What Your Company Can Learn From the Green Perception Gap
<p>Interbrand's just-released ranking of green companies highlights the gap that can occur between environmental performance and customers' perception of that performance. What are the implications of that gap for your firm?</p>
Last week, Interbrand released its inaugural list of the Best Global Green Brands of 2011 following Newsweek by a couple of years. The methodology splits out each company's actual environmental performance as determined by a Deloitte analysis of publicly available Thomson Reuters ASSET4 data and Interbrand's own analysis of public perception of each brand.
According to the study, companies like L'Oreal, Nokia, and HSBC are doing much more than they get public credit for, while for others like McDonald's, GE, and Coca Cola the reverse is true.
Whether one is an executive, investor, or consumer, what are the implications of the gap?
Interbrand draws some of its own conclusions here, including that companies whose performance score is higher than their perception score should communicate more about their efforts (except in cases where doing so would reveal trade secrets) and that companies where the reverse is true should increase their green performance. Sounds tough to disagree with when you consider individual companies.
But on considering the results by sector, different conclusions emerge. The ranking includes companies as diverse as Danone, Samsung, and Shell -- companies that generally don't directly compete for consumers' or investors' dollars.
Considering the list by sector reveals that within each, companies tend to cluster on their performance scores while perception gaps vary widely (on average, about three times more than the variation in performance scores). In other words, most companies' environmental performance scores are similar to their sector peers' scores while consumers' perceptions of the companies' green performance varies widely.
Assuming that the study's methodology is sound, these results do make some sense. Relatively consistent environmental performance scores within a sector may arise from sector dynamics: the nature of that vertical's manufacturing impacts, sharing or copying of best practices, etc. And widely varying perception levels may arise from the different value brands place on green (e.g., Toyota high, BMW low) and from brands' effectiveness at affecting consumers, among other factors.
Here are some questions to consider about the performance-perception gap depending on who you are.
Companies should first consider whether a gap between performance and perception is indeed bad. High perception scores can arise from a breakthrough product, for example, not just overzealous communications.
Within the automotive sector, for example, the Prius is likely a driver behind Toyota's perception score exceeding its performance score by seven points, which doesn't pose a risk to the company. Within the restaurant sector, on the other hand, that McDonald's perception score exceeds its performance score by 22 points may arise from communications that increasingly tout fresher, healthier food and, according to Interbrand, use of the color green while actions in governance and operations lag, especially in the US.
Although the company is doing much to improve its environmental performance, consumer demand for such action may exceed the company's pace of progress.
Companies should also consider whether to invest an incremental dollar in action or in attempting to influence perceptions -- and look for investments that do double duty, like PepsiCo's water management strategies that are both reducing its environmental impact and increasing goodwill among consumers, especially in emerging economies.
While the index is not aimed directly at investors, investors should pay attention and ask themselves how efficiently companies on or off the list translate their green performance and green perception into shareholder value with a given sector.
For example, within the business services sector, despite all of the energy that IBM puts into its Smarter Planet campaign, its perception score is significantly lower than its performance score; both are comparable to Cisco's which keeps a lower public profile on sustainability matters. So how effective is IBM's marketing spend? Are they reaching the right audiences?
Environmental NGOs, Influencers
While, as noted above, companies' performance scores within a given sector tend to cluster, there are outliers. In the fast-moving consumer goods sector, for example, J&J ranks 4th out of 50 among all companies while Avon ranks 37th. So should eNGOs applaud J&J as an industry leader and potential inspiration to their sector or should they lobby Avon for more aggressive action? And how should they deal with performance-perception gaps?
In the automotive sector, for example, should they chide Ford for having a perception score than beats its performance score by 13 points or help them meet their consumers' lofty expectations?
Interbrand's ranking raises many questions. The long-term measure of its worth will be based on how companies, investors, and influencers respond -- and whether it ultimately impacts consumer behavior.
This article originally appeared on the Green Order blog, and is reprinted with permission.