Posts tagged ‘corporate transparency’
A Peek Underneath the Hood of CR Magazine’s “100 Best Corporate Citizens List”
Elizabeth Boudrie
Recognized by PR Week as one of America’s top three most-important business rankings, Corporate Responsibility Magazine’s “100 Best Corporate Citizens List” evaluates companies on 325 corporate social responsibility data points. This week we caught up with Elizabeth Boudrie, Vice President of Research for SharedXpertise (parent company of CR Magazine) to learn more about the methodology behind the ranking.
GT: With all the rankings out there, why should companies pay attention to this one? What makes this ranking unique?
EB: From a methodological standpoint, this is an audit versus a survey. One of the frustrations that I think a lot of people have in the corporate responsibility (CR) space is that “We get so many surveys, we have to pick and choose which one we’re going to do and we’re not going to do yours.”
We have to explain to people that it’s an involuntary audit—you don’t have to fill anything out. What we do is the IW Financial folks go and look for essential 325 data elements that are publicly disclosed for all Russell 1000 companies. There are a few data elements that are performance -based, but for the most part they’re disclosure-based. I think that the biggest way [the ranking is different] is that it’s very broad. We’re looking really across a broad spectrum of issues as opposed to others that are very specifically oriented to environment, social and governance (ESG), human rights or specific issues, versus our seven different categories.
GT: How did you come up with those categories?
EB: We have a methodology committee comprised of industry folks and academics and folks who together help us oversee the direction of the data elements and the whole process. And back when they originally started the process – I think this is the 13th year — they looked and said, “Ok, what are the main categories that we think make sense, that we think should be important?” And these are the categories that they came up with.
And over time, we continue to review them. They’re weighted differently based on how important the collective group thinks they are and over time we continue to review them and believe that these are the categories that do capture a broad picture of corporate social responsibility (CSR).
GT: And 2012 is the 13th year for the ranking?
EB: Yes. 2012 will be the 13th annual list.
GT: In the absence of widely agreed-upon performance metrics, I understand that many rankings currently rely on transparency as a proxy for progress. Is this the best way to evaluate companies?
EB: I think all of us would love to get past disclosure as the main determinant of ranks– and we do have some elements within our 300-some-odd data elements that are performance-based — but it’s predominantly disclosure-based. There aren’t enough people who are disclosing enough as it is. We have lots and lots of companies who disclose next to nothing out of the Russell 1000. We think of disclosure as the low bar, but if it’s the low bar there are a lot of people who aren’t stepping over it yet. So from that perspective, there’s still a long way to go.
The other issue is that with so many different companies doing so many different things, it’s very difficult to find a reasonable performance standard that you can apply across company size, across company industry, across company type. And I think everybody is still struggling to find out what that is in every ranking. So I think it’s a reasonable proxy for now because it’s the best we can do but I don’t think anybody’s happy with that forever. And I think everybody’s looking for a better way.
GT: What does transparency tell you about a company?
EB: Transparency maybe doesn’t tell you everything, but a company certainly doesn’t talk about things it’s doing poorly, typically. To us the willingness of a company to be transparent indicates strong management, a willingness to be self-reflective, to understand what’s going on within their environment—both within their own environment internally as well as externally– and it just demonstrates connection to what’s happening in the world right now. I think they’re recognizing over time that people are more interested in exactly what’s happening and that means being transparent about what’s happening with your organization, whether that’s your human rights record, whether that’s your impact on the environment, your philanthropic giving, all the categories we might address.
GT: How many of your top 100 companies are ‘repeat achievers’? How much turnover do you see year over year?
EB: It changes a fair amount. The turnover changes over time, which sort of depends on the changes in the methodology, the data set. We try to limit that so there isn’t so much impact, but there can be an impact. One of our data categories is financial performance and with the recent economic downturn that really impacted some folks. So there can be some churn.
GT: How often do you update your methodology?
EB: We try to take an evolutionary versus revolutionary approach. You’d hate to see 80 percent of the list change because it wouldn’t be meaningful…Ultimately what we’re trying to do is drive people to be as transparent as they can be. So ultimately if a company is being even more transparent in 2012 than 2011 we don’t want to penalize them randomly because the methodology has changed. So we’ll try to be very careful in doing that. What you’ll find is because it’s a comparative methodology a company can do exactly what they were doing the prior year and still fall in the ranking if other companies are doing better.
GT: How does the audit process work?
EB: IW Financial, as part of their process, sends out a correspondence file, which is an opportunity for a company that they’ve audited to review the file and make sure that everything is accurate. We’ve added a separate, additional review for companies that are potentially going to be ranked so they can have a second review.
GT: When does the ranking come out?
EB: In the Spring. This year it will come out in early April.
GT: What is the circulation of Corporate Responsibility Magazine?
EB: 19,000
GT: Is the ranking publicly available information? Or is it sold?
EB:The ranking is public. And free.
Elizabeth Boudrie is Vice President of Research at SharedXpertise, where she oversees all global research efforts addressing topics such as corporate responsibility, and transformation and outsourcing of business processes. She will share more information and answer more questions about CR Magazine’s “100 Best Corporate Citizens List” during the NAEM webinar on Jan. 24.
