06 Jan 2012  Op-Ed

Where Green Corporate Ratings Fail

Many companies receiving high marks in environmental sustainability are hurting the planet in other ways, write professor Michael Toffel and executive Auden Schendler. Here's where green rankings fall short.

 

News Corporation—a multinational media conglomerate that includes BSKYB, Dow Jones, Fox News, 20th Century Fox and Star, among other units—announced earlier this year that it has become climate neutral, meaning that its operations have no net impact on global climate change.

This seemingly impossible feat, claimed by a growing number of companies, is achieved by calculating the greenhouse-gas emissions of the organization's operations, investing in energy efficiency and other methods to reduce those emissions, and purchasing carbon credits to offset any remaining emissions. (Many of these carbon credits are created through Clean Development Projects in China under the United Nations' Kyoto Protocol).

News Corporation's carbon neutral quest was "about changing the DNA of our business," stated its chief executive Rupert Murdoch. The move was applauded by the US government's Environmental Protection Agency, illustrating the widespread belief that environmentally conscious corporations should respond to climate change by striving to yield net-zero carbon emissions.

But just a few months before the announcement, Murdoch and several of his News Corporation subsidiaries came under direct attack for preventing progress on climate change. The nonprofit organization Media Matters for America, for example, declared that "Fox News has done more than any other major news outlet in the United States to sow confusion about climate change." Similarly, Rolling Stone magazine, a well-read US publication devoted to in-depth stories on music, politics, and pop culture, featured Murdoch at the top of its list of politicians or business executives that "hindered progress on global warming." The article noted that "no one does more to spread dangerous disinformation about global warming than Murdoch."

Two of Fox News' influential news commentators, Sean Hannity and Glenn Beck, both reject climate science on their shows, with Hannity proclaiming that "the debate's over. There's no global warming," and Beck referring to global warming as "a discredited scam." The Wall Street Journal, another News Corporation subsidiary, employs columnists who remarked in 2010 that "global warming is dead."

"Two of Fox News' influential news commentators both reject climate science on their shows"

So News Corporation's environmental record is actually quite mixed. But you wouldn't know it from environmental ratings and rankings that claim to highlight the most environmentally proactive companies. News Corporation was awarded the highest rating of "AAA" in the Global Socrates database produced by MSCI ESG Research, a leading rating organization. The Carbon Disclosure Project, a nongovernmental group that encourages companies around the world to disclose climate-change information, ranked News Corporation "#1 in its sector" for disclosing its climate change impacts and gave News Corporation an A-grade for its carbon performance.

Such ratings and rankings are largely based on companies' direct carbon footprint. For example, the Dow Jones Sustainability Index (DJIS), which evaluates the economic, environmental, and social performances of top global companies, primarily utilizes operational characteristics such as pollution levels, regulatory compliance, environmental management practices that affect operations (such as environmental auditing), and stakeholder engagement (such as environmental reporting).

Where rankings go wrong

The main shortcoming of almost every major environmental rating scheme, particularly those that rate environmental leadership, is their failure to address companies' activism. Lobbying, campaign funding, and other such corporate contributions have the potential to greatly influence environmental legislation and should be awarded greater distinction alongside on-site environmental management.

For example, over 1,000 business leaders participate in We Can Lead, a coalition that calls for the passage of comprehensive climate legislation. Similarly, 20 large consumer companies such as ice cream producer Ben and Jerry's and Aspen Skiing Company (where one of the authors of this article, Auden Schendler, works) are members of Business for Innovative Climate & Energy Policy (BICEP), a leading advocacy group calling for bipartisan climate legislation.

Unfortunately, these important activities are glaringly absent from environmental ratings. In a prime illustration of this omission, Apple, a US consumer electronics manufacturer, publicly resigned in 2009 from the US Chamber of Commerce, the largest business lobbying group in the country. "Apple supports regulating greenhouse gas emissions," the electronics company declared, "and it is frustrating to find the Chamber at odds with us in this effort." Despite taking such a bold measure against the powerful Chamber, Apple ranks far below its industry peers in the Green Rankings produced by Newsweek, the second largest weekly news magazine in the United States.

