Newsweek's Green Rankings: What They Mean ... and Don't

Today, Newsweek releases its 2010 Green Rankings, its second annual effort to rate and rank the largest companies in the U.S. and the world. Dell and HP switched places for #1 and #2, and after that, who really cares?

The other 498 companies, that's who.

A couple weeks ago, when about 30 senior sustainability executives gathered in Milwaukee for a meeting of our GreenBiz Executive Network, I asked members how many knew their company's 2009 Newsweek Green Ranking. Damn near every one could cite it blindly. The rankings, it seems, have become a major metric in corporate America.

But it's important to put the rankings in perspective ahead of what I expect will be another surge of horserace-type analysis: who's ahead, who's behind, who's catching up, who's falling back. As these things often are, there is both more and less going on here than meets the eye.

This year's 2.0 release represented an opportunity for Newsweek and its partners to tweak the methodology from last year's maiden voyage. Not that there was a lot that needed tweaking. As I wrote a year ago, the rankings "may well be the best effort yet to rigorously and comprehensively assess the mainstream corporate marketplace."

Indeed, the basic methodology remains pretty much unchanged. Newsweek's rankings assess the 500 largest publicly held companies, determined by a combination of market cap, revenue, and number of employees. Each company gets a Green Score derived from three separate metrics:

  • an "Environmental Impact Score," compiled by Trucost, based on more than 700 metrics of company performance, including greenhouse-gas emissions, water use, and solid-waste disposal;
  • a "Green Policies Score," from MSCI's RiskMetrics Group, reflecting an analytical assessment of a company's environmental policies and initiatives; and
  • a "Reputation Survey Score," resulting from a survey of CEOs, corporate environmental officers, and academics conducted by CorporateRegister.com.

The first two -- Environmental Impact and Green Policies -- each account for 45% of the total score, with Reputation making up the final 10%.

So, who won? Dell edged out HP for the top spot this year, changing places from last year, when HP was #1. In fact, the top five companies -- rounded out with IBM, Johnson & Johnson, and Intel -- were exactly the same as last year, except in a slightly different order. Nike and Applied Materials kept their place among the top 10, joined this year by Sprint Nextel, Adobe Systems, and Yahoo! That last of those, Yahoo!, may have been the biggest gainer, with the Internet portal moving up 60 slots to #9, from #69 last year. Meanwhile, the #500 company of 2009, Peabody Energy, didn't budge; the world's largest private-sector coal company remained dead last in 2010.

This year, Newsweek added a second ranking, of the top 100 global companies, using the same methodology. The top 10: IBM, Hewlett-Packard, Johnson & Johnson, Sony, GlaxoSmithKline, Novartis, Deutsche Telekom, Panasonic, HSBC Holdings, and Toshiba. Some of the top companies in the U.S. ranking didn't make the list because their size didn't put them in the top 100 globally. For example, Nike and Intel, for all their heft, just weren't big enough to qualify among the world's 100 biggest companies.

As I said, all of this needs some perspective. Four key points:

  1. The differences among the top-ranked companies are pretty minor -- and in some cases razor thin. After all, the overall rankings cram 500 companies into a 100-point scale. The top 19 companies all scored 90 or higher, and the top 87 companies scored 80 or higher. Only the bottom 5 received fewer than 30 points.
  2. The methodology changed a bit between this year and last, so year-over-year comparisons aren't really possible. (This shouldn't be as much of a problem going forward.) No doubt, this won't stop companies from comparing closely how they and their competitors fared over the past year, but unless there were wild swings in standings, such analyses won't be meaningful.
  3. The work that goes into some of the rankings' components is subjective, meaning that individual judgment calls are turned into numeric scores that ultimately determine a company's ranking. Given the closeness of the scores, one misinterpretation by an analyst having a bad day could make a material difference in a company's score and ranking. That subjectivity is important to keep in mind, especially given that less than 1 point separates the top four companies -- Dell, HP, IBM, and J&J.
  4. All of the scores are relative, not absolute. That is, companies are judged not on how well they do, but on how they fare in comparison to their peers. So, Dell's top score of "100" doesn't mean it is perfect any more than HP's "100" score did last year. It just means that of the 500 companies assessed, it scored the highest.