Demystifying Corporate Responsibility Rankings
December 07, 2012
(Emily Keller is an editorial associate in the Corporate Philanthropy department at the Foundation Center. In November, she reviewed Roger Thurow's The Last Hunger Season: A Year in an African Farm Community on the Brink of Change.)
Corporations have long collected data generated by and/or relevant to their operations –- everything from sales figures, to permit applications, to industry trends and customer behavior. Increasingly, however, regulatory and watchdog groups are demanding that companies provide information about the impact of their activities on society and the environment.
As the corporate social responsibility (CSR) movement has gained traction, indices and lists that seek to quantify and rank company activities according to sustainability principles have proliferated. Financial analysts, media groups, and independent consultancies today produce annual assessments of everything from the amount of carbon companies put into the atmosphere to the sustainability of their supply chain management and the diversity of their boards. Those metrics, in turn, are often used by customers, investors, and prospective job candidates to determine their level of engagement with a particular company.
Earlier this year, the Foundation Center added a CSR tab to the company profiles in Foundation Directory Online that highlights nearly two dozen of these corporate sustainability ratings lists and presents basic information from them in a user-friendly format.
But in an emerging field characterized by a multiplicity of definitions and standards, even simple numbers can be hard to make sense of. Using hundreds of data points and a unique methodology, SustainAbility, an independent think tank and strategy consultancy, has taken it upon itself to "rate the raters" in order "to better understand the universe of external sustainability ratings and to influence and improve the quality and transparency of such ratings." As the firm is quick to note, many of these lists have been introduced within the last five years and there's plenty of room for improvement.
With that in mind, here are a few of the more prominent ratings lists/indices:
Dow Jones Sustainability Indexes. The Dow Jones Sustainability Indexes, which are offered cooperatively by SAM Indexes and S&P Dow Jones Indices, were launched in 1999 to track the stock performance of the world's leading companies in terms of economic, environmental and social criteria. DJSI World tracks the top 10 percent of the 2,500 largest companies in the Dow Jones Global Total Stock Market Index, while DJSI North America tracks the top 20 percent of the 600 largest U.S. and Canadian companies. The evaluation process includes a survey customized for fifty-eight industry sectors covering governance, workforce diversity, disclosure of compensation, risk and crisis management, greenhouse gas emissions, waste generation, branding strategies and metrics, data privacy, talent attraction and retention, and other areas. According to the DJ Sustainability site, "The indexes serve as benchmarks for investors who integrate sustainability considerations into their portfolios, and provide an effective engagement platform for companies who want to adopt sustainable best practices."
Carbon Disclosure Project. Every year, the London-based Carbon Disclosure Project (CDP), in partnership with PricewaterhouseCoopers, produces a dense, chart-filled report detailing the progress of S&P 500 companies toward their greenhouse gas emission goals. Based on a detailed questionnaire (the data collection process is so complex that CDP runs a series of workshops around the world to help companies answer it), the 2012 report offers a three-tiered breakdown of GHG emissions totals by sector; a performance band from A to E assessing actions to promote climate change mitigation, adaptation, and transparency; and a disclosure score from 0 to 100 for the provision of data. Multiyear leaders in the rankings include Bank of America and Lockheed Martin in the performance category, and Cisco Systems, Gilead Sciences, and Spectra Energy in the disclosure category.
Newsweek Green Rankings. In contrast to DJSI's rankings of only the most sustainable companies, Newsweek ranks the five hundred largest publicly traded companies in the U.S. as well as the five hundred largest in the world, regardless of their sustainability record. And unlike the Carbon Disclosure Project's rankings, only 10 percent of the scores are based on disclosure, with the remainder split between environmental impact and management (a category that takes public controversies into account). The magazine (which recently was purchased by The Daily Beast site and is transitioning to an online-only format) includes more than seven hundred data elements in its survey of companies, including greenhouse gas emissions, solid waste disposal, water use, equity investment (companies are responsible for the impact of the companies they own), hazardous waste reduction, biodiversity protection, company operations, contractors and suppliers, and products and services. Based on a scale of 0 to 100, IBM (82.9) and Santander Brasil (85.7) topped the 2012 rankings.
The DiversityInc Top 50 Companies for Diversity. Consulting firm and magazine publisher DiversityInc, which launched its diversity rankings in 2001, bases its ratings on the responses it receives to a 300-question survey. As the organization explains in the methodology section of its site: "Ratios between key factors in diversity management, such as demographics of managers compared with managers who received promotions and demographics of the workforce compared with people promoted into their first management positions, play a significant factor in determining point scores." Companies are rated by industry, and the rankings include thirteen different top-five and top-ten lists. Topping the list in 2012 were PricewaterhouseCoopers, Sodexo, Kaiser Permanente, AT&T, and Procter & Gamble.
Corporate Responsibility Magazine's 100 Best Corporate Citizens. Corporate Responsibility Magazine and the Corporate Responsibility Officer Association (CROA) began publishing their list, which is 100 percent based on verifiable publicly available information, in 2009. The rankings are driven by companies' performance in seven broad CSR categories -- environment, climate change, human rights, employee relations, corporate governance, philanthropy, and finance -- with some three hundred and eighteen data points tracked across those categories. Carbon Disclosure Project and Foundation Center data are incorporated into the assessments.
And that's just a sampling. Indeed, the diversity and number of CSR ratings lists now available can be overwhelming at times -- for consumers and investors, as well as for companies, which feel pressured to respond to detailed surveys and questionnaires from dozens of groups and do not always understand the reasons they are selected or omitted from a given list.
In an effort to standardize the ratings process, Ceres and the Tellus Institute, founders of the Global Reporting Institute (GRI), recently launched the Global Initiative for Sustainability Ratings (GISR), which aims to establish best practices in the sustainability ratings field, with a focus on performance-based results, forward-looking indicators, relevance to market forces, integration of sustainability criteria into investment decisions, transparency of methodology, independence of raters, and an expansion in the scope of participating companies. The initiative hopes to release the initial draft of its standards in 2013.
In the meantime, the number and scope of CSR ratings lists continue to grow. Last year, the Center for Corporate Citizenship at Boston College, in partnership with the Reputation Institute, released its fourth annual list of the top fifty companies in the U.S. based on the public's perception of their corporate citizenship, governance, and workplace practices. And earlier this year, Bloomberg New Energy Finance and Vestas released their third annual Global Corporate Renewable Energy Index (CREX) report, which tracks voluntary demand for renewable energy among the world's largest companies.
Other entrants in the field include the UN Global Compact, which asks companies around the globe to embrace universal principles and partner with the United Nations in the areas of human rights, labor, environment, and anti-corruption issues, and A Billion + Change, which seeks to mobilize billions of dollars of pro bono work and skill-based volunteerism by the end of 2013.
Is any of this work making a difference? I believe it is and, having compared some of the largest lists against our corporate FDO profiles, can see that many corporations, here in the U.S. and around the globe, are beginning to walk the CSR walk. But from climate change to human rights to corruption, we -- and they -- still have a long ways to go.
What do you think? Is CSR a movement whose time has arrived? Are CSR ratings a useful tool for consumers, investors, and advocates? And if not, how can they be improved? Share your thoughts in the comments section below.
-- Emily Keller