On the other end of the spectrum, British newspaper The Independent recently reported that ExxonMobil contributed hundreds of thousands of dollars to "anti-climate change think tanks." Similarly, the US Chamber of Commerce spent US$132 million on lobbying in 2010 and opposed any proposed climate legislation. And corporate influence will only increase in the wake of last year's "Citizens United" US Supreme Court case, which asserts that corporations have the right to fund campaigns that support or denounce political candidates in elections.

According to Naomi Oreskes and Erik Conway, authors of the widely-praised book Merchants of Doubt, corporate support of the global warming "denial industry" dangerously perpetuates US skepticism of climate science and contributes to the country's lack of policy initiatives.

Broad policy solutions are increasingly important as climate change grows in scope and urgency. According to James Hansen, a climatologist for the National Aeronautics and Space Administration (NASA), climate change is "the predominant moral problem of the 21st Century." In 2007, the Intergovernmental Panel on Climate Change (IPCC), the leading international scientific authority on climate, announced the pressing need to reduce global levels of carbon dioxide by 80 percent to 95 percent below 1990 levels in the next 40 years—actions which, if taken, would yield a 50 percent chance of preventing a dangerous two degree Celsius increase in global temperature that could put millions at risk of drought and flooding.

Therefore, an exclusive focus on voluntary operational greening including carbon neutrality distracts from the far greater need for climate regulation to achieve the dramatic overall reductions called for by climate science.

Rankings are influential

Corporate sustainability rankings are an influential tool that guides consumers' spending decisions, helps jobseekers select employers, improves workplace environment and morale, and informs socially-conscious investments and pension funds. In addition, studies demonstrate that environmental ratings impel poorly rated firms to improve their environmental performance.

Given their leverage, rankings have a responsibility to place more substantial emphasis on corporate political activism. Ratings services like GoodGuide, for example, which score products based on health, environment and social responsibility factors, could take into account manufacturers' political activities. Standards like the ISO 14001 environmental management system and the LEED green building standard, which help to distinguish environmental leaders, should require that participants also engage in the political process or give extra credit to those advocating for environmental policies. If nothing else, these programs should revoke green distinction from members whose contributions undermine such regulation.

By currently failing to include policy advocacy measures, sustainability ratings risk being misleading. News Corporation is headquartered in a LEED building in New York, for example, and at least one of its subsidiaries is ISO 14001 certified. While these actions are certainly impressive, the environmental distinctions they yield are a distraction from more substantial environmental protection, and could even leave companies facing accusations of greenwash—a term that describes the deceptive use of green marketing to incorrectly portray a company as environmentally friendly.

Even some at News Corporation acknowledge that, as a media firm, the company's greatest potential to influence climate change is through its messaging rather than its operations. Several bold statements of note include: "Our greatest impact [is] through engaging our audiences, a billion people around the world," and "We reach out to a huge audience on a nightly basis, and if we can get some messages across these audiences, that's where our true value is."

"Rating systems should take into consideration a company's political contributions, advocacy work, and engagement with nongovernmental organizations"

And yet, in the words of Al Gore, the former US vice president and Nobel Peace Prize winner perhaps most famous for his climate-change documentary An Inconvenient Truth, "Fox News has consistently delivered false and misleading information to its viewers about the climate crisis." Indeed, polls have shown that "frequent viewers of Fox News are less likely to accept scientists' views of global warming" and that just 40 percent of daily Fox News viewers believe that most scientists think climate change is occurring, a much lower rate than daily viewers of other networks like CNN (75 percent), MSNBC (80 percent) and American public broadcasting (NPR radio or PBS television, 87 percent).

Companies that undertake the difficult and costly task of policy advocacy should receive credit for their hard work, while corporations that "game the system" should be penalized. In order to fix this imbalance, rating systems should take into consideration a company's political contributions, advocacy work and engagement with nongovernmental organizations. To facilitate the subjective task of ranking these characteristics, ratings agencies could enlist the participation of environmental nonprofits to determine which activities either advance or hinder environmental policy.

