Newsweek's 2012 Green Rankings: This time it's serious

Two Steps Forward

Newsweek's 2012 Green Rankings: This time it's serious

The latest Green Rankings from Newsweek are out today, and while there aren’t any show-stopping changes from last year, at least at the top of the list, this year’s rankings represent the first meaningful, apples-to-apples comparison of company performance in the rankings’ four-year history.

For the uninitiated: Each year, the magazine, in partnership with Trucost and Sustainalytics, assesses the 500 largest U.S. and global companies and assigns each 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.

The top 10 rankings on the U.S. list include IBM, Hewlett-Packard, Sprint Nextel, Dell, CA Technologies, Nvidia, Intel, Accenture, Office Depot, and Staples. The top 10 companies on the global list include Santander (Brazil), Wipro (India), Bradesco (Brazil), IBM (U.S.), National Australia Bank (Australia), BT Group (U.K.), Munich Re (Germany), SAP (Germany), KPN (Netherlands), and Marks & Spencer (U.K.).

The full listings can be found here. You can find my colleague Kristine Wong’s story about the rankings here.

Last year, Newsweek changed the methodology for its rankings, which are probably the most-watched comparison of mainstream company sustainability performance, both in the U.S., Newsweek’s home turf, and around the world. The 2011 rankings, were a reboot of the methodology used in the first two years of the project. Starting last year, each company’s scores were stated as an absolute number rather than a relative one. Previously, the top-ranked company received a score of 100, with everyone else assessed on a relative basis. Last year’s change assigned asbolute numbers, making year-to-year comparisons easier.

Newsweek publishes two sets of rankings: the 500 largest publicly traded U.S. companies, and the 500 largest publicly traded global companies. One hundred sixty-two companies appear on both lists, meaning that all told there are 838 different companies ranked between the two.

If you’re looking for big one-year swings in rankings or company performance, you won’t find many. That’s a good thing — a sign of a maturing methodology reflecting the incremental nature of corporate change on a year-to-year basis. In the U.S. rankings, for example, the average Green Score went up 3 points, to 54 (out of a possible 100 points); on the global list the average change rose 2 points, to 59. Eight of the top-10 companies on the U.S. list in 2012 were also in the top 10 last year; Intel and Staples were the newcomers, knocking two healthcare companies, Baxter and Johnson & Johnson, down to #18 and #36, respectively. The global list was slightly more volatile, with only 5 of the top-10 companies remaining from 2011.

The main story, as I said, is year-to-year comparability, a positive development. But the comparability also points up one of the cold realities of the rankings: Progress is very, very slow. “We haven’t gotten anywhere really fast in terms of making a significant improvement in the environmental impact of companies in the ranking,” James Salo, Trucost's Senior Vice President, Strategy and Research, told me last week. He points to the fact that the environmental impact scores, both in the U.S. and globally, changed only about 1 percent — that is, hardly at all.

Not that there weren’t some big movers, both up and down. For example, the Las Vegas Sands Corp. hit the jackpot, rising 238 slots to #128 on the U.S. list. Goodyear Tire got traction, moving up 178 slots to #74. Hershey’s sweetened its position, rising 172 slots to #256. All told, 26 companies moved up 100 or more places in the U.S. rankings.

Only two companies dropped more than 100 places: Sunoco, which took a spill of 139 places to #331; and Caterpillar, which dug itself 108 points deeper, dropping to #252.

On the global list, 17 companies gained 100 or more slots, 11 of which were U.S-based. Eleven companies dropped 100 or more slots (including only two U.S. firms). Asian companies suffered the biggest losses, including LG, Kia, Bank of China, China Mobile, ICBC, and Agricultural Bank of China among those declining 100 or more slots.

One good bit of news is that corporate disclosure is on the rise, based on companies’ scores on the Environmental Disclosure metric. The average U.S. company’s disclosure score was 38 this year, up nine points from last year. On the global list, the average improvement was up 10 points to 59. To the extent that disclosure is a leading indicator of future improvement, in that it publicly highlights a company’s successes and failures, that could foretell future progress in actual impact reductions.

But enough about the numbers. You can find the complete, detailed listings online. What’s more interesting are the stories behind the numbers.

