreported trends. So over the last 20 years, we have introduced sustainability topics before they were in the focus of mainstream investors. And in order to do that, we allow companies to provide not just public information, but also to report as part of the CSA information that they are not yet ready to put in the public domain. But for us, it is an indication that the company is on the way with these underreported trends to start collecting data to start setting performance targets internally, to putting policies in place. And that, of course, is different from the company that doesn't do anything on a topic. On the next slide, really, you see something that we are very proud of that is the increasing trend in participation over the years. And especially in a year like this where companies were under a lot of challenges with lockdowns globally, we saw the strongest increase in CSA participation. Just to paint the complete picture, we invite the 3,500 largest companies globally every year, measured by their free float market cap as part of the S&P broad market index, and 80% of that index is represented in that 3,500 companies and also assessed. But this year, the 2,000 -- almost 400 companies -- 1,400 companies represent a good 1/3 of global market capitalization, and that really made us very proud to see that confidence in the assessment by global companies. The next slide illustrates -- visualizes the assessment in what I call the target graph. On the most outer ring, you have the, on average, 1,000 data points that we collect from companies in the assessment. They get aggregated into about 100 questions. On average, 23 criteria per industry in the 3 dimensions, and then finally, the total score. And the segments that you see here in these rings down to the data point represent the financial materiality that we assign to the different topics in the aggregation process. We have 61 industry-specific approaches in doing so. And up to 50% of the questions are really industry -- across industry specific. On the left side of this chart, you see a number of criteria listed that are the same across all industries. So human rights is a topic that we consider relevant everywhere, climate strategy, of course, but also risk and prices management in the governance and economic dimension. The next slide breaks that down into 3 industries, as an example, just to show you how different the approaches can be. In pharmaceuticals, for example, the environmental dimension has an overall weight of just 10 with the social dimension having the largest weight. And here, if you want to assess sustainability in that industry, we look at very specific issues like addressing the cost burden, access to drugs or health outcome contributions. And in the other industries, you see how there are really specific topics that need to be assessed. So sustainability really goes across all dimensions, but with differing weights and with different topics that are of importance. And so if you are a CSA participant and you're looking into mergers and acquisitions with large companies, of course, you face a challenge is the measurement approach, is the data collection of similar quality than in the aggregation process, is it possible for you to integrate the data history, how do you bring the company on board into a joint training system, et cetera. I will use the next 2 slides to give you 2 examples of the possible challenges that you might run into. Here is a layout for the question for operational eco-efficiency. So this is, of course, greenhouse gas data, but also water, waste, energy, et cetera. And we do not just look at, is the company able to report this information, but this question summarizes 11 data points into a score. We ask the company whether they have a target that's the first level to score. If you meet the target, you get additional points. If you have third-party verification, you get additional points. And of course, we are looking at what was the company's performance over the year. This trend that we look at is the company comparing against their own history, not against their peers because it's very easy to compare apples and oranges there. But of course, if you grow by acquisition, then you add new entities every year. And therefore, in general, in order to receive full score on coverage in the assessment, it's sufficient if you have over 80% coverage in order to score here, and then that coverage is used as a denominator when we calculate the trend for normalization. But if you have a larger merger, of course, maybe even a merger of equals and then one company's data collection system is less good than the other ones, then this might create issues in the total coverage that you achieve that bring you below 80%. And of course, we can only calculate a trend in that data, if you are able to put together a history of at least 3 years of that data, and that's probably not that easy when you merge very large companies. Another example is on the next slide. For example, something that on the outside looks very simple like codes of business conduct and their coverage. And initially, you might think, okay, this is -- do you have a policy and across what percentage of your entities is that policy rolled out? For us, the issue is a bit broader. So we do not just look at company's own employees, but also at contractors, suppliers, service providers, subsidiaries and joint ventures. And we do not just want the company to have a policy that applies on paper, but we want to see for what percentage in these 4 groups, you have written a digital acknowledgment that the codes of conduct is followed. And whether this is understood or not, of course, it depends on the training that you can provide. And we also want to share that you can provide across these different groups. And so overall, there are 12 data points that really are used to calculate a score just for codes of business conduct. And if you grow by acquisition, again, of course, whether you have good processes in place to onboard new companies to make sure that you can roll out training not just across the new employees, you can acquire, but also at their contractors, suppliers, et cetera, that we'll define how well your company is able to score in this question. So these were just 2 examples that I think both the speakers from Linde and SGS can pick up on. To summarize on the next slide, the CSA is really a tool that covers a lot. There are in this data collection challenges in M&A activity, especially with data and coverage. But if you use the CSA consistently, then it is a tool for you to really align how you are able to track this data and increase your coverage and to track also the progress that you make in doing so. If you are interested in more information on the CSA, the next slide shows a couple of sources for you there. And with that, I would hand it back to Lawrence. Thank you.

