Are Sustainability Ratings Sustainable?

 

Source: dreamstime.com

Several days ago, I wrote about the strange case of the Dow Jones Sustainability Index and its puzzling choice of Haliburton for inclusion in the index for 2010/2011 to replace BP.  But the DJSI isn't the only group to release a recent update.  In recent weeks there have been a series of major ratings announcements, including from the Carbon Disclosure Project, FTSE4Good, Newsweek, CRD Analytics (Global 1000 Sustainable Performance Leaders) and Corporate Knights (Global 100 Most Sustainable Companies). 

To cap it all off, SustainAbility released Phase Two of its review of the universe of corporate sustainability ratings.  SustainAbility launched this particular research effort back in May (Phase One White Paper), in order to "better understand the universe of sustainability ratings and to influence and improve the quality and transparency of such ratings".  The review is intended to have four parts, with the most recent offering providing an inventory of more than 100 global rankings as well as the results of a survey of over 1,000 "sustainability professionals".  (Later Phases are also scheduled to benchmark an illustrative set of ratings using SustainAbility's own methodology.)

SustainAbility has launched their review just as the ratings are being taken more seriously and as their credibility and transparency are being called into question.  SustainAbility's timing is good given the comments I highlighted in my last post regarding DJSI's puzzling selection of Haliburton.  Looking beyond this one issue its also good given the growth in the number of sustainability related ratings, from 21 in 2000 to 108 today. 

Interestingly, SustainAbility highlights the discrepancies around so many ratings dropping BP in the aftermath of the Deepwater Horizon disaster and yet failing to note the conditions that preceded it (and BP's other major incidents in 2006 and 2005) - such as inadequate safety culture and poor deepwater drilling practices.  This cuts to the quick of many claims regarding sustainability ratings, i.e. that the focus on sustainability provides a leading edge look at the future prospects of the rated companies.  This clearly isn't the case with BP.

While SustainAbility says that it won't be explicitly ranking the ratings, I wanted to look at how they did compare.  I am most interested in energy companies and in those ratings that address them (and that I can access easily, so for example, FTSE4Good, which no longer appears to make its complete holdings list public, was excluded from my comparison).  I've only compared five ratings, including:

• DJSI - having picked on DJSI for one entire post, I don't need to say anything more about them here;
• Global 1000 Sustainable Performance Leaders - developed by CRD Analytics, a U.S. provider of sustainability analytics (I only concerned myself with the top 150 companies);
• Global 100 Most Sustainable Companies - developed by Corporate Knights, a Canadian magazine that looks at corporate sustainability issues, this rating has been around since 2005;
• Carbon Disclosure Leadership Index -developed by the Carbon Disclosure Project, now in its tenth year, the index highlights 104 companies (out of 760) with the highest disclosure scores;
• Newsweek's Green Company Rankings - now in its second year, Newsweek's rankings look at 500 U.S. and 100 global companies.  

These five ratings included more than 65 energy companies, including oil& gas and utilities.  Interestingly, for a list of so-called sustainability companies, only one renewable energy company - Vestas - was included (although, many of the oil & gas and utilities do have some level of renewables investment).  The following table provides a summary of the companies that were ranked by two or more ratings.  The "champions", i.e. those ranked by three or more ratings, are highlighted in green.  Only two companies, Royal Dutch Shell and PG&E, were highlighted by more than three ratings.

 

Companies	Sustainability Indices
	DJSI	Global  1000	Global 100	CDP    Leaders	Newsweek
BG Group PLC	√		29
Centrica PLC	√		31	92
Chevron				80	86
Duke Energy	√		70
Enbridge		29	16
Encana	√		25
Endesa	√	136
Energias de Portugal	√			90
E.ON AG	√				93
Enel SpA	√				91
ENI SpA	√				80
ExxonMobil		48			70
Hess Corporation		60		90
Iberdrola SA	√	37	55
Neste Oil Oyj	√		85
PG&E	√		2	90	66
Petrobras	√	89			84
Repsol	√	137		88
Royal Dutch Shell		106	20	89	88
Sasol	√	122
Spectra	√			94
Statoil	√	130	67
Suncor		74	40
Total	√				62
TransCanada	√		65
Vestas Wind Systems	√		42

Note: In most cases, numbers denote rankings within each rating.  CDP uses scores for disclosure performance rather than ranking companies. DJSI does not rank included companies.

 

A number of things strike me most about the ratings, including:

• The discrepancies between rating systems.  For example, PG&E is ranked second in the Global 100 rating but slid to 66th in Newsweek's Green Company rankings.
• How high a group of oil & gas and, in many cases, coal-fired utilities did relative to other companies in the global economy. 
• How few (only 1) renewable energy companies were among the sector's sustainability leaders????????     

So what are the ratings measuring sustainability or who has the resources and inclination to package the relevant information?  I for one will be interested to see what SustainAbility digs up as they continue their review.

 

 

Comments

[Tom Konrad]

I think a major factor in the lack of RE companies in the list is simply that the lists focus on large cap companies. Vestas Market cap is about $19B. The next biggest pureplay I know of is First Solar, at $11.5B. Although that market cap might be enough to get it into a list of 500 or 1000 large companies (FSLR is in the S&P500 after all) it was not enough to get it on most of these lists, which include other criteria such as revenues to decide who gets ranked at all (at least this is true for the Newsweek list, which I recently looked at in detail: http://bit.ly/bjbs92

[christian louboutin]

I'd like to read more from you.

[chrisitian louboutin]

SustainAbility has launched their review just as the ratings are being taken more seriously and as their credibility and transparency are being called into question. SustainAbility's timing is good given the comments I highlighted in my last post regarding DJSI's puzzling selection of Haliburton. Looking beyond this one issue its also good given the growth in the number of sustainability related ratings, from 21 in 2000 to 108 today.

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