By Julian Dautremont-Smith, Erb MBA/MS student, class of 2012.
This blog entry is cross-posted on Triple Pundit.
Last week, Newsweek released its first “Green Rankings,” which ranked the 500 largest U.S. companies on environmental performance.
The rankings have been welcomed by many the sustainability community, and certainly, there is a lot to like about them. They provide a reasonably objective tool to inform to inform purchasing and investment decisions by consumers and investors. Similarly, they enable companies to compare themselves with others in the same industry, or even in other industries. This can stimulate competition among companies to improve their environmental performance and thereby improve their relative standing. More generally, the rankings help keep sustainability on the minds of business leaders and the public.
As to be expected with a first attempt like this, there is room for improvement. Indeed, certain aspects of the methodology and presentation of the rankings seem likely to reduce the rankings’ overall contribution to sustainability. In the spirit of constructive criticism, here are four suggestions to enhance the value and impact of the rankings:
1. Emphasize the industry-level rankings.
While much of the coverage this year seemed to be on the aggregate rankings of all 500 companies, the industry-level rankings are actually much more meaningful and useful, both for consumers seeking to purchase from the greenest companies and for business leaders looking to compare with their competitors. Further, with all the attention going to the aggregate rankings, most companies that aren’t near the top or bottom 25 have less incentive to focus on improving their score since their score isn’t likely to attract much attention. Greater attention to the industry-level rankings would better stimulate efforts to improve since there will be more high profile top slots for which companies could compete and each company’s efforts would be less likely to go unnoticed.
2. Change the methodology to more directly encourage the highest priorities for sustainability.
This year, a company’s total green score was derived from its environmental impact score (45%), green policies score (45%), and reputation score (10%). As a result, companies that wish to improve their score might easily choose to focus their sustainability efforts more on marketing and policy adoption instead of actually reducing their impact. For the rankings to most effectively serve as a motivator of tangible environmental improvement, the environmental impact score should comprise around 75 percent of the total with the green policies score accounting for the balance.
The reputation score is an interesting gauge of the success of a company’s green marketing efforts, but should be reported separately. A company’s reputation says very little about the company’s true “greenness,” and in other ranking systems – most notably the US News’ college rankings – reputational components have been subject to manipulation. Also, since an entity’s reputation is often largely informed by previous rankings, rankings based on reputation tend to be slow to change.
Since green policies and reputation were included at least in an attempt to make the rankings applicable to businesses across many different industries, the shift in focus to industry-level rankings should make the suggested change in methodology easier. Indeed, the change will actually improve the validity of the industry-level rankings, where comparisons based primarily on actual impact are appropriate.
This shift in emphasis on impact should be accompanied with an effort to address the environmental impacts that occur across the whole lifecycle of each company’s products and services, from cradle to grave. Otherwise, the rankings could encourage the outsourcing of dirty activities and might end up highlighting companies that rely on environmentally destructive inputs or that make products which cause environmental damage as a result of their use or disposal.
Finally, to further help companies prioritize efforts, Newsweek should also be transparent about how each of the components in the impact score are weighted relative to each other. Ideally, the weighting should be informed by current scientific understanding and established systems for aggregating disparate environmental impacts such as lifecycle assessment and ecological footprinting.
3. Allow companies to opt in.
Many of the companies that are truly leading the charge on sustainability were too small to be included in this year’s rankings. Because recognized leaders like Seventh Generation, Interface, and Patagonia weren’t ranked, the top-ranked company in any given industry may not actually be the greenest. Any shift in consumer purchasing that occurs as a result of the rankings could therefore come partly at the expense of greener but unranked companies.
To address this issue, Newsweek could invite companies that aren’t among the 500 largest U.S. companies to submit the data necessary to be included in the rankings. Obviously, there would have to be some restrictions about what types of companies and how many could participate to keep the project manageable. One simple solution to this issue would be to require companies who wish to be ranked to pay a fee sufficient to cover the costs of being included.
4. Switch to absolute rather than relative scoring.
The environmental impact score is based on a company’s greenhouse gas emissions, water use, solid waste generation, and acid rain emissions normalized for revenue. The company with the lowest overall impact is a given a score of 100 and everyone else is graded in relation to it. This system is somewhat misleading because it doesn’t reflect the unfortunate reality that even the leading companies have a long way to go before they reach anything close to true sustainability. Switching the scoring to an absolute scale with “zero impact” in each of the four impact categories as the end goal would more effectively stimulate continuous improvement and would better illustrate how much work remains to be done. This change to a fixed scale would also have the positive side effect of providing companies with a better benchmark to track their performance over time since the scale wouldn’t change from year to year.
Comparing 500 companies on green criteria is an enormously complicated task, and Newsweek is to be commending for making an impressive first go at it. Implementing the suggestions presented here won’t make the ranking system perfect – an impossible goal – but they would increase its utility and overall impact.
Julian Dautremont-Smith is a Erb student, MBA/MS program 2012. He is a member of the Steering Committee for the Sustainability Tracking, Assessment & Rating System (STARS), a tool for rating higher education institutions on sustainability performance that is administered by the Association for the Advancement of Sustainability in Higher Education (AASHE).