Green rankings are difficult things to do, since companies vary so widely in terms of their operations, impacts, and supply chains. And Newsweek’s, while quite good, have their issues.

Take ManpowerGroup, for example. The self-described “world leader in innovative workforce solutions” garnered the highest environmental impact score of all 500 U.S. companies — higher than IBM, the top-ranked U.S. company overall, and 498 others.

Why? Because it has high revenue relative to its environmental impacts, says Salo — not because the company has necessarily engaged in exemplary environmental initiatives. The environmental page on its website describes primarily the company's green building initiatives. However, there’s likely more to the story: Last month, Manpower was named to the Dow Jones Sustainability Index for the fifth consecutive year.

On the other hand, the worst-ranked companies on environmental impact were dominated by financial institutions, including T. Rowe Price, which earned an Environmental Impact Score of zero, tied for last place with Peabody Energy, the world's largest private-sector coal company. How so? Because in Newsweek’s methodology, financial investors are judged by the company they keep — that is, the environmental impacts of the firms in their investment portfolios. By comparison, some chemical and heavy manufacturing companies, like Huntsman, Goodyear, and 3M, scored in the 40s and 50s in environmental impact. That's a bit of cognitive dissonance endemic of trying to apply consistent standards across every sector of the economy.

Another challenge is that supply-chain impacts didn’t seem to play as much of a role in the rankings. The information-technology companies that dominate the top of the Green Rankings — IBM, HP, Sprint, Dell, CA, EMC, and others — all received high Environmental Impact scores largely because they outsource manufacturing to others, keeping their corporate hands relatively clean.

As Salo writes in an article accompanying the Green Rankings:

The Foxconn factory in Shenzhen, China, along with other suppliers, manufactures Apple’s iPhone 5, which has sold millions of copies since its release this fall. The manufacturing of the iPhone produces pollution; who is responsible for that pollution? Is Foxconn responsible, since the emissions and waste derives from their plants? Or is Apple responsible, since it depends on the services of Foxconn? Both have some responsibility. Without Foxconn or the other suppliers, Apple would not have the iPhone to sell. Some responsibility also sits with the financial institutions that benefit from the shares of Apple stock they own. As the old saying goes, you are what you eat, or in this case, what you profit from.

That’s troubling, and undercuts the value of the Green Rankings somewhat. According to a 2010 Trucost study (PDF) for the United Nations Principles for Responsible Investment, of the $2.15 trillion of environmental damage caused by the world’s largest 3,000 companies annually, 49 percent comes from impacts hidden within supply chains.

Supply-chain information disclosure remains scarce, but is on the rise. “We had about 20 percent of companies disclosing information on their supply chain environmental impacts this year,” says Salo. “If you think about the fact that the greenhouse gas protocol for supply-chain reporting only came out a bit over a year ago, that’s pretty good.”

But companies aren’t necessarily disclosing what’s important: The most commonly reported metric was aviation travel — essentially employee air flights. “When you get beyond that you only have about 36 companies that are disclosing information on the environmental impacts of their goods and services that they purchase from other companies," said Salo. "Only six companies in the rankings this year provided some information on the impacts of their investments. And only one of those six was a financial institution. If you’re looking at an area that needs more work, it’s in the financial institution field building up more disclosure on the impact of investments.”

One other interesting note: Of the top 100 companies in the U.S. rankings, 48 of them are based in three states: California (26 companies), New York (16), and Massachusetts (6).

Why? It’s hard to know. All three have innovation clusters, often centered around universities. All three have clean- and green-minded state governments. And all three have strong technology clusters, which generally did well in Newsweek’s rankings.

There’s a new service this year offered by Newsweek and its partners: an “opt-in” feature that allows companies not currently ranked on either the U.S. or global lists lists to be put through the process. The new service “is essentially providing companies with the ability to be evaluated in the same way that we do the Green Rankings to get the scores that are directly comparable to any other company in their U.S. 500 and global 500 lists,” explains Ian Yarret, the Newsweek editor who oversees the Green Rankings.

Companies that “opt in” will receive a set of scores for each of the three components, as well as an overall Green Score, along with some benchmarking data.

All of that will set you back $15,000. The data won’t appear in Newsweek, or anywhere else, unless you publish it yourself. It seems you can only opt in so far.