Sustainability Rankings, the Global 100, and Greenwashing
What’s so sustainable about the Global 100 “World’s Most Sustainable Companies”? Not much, as far as I can see.
The ranking was released just a few days ago, as reported here by Helen Coster for Forbes: Ranking The World’s Most Sustainable Companies
The term “sustainable”–like “green” and “all-natural” before it–conveys an abstract sense of do- gooding that many companies have been happy to adopt. Corporate Knights, a Toronto-based media company, applies hard metrics to the otherwise fuzzy term, and Saturday it released its seventh-annual list of the world’s most sustainable companies….
So, what does sustainability mean, here? Toby Heaps, Corporate Knights’ editor-in-chief, says one key is to ask this question: “how are companies squeezing more wealth from the resources that they use?” So far so good — I suspect that kind of efficiency measure has something to do with what most people take “sustainability” to mean. But next Heaps strays into strange territory when he asks, in addition, “How are they doing a better job of respecting the social contract, like paying taxes or having diverse leadership?” Huh? We’ll get back to the issue of criteria in a moment. First let’s look at the rankings.
The top end of the list is dominated by global brands from the telecommunication, pharmaceutical, and energy industries (Nokia, Johnson & Johnson and Intel are all in the top 5). But an oil company takes top honours (Norwegian oil and gas company Statoil). Yes, an oil company. Now, for many people, the petroleum industry is the epitome of unsustainable business. So this will immediately raise alarms for some people. Should it? Let’s take a closer look.
The Forbes story says that Statoil topped the list “thanks in part to improvements in its water productivity.” Fair enough: water productivity (efficiency of water use) is a clear sustainability issue. But what comes next is odd. The oil company apparently did well in the ranking in part because it is “also a healthy contributor to Norway’s coffers and has a diverse board”. In other words, this oil company scored well on a sustainability ranking by doing a whole bunch of stuff that has little to nothing to do with sustainability.
For still more detail, we can look at the ranking and an explanation of the methodology behind it on the Global 100 website. According to the Methodology page, the ranking is established by looking at “environmental, social, governance (ESG) and financial data.” Already we see here a rather expansive understanding of the word “sustainability.” Next, let’s look at specific measures they used.
Some of the metrics used make perfect sense, such as energy productivity and waste productivity. Some of them, however, are hard to figure, such as CEO-to-average-worker pay ratio. Executive compensation is an interesting (and, I think, complicated) ethical issue, but how does it relate to sustainability? The detailed explanation of the various criteria offers this rationale:
A disproportionate share of compensation expenditure going to one person can lead to lower overall workforce motivation, and can also be indicative of potential governance risks, or misalignments of interests.
All of that seems true, but largely irrelevant. Sure, those risks are real, and they may (may!) have something to do with keeping the company in business. But surely that is not what anyone beyond a handful of consultants means by the word “sustainability.” When the public wonders whether Walmart’s business is “sustainable,” they are certainly not wondering whether the company’s business practices are going to let them keep chugging along.
Another mystifying criterion is “Leadership Diversity: % of women board directors.” Again, that’s an important issue; companies need to do more to get women into senior leadership positions, including on the board. But is there really a clear link — either conceptual or empirical — between having women on the board and the company being sustainable? Unfortunately, while that criterion is mentioned on the Criteria & Weights page, it is missing entirely from the more detailed explanation of those criteria (see PDF document here) so what the link is supposed to be is anyone’s guess.
Other weird criteria include “Safety Productivity”, “% tax paid” and “Innovation Capacity,” though the latter makes at least a modicum of sense. As far as I can see, fully half of the ten criteria used have no clear link to sustainability. And given that all criteria are given equal weight in the Global 100 methodology, that means the ranking is actually only half about sustainability, and half about other stuff.
Now, I’ve been critical of the term “sustainability” before (see “Sustainability is Unustainable.”) A lot of what I’ve said before has to do with confusion over the meaning of the term, and the resulting difficulty in measuring and tracking companies’ performance in this area. I think the Global 100 ranking ends up providing a wonderful case in point.
But the real problem, here, is that the kind of sustainability measure instantiated by the Global 100 profits directly from the confusion over the meaning of the term “sustainability.” (And I do mean “profits” — Corporate Knights is a for-profit organization, as presumably are the research firms that helped develop the Global 100 and the vast majority of sustainability consultants who help companies preen for such rankings.) Now, I don’t actually have anything against profits, and I’m not impugning anyone’s intentions. My point is that the only reason this particular set of measures can be thought to add up to “sustainability” is that the term itself is ambiguous and means different things to different people.