Thank you, Robert. I think we had a few questions come in already from the audience. So we will ask you to answer at least a couple of those questions, time permitting at the end. [Operator Instructions] So with that being said, Riva, I'll hand it off to you.

Thank you, Lawrence. So thank you very much for the invitation to be here. The first slide, the Linde plc was created from Robert -- Lawrence, can you go back one, please? Thank you. So Linde was created from the merger of exactly 2 years ago. And one of the biggest chemical sector mergers in the history to create the world's largest industrial gases company. In this respect, the merger, I'm going to be talking about, as Robert mentioned, is a once-in-a-lifetime merger for our company, different from the kind of merger activity that Paula is going to speak about. At this time, Linde has some sales of about $28 billion. We employ about 80,000 people and operate in about 100 countries. Next slide. I'm just going to really flash the next slide is the forward-looking statement for due diligence purposes. If you can go to the next slide, please. So this slide shows our end markets sales for our industrial gases business. We also have an engineering and technology business, which adds about 10% of sales. But let me describe our applications in a couple of the major markets that you see here. In health care, we provide oxygen to treat hypoxia, which gives the need for oxygen. The application has obviously been crucially important to hospitals and clinics as we have all been battling COVID. Separating the air is very energy intensive, and we measure our electricity used in terawatt hours. A terawatt hour is 1 million-megawatt hours. About 1/3 of the electricity we use is sourced from low carbon and renewable sources. In chemicals and refining, Linde is one of the largest producers of hydrogen in the world. Hydrogen can be used to make ultra-low-sulfur diesel, which is mandated in many countries to improve air quality. And of course, there's a lot of interest now in hydrogen for fuel cells for buses, trucks, trains and ships and so on or for the use for energy storage or as a source of energy. The complexity is that most hydrogen currently is produced through steam-methane reforming, which produces greenhouse gases. When hydrogen is produced with renewable energy, it's a very important part of our decarbonization strategies. So when ESG investors look at Linde's business model, they consider energy use and greenhouse gas emissions to be material for us. And they're also interested in the positive impact of our applications for our customers and for the planet. Improved energy efficiency, reduced greenhouse gas emissions are the role that the applications play in helping to solve some of the world's greatest problems like access to clean drinking water, for example. ESG investors are also interested in other considerations like governance, human capital, health and safety, equity and inclusion. So our sustainability program really needs to attend to all of those. So if we go to the next slide, the question is from an investor point of view, how has Linde performed over the 2 years since the merger? Now this slide is the slide shown in our investor earnings call a few weeks ago at the beginning of November for our -- to report on our Q3 earnings. And it shows how we have performed in the 2 years since the merger. So you can track us from the fourth quarter of 2018 to now. As you can imagine, investors want to see the value of the merger. And by all financial measures of quality, operating profit, earnings per share, cash flow, return on capital, Linde has shown very high-quality results. Of course, we didn't only have the merger to contend with, we also had the challenge of COVID, which is shown here in the top 2 gray bars. And you can see that we managed to continue to achieve our financial performance through that period. I want to say a couple of things about COVID here, which obviously challenged all our businesses and challenged all of us on many levels and will for some time. Our business was very fortunate to be able to help contribute to combating climate change. For example, in the U.S., we have a health care business which offers respiratory care, and we were able to really become a second line of defense for hospitals as they tried to move patients out of hospitals to their homes safely. But all around the world, because we have the ability to produce oxygen for hospitals and for health care, we ramped up the production of oxygen and retook production, supply and distribution to safely meet the