Sustainability rankings: Which are real, which are rubbish?
Richard Crespin
Albert Einstein once said that not everything that counts can be measured and not everything that can be measured counts. While I remain a dyed-in-the-wool free market capitalist, the measurement systems we’ve used to date have gotten us in a hole with disasters economic, environmental and political.
In 2000 the world had 21 sustainability-related ranking systems; we now have more than 100. As a result many folks now want to know how to prioritize the “real” rankings from the “rubbish”.
As Executive Director of the Corporate Responsibility Officers Association I represent you: the responsibility and sustainability professional. I know the difficulty different reporting regimes pose. I also know how hard it is to rate companies because I serve on the Methodology Committee for Corporate Responsibility Magazine’s 100 Best Corporate Citizens List. As a result, I have discerned a few hallmarks of the better rating systems. Here’s what I can offer as a guide to prioritizing ratings:
- Transparency. Their methods, criteria, and decision-making should be public. Any commercial relationships between the rater and the firms on its list should be clearly disclosed as well.
- Consistency. While evaluation criteria continue to evolve, the rating should have some constancy year-over-year. The criteria should also be applied evenly to all companies in the rated universe.
- Relevance. A list should relate to your company’s industry, brand or strategy.
- Acceptance. Pay more attention to lists that have broad acceptance and/or use widely accepted criteria like the Global Reporting Initiative.
- Prediction. The most effective rating systems will predict future performance. This is the “holy grail” and will likely remain elusive for at least another 10-15 years. To be predictive a rating needs to incorporate a full business cycle’s worth of data, typically 30+ years. No rating system that I know of has been around that long.
What do you think? Are these the right criteria for evaluating information requests? When it comes to the flood of sustainability surveys, what is your strategy for responding? Which do you respond to? Why?
Richard Crespin is the Executive Director of the Corporate Responsibility Officers Association and chair of the upcoming COMMIT! Forum on Sept. 26-27 in New York. To participate in the conversation about the “New Rules for Disclosure” visit http://www.commitforum.com/index.php/agenda/.
Turning environmental metrics inside out
Howard Brown
Since attending NAEM’s “Measuring Corporate Sustainability” conference last month, I’ve been thinking about the enormous quantity of data that environmental, health and safety (EHS) managers have to collect in order to respond to environmental, social and governance (ESG) research surveys. I am convinced we are measuring the wrong things.
ESG issues are extremely important; the amount of time and money spent on surveys is itself an indicator of corporate recognition of its importance. But as Bob Kidder, CEO of Chrysler, once told me, “You get what you measure.” The reason we measure is to learn so we can modify our behavior and improve.
Managers are now spending so much time assembling data and responding to rating surveys, they often find they don’t have enough time to work on making things better, even when the data makes clear which actions would be most effective. The present cacophony of indicators, measurement systems, and analytical models is scarcely effective for guiding improvements. A company can do extremely well in one system and be at the bottom of the pack in another. And it’s hard to know why. Something is broken – or to put more positively – the system of reporting hasn’t matured enough yet to be really useful.
With more than 100 rating firms, plus dozens of academic, government, and NGO surveys, managers have to do triage to determine which surveys to participate in. Pick the wrong survey and end up with your CEO asking why the company got a poor rating. To make things worse, the transparency expected of participating companies doesn’t apply to the rating firms themselves. EHS managers don’t know how the data will be used, weighted, combined, or analyzed in the process, nor do they know if a particular model is appropriate for evaluating their company. More importantly, the rating systems are designed for external stakeholders and are rarely designed to be useful to companies themselves for strategic planning.
Perhaps the single most frustrating thing about the status quo is that almost all of the ratings systems rely on negative motivation. It’s about avoiding negative consequences – risks to brand value, stock price, and legal liabilities – rather than encouraging positive ones. This leads companies to continue treating environment as a necessary cost of doing business rather than as a tool for improving business performance.
When I spoke with environmental managers at the conference, I heard Bob Kidder’s words ringing in my ears. The measurement chaos is causing companies to focus more on improving their scores than on improving business performance. We need to turn our thinking inside out. Our primary goal has to be performance, not the score.
I’m convinced that solving our environmental challenges calls for an approach that isn’t dependent on coming up with ever more sophisticated models and statistical averaging and indexing techniques for rating the negative impacts of entire corporations. The world is too complicated to objectively measure those impacts in a consistent and standardized way. And companies are too different to be compared in this way. We need an environmental performance measurement approach that is simple and conceptual.
The answer is to focus on managing resource use, rather than on managing the consequences of using the resources. Or in other words, focus more on reducing the inputs than on reducing the unintended outputs.
We also need to focus performance measurement on products rather than whole companies. This can be done if companies identify the real value each of their products delivers to customers. The critical issue is ultimately how much resource mass does it take, and should it take, to deliver a given amount of value to customers.