Towards more effective ratings

It's not impossible: some metrics already exist. For example, Corporate Responsibility's 100 Best Corporate Citizens already credits companies that are members of the US Climate Action Partnership (USCAP), a group calling for the US government "to quickly enact strong national legislation to require significant reductions of greenhouse-gas emissions", though this is just one of the 324 factors that enter its ratings. FTSE4Good penalizes its assessments of companies that have "deliberately and consistently misrepresented the scientific consensus on climate change (as represented by the IPCC reports), or attempted to undermine public policy frameworks that aim to reduce greenhouse gas emissions." And ClimateCounts ratings account for support for (or intent to block) legislation that would impose carbon restrictions.

Ratings could reward companies that take leadership positions, such as when Pacific Gas & Electric (PG&E) quit the US Chamber of Commerce, citing its "extreme position on climate change". They could also penalise companies for belonging to organizations that seek to undermine climate-change regulation. Would IBM still be ranked the #1 American company in Newsweek's Green Rankings if the assessment took seriously the fact that IBM is a board member of the US Chamber of Commerce?

Rankings could also account for corporate campaign contributions to politicians who deny that climate change is a problem, as a Climate Action Network Europe report did last year, based on data publicly available from the Center for Responsive Politics. Similarly, Ethical Consumer's ratings penalise companies that donate more than $78,000 to lobbying groups that work against environmental policy, and Covalence's EthicalQuote Rankings accounts for managerial activism in the two (of its 45) criteria that examine companies' support of politicians and lobbying practices.

By undertaking the challenge of adding corporate activism to their database, ratings agencies will gain an important competitive advantage in an ever-growing rankings industry. And, at a greater level, these more accurate and comprehensive rankings might also encourage a new wave of corporate activism and contribute directly toward the ultimate goal: helping to solve the climate crisis.

Michael Toffel is associate professor at Harvard Business School, where he researches the effectiveness of environmental management practices within companies' operations and supply chains, and teaches MBAs and executives how managers can effectively navigate environment challenges and pursue environmental opportunities. He has also served as director of environment, health and safety at Jebsen & Jessen (south east Asia).

Auden Schendler is vice president of sustainability at Aspen Skiing Company and author of Getting Green Done: Hard Truths from the Front Lines of the Sustainability Revolution, available in English (PublicAffairs) and in Chinese (Dongbei University of Finance and Economics Press).

Reprinted with permission from the authors. This article first appeared in Chinadialogue.net.

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Comments

    • Joe Seydl
    • Analyst, Wells Fargo

    Prof. Toffel,

    This is an excellent article. I've been skeptical of sustainability rankings for some time. The most notable odd experience I recall is when BP ran a commercial add boasting about its commitment to research and development in the alternative energy space literally months after the company wrecked the entire gulf coast with perhaps the largest oil spill our nation has ever experienced.

    All of your recommendations for more due diligence in terms of rankings are warranted. They will be tough to implement, though, since humans are, by definition, better at ranking things through "hard" numbers than through "soft" attributes. This is why standardized test scores are so important for college and graduate school admissions; it's much easier to assign a "hard" number to an applicant for comparison purposes than to dig into an applicant's history to find the "soft" attributes. Similarly, it's much easier to assign a "hard" net greenhouse-gas emission statistic for a company than to research that company's true commitment to fixing climate change. This is a huge problem, in my opinion. We shouldn't be so lazy by assigning numbers to everything; sometimes it is the "soft" attributes that matter most. And in this case it is the "soft" attributes that tell the true story of News Corp.'s commitment to resolving climate change.

     
     
     
    • Phil Hyland
    • Retired

    An excellent article. A reminder of the basics. If you have metrics which are not based on hard numbers then they will be manipulated. The practice of purchasing credits will let corporations behave in an environmentally poor manner because they can 'pay' for poor behavior and as such do not feel a need to improve. See "Predictable Irrational" for a good overview of this type of behavior.