needs of hospitals and field hospitals often under very difficult conditions. So what happens to our sustainable development or our ESG strategies and plans over the same period? Next slide, please. Now this slide was also part of our Q3 investor deck. In other words, within 2 years of the merger, Linde was not only reporting financial results to The Street, we were also reporting and are also reporting ESG performance against ESG metrics and targets. The slide is a template. On the left-hand side, it presents 2 of our major new sustainable development targets. So our targets run for 10 years from 2018, essentially the birth year of the merged company, to 2028. One of the main targets is to achieve a 35% improvement in greenhouse gas intensity against EBITDA by 2028. And we're showing that tracking -- we're showing performance tracking quarterly in the image. We also are reporting performance against our other large target in climate change, which is to double our procurement of renewable and low carbon energy. On the right-hand side, it's more of a narrative section. So the structure there is to provide some information on current projects and on current news. So this is where we are right now. And I want to spend a moment describing that if we're here, how did we get there? And within 12 months of the merger, we had embedded sustainability into the company into all businesses. And it was part of everybody's KPIs in terms of how do they do their job? What is important? What is being measured? The -- by the end of the 12 -- by the end of the first 12 months, we've established our new targets. The targets were created with the businesses and the businesses are responsible for achieving them. I am not accountable for the targets. I help from the sustainability point of view, the sustainability team helps coordinate those targets between the businesses and functions. But the businesses need to be aligned with them. The businesses need to take them on as business targets. And the businesses are reporting performance against all of those targets, oftentimes monthly, as you're seeing here, that the material that went out for the quarterly report, that is information greenhouse gases renewable energy. That is being reported out from the businesses to corporate and to the CFO every month. So within 12 months, those targets have been established with the businesses. In January this year, our climate change targets were approved by the Board, and they were -- in February, our CEO announced them with our 2019 earnings. Within 15 months, in other words, by the middle of this year, we have started to now produce this ESG performance slide. So what you see here is the second ESG performance slide reporting performance against our target in exactly the same way and in the same platform as we do with our straight financials. My next slide is a description of -- or reflection really on how we did some of this. So when I started to think for this presentation, how did we do that? I really come back to how we run the company and what is part for Linde of having a high-performance culture. Sustainability is embedded in our vision, which is to deliver sustainable value in our mission, which is to make our world more productive. It's embedded in our strategic direction, and it's embedded in all our values. And we embed sustainability by linking it in, tying it into our operating rhythm, tying it into -- we do have to show merger value, merger value capture with -- and a road map to do that. We're tightly aligned with leadership, and we embed nonfinancial performance metrics into our variable compensation. So on reflection, it's really because we were able to and we continue to tie sustainability into the basic business. It is not an add-on, it is part of what we do. So if we can go to the next slide and my closing slide. This is really just a couple of highlights, but what I wanted to show here is that because of the focus on including sustainability as part of how we do business, we have been very proud to receive some external recognition, as Robert mentioned, like with the Dow Jones Sustainability Index and others, but also to be able to demonstrate the value that we provide to society and to the planet with some of these takeaway claims that we can make, the positive impact we make on the world. I look forward to your questions, and thank you.

Thank you, Riva. I know I have a question. I'm chomping at the bit to ask you, but I will wait till the panel discussion. And so I'll hand it off to Paula now for her discussion points.

Hello, everybody. Can you hear me?

Yes.