Think of it this way. Everything that comes out of a company and causes environmental problems was once a resource and was then lost due to inefficiency or lack of knowledge. Pollution is nothing more than valuable resources lost in process and released where they don’t belong. If you don’t use the resource in the first place, you can’t spill it, lose it, or waste it. You also don’t have to pay for extracting it, refining it, transporting it, making it into useful components, etc. And you don’t have to worry about the environmental impacts of doing all that.
We need to measure the value we’re delivering to customers in relation to the resource mass required to deliver that value. Every time that you reduce product mass without reducing the value delivered, the savings are multiplied all the way back through the supply chain.
Companies must learn how to look at their goals in terms of the functions their products serve. From this perspective, a battery company should not think of itself as a battery company but as a portable energy company, while a washing machine company should think of itself as a clean clothes company.
This is the only way to truly align environmental metrics with business metrics. When you’re reducing resource inputs, you’re reducing costs, you’re reducing environmental risks, and you’re reducing fines. But most importantly, you’re gaining competitive advantage. The more companies think about delivering the most performance for the least mass, the greater advantage they’ll have in the marketplace.
Howard Brown is founder of dMASS and chairman of o.s.Earth. For more than 20 years as CEO of Resource Planning & Management Systems (RPM), Inc., in New Haven, Conn., he worked with companies such as Duracell, Avery Dennison Corp., Exxon Mobil Corp., General Electric Co., Deere & Co., Whirlpool Corp., Warner- Lambert Co. and Pfizer Inc. to establish or enhance their environmental practices and performance.
When it comes to ESG metrics, materiality matters
As one of the first employees of Ceres and a leader in developing the Global Reporting Initiative, Mark Tulay has been involved with socially responsible investing for 20 years. His latest project is the Global Initiative for Sustainability Ratings, an effort to identify the most material metrics for measuring a company’s sustainability performance. We caught up with him this week to learn more about the landscape today and the role the GISR will play in the future of sustainability analytics.
GT: When Ceres started out, it was one of the first attempts to use metrics as a foil against environmental disaster. Why did you think that data could help prevent another oil spill?
MT: Around the time of the Valdez oil spill, it was unheard of to have a conversation about environmental performance at the board level. One of the things this effort at transparency did was take accountability to the highest level of the company. You can never tell how many disasters transparency prevents but when you have that disclosure, you have accountability and if you have accountability, you have an effort at performance and a strive for a common goal. And before Ceres, we didn’t have that.
GT: GRI was a game-changer, but a decade later, many publicly traded companies still don’t disclose environment, social and governance (ESG) information. Do you think this will change? If so, why?
MT: More has happened in the last three years than in the previous twenty, combined. When I started twenty years ago, less than one in every $20 of assets under management looked at environmental performance. Now, with the proliferation of investment vehicles such as the Dow Jones Sustainability Index, one of every 10 dollars in the U.S. is associated with at least one component of integrating ESG performance.
One out of ten is significant and many feel this is kind of a tipping point for closer evaluation of these metrics. So that’s the opportunity. These investors are sticky; they’re longer-term, they’re the kind of investors that IR folks usually covet. Until now, the investor relations folks didn’t ask the questions about sustainability or ESG, but now they’re starting to do that. Companies are starting to understand that pension funds are interested in this and if you can find investors that are good, long-term investors, it’s a very profitable endeavor.
It’s amazing to watch where this is going and the impact it’s having.
GT: How well does the current ESG analysis system work? Do you think it needs reform?
MT: I used to work for a research provider so I sort of know this from experience, but the tendency is for research providers to go a mile-wide to collect as much information as possible. That makes sense, it’s important. But there’s a need to go a mile-deep.
What we really need help with is this question of materiality and prioritizing the metrics; looking through all the disclosure and assessing what are the 10-20 key performance indicators that matter most?
GT: What changes would you like to see to the system?
MT: We have all this disclosure, but there’s overload now, so investors don’t know what to do with it. How do they rate things? How do they rank things? Investors, I think, need a standard framework. And so that’s what this initiative called the Global Initiative for Sustainability Ratings will address. It will show investors what to pay attention to and why.
It’s developed as a non-profit and the framework, the output will be free, publicly available and non-commercial. This organization will not try to monetize it. And then we’ll put it out there and invite others to tell us what’s missing and then we’ll strengthen it. It will be an annual process of reviewing and expanding the tent of partners.
It’s amazing to me if I look back over the past 20 years, is the meaningful results that come from through multi-stakeholder collaborations.
GT: What impact do you think this will have?
MT: Right now, there’s a feeling that much of disclosure goes into a black hole. And there’s little transparency, rigor or consistently in how sustainability performance is measured. There’s more than 300 ratings systems and 300 assessments systems and they all do things in different ways and we think that by putting up a standard framework, we can bring convergence to some of these groups and reward the companies that are truly committed and excelling.
The other thing it will seek to do is infuse sustainability content into other ratings, like bond ratings. There’s a feeling that this should be a standard part of due diligence, to look at these environmental and social metrics. We think that just like GRI, certain organizations will pick it up and have their own take on these ratings. We think pension funds will take on these criteria and use them as a way to select managers. And if they select managers by that, then