On October 17, Newsweek released its third annual US and global Green Rankings. With a more durable methodology than in prior years, the rankings are beginning to influence corporate behavior and disclosure.
There are a couple of issues with the rankings that Newsweek should address, however, regarding a false sense of accuracy and cross-industry comparisons. These issues are not unique to Newsweek's rankings. Yet with the broadest exposure to consumers among sustainability rankings, improvements by Newsweek would improve other rankings too.
Newsweek's methodology, supported by detailed analysis from research partners Trucost and Sustainalytics, is described here in detail. In brief, the ultimate "green score" used to determine rankings for 500 U.S. and 500 global companies comprises a weighted average of environmental impact, environmental management, and disclosure scores.
Last year, Newsweek reported its green score to four significant figures (e.g., 76.24). This year, just three (e.g., 76.2). Without reporting error, though, even three significant figures implies that there is a meaningful difference between Intel and Adobe, for example, whose scores differ by a tenth of a point.
Among other estimates, Trucost assigns a dollar value to the potential cost to society of damage to the environment from each company's practices. Attempting to do so is worthwhile but not possible to a high degree of certainty. The reported scores do not adequately reflect the compounding effect of multiple uncertain evaluations.
Apples to Apples
Newsweek normalizes its rankings to take into account innate differences in the environmental impact of various industry sectors. In a webinar last month, Annie White, Research Manager at Newsweek's rankings partner Sustainalytics, explained that the environmental impact score, for example, considers individual scores in multiple categories weighted according to their importance by industry. Some categories are zeroed out for particular industries if they don't apply.
Despite these attempts to standardize across industries, the average green score of the companies within each industry correlates highly with the energy and material intensity of that industry. The graph of industry average green scores shows that, generally speaking, industry sectors that deliver relatively less energy and material-intensive products, like IT services, media, and telecom, have significantly higher scores on average than industries like utilities, materials, and energy. The highest scoring industry, IT, averages a score of 62.5, while the lowest scoring industry, utilities, averages a whopping 22 points lower.