Future Energy

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.

 

 

Searching for Energy Nirvana?

Source: Rock Merch Universe

Last week, writing in the Cleantech Blog, Richard Steubi asked if "In the wake of the BP oil spill in the Gulf, is this time different? Will the U.S. finally be able to change its stance on petroleum? Will the petroleum industry itself be irrevocably altered?" (See The Petroleum Industry: Past the Tipping Point?, July 5^th)

He proceeded to answer the question with a resounding no, laying the blame on "ineffective posturing and inane bickering in Washington", which he concludes is driven by the vast amounts of cash that the petroleum industry is willing to spend to defend the status quo.

[Any discussion of U.S. energy policy has to include current efforts to craft some kind of climate bill - any kind of climate bill.  Pew Center's Eileen Claussen for one seems to have accepted that the best that can now be achieved is a bill that caps only utility emissions.] 

Steubi's skepticism leads him to look for change as a result of energy prices and from their he begins to riff off of Jeff Rubin's arguments, that in a world of Peak Oil its only a matter of time before oil prices are back in the triple digits.  With the return of $150 plus oil, Rubin sees the need for a re-engineering of the global economy, driven not by policy makers in Washington (where they can't) or Ottawa (where they won't) or elsewhere, but by the micro-economic decisions that businesses and consumers will have to make to allow them to adjust to the market for declining supply.

Both Steubi and Rubin see a silver lining in the coming of Peak Oil -and the high energy prices that would accompany Peak Oil.  A silver lining based on their view of a more sustainable global economy, including:

• Reversal of the globalization of manufacturing, bringing manufacturing jobs back to North America and Europe;
• Emergence of local economies, including more farmers markets (???); and
• Greater investment in national infrastructure, particularly public transportation infrastructure.

Jeff Rubin develops this theme in his book, Why Your World is About to Get a Whole Lot Smaller: Oil and the End of Globalization.  And since I have not yet read it, I have to temper my comments.  However, a couple of thoughts do jump out at me. 

First, while I can see how a partial retrenching of globalization away from the current energy-intensive model may make for a more robust world (i.e. more resilient to spiking oil prices, reduced trade imbalances, particularly between the U.S. and China), any judgment of greater sustainability may only be from the point of view of the western economies.  A significant loss of manufacturing might not look like a sustainable path to China.

Second, how much manufacturing would really come back in the face of increased energy prices.  With dramatically lower labor costs available in China and other Asian economies such as India, Bangladesh, Burma, etc.  it might take a very large energy price differential to lead to repatriation of manufacturing jobs. 

Finally, while their arguments sound kind of plausible if you say it all fast, the transition costs to a less globalized economy could be devastating - trillions of dollars have been spent over the past few decades in China alone to build up the manufacturing capability they currently enjoy.  That would not be easily reversed.

So cycling back to Steubi's original question(s) about the effect of the BP Deepwater Horizon disaster on the petroleum industry, I would have to suggest that yes, the industry will undoubtedly be affected.  I would expect to see significant changes in operating practices and in the risks drillers are willing and/or able to take on.  However, in the face of reduced potential supply and higher costs, the real question should be whether our society, in which the petroleum industry exists, can change.

Will we be capable of developing the alternative energy infrastructure, be it efficiency, renewables, nuclear, etc. that would allow us to meet the challenge of significantly higher oil prices when they come.  If we are unable to anticipate change, then I think we will pay a high price.  Unprepared, we would enter a very painful transition period on the way to Rubin's sustainability nirvana.

I don't disagree that we could find nirvana - but I don't think we can sit back and wait for higher oil prices to take us there.  As a result, I think I am a lot less sanguine about the current inability of Washington, Ottawa, etc. to lead the energy policy changes that will be required. 

Illustrating the Need for Sustainability: 100 Places to Remember Before They Disappear

After 15 years of working with companies and sometimes governments, helping them to manage the sustainability and the issues that affect sustainable development, I still oftentimes find it a fuzzy concept.  So I really appreciate it when something comes along that helps even me to put a real image to the issues. 

This time, that image has come from (for me) a surprising place.  Not too long ago Newsweek released a special issue that looks at some of the places that could disappear or be radically changed as global warming exerts a growing influence on the world in which we live (100 Places to Remember Before They Disappear; Newsweek Special Issue, Spring 2010). 

While I would have liked to see a stronger link between global warming and the descriptions that accompany each picture/location, the magazine is a great illustration of why environmental sustainability and sustainable human development is needed.

"To read this book is to be reminded that, like the tea bushes, human beings also occupy a narrow ecological niche .... the distribution of human settlements around the globe is crucially dependent on specific patterns of rainfall, sunlight, temperature and wind, all of which will be affected by global warming.  Mountain glaciers may seem like a remote concern to most city dwellers, but if you live downstream from them - in Southern California, say - it matters a great deal how and when they form and melt."

And unlike many pictorial statements of whats at stake, Newsweek demonstrates that it is not just natural ecosystems that are at risk.  With photos of many of the worlds most populous or beautiful urban settings, they make the point that global warming poses risks to  the places we have constructed and live in - indeed to civilisation itself.

