Are These Top Rated Businesses Really Sustainable? Maybe?
Here comes a new list of the “most sustainable corporations in the world,” and it’s a doozy.
Two of the top five companies on the 2013 Global 100 list are oil and gas companies:
3. Norway’s Statoil ASA
4. Finland’s Neste Oil.
Read farther down and you find:
No. 81. Suncor Energy,
Suncor was the first company to develop Canada’s oil sands, source of some of the dirtiest fossil fuels on the planet.
A notch below is:
No. 82. Unilever
Unilever is the consumer products giant whose sustainable living plan embodies the broadest and deepest commitment to corporate responsibility of any big, global company.
So what’s going here? And what does this tell us about corporate sustainability rankings and their meaning, a topic that never seems to go away? [See my blogpost Corporate sustainability: Who's up, who's down, who cares?]
The first thing to know is that this list comes from Corporate Knights, a Toronto-based publication that calls itself “the magazine for clean capitalism.” I’m an occasional contributor to the magazine. In fact, I profiled the No. 1 company on this year’s list, a Belgian firm called Umicore, which we’ll get to in a moment. Last year, I wrote about the 2012 Global 100 list in GreenBiz under the headline: Is This the World’s Best ‘Greenest Companies’ List? I wrote then, and I still believe, that unlike some other rankings, this is a well-conceived list with integrity, transparency and clear metrics.
The second thing to know is that, taken as a group, these companies may well be more sustainable than the universe of companies from which they are drawn–a global group of about 4,000 companies. Interestingly, Corporate Knights has backtested the Global 100 against its benchmark, the MSCI All Country World Index (ACWI), and found that it outperformed the benchmark since 2005, when the list began. The company says:
Over this period, the Global 100 offered investors a 59.89% total return, compared to 50.39% for the MSCI ACWI, resulting in 9.5% outperformance.
So there’s at least an indication, although by no means proof, that the Global 100 companies are better managed and more forward-looking than their counterparts.
So what’s the problem with the list? The trouble, as best as I can tell, is that this list, like the others, tries to do something that’s difficult if not impossible to do with any rigor–that is, to compare companies across industry groups that are so radically different that meaningful comparison is all but impossible.
Think about it: How can you measure the sustainability of technology firm, a retailer, a bank, a mining company and a manufacturer against one another?
I called Doug Morrow, vice president of research at Corporate Knights Capital, to ask about this, and he acknowledged that the cross-industry problem is a tough one. Corporate Knights addresses this problem by measuring each company within its own industry, and then doing the 1-100 ranking based on how they measure up against their industry peers.
“Banks are not mathematically compared against oil companies,” he told me. “They’re competing against each other in silos.”
The perverse effect is to reward not-so-good performers in laggard industries and penalize the leaders in industries that, as a whole, are taking sustainability seriously.
As Doug put it: “In some industries, the industry mean is going to be lower than others. If you happen to be a company with outstanding performance and your peers are way behind, you’re going to come out like a star.”
This may explain why the Norwegian and Finnish oil companies rank so highly; evidently, they are doing a lot better than, say, ExxonMobil or Chevron. By contrast, Unilever faces tough competition from the likes of Danone and Campbell Soup (which made the list) and Procter & Gamble (which didn’t).
But, just to show you how crazily inconsistent this list-making business has become, only one of the top 4 companies on Newsweek’s 2012 green global rankings — Santander Brasil, Wipro, Bradesco and IBM — made it onto Corporate Knights’ Global 100. And not one of the top 5 on the Corporate Knights’ list made the Newsweek rankings. (National Australia Bank, No. 5 on Newsweek’s list, did make both rankings.).
So what’s the point? Well, assuming the lists have some validity–and I trust that they do–they provide internal and external rewards to sustainability professionals in big companies. Press releases were flying today from Cisco, Prologis, Ricoh, SunLife Financial, which made the Corporate Knights list.
The rankings can also call attention to little-known sustainability leaders like Umicore, the Belgian company that has a remarkable turnaround story to tell. Here’s how my story about Umicore begins:
For much of the 20th century, a company known as Union Minière du Haut Katanga exploited the rich mineral resources of Belgium’s colony in the Congo. The company mined copper, tin, cobalt and precious metals, and shipped them to its silver and lead refineries in the Hoboken section of Antwerp, Europe’s second biggest port. This dirty business took a hit when Union Minière’s assets in central Africa were seized by the government of Zaire in 1968, forcing the company to seek new mines.
The company, now called Umicore, is still mining and refining – but instead of extracting metals from the earth, it recovers them from the discards of the industrial economy: electronic waste, catalytic converters, rechargeable batteries, and residues from copper and zinc smelters. The Hoboken refineries have been shuttered, and in their place is what Umicore calls “the world’s most advanced, largest (116 hectares) and cleanest precious and specialty metals refining, recycling and recovery operation.”
The extreme makeover in Hoboken has helped Umicore reach the top of Corporate Knights’ 2013 list of the Global 100 Most Sustainable Companies. It’s part of Umicore’s top-to-bottom transformation from traditional mining company into an innovative technology firm that operates at the frontier of metallurgy, chemistry and materials science. Today, the company focuses on clean technologies, including emission-control catalysts, materials for rechargeable batteries and photovoltaics, and advanced recycling.
You can read the rest here.
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