Okay. Good. So thank you so much for inviting me to participate in this webinar. I think it's really interesting. As Robert introduced, SGS is a company that grows -- one of -- the growth that comes from merchant acquisitions. And I will be happy to share with all of you how do we embed sustainability in all these acquired companies. So we are a B2B company. So I'm going to dedicate a couple of slides to explain what it SGS and what we do as our core business. So we have more than 89,000 employees over the world, and we operate in almost all industries. We operate in 11 industries and throughout their supply chains. We have more than 2,600 offices and laboratories distributed in almost 120 countries. So we are a global provider with local expertise. Today, we are the leading testing, inspection and verification service company. And we provide a competitive advantage, helping our customers on driving sustainability and delivering trust in the products and services that they provide. We are a global brand for quality and integrity. Our clients hire us to warranty that their -- that the products and services are trustable. So we are an independent firm. And we continue to push ourselves to deliver innovative services and solutions to our clients to help them moving their business forward. So as I said before, we provide this type of services. So we provide inspection, verification, testing and then we also complement those with training, consultancy and outsourcing services. So SGS is almost everywhere and anywhere that you look around. If you look around your desk, probably you will see SGS in there from your phone. I'm sure that it has been checked by SGS that it's safe, the pencil and artwork that you may have in your room or the water that you are drinking, okay? So we are almost everywhere warranting there that you can live in peace. So we have been sustainability leaders for a while. Sustainability is one of our business principles. And it's very, very embedded in the organization. The first ambassador of sustainability is the CEO and is supported by all the OC members. And as Riva said before, sustainability are not the owners of the sustainability program. I say -- I normally say in SGS that we enable our business partners, our functions and our managers to implement sustainability strategies themselves, and we help them because it's them the ones that need to embrace and need to be convinced that they can make things in a better way, okay? We have been Down Jones industry members for, I don't remember, Robert, but probably 10 years. We have been leaders 6 years in a row. And this year, we have been second. So next year, we will be back. And then, well, we are Ecovadis Platinum, CDP A-list. We are almost present in all the main sustainability ratings and partners with the main sustainability organizations. And as I was saying before, our core business is enabling a better, safer and more interconnected world. And that's why we say in SGS that we are a purpose-driven leadership company because the core of what we do can be linked to sustainability and indirectly related to value to society, okay? So we set our purpose a couple of years ago, and we want to create and add value to society across our value chain. That means supply chain operations and services. And as Riva was saying, we receive many questions from investors, requesting information in these 2 pillars of the value chain in the way that we control and monitor our suppliers in terms of ESG. We also have a lot of request on human rights because we are a global company presence -- present in some sensitive countries. In direct operations, how do we mitigate our CO2 emissions? How do we control our water? But the most important aspect is the social part because we are a people-oriented company. We provide services, and our major asset is our people. So we need to comply with a lot of requests on human resources programs, on social programs, et cetera, et cetera. And lately, and I have to say that it has not been the case until 2 years ago, but slowly, but surely, we have been seeing an increased demand of investors' request going through sustainable services. Okay? So we are getting more and more requests from investors, okay? How many services does SGS provide that are associated to sustainable activities, okay? So now we see a focus of investors getting this holistic concept of sustainability from cradle to grave from across all the value chain of an organization. And we are doing this because we are convinced that our long-term success depends only on the capacity that we have to deliver value to shareholders. But now we realize that we need to go beyond that border and create value as well for the broader society. And to understand the value creation, we have developed a very ambitious framework to measure the positive impact of our activities and services that I invite you to dig more about in our annual and sustainability reports. And what we are aiming with this framework is to quantify and monetize the positive and negative impacts of our activities in the society. And ideally, what we would like to go is to position all that we do in this double positive impact metrics that you see in the right side of this slide. So all the activities that fall in the top right, they will be supported and pushed by the organization. And we will be not making those ones that add little value for the company, but also to the society. And coming to the topic, the growth strategy, as I said before, for SGS is purchasing small- and medium-sized companies based basically in the different industries that we operate at. So for the last 5 years -- for you to have an idea on the amount of companies that we acquired in the last 5 years, we have acquired 31 companies, and in the last 5 years, 23. The most targeted sectors that we purchase is obviously on what we do, test/measurement equipment and business services. The industries, I must say that before, I don't know, 5 to 10 years ago, would be more directed to heavy industries like oil and gas, industrial, et cetera, et cetera. And now our services are moving towards more consulting and more the environment, consumer and retail services, et cetera, et cetera. So the company is moving with the planet of our world's mega trends. As I said, we don't acquire big companies, small companies from 100 to 500 employees. And our largest acquisition was in 2017. And how do we make sure that our sustainability principles are applied in everything that we do, as I was stating before? Because we -- first of all, when we acquire or when we aim to acquire a company, we, obviously, open a due diligence process. And in that due diligence process, we have embedded a ESG information. We have specific questionnaires for human resources, for operations management, and there we include questions on CO2 performance, electricity consumption, effluents, waste management, environmental management systems, health and safety management systems, et cetera, et cetera, the accidentality. And also, we include information on the suppliers, what are the processes and procedures that the company -- the potential acquired company has, how dependent on those suppliers we will be and which type of due diligence they have in place to mitigate, for example, human rights across these Tier 1, Tier 2 suppliers. Also, we are paying a lot of attention into information technology. It's very critical for us as all our testing and samplings go through technology systems and digital systems. So we need to make sure that the systems in place are robust and will prevent from any data leakage or so on. And then when we acquired a company, they are already part of SGS. When Standard and Poor's approached me to do this webinar, I was like "yes, but I don't know if my speech will be so interesting because for us, we don't do anything super-duper, but then I realized that maybe yes." So we treat the acquired company in the same way as a regular employee from the company. So they need to comply with all the policies and procedures. And we have a specific onboarding process for acquired companies and for employees that have joined the company recently. And in those onboarding processes, we have a lot of content related to sustainability, ESG performance and how do we embed and control sustainability in SGS. So I guess that the transition here is much easier than in Riva's case because as we acquire small companies, it's quite simple to embed them. It's true that my learning here is that the reporting, for example, is not 100% perfect before 2 years. So normally, it takes around 2 years' time to get a very, very perfect or very, very accurate reporting in ESG from an acquired company. But yes, they are subject of the same audits, external audits for ESG that we run for the rest of the group. So that's why -- that's how we embed them. And yes, nothing else. I'm happy to answer your questions. And I leave the hand to Lawrence. Lawrence?

