As corporate responsibility becomes ever more complex and wide-ranging, issue-specific comparisons of companies are a much better way to go than the overall 'green' rankings and 'responsible' indexes, argues Toby Webb
I would argue that, if you work in corporate responsibility for a large company, you probably do spend too much time on general rankings systems.
Before I explain why I think this, there is a legitimate question to ask here.
What should be the role of the sector or overall business benchmark in corporate responsibility strategy?
Not easy to answer.
The Dow Jones Sustainability Indexes have done much to encourage progress in the field. Of that there’s no doubt.
The BITC CR Index and FTSE4Good one can look at with a similar view.
But there surely will come a time, and I hope soon, when we will look at companies by issue, not by industry or worse, by turnover/net profit/employee numbers.
An example of misleading, yet also slightly useful benchmarking, comes in the form of the recent green rankings by Newsweek, the struggling US weekly.
Let’s start with the positive points.
The Newsweek ranking, published a couple of months ago, does provide a useful list, in its upper echelons, of companies doing good work on the environment.
Anyone sensible would struggle to argue with, say, the top ten or even thirty companies being highlighted as environment leaders.
By that I mean these companies mentioned by Newsweek deserve to be praised. Just not in specific order.
Many, including particularly HP, the winner, have done great work over many years.
But that’s really where the usefulness of the list ends.
It’s a list of companies, the top ten to thirty of which deserve considerable praise.
But that doesn’t mean you can compare them, which the list implicitly tries to do.
Comparing HP with a company outside its sector (or even within it) on overall CR is pointless.
Why? Because the issues companies in different sectors tackle are so varied and company specific. Even in the same sector, it's pretty hard to do.
How can one compare an HP supplier in Mexico with a Dell one in Malaysia? You can’t. The operating environment and issues are different.
You also can’t compare companies OVERALL, accurately, because CR is such a young disciple, covering so many complex issues.
We just don’t know how to do this yet, if ever we will.
Attempts to do so may satisfy some innate human desire to make simple sense of complexity.
But that doesn’t make doing so in any way accurate, useful or desirable.
Other rankings suffer the same problem.
Even comparing companies by sector is only useful in listing some companies doing good, or better, work, as the DJSI list does.
What WOULD be useful, and where rankings need to move towards, is comparison by progress on specific issue, highly relevant to all firms included.
What do I mean by this? Well, how about on palm oil, or fish, or carbon, for example? Progress on a specific, complex issue on its own is much more interesting, and likely to drive progress.
WWF recently compared companies with palm oil liability, and ranked them on their responses to the issue.
Not perfect by any means (I am still trying to find out their methodology, whether it was by policy or survey response, both, or what) but better.
Or how about by carbon emissions and how much they have reduced them by compared with output?
The Carbon Reduction Committment, coming into force in the UK right now, plans to do that in about a year’s time. Not perfect I agree, but better.
The best way to do such a comparison right now, I think, is by health and safety data.
Why? Because it’s where we do have more historic data, and because some UK investors have worked out a mechanism (again not perfect, but useful) by which companies can submit data, and be ranked on it for comparable and historic performance.
If better utilised, this particular mechanism can be expanded upon, particularly as access to data internally on other, specific issues, increases in big companies.
The issue-specific example I refer to is called the UK Corporate Health & Safety Performance Index.
It was created by investors such as Morley Fund Management and Insight Investment, and designed to create useful, comparable data for investors on corporate liability risk.
The idea of course, was to both educate the investment community on non-financial risk, (or risk that may only be financial later, when cases are tried or fines issues, and reputations besmirched) and companies on relatively comparable performance.
The Corporate Health & Safety Performance Index (detailed here in this downloadable policy report I co-authored in 2008) was never pushed properly by the UK government. The take-up remains disappointing. But the model is potentially sound. And it’s been, and is being copied, on issues such as palm oil or carbon.
These are the future of comparison related rankings. While they are being tested and developed, as a manager you should support them, and get your company involved early.
As the leading companies in CR will tell you, early adoption is eminently useful later on.
And in the meantime, perhaps spend a little less time on the dying breed of all-encompassing rankings, and your place in them.
Their days are surely numbered.