"This book isn't about atmospheric chemistry or carbon emissions; its about people, the places they inhabit and the places they have made, and a heart-tugging evocation of what we may lose if global warming proceeds apace ... this book is a reminder of what's at stake if we are complacent in the face of a rapidly changing climate."

And the photos illustrate some beautiful locations ...........

 

The Maldives                                                 Paris, France                                 Ontong Java Atoll, Solomon Is.

Newsweek is to be commended for publishing such a high profile look at just what is at risk as a result of the current official paralysis regarding efforts to reduce emissions and other carbon releases to the atmosphere. 

[Well I'm slow, but I get there eventually.  I still appreciate Newsweek's effort at publishing the 100 Places ... issue but it seems that its based on a project by a Danish media group Co-Life developed for and presented at the Copenhagen COP meeting last fall.  The main website for the initiative, including a place to by the books and posters, is here: 100 Places to Remember Before They Disappear.]

McKinsey Talks to Executives About Sustainability

Today I put together a post on the blog at my company website, Eos Consulting, that you may find of interest.

Yesterday, the McKinsey Quarterly, the in-house journal of McKinsey Management Consultants, came out with its latest survey of global executives - this time looking at how companies are defining, managing and communicating about sustainability.    In How Companies Manage Sustainability: McKinsey Global Survey Results, the authors describe the results from their survey of more than 1,900 executives in corporations around the world.

Catch the rest of the story here.

Achieving Nirvana .. oops, Sustainability ... or Something Like That

Source: Fast Company

Looking around these days, its hard to be optimistic for the future ..... global climate change, ocean acidification, declining freshwater resources, deteriorating world fisheries, growing concentrations of environmental pollutants, peaking oil, concerns for agricultural productivity .... and the list goes on.  In a world with 6 billion people growing inexorably to 10, a little stress is to be expected, but are we doing enough to manage them?

Yvon Chouinard doesn't appear to think so.  In a recent interview with Fast Comapny magazine (see Patagonia's Founder on Why There's "No Such Thing as Sustainability", July 2009) Chouinard had this to say:

“If you keep your eyes open as you travel around, you realize we are destroying this planet. I'm very pessimistic about it."

"Patagonia now exists to put into practice all the things that smart people are saying we have to do not only to save the planet but to save the economy."

"In the broadest sense, working on causes rather than symptoms. If you get down to the real causes, a lot of our society's biggest problems are happening because we're destroying the planet. As we cut down the forests in the Congo, diseases start jumping over to humans. The Pentagon says new wars are going to be resource wars. We're a long way from having a sustain-able society. That's why One Percent for the Planet gives strictly to environmental causes. You can give money all day long to symptomatic things and you're not going to solve the problems."

  "There's no such thing as sustainability. It's just kind of a path you get on and try .... each day try to make it better.”

Mr. Chouinard talks about working on the causes not just the symptoms.  And while sustainability is generally considered to be a balanced focus on environment and social concerns and the economy, I interpret his concern for focusing on the "real causes" to mean a focus on the environmental aspects.

A recent article in the Harvard Business Review seems to agree with this approach, looking at how a company can become environmentally sustainable - and coming closer to Chouinard's "real causes" (see Why Sustainability Is Now the Key Driver of Innovation, September 2009) (Note: the link is courtesy of the NYTimes Green Inc. blog).

Ram Nidumolu, C.K. Prahalad and M.R. Rangaswami look at the benefits of environmental sustainability (e.g. cost reduction, increased revenues, new markets, etc.) and outline a five-stage pathway for companies to follow.  They conclude that sustainability is now the key driver of innovation among corporations today.  Briefly, their 5 steps include:

• Viewing compliance as an opportunity;

• Making value chains sustainable;

• Designing sustainable products and services;

• Developing new business models; and

• Creating next-practice platforms.

The article is good but if you are trying to figure out where to get started, it does tend to look at the issues from 60,000 feet. 

Losing a bit of altitude (but not much), the CERES Principles provide a "code of conduct" of sorts.  The Principles, originally released as the Valdez Principles, are the product of CERES (the Coalition for Environmentally Responsible Economies) a coalition of companies, investors and public groups.  A key focus of the Principles is on the importance of regular reporting on corproate environmental management programs and results. 

If you really want to get your hands dirty (and actually make some changes), you will need to start digging into the specifics of the company and its circumstances.  The earliest practitioner I'm aware of is John Elkington and the UK consultancy he created, SustainAbility.  The Economist recently profiled Elkington/SustainAbility and their coining of the phrase "Triple Bottom Line" as part of a series on management gurus (see Triple Bottom Line, August 27th).  The "Triple Bottom Line" refers to a focus on people and the planet in addition to the usual focus on profits. 

While SustainAbility was the first, sustainability advice is a growth industry now.  Hopefully some of the practitioners and companies can begin to acheive some of the kind of progress that Messrs. Nidumolu, Prahalad and Rangaswami advocate (and that Chouinard seems to be making).

P.S. Today the NYTimes Green Inc. blog has an interview with C.K. Prahalad that focuses on the innovation portion of the authors' message (see Innovation at the Bottom of the Pyramid).  Its definitely worth a read.