Hey, all speakers, I think we lost Lawrence. Lawrence, are you back? Yes, I think we lost Lawrence.

Hello?

He's back. Okay, we can hear you, Lawrence.

Was it really boring?

Okay. You can hear me, right?

Yes, we can.

Okay. Sorry about that. I have some construction going on outside my house and it may have affected something, so apologies for that. But what I want to say, I want to thank all of our speakers, including Paula, it was definitely not boring for your initial thoughts or topics that were brought up that were really interesting. And I'd like to expand on it a little bit further in our next part, which is the panel discussion.

So we have about 6 to 8 minutes, and then we have Q&A afterwards. I want to get right into it. So this is for all of our speakers, and maybe we can start with the order of the people that spoke. So Robert first. And the question is, do you envision the emphasis on ESG to increase, remain the same or decrease in 2021 and beyond? And what influence has the pandemic had, if any, on ESG?

Yes. Well, what we have seen and that is illustrated by the increase in participation in our assessment is really an increase in ESG considerations at corporates and that interest is mirrored at investors with massive inflows into ESG investments over this year and also outperformance that's very important of indices and ESG-focused funds over a non-ESG focused baseline. And what we see really is that ESG is approached as a risk management tool and especially moving away from just risks in corporate governance to risks in the environmental dimension, but of course, the social dimension now triggered through the COVID-19 crisis, where we see that pandemics really came up highly as an emerging risk for companies that they want to consider. And what we have seen really is that it wasn't on the radar in the past, but companies that had good risk management practices in place and were sustainable in the way they treat their employees that allow them to have work-from-home policies and flexible work policies in the past look like we're also the companies that we're able to manage the crisis stemming from the pandemic earlier. So really companies that had a focus on S, the social dimension, looked like they were able to outperform. And clearly, this is also something that will continue in the future, I think.

Interesting. Riva and Paula, any comments from you guys?

Well, certainly on our side, we've seen an uptick in interest from ESG investors. So several fold more ESG investors coming to Linde. Because they are saying, as I mentioned earlier, the things like climate change, our energy use, our greenhouse gas emissions, it's important, it's material for them from an investor point of view to understand those issues if they're going to make an investment decision. I would argue that it is equally important for investors in a company like ours to also look at other ESG elements that we consider material. So ethics, integrity, safety, diversity and inclusion, I would consider these all to be highly business relevant, and they're considered to be relevant also by the Dow Jones framework and others as well. So SASB as just one example. So where they are going after nonfinancial issues that are considered to be material to the firm to be material to be how you make an investment decision, I think that these are clearly now becoming more important to investors. We're seeing investors are far better educated about what these issues are and they're reading the material, they're reading the detail of the reports. They're interested, and they're also acting on their conclusions. So some very new activity there for us.

