3 Ways to Improve Green Business Rankings

 

From Samantha Buechner and Michael Ellis, GreenBiz

Image source: Shutterstock

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.

 

False Accuracy

 

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.

 

Comparing all companies on one overall ranking list can be misleading since some sector leaders appear as overall laggards. For example, ConEd is 165 in the overall US rankings, but first in the utilities sector. Although industry filters are available, the average subscriber won’t use them. Most users will simply check the top 20 or 50 and not notice that ConEd leads among its peers.

 

Some suggestions:

 

Neither of the issues we point out above are unique to Newsweek’s rankings. One of us (Michael) wrote about similar issues with Interbrand’s Best Global Green Brands report, for example. But since Newsweek’s rankings are among the most widely viewed, Newsweek could set an important precedent by making a few changes:

 

Be less precise. Newsweek should rank companies on a 10-point scale on its three dimensions of environmental impact, environmental management, and disclosure. Ideally, Newsweek would add other categories as well. The final green score could be a weighted average like that described on their methodology page, but just to two significant figures. Yes, this would mean that many companies would have identical scores. But this would more accurately convey how hard it is to compare companies’ practices.

 

Provide more information. Corporate environmental managers can contact Newsweek and its research partners for more detail behind their environmental impact, management, and disclosure scores. But the average consumer cannot. This makes it much more difficult to develop an informed opinion and make associated decisions about a ranked company. Highlighting a few strengths and weaknesses about each company’s performance would be a good first step. ULE 880, a new sustainability standard being developed by UL Environment and GreenBiz, will reward companies for disclosing their component scores, making it much easier to understand why a company fared as it did.

 

Lead with industry rankings. Newsweek should present companies by industry as a default, rather than on an overall list with 500 companies across all sectors. This would make it easier to compare like companies to one another. And rather than highlight the top 15 companies across all 500 US and global companies, Newsweek should highlight the leaders in each industry sector. (The current top 15 includes nine technology companies — and no consumer goods, vehicles, materials, or energy companies.) This would give a much better picture of current best practices.

 

We admire the work of Newsweek, Trucost, and Sustainalytics, yet we hope that they will be even bolder in future rankings.

 

Note: GreenBiz created an interactive graph that illustrates the average green rankings by sector. You can see it here.