Mallen Baker argues that environmental rankings often fail to seek out innovation

Sometimes a blunt tool is what you need. And there’s no doubt that rankings that claim to compare companies on the basis of their social responsibility or their green credentials are a blunt tool. Every single one.

The latest is the Newsweek 2009 Green Rankings. It claims to rate the top 500 companies on their “actual environmental performance, policies and reputation”.

That is a big promise. Why? Because the problem with such rankings is always the impossibility of making comparisons. How do you compare an oil company with a bank? Every basis for measurement you choose can be shown to be invalid.

The trouble is that the end result – the league table – does have power.

Rankings provoke intense interest. I remember this from well over 10 years ago, when the first Business in the Community environment index came out. Suddenly chief executives were interested, because they wanted their companies to be at the top, and well clear of their competitors. They weren’t much interested in excuses or details.

That is the power of the ranking. And that means that if the authors get things substantially wrong, they can do real damage.

The Newsweek list has a lot of technology and financial firms at the top. Its compilers admit that this is because these sectors inherently produce fewer emissions.

What then does that tell us? That the best-run company in the world will not make the top of the list if it happens to operate in a sector that inevitably has higher emissions? And when you think about it, those are precisely the sectors where you want those companies to operate because that’s where their commitment to sustainability can make the most difference.

More debate

Newsweek tries to deflect criticism in a number of ways. First, it says the list will provoke debate, and it welcomes this. The effect of making a prediction of criticism is to blunt that criticism when it comes.

Second, it has put together a distinguished panel of big names. One wouldn’t want to argue with the credentials of the people they have amassed.

Third, Newsweek has three components to its methodology, each bringing inputs from highly respected partners.

One component measures the company’s environmental impact based on a huge number of different factors. Too many factors, in fact, and this input is what puts the list onto shaky ground from the start.

This effect is then compounded by the 10% weighting given to the company’s “reputation score”. This is derived by a survey of business and corporate responsibility folk around the world. Do we seriously think that these people have a considered view of the reputation of 500 individual companies? No, we don’t.

The final part comes from an analysis of policies and approaches – which is possibly the only part you can make valid cross-sectoral comparisons against.

But never mind the process, if the result fails a very simple intuition test, then all the complicated component parts are of no value. And for that not to be the case, one would expect to see well-run companies in all sectors in the very top of the index.

Some activists have criticised the rankings from the opposite end. They contest that no oil company should make it into the top 500, and neither should firms in a whole bunch of other sectors that are equated in their minds with irresponsibility.

That is a zero-sum game. With that perspective, there is no point in running such companies well – because they are beyond the pale from the start. You might conclude you should get on with trashing the environment as quickly as possible.

And that might as well be the message from the Newsweek rankings.

For any such ranking to be meaningful, it must measure something about which companies make a choice – how they play the cards they have been dealt. I want talented leaders working to reduce the energy intensity of concrete and steel production. I want the best and the brightest looking to produce a new business model for air travel. These are the things that will make a difference.

And I want the innovative leaders to show up in the rankings. Not dismissed because they are in the wrong sector. Or invisible because they are the wrong size.

When is a blunt tool too blunt a tool? When it uses a very, very smart system to achieve dumb results.

Mallen Baker is founder of Business Respect.
mallen.baker@businessrespect.net
www.businessrespect.net



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