Yes. And for me, the same. I mean, as I said in the presentation, it was not the case before. But in the last 2 years, and especially, this one, despite of COVID, we have received so many requests of investors for ESG information. And not only for ESG information, but also, as I said, how our company is enabling sustainable activities through our services. So definitely, it's -- it has become mainstream in the investors agenda, for sure.

Interesting. So Riva, if you remember after your session, I had a question, I said I was chomping to ask you. I wanted to ask you specifically about the merger you were talking about. It obviously occurred during a time of enormous change and volatility in areas that has to do with climate change events and COVID. How did you maintain your strategy or pivot to take these into account while still achieving financial goals?

Well, managing energy and the energy that relates to greenhouse gas emissions is a material issue for us. Energy is our largest nonhuman capital, largest variable cost. And so we manage it aggressively. So it's not been difficult to move from that into looking at issues around energy use, climate change and so on. Because this is a language in a grammar that our leadership speaks. They speak very, very well. We've always understood the energy consequence of our activity and the greenhouse gas consequence of our activity. So that hasn't been a big change for us. What has been interesting for us is the uptick in interest from external parties and looking at -- and really wanting to understand more, more about our energy and our greenhouse gas footprint. And I must emphasize that, that hasn't been the only theme this year. So COVID has been a theme. There's been another theme of our racial justice. There has been a very lively set of ESG issues in play. But on the climate change and energy use, because we're such a heavy resource-intensive industry and a company, it's something that we have a very high incentive to manage well and to develop strategies around. And it's been a pleasure to sit with our engineers who really know more about this than anybody else to try and ensure that we're also managing further out, managing to our target's end point of 2028. It has not been difficult at all because it's integral to our business.

Got it. No, I want to thank you all of our speakers for a panel portion. I'd love to continue to monopolize the questions and hear your answers, but we've already received several great questions from audience. So I'd like to use the remaining time we have to answer as many as possible. [Operator Instructions] We would now like to address some of the questions that have come in during the presentation. So the first question I want to tackle from the audience is for Robert. And the question is are private or state-owned companies included in the CSA? If yes, what is the coverage?

They are not included, but we have interest from a lot of private or state-owned companies every year. And we offer the CSA to them. It is not all questions apply because they are targeted at large listed companies, but we have a special methodology adjustment than for private companies. We also see increasing interest from private equity funds and have an offering for those to assess their private equity portfolios.

Great. This next question, I think is more applicable for Riva and Paula. And the question is, when doing sustainability diligence, are you mostly screening for red flags a.k.a to walk away from the deal, difficulty of integrating the sustainability efforts and reporting alongside the new company or some other objectives?

Shall I start, Riva? Okay. So well, for SGS, the reality is that we are not a super-intensive company in terms of environmental impacts, for example. So I will not think that we have any single case of acquiring a small company which a very, very rought performance in environment. The way that we do the due diligence is not to write a -- to put red flags. But to understand, which one will be the impact about embracing that company in our organization and how the different KPIs that they are providing us will affect our core performance. And also, it is not about refusing to work with someone, but also helping them into become better performance in ESG, okay? So we work to implement programs that are currently in place in SGS to make the acquired company as sustainable as the core metrics that they have joined. But as I said, since we are acquiring small- and medium-sized companies, and we are not a very heavy intensive company, we don't find this major opportunities of say, I cannot buy this company because it's polluting half of the planet. Maybe for Riva is different.

I think the question was for you, Paula. And I think you answered it well.

Yes. Okay.

So we actually have a next question. I think it's directed directly at Paula as well. How important do you think it is to train regular employees in climate sustainability knowledge, for example, GHG protocols, Scope 1, 2 and 3?