What’s really being measured here is a broad range of indicators having to do with all kinds of things. Again, it includes “environmental, social, governance…and financial data.” And it’s all important stuff. So the Global 100 ranking really does tell us something important (but vague) about the companies listed. But what is announced is that ‘these companies are sustainable.’ What does that mean to the public? Environment. So the list implies that these companies are environmental good guys. The result: greenwash.
So, what’s the public to do? Maybe all the public can do is realize that what sustainability consultants and gurus mean by “sustainability” has relatively little to do with what they mean by that word.
The Business Ethics Blog 
Vince Lombardi is often given credit for a quote that came originally from Red Sanders, the UCLA football coach: “Winning isn’t everything, it’s the only thing.”
Well sustainability isn’t everything either. Nor is it the only thing. It may be something. Something is happening here; but what it is still ain’t exactly clear.
Wayne – You might have other priorities but sustainability is the one thing that will matter to our descendants. It is shocking to see someone with such a blasé attitude about the state of the planet feel justified in such a cavalier attitude on a blog like this.
Chris – I would love to respond but quite frankly it is just too big of a job. Wayne’s comment was easier to address! A little start with the term ‘sustainability’. Sustainability is qualitative and quantitative. It can be measured with concepts such as carrying capacity and WWF’s One Planet Living framework. Tony Fry develops the idea of ‘sustainment’ in Design Philosophy Paper (the journal) and his book ‘Design Futuring’. Sustainability is a term in development but the basic concept of leaving the planet in a habitable state and working towards social and economic justice is too important to dismiss just because the term is so slippery at the moment.
Jody:
Yes, I know that sustainability is a valid topic of investigation, and I know there are well-established definitions (e.g., the famous Brundtland Commission definition).
None of that rescues the Global 100 from my critique above, as far as I can see.
Wayne is right, though, in pointing out that sustainability isn’t everything. It is one among many values.
Chris.
Chris: I would argue that sustainability is very close being everything when taking the dictionary definition of including social, economic and environmental aspects. Its the people then who make up their minds about priorities of sub-criteria in this; and it is a real power struggle on this by NGOs, companies and politics for those priorities. Its actually what my PhD project is about: Perception, Criteria and buying behavior concerning sustainability for food and agricultural products.
Those problems of having different things in mind when adressing sustainability stem from different priorities, and feeling cheated when your expectations on this are not met. Women participation can clearly be put in the sustainability term under the social aspects, but the priority it earns in the Global 100 differs probably very much from the one given by the general public when they speak about sustainability. Its simplification and the sexyness of the term which pose the problems.
I think that the future may see a solution to this when the power struggle is less chaotic, the image of the term in the general public gets clearer and the industry listens more this image, and once governments, industry and product labels get more importance and fewer players get high ground on the definition of the term.
Whilst we’re examining the critera mentioned in the Critera and Weights document linked above, I’d like to add that the “Taxes Paid” score makes no sense at all.
When we’re talking about sustainability in the broad social context that seems to be intended by Toby Heaps then presumably a relevant factor is whether or not companies are engaged in complicated tax avoidance schemes. The “Taxes Paid” score not only ignores this, but is also arguably misleading as even a company employing the most agressive tax avoidance schemes could still score 100%.
The score is calculated by comparing, for each company, the US taxes paid (i.e. the cash paid over to the IRS) with their statutory US tax obligation (i.e. the amount calculated on their tax return). However, the effect of tax avoidance schemes is to reduce the statutory tax obligation. Therefore, all the score measures is whether the company has paid the amount it owes to the IRS, irrespective of whether this amount is a large as might be expected of a company of that size. This renders the measure largely meaningless. A better measure would compare cash taxes paid to pre-tax pofits.
Hi Chris- one of the main challenges here is the “siloization (if such a word exists) of good corporate behavior, combined with the lack of universally accepted definitions of terms like sustainability. Good corporate behavior (we call it trustworthy) incorporates many silos, including sustainability.
Many sustainability data providers metrics include some of the items you refer to here such as compensation, diversity and board composition. So perhaps Corporate Knights is not greenwashing in the way I think of greenwashing. Maybe their definition of “sustainable” is just broader than the “generally accepted” one…confusing maybe, but not necessarily “wrong” or “bad.”
