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Another day, another opaque ranking system…

Q: How do you attract the attention of a company and the disdain of their CR head in one day?

A: Launch yet another ‘apples and oranges’ sustainability ranking top loaded with profitable pharma companies and banks.

(Remember? Those nice clean ethical banks whom many of the ‘socially responsible’ investment funds put your money in prior to 2008 as they fit the negative screens and only funded coal power, rather than delivered it.)

Sigh.

It’s an American (and to a lesser extent Canadian) obsession: List after list of nonsense corporate sustainability rankings comparing companies in different industries with differing liabilities and opportunities, against each other.

The motive: Publicity for the ‘publisher’, and cash for the ‘ranking’ company that does the so-called research. It’s all very cynical, and unhelpful.

As a company, you have to pay to find out why you are somewhere in the list, usually. And how you ‘performed’, according to a bunch of underpaid young analysts trying to measure the impossible from an office somewhere.

This absurd list, from the ‘social media’ (?) site Just Means, is the latest in a long line of these.

Other very silly ones include this one, from the ‘magazine’, that changes it’s name every couple of years, for some reason.

The best known is the Dow Jones Sustainability Indexes. At least they focus, in part, on sector by sector comparisons.

Even that is difficult to support, given how all companies in the same sector are, geographically, product-wise and risk-wise, so totally different.

We’ve got get beyond this populist nonsense, and towards issue specific indexes, like this one, or better still, just compare a company with how it’s performed against, shock, horror, itself, over a five year period.

I’ll climb down from my soap box now. But you see why I stand on it sometimes.

One respected head of CR responded aptly on Twitter when I asked the question: “Do you pay too much attention to sustainability ‘rankings’ and ‘indexes’?”

“No”, he said. “I just ignore them all and focus on getting a real job done”.

6 Comments

  1. Hello Toby, I share your frustration with poor ranking and rating systems which are means to sensationalise or serve as a money-making platform for those doing the ranking rather than truly advancing good corporate sustainability performance.

    However, the G1000 ranking is a solid, rigorous methodology -the same methodology that powers the NASDAQ Global Sustainability index. I sense a high degree of reliability and credibility. CRD Analytics who produce the ranking maintain independence by not selling consulting services to any company – they do of course sell the data, company or sector profiles so that companies can know how they are viewed and understand how to improve their performance. The G1000 has a wide range of sector comparisons, which you mentioned in connection with the DJSI.

    I think the comment about ignoring indexes and just getting the job done is … stupid. Publicly traded companies are in the race and are in competition within and between sectors. Transparent performance measured against other companies is critical – after all, the underlying motivation of the GRI framework was to provide comparability. The G1000 is largely based on GRI indicators. So it all comes back to whether we trust the ranking methodology . I wouldn't dismiss the G1000 so quickly.

    regards, elaine
    http://www.csr-reporting.blogspot.com

  2. Hi Elaine,

    Good points, thanks for the comment.

    I do wonder though, about both the truth and logic behind your point that: "Publicly traded companies are in the race and are in competition within and between sectors.".

    I am not sure companies do compete between sectors, at least on sustainability. Those that tried to, would be mistaken beyond attempting to do so on very specific issues, in my view anyhow.

    Why would their management, or investors, want to do this in an overall sense? (except perhaps on pure financial performance, ie return on equity. That's not been linked to sustainability directly yet, if it ever can be, at least in the minds of financial power players.)

    So whilst the methodology (if such a one can be justified in comparing organisations so radically different, which I doubt) might be more 'solid' than others, there's no logic behind comparing a pharma company with a bank overall.

    On specific issues, yes, which is why I highlighted the Chaspi index in my original post. CDP too, is useful on carbon (although one must be careful).

    We wouldn't seek to compare our hospital emergency units with our dentists in an overall sense, would we?

    So why compare, say, a beverage company and a mining firm?

    That makes no sense to me, and to dozens of senior sustainability directors I speak to regularly.

    FYI, the director whom I quoted is one of the most respected and successful in the space and has been working in the field for 10-15 years.

    Always enjoy the debate, I hope you'll keep posting the challenging comments and writing your excellent blog. Thanks again.

    Toby

  3. Hi, You may be right, and there is some risk in force-fitting a common demoninator, but in my mind, if an investor has X to invest, and wants to put her money in the most carbon efficient business, or the most socially impacting business, then she would look at all companies in all sectors and pick the best. Equally if as a Sustainability Director, I am top of my sector and want to improve my performance, I would look at what's happening in other sectors, because the essense of innovation is using old solutions in new ways. But as I am neither much of an invester nor any longer a Sustainability Director, maybe i am a bit out of touch 🙂

    elaine

    oh and i am honored that you read my blog 🙂

  4. Hi Elaine, thanks, that is again a good point. I would really hope that an investor would not only look at carbon, but at impacts across the board. Therefore, a sensible one (I hope!) would look at sector impacts and decide which firms in which sector they were comfortable with, rather than just picking cross sector carbon performers. However, that may not always, or at all, be the case right now, particularly with some some screened funds and so on.

    I do think it's where we are headed though, so I guess that's one of my problems with these silly rankings that try to compare cows with horses, so to speak, in that they encourage people to think that way, as opposed to being holistic. Toby

  5. What I find frustating and also doubtfull is the trend that you see ranking agencies, organizations doing their measuring and at the same time offering advice at cost how to improve the ranking. I thought we would have left that behind ourselves after all the issues around that in the financial arena?

  6. Hi Roland, thanks for the comment. I would really hope that is not happening.

    I believe what I said is that they sell access to the 'information' they gather on companies and how that, and their system, results in their 'score' and comparison with other companies. I am not sure they consult on how to improve it. I'm not saying that doesn't happen (I don't know), but I didn't say it did in my piece.

    However, I do know of consultants that believe they know how to 'game' the rankings system for companies and claim to have done it for clients!

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