It's a very good question. Because I'm a super fan of creating the culture of sustainability, okay? For me, this is the way that it should be. And the only way of creating a culture in sustainability is training people, making them aware, making them understand what are the impacts of the different activities as they do. How do you calculate the things? How passionate is your company in terms of sustainability? And it's very, very important. It's very important as well, not only for creating this culture, but also for them to understand how they can minimize the impacts that they are generating. So for instance, if people understand that our CO2 emissions come from 3 sources, but mainly from electricity, the -- people they have willingness, so they may turn off the lights. I'm just making a very simple example here, but I think it's very important. It's very important to train people and to make them understand.

Lawrence, I wonder if I could speak to that, too?

Yes, of course.

So I think with Paula, what I share there is that what is so important for -- and most of the people who work at Linde are engineers, many of them are engineers. And so what we have there is an opportunity to let them think not about what they do and how they do it, but about the impact that our applications make on the planet, the impact our applicators make on society. So for example, the business model means that we do use a lot of energy, and we generate a lot of greenhouse gas emissions. But it's also the case when you look at the impact of our applications on the planet that we can show that we enable the avoidance of 2.7x more greenhouse gas emissions avoided than are emitted in all our operations. Or we can show that we -- our water applications are enabling about 290 million people to get access to safe drinking water. This is the kind of impact, I think, that is so important and ESG investors are asking about, but employees also need to learn to start to think about that instead of just putting their heads down and thinking about what am I doing today. It's, why am I doing it. Because the work that they're doing, certainly at Linde, is having an impact on environment and social issues for all of us and reaching out to try and touch on and help meet some of the emerging global sustainability challenges we all have.

Thank you, Riva. Our next question is for Robert. And the question is, is the target quality itself also evaluated in a score? Robert, we don't hear you. You may be on mute. I think we're having some -- unfortunately, some audio issues with Robert. So let's move on to another question. We have time for one last question. And I think this could be applicable again for both Riva and Paula. And the question is how does ESG affect your valuation of a particular target?

Paula, do you want to take that?

I don't fully understand the question.

So I think the question is focused on -- sorry, Riva, go ahead.

Well, go ahead. Finish it, if you have the explanation.

Yes. I think the question is focused or surrounds whether or not the valuation for a company, if, for example, the company is not familiar with ESG whatsoever, does that reduce or limit the valuation or price you would pay for a particular target? Or for example, if there is a lot of synergy for their ESG efforts already, does that help in evaluating the price that would be paying for that target?

Is the question...

I don't know. Yes.

The question is -- and the question is are ESG investors pricing in their conclusions about our ESG performance into the decisions about the stock? I think that, yes, some -- they are starting to act on their conclusions. As you would expect from an ESG investor, they're looking at these issues as material. And so they're going to want to know, are we managing energy in our case, optimally? Are we managing our greenhouse gas emissions in the correct way from the point of view that investor is thinking? Or is our safety record sufficient and our record on ethics integrity? Do we -- are we looking at issues of diversity, gender diversity and racial diversity? If the investor cares about those issues, then they're going to -- it's going to be material to the decisions they make about buying the stock.

I think the question was more related -- I mean, we have seen now the questions. And it's more related to what we -- to the question that we responded before on how do we incorporate ESG when we evaluate business to be acquired. Yes. So I think we've responded to this before, right?

Yes, I think you touched upon it briefly already, Paula.

Yes, yes.

So -- and unfortunately, we also -- due to time constraints, that's all the time we have today for questions. I want to thank everyone for your submission and our presenters for their thoughts. At this point, I'd like to take the opportunity to ask that you click on the small survey icon to open our event survey and take less than a minute to answer our short questions before closing out of the webinar. Let us know if you're interested in learning more about our products, would like a free demo, how you like today's webinar and what other topics you would like us to cover in the future. Also check out the resources widget for additional collateral, including slides, survey data and reports relevant to today's webinar. To Robert, Riva and Paula, again, I'd like to give thanks for myself on behalf of the audience for your insights. For our attendees, the presentation and replay will be available in a follow-up e-mail in the next few days. On behalf of S&P Global Market Intelligence, thank you for your interest and valuable time as we greatly appreciate it. Take care.

Thanks, Lawrence. Bye-bye.