Another week in corporate responsibility reveals another list of “most” sustainable companies. But given the huge differences between the companies and where they operate, are such rankings really useful?
Management & Excellence, a Spain and Brazil-based ratings company, has produced again its annual list of the most sustainable oil and gas companies.
M&E says that, according to its findings, the most sustainable oil company is the Brazilian state firm Petrobras.
The “compliance” scores of the companies, say M&E, are as follows:
1. Petrobras 92,25%
2. Total 91,21%
3. BP, StatoilHydro 89,15%
4. (empty due to above dual ranking)
5. Shell 87,86%
6. ENI 78,55%
7. Repsol 74,68%
8. OMV 73,39%
9. Chevron 72,87%
10. ConocoPhilips 72,35%
11. ExxonMobil 67,96%
12. Pemex 66,93%
13. Marathon 66,67%
14. Lukoil 55,81%
15. ENAP 40,31%
16. Gazprom 40,05%
M&E makes its money from selling its research, at more than €5000 per report. The company says the buyers are the oil and gas firms, NGOs and investors.
The ranking methodology comes from a wide variety of sources. Some 387 data points are used, apparently.
M&E says that the companies are scored on “compliance” with “387 accepted international standards in sustainability, corporate governance, social responsibility, ethics and transparency”.
The guidelines the researchers use are taken from: “institutions such as Securities and Exchange Commission, the European Commission, Sarbanes-Oxley, national laws, Dow Jones Sustainability Index, OECD, industry benchmarks, Global Reporting Initiative, International Labor Organisation, ISO, the Extractive Industries Transparency Initiative, reserves accounting, Global Compact, Millennium Development Goals, and others”.
It all sounds impressive. But such lists raise questions about whether one can make real, useful analysis of companies on this basis.
With so many variables, can one honestly say that Petrobras is a better sustainable bet than say, Marathon?
That leaves aside the debate as to whether oil companies can even be called “sustainable” since they produce a non-renewable resource and invest little in renewable energy.
Petrobras has some admirable policies on supply chain sustainability, but then Marathon has done much to be a better corporate citizen in dodgy countries such as Equatorial Guinea.
Who is better?
More importantly, is this the right question to be asking?
Both companies are oil and gas firms, but that appears to be about all they have in common. These companies above operate in very different markets, with completely different risk issues in many ways.
And how their sustainability policies affect their ability to operate and grow will surely depend hugely on their operating environment.
An M&E spokesperson says they believe such rankings are useful for the companies themselves so they can benchmark themselves against each other on sustainability issues.
They claim their report is useful for investors as a source of “sustainable information”. M&E says it tries to make the criteria it uses “more or less equal” for the companies. Oil companies, NGOs and investors all buy the report, they say.
Rory Sullivan, head of investor responsibility at Insight Investment, the asset manager of the Halifax and Bank of Scotland group, disagrees that such information is useful for investors in oil and gas companies who are concerned about sustainability risk.
““For companies, these types of studies/benchmarks may have some value for allowing the company to identify how it compares with its peers” he says, but “we don’t find these indices at all useful for our needs as an institutional investor”.
This is because, according to Sullivan. “The conflation of different aspects of performance in a single indicator does not make sense”.
Sullivan notes that governance performance indictors are vastly different from environmental issues or health and safety performance.
Comparing the two is unhelpful, he says, since doing so is “trying to compare disconnected and unrelated measures in a single benchmark”.
Further, Insight is concerned that such broad rankings around a term as vague as “sustainable” says little about how companies deliver on strategy, the context of the sector or corporate ability to deliver sustainable projects or shareholder value.
Further, says Sullivan, it is not clear that compliance with standards equates to good social and environmental outcomes.
Finally, argues Sullivan, from an investor point of view: “Company performance on these, as with any social, environmental or governance issue needs to be seen in the light of the company’s geographic exposure and activities. A standardised benchmark that does not explain how these factors influence company scores is meaningless”
Other investors tend to agree, and at least one of the companies ranked in the top five by M&E told Ethical Corporation it paid little attention to such rankings, preferring to focus on internal performance.
Seb Beloe, head of SRI research at Henderson Global Investors says that while there is something inherently appealing about such rankings, “they are not terribly interesting” for investors concerned about sustainability risk.
Daniel Litvin, director of Critical Resource, a consultancy which advises the oil and mining industry, points out that "metrics on sustainability are the holy grail for business, but most desk analysts are miles away from being able to effectively quantify sustainability and its link with shareholder value". Most of the interesting work in the oil and gas sector, says Litvin, takes place at the project rather than the group level, where data is difficult to get at.
So is the sustainability/CSR movement is well served by trying to rank such companies so definitively in these early days of considering non-financial risk?
Clearly there is a danger that such ratings could push companies to tick boxes to “stay in” rather than focusing on improving their businesses from within. After all, many large companies have stated that part of their CSR goal is to remain in existing rankings and indexes.
The concern is that the compliance tale could wag the CSR dog in companies with limited resources, making them focus on external indicators over internal research, innovation and outcomes.
Perhaps the right question to ask is: which company has improved the most on their past performance without moving the measurement goalposts?
That doesn’t make the companies particularly or easily comparable, but it would help give us a better idea of who is moving in the ‘right’ direction quickest.
Meantime, those interested in business sustainability measurement are perhaps stuck trying to figure out if comparing a Norwegian oil and gas company to a Mexican one is really that helpful.