As far as the oil company. Well, our analysis placed another oil company (HESS) right in the top spot of most trustworthy (out of almost 3000 public companies)when we equally weighted our five drivers of trust- financial stability, accounting conservativeness, corporate integrity, transparency and the “s” word sustainability. What’s most interesting though is that the oil/energy sector as a whole, placed dead last out of sixteen.
The challenge is to get beyond ratings and rankings and convince companies to start behaving better. Here is an actual comment from an attendee (a C-Suite exec) at the Global Reporting Initiative/NYSE conference held in NYC the other day. “I don’t know why any company would ever spend their money (to report their sustainability to GRI) on such nonsense.” Sad but true.
Two thoughts:
The criteria in the Global 100 are too simplistic to lead to companies being refered to as “sustainable”, so while I am sure it is not intended it comes off as greenwash.
It also puts a thumb in the eye of those expert research organizations that evaluate companies based on ESG risk. While they are also imperfect, shouldn’t we (and Davos) be looking at these types of organizations and research more than this annual study.
While I hate getting into a semantics arguement, it would be more appropriate to consider phrases such as ‘most responsible’ to reflect those on this list. Paying one’s taxes should not be seen as a criteria for leadership – it is simply following the letter of the law (there is nothing creative, disruptive or inspiring about that).
While I agree with many points Chris has made, there are areas including diversity (at the board level, and across a company) which are moral/ethical issues which must be addressed and often improved at companies to move towards sustainability. While reducing carbon emissions and waste are critical areas, and diversity brings competitive advantages to larger companies (so should not need to promote), this is one issue to continue highlighting.
As companies are indeed influential ‘citizens’ of society, whether they have a legal or moral obligation to address diversity is moot…it is what their most influential stakeholders often want, so by addressing these (and many other) concerns they move toward sustainability.
You say, “Now, I don’t actually have anything against profits, …”
It’s funny how you have to kow-tow before the sacred cows of economics so that you seem respectable to those in your field.
“and I’m not impugning anyone’s intentions.”
While I haven’t investigated it, and I can’t say I exactly know the intentions at Corporate Knights, I am highly suspicious of the PR industry and would call this essentially hi-jacking of the word sustainability to suit whoever is writing this piece and their clients. It wouldn’t surprise me if actually believed that they are the chivalrous ones of the corporate world.
In this case, as with many, the profit motive hurts sustainability. One could say that the prioritization of profit is nearly diametrically opposed to those “other considerations” of a civil society. For this reason I find your deferring to the axiom that profits are good and seeking them is too, puzzling.
Deniz:
I’m not kow-towing to anyone, thank you very much. I stand by my words: there’s nothing wrong with profit. Excessive zeal in seeking profits can result in evil in the world, as can excessive zeal in pursuing anything else — including sustainability. But in general greed is a poor explanation for the word’s problems.
There’s nothing wrong with profit: it’s just the surplus created by exchange. Any voluntary exchange produces profit, financial or otherwise. And the profit motive plays a hugely beneficial role in the world.
Chris.
Hi Chris, I think what you might be referring to , and perhaps objecting to, is what is now becoming the institutionalization of sustainability as a triple bottom line approach, with good governance thrown in. The factors included in the CK ranking are those that are now being more commonly used to assess whether companies are worth investing inthrough the long term. Sustainability, of course, is now not only the sustainability of the planet but also the sustainability of the business itself. If we accept this view, then all the factors you mention have a lot to do with sustainability and can be directly correlated to stakeholder value creation, yes, even numbers of women on the Board.
I agree however, that ranking is always controversial. I always say that it serves to advance the people doing the ranking more than the companies ranked, and I have been critical of the CK list in my own blog in the past. I believe that rankings serve the purpose of fuelling the discussion, such as your blog, to make us all more aware of the issues that sustainability provokes and get us all involved in the conversation. For this reason, the CK ranking serves a useful purpose. I am sure that anyone who has a reasonable level of awareness should not be influenced to action as a result of this ranking list alone.
elaine
http://www.csr-reporting.blogspot.com
Elaine:
Thanks for that. And fair enough — I realize there’s this move to use “sustainability” to mean a whole bunch of stuff together, and for some purposes that may make sense. But doing so robs the notion of much of its ethical pull. Sure, investors want a company to be sustainable in that broader sense (i.e., to stay in business a long time), but society may not want it to be (e.g., a “sustainable” tobacco company, in that sense, is actually a bad thing). Also some companies can sustain operations for a loooong time without being environmentally sustainable, which is the thing a lot of people care about.
Also, it worries me that this ranking (and others like it) are going to be used in press releases. And not everyone who hears the news is going to have, as you say, a reasonable level of awareness about the new-fangled consultant’s usage of the word “sustainable”.
Chris.
Chris,
Thanks for the provocation! I would like to be able to say that I have the sharp analytical mind to get immediately the value of the metrics used by Corporate Knights and partners to define sustainability, but sadly I do not. And from that perspective, I am probably not unlike your average conscious consumer with limited time on my hands to delve deeply into the sustainability arena to explore, weigh and assess the merits of the metrics used to arrive at the Top 100 which leads me to ask: who is the intended audience of this information? Seth Godin had a blog entry not long ago which focussed on the risk associated with communicating complexity when your audience expects simple. You can’t sell “complicated” to someone who came to you to buy “simple”. He goes on to explain the importance of teaching complexity over time, simply.
I, too, agree with Wayne Norman and his reference to “something happening here; but what it is ain’t exactly clear”.
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What does “Corporate Sustainability” mean….….. Let me give it my best shot.
From my perspective, understanding corporate sustainability requires that you first define and understand sustainable development (I believe that both terms are linked)
Sustainable development shouldn’t be confused with social development, or environmentalism, although the concepts are highly compatible. Social development can best be understood as interventions aimed at providing the conditions whereby individuals use resources to express their creativity and to grow to their full potential. The central feature of social development is the contention that economic growth alone is not enough to provide for basic human needs. People also require effective social programs in order to substantially improve their lives. Environmentalism is advocacy for, or work towards protecting the natural environment from destruction or pollution.
On the other hand, the notion of Sustainable development has emerged from a broad socio-political movement that is focused on achieving an ongoing balance in the global ecosystem between the Earth, people, and the entire web of life. Thus, this framework sees the global economic system, contemporary social problems, and the ecological crisis as linked. For those focused on sustainable development, the goal is to address the critical condition of the planet’s ecosystems while also improve the living conditions of the impoverished and destitute (who still constitute an alarming percentage of the world’s population.
It has become evident to those who are focused on Sustainable Development that this problem cannot be addressed without the active participation of the world largest multinational companies. The last two decades of globalization have created large multinational companies that are larger, more powerful, and in many instances more effective than many nation states. For example, Exxon Mobile’s annual revenues are now larger than the GDP of the vast majority of the member countries within the UN. This realization, by the public and the companies themselves, has lead to the emergent notion of “corporate sustainability”.
This new framework is focused on understanding how companies can contribute to sustainable development – how companies can contribute to addressing critical social and environmental problems. Bottom of the Pyramid initiatives are excellent examples effective corporate sustainability programs.
Like everyone else, I have substantive concerns with the CK 100 rankings – but I am conscious of that fact that it is always easier to be an armchair quarterback. Within corporate sustainability framework described above, many of the metrics used with the GC 100 do make sense.
In the end, for us practitioners the “name” of these concepts is relatively unimportant. What we are focused on is how do we get the global community (including companies) to address these critical problems? To date, both within the public and academic sphere, important progress has been made and it has been galvanized under the banners of sustainable development and corporate sustainability. Personally, I am relatively indifferent to the linguistic difficulties of the terms. I am much more focused on how useful they are as tools for creating action.
Bob:
Thanks for that. But I’m still confused about why/how it is that all manner of social concerns are supposed to now fit under the heading of “sustainability.” Your example of bottom of the pyramid initiatives is a case in point. Those seem like socially-valuable initiatives, and also be important more specifically from a development point of view. And any and all development ought to be sustainable development. But that doesn’t automatically bring all BoP initiatives under the heading of “sustainability,” to my eyes.
(Interesting: my initial impulse was to reject the automatic linkage of corporate sustainability and sustainable development — after all, not all companies are involved in anything that would look recognizably like “development” activities. But I guess if all we mean by “development” is something like “economic growth,” then it’s fair enough to say that all firms are in the “development” business, and so all companies need to be concerned with making sure such development is sustainable.)
I don’t want jargon to get in the way any more than you do. But it’s precisely for that reason that I worry about new and imprecise uses of terms that mean one thing to consultants, and something else to the public.
Chris.
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