     
     
     
    • Anonymous

    I wholeheartedly disagree. Corporations should not be "required to advocate" one way or the other to measure their Green ranking. Additionally, singling out FOX and, by extension, the news media for their corporate ratings is simply a way to take issue with an opposing viewpoint.

    Assessing corporations that do not produce anyting tangible does little while providing cover for another corporation (Apple) that may very well "talk the talk" but then have real tangible environmental issues with the way they produce their product.

    What is worse, a company that buys carbon credits and operates in a LEEDS certified facility that doesn't advocate for Global warming or another that makes gestures and takes a corporate stance to overcome some issues that put them in the middle of the pack relative to their peers concerning their Green Corporate rating?

    I do not mean to single out any corporation here and I am only citing those in the opinion posted here.

     
     
     
    • Robert Allender
    • Director, Energy Resources Management

    In the second paragraph the reference to "any remaining emissions" might mislead the uninformed, who could think there may be none remaining. It would better to refer to "all remaining emissions". A company like News Corporation can in today's world only make a modest reduction in total emissions by efficiency and related efforts. To achieve 'carbon neutral' status the majority of their GHG emissions will need to be offset by acquiring carbon credits.

     
     
     
    • Anonymous

    Setting aside the malicious amount of attention focused on a single company and the 'supporting' citations from (1) an unabashedly liberal magazine, (2) an organization whose own founder described its strategy as a "war on FOX," and (3) a documentary that has been widely criticized for its own looseness with facts and depictions, I disagree with the authors' suggestion that political advocacy should be included in sustainability ratings. Existing ratings attempt to score objective, measurable steps taken by companies to address their own environmental impact. Blurring these ratings by including activities like political contributions (which may or may not have any environment-related motivations) would only add confusion and impart power to those who subjectively evaluate corporate advocacy activities. Politicization of sustainability ratings would make corporate performance on sustainability even more ambiguous than it a lready is and risk the disengagement of companies who believe they are being unfairly evaluated. It would be better for those who compile the ratings to continue to refine their ability to measure whom is 'walking the walk' than to become distracted with the subjective task of evaluating who is best 'talking the talk.'

     
     
     
    • Jack Lampka
    • Environmental Program Manager, Large IT corporation

    To pick up on the previous comment from Anonymous, we need to measure "walking the talk". "Walking the talk" covers not only how the products and operations of a company are environmentally sound, but also how the company influences and educates its stakeholders (customers, employees, governments) to be more environmentally sound. If a company, like News Corporation, claims that its operations are carbon neutral, but denounces climate change, through its Fox News commentators, this is clearly not "walking the talk". Interesting is here, by the way, the contradiction ... if global warming doesn't exist according to Fox News why would News Corporation care about being carbon neutral? I guess this is a whole another topic.

    Back to corporate ratings. Few already mentioned how difficult and potentially subjective it is to measure companies' political and societal activism. But as the authors pointed out, there are examples how this can be done. I see these improvements as an evolution of the rating methods where we are moving towards a more comprehensive system that measures "walking the talk" by taking into account not only how and what companies produce, but also how they influence their stakeholders. Disclosure-only ratings are not sufficient anymore: it sounds ridiculous, but if a serial killer had disclosed his actions, he would have scored high on disclosure-only ranking.

     
     
     
    • Bahar Gidwani
    • CEO and Co-founder, CSRHub

    Great article! Thanks for focusing on this aspect of the CSR ratings field. We at CSRHub believe that information on corporate activism is essential to gaining a robust view of corporate performance.

    We use aggregated ratings to try to predict and prevent ratings failure. Because of the breadth and depth of our sources we believe we get a better view of corporate behavior than is available elsewhere.

    Notably, in the News Corporation case:

    • We have 23 sources of data that rate its behavior. We have another 115 sources of data that don't comment on News Corporation. Their absence also contributes to our analysis.

    • Our categorical break-down shows clearly that News Corporation has been active on governance and environmental issues, but not on broader social goals.

    For more on our analysis of News Corporation, its ratings, and its political activities, see our recent CSRHub blog post (http://bit.ly/xscZIL).