Do Newsweek’s Green Rankings still matter?

Two Steps Forward

Do Newsweek’s Green Rankings still matter?

The fifth edition of the Newsweek Green Rankings is out today, although it might as well be the first. It’s an entirely new exercise with entirely new analysts, metrics and methodologies — and an entirely new set of winners and losers.

It’s been an interesting ride. Since the rankings debuted in 2009, Newsweek has gone through three changes of ownership, most recently in August, when it was purchased by IBT Media, publisher of the International Business Times. Each time, the rankings came along for the ride. The future was cloudy after the rankings failed to make their annual fall appearance last year. In March, however, IBT announced that the rankings would resume.

More has changed than just ownership. While the rankings’ methodology continually has been tweaked — the 2012 edition, the most recent until today, was the first year the methodology was unchanged from the previous year, yielding a true apples-to-apples comparison — this year’s methodology is a complete reboot. Corporate Knights, the Toronto-based media and research organization that also produces the Global 100, an annual corporate sustainability list, became the rankings’ proprietor.

Corporate Knights based the rankings on eight indicators covering energy, greenhouse gases, water, waste, fines and penalties, linking executive pay to sustainability targets, board-level committee oversight of environmental issues and third-party audits. The first six items each represent 15 percent of a company’s score; the last two — board oversight and audits — each represent 5 percent.

The winners? At the top of this year’s list of 500 U.S. companies are Allergan, Adobe Systems, Ball Corporation, Ecolab, Sigma-Aldrich, McCormick, Biogen Idec, Rockwell Automation, Cardinal Health and Agilent Technologies. The top 10 on the list of 500 global companies ranked are Vivendi, Allergan, Adobe Systems, Kering, NTT DOCOMO, Ecolab, Atlas Copco, Biogen Idec, Compass Group, Schneider Electric and Centrica.

This is a far different list from past years. Indeed, some perennially top-scoring companies from years past fared poorly this time around. None of last year's top 10 companies made it any higher than No. 19. For example, Sprint, Staples and IBM — all top-10 companies in 2012 — ranked 32nd, 63rd and 224th, respectively, in the 2014 U.S. rankings. IBM was particularly noteworthy, dropping from No. 1 to No. 224 on the U.S. list and from No. 4 to No. 317 on the global list.

What changed? According to Doug Morrow, Corporate Knights’ managing director, the methodology reflects a shift to more quantitative and less qualitative metrics. “There was a greater emphasis on a data-driven model that could be replicated by third parties,” he told me. “And more of an emphasis on actual performance, instead of rolled-up sustainability scores that were difficult to interpret.”

Curiously, some companies didn’t appear at all on the list, which was based on the top 500 companies by market capitalization. Office Depot and Marks & Spencer were previously top-rated companies that somehow fell off the rankings altogether; Accenture fell off the U.S. list but remained on the global list. Morrow didn’t have a specific explanation other than to speculate that these companies’ market caps didn’t meet the threshold at the time the list was compiled.

The madness of methodologies

As for some companies' wild swings? “Any time you introduce a new research provider, most corporates would acknowledge that there’s going to be some level of adjustment. I think it’s natural to expect some volatility in the rankings,” said Morrow.

It’s not necessarily that simple, though. Focusing solely on what can be measured and tracked can result in some unnecessarily skewed results.

Consider water productivity, one of Corporate Knights’ eight key metrics. According to the methodology, the score is determined thusly: "Water Productivity is defined as Revenue ($US) / Total water use (m3). Each company’s Water Productivity is then percent-ranked against that of all Industry Group peers in the CKC [Corporate Knights Capital] research universe and multiplied by 0.75."

It’s a solid methodology in theory. But comparing two companies in the same field doesn’t always yield reliable results in the real world. IBM, for example, which still has a multi-billion-dollar chip manufacturing operation, was compared head-to-head with software companies such as Adobe, whose products are largely cloud-based these days. IBM’s water profile is substantially different from that of Adobe and other software companies, whose water use is primarily in lavatories and landscaping. That might be one reason why Big Blue's ranking tanked.

True, it’s easy to throw stones from the outside. Ranking companies is maddeningly hard stuff. “We certainly recognize that there’s no perfect way to measure corporate environmental performance,” said Morrow. “It’s a challenging concept. We feel that our approach is advanced and sets a new standard for quantitative environmental performance. We recognize that it’s not perfect, but we feel like we have a solid foundation to build from.”

Besides, he said, Corporate Knights' data-based approach is better than methodologies “that use a bit of data and a bit of judgment and can’t be replicated. We’re not in the position of having to say it’s a black-box score.”

He said the 2015 rankings will use the same methodology.

The view from CSOs

When I asked senior sustainability executives about their experience with the rankings at two recent meetings of the GreenBiz Executive Network, I received a wide range of responses. Some of the biggest critics didn’t want to go on the record. Others seemed pleased, or at least accepting.

“We’re glad that Corporate Knights and Newsweek are being transparent about their methodology and respect their efforts to promote awareness and progress on environmental issues,” said Lori Duvall, global director, Green, at eBay (No. 303, down from No. 93 in 2012). We are continuing to evaluate its relevance vis-a-vis our Social Innovation efforts.”

“It’s hard to say that one methodology is better than another since each is based on a different set of assumptions about what is important and what isn’t," said Amy Hargroves, director of Corporate Responsibility and Sustainability at Sprint (No. 32, down from No. 3). “There’s no doubt that the old process favored technology companies, and Sprint in particular fared well using the previous approach. We do not expect the same results with this year’s process and are disappointed that policies and practices appear to be less important than in the past.”

Others were simply confused at how their companies fared so poorly, given their company's steadily improving performance. For example, Arthur Gibson, vice president of environment, health and safety at Baxter Healthcare, described to me his company’s absolute reductions in energy (27 percent since 2005), water (34 percent) and waste (26 percent) — all while nearly doubling revenue. Baxter's Newsweek ranking fell this year to No. 207, from No. 18 in 2012, and to No. 298 in the global ranking, compared to No. 54 in 2012.

Given such swings and methodological changes, there’s a risk that the Newsweek Green Rankings will lose its credibility and importance — that it simply won't matter to companies and their stakeholders. One sustainability exec who asked not to be identified told me, “We have some concerns about the transparency of the methodology and the seemingly shifting sands of the project, so it isn’t very credible for us. CDP and DJSI get highest marks from us because of their thorough engagement with respondents, transparency of methodology and feedback cycle.”

An injection of cred

And what about Allergan — the leading manufacturer of botulinum toxin, better known as Botox — which emerged as No. 1 in the U.S. listing and No. 2 on the global list? I’ll admit that the company hadn’t previously crossed my radar as an environmental leader. A little research on the company’s website and sustainability report (PDF) revealed that Allergan had a number of impressive initiatives in place, and had received multiple recognitions and awards for its efforts.

The company declined to be interviewed, in large part because it is in the midst of a hostile takeover by Montreal-based Valeant Pharmaceuticals, which, at No. 411 on the global list — well, isn’t that impressive. That in itself offers some intrigue.

According to Corporate Knights, “Valeant is an opaque company compared to Allergan on sustainability disclosure. Valeant does not disclose any sustainability information nor does it have a sustainability section on its website. On the other hand, Allergan is one of the most transparent companies. It discloses its quantitative sustainability performance targets and aligned initiatives and has published a CSR report since 1994.”

If Valeant succeeds in taking over Allergan, this year’s top-ranked company may find itself with a blemish that even Botox can’t fix.