Rankings may be flawed, but until responsibility becomes legally mandated, they will continue to be useful tools for comparing performance
It’s always nice to be told that you’re doing a good job. It’s even better if the pat on the back is given in public. For ethically minded companies, numerous corporate responsibility and sustainability surveys and rankings perform this role – but are they any good?
One of the most credible lists is the Global 100: World Leaders in Clean Capitalism, compiled by Canadian investment researchers Corporate Knights. The 2013 Global 100 was published to coincide with the World Economic Forum in Davos. A “range of sector-specific sustainability metrics” was used to rank corporations, Corporate Knights says.
Top of the pile was Umicore, a Belgian company that was once an iron smelter, but has been transformed into a high-tech recycled metals specialist. Umicore chief executive Marc Grynberg duly expressed his “delight” at the award. “Being recognised as the most sustainable company is foremost an encouragement to continue to grow our business in a sustainable way,” he says.
Do such rankings really make a difference? Do they objectively tell us much about the state of sustainability, or are they an exercise in relativity, showing that some companies are less bad than others?
In third and fourth place in the Corporate Knights list, for example, are two oil companies, Statoil and Neste Oil. They might be highly responsible compared with their sector peers, but what about the view that fossil fuels can only be unsustainable in a carbon-constrained world?
Jörgen Holmquist, chairman of the European Corporate Governance Institute and senior adviser to Interel, a consulting group, says corporate responsibility rankings are “generally a good thing” because they encourage transparency and a greater focus on sustainability. However, naturally, the value of rankings “depends on the parameters chosen and how they are applied”.
Peer comparison challenge
It might seem easier for companies in clean sectors to score highly than companies in dirty sectors. Corporate Knights says this is not a problem for the Global 100 because companies are first ranked within sectors. The final ranking is then assembled by applying certain sector weightings. However, Corporate Knights concedes that the Global 100 can “over-rank” companies that take sustainability seriously but operate in lagging sectors. Their sustainability performance compared with other sectors might be only middling, but they look good relative to their sector peers.
In addition, Holmquist says, methodologies can in principle be taken advantage of. “If a company wants to be high on the list, they will look at the parameters used and conform to those,” he says. However, it is perhaps not such a bad thing that outstanding performance in dirty sectors gains additional recognition. It is “even more laudable” if mining companies, for example, make progress, compared to those in sectors such as information technology, Holmquist says.
Jerome Chaplier, co-ordinator of the European Coalition for Corporate Justice, which campaigns for greater corporate accountability, says rankings can provide a useful comparison for investors, but they often fall short in some areas, such as human rights and supply chain standards. These issues are not covered by the Global 100, which concentrates on environmental performance, corporate governance and financially ethical issues, such as tax paid.
Ultimately, Chaplier says, companies should be required to meet mandatory standards of responsible behaviour. But then of course, he concedes, there would be no more need for rankings.
business strategy corporate performance corporate rankings Stephen Gardner