The Agony and the Ecstasy of Newsweek's Green Rankings

Newsweek's third annual Green Rankings are out today, and the stories and chatter they’ll generate will likely be of the horserace variety: who won, who lost, who moved up or down from the year before, how competitors compare. Fair enough: That’s what annual rankings are all about.

But those stories will largely miss the mark. This year’s rankings are a reboot from previous efforts, and that makes meaningful comparisons difficult. And while it’s not exactly comparing apples to oranges, comparing this year to last may be akin to comparing Golden Delicious to Granny Smiths.

To get it over with, here are the leaders: The top 10 U.S. companies are IBM, HP, Sprint Nextel, Baxter, Dell, Johnson & Johnson, Accenture, Office Depot, CA, and NVIDIA.

On the global rankings, the top 10 are Munich Re, IBM, National Australia Bank, Banco Bradesco, Australia & New Zealand Banking Group, BT Group, Tata Consultancy, Infosys, Philips Electronics, and Swisscom. For those keeping score, that represents one company each from Brazil, Germany, the Netherlands, Switzerland, the U.K., and the U.S., and two each from Australia and India.

So much for the horserace. Here are some basics and some context: Newsweek, in partnership with Trucost, Sustainalytics and a board of advisors (listed here), assessed the 500 largest U.S. and global companies to create a “green score,” derived from three components:

  • an environmental impact score (45% of the total) compiled by Trucost, involving more than 700 metrics — a comprehensive, quantitative, and standardized measurement of the overall environmental impact of a company’s global operations;
  • an environmental management score (45%) compiled by Sustainalytics, an assessment of how a company manages its environmental footprint, including its environmental policies, programs, targets and initiatives of both its own operations and its suppliers and contractors, as well as the impact of its products and services; and
  • an environmental disclosure score (10%), evaluating the quality of company sustainability reporting and involvement in key transparency initiatives such as the Global Reporting Initiative and Carbon Disclosure Project.

What’s changed? Newsweek — which itself went through two management handoffs during 2010, ultimately merging with the news and opinion website The Daily Beast — revamped its methodology. Specifically:

  • MSCI, a provider of decision support tools to investment institutions, opted out of the 2011 rankings after participating the first two years. It was replaced by Sustainalytics, bringing a new set of criteria and analysis to the rankings.
  • This year’s disclosure score replaced a “reputation survey score” used during the two previous years, which was based on an opinion survey of corporate social-responsibility professionals, academics, and other environmental experts. That means this year's analysis is largely devoid of thought-leader opinion about companies, focusing instead on more tangible measures of performance.
  • This year’s overall “green scores” are displayed as an absolute number rather than a relative one. In the past, the top company received a score of 100, with all other companies’ scores shown relative to that. Now, the green score is a raw score. Under the new methodology, a rating of 100 would apply only to a company that received a perfect score. This year, the green score for IBM, which topped the 2011 U.S. rankings, was 82.5%.
  • The global rankings were expanded from 100 companies to 500. That dramatically affected some companies’ rankings, since they are now competing on a much larger, more diverse playing field.

True, most of these technical details will matter primarily to sustainability geeks — socially responsible investors and analysts, and the like. And, of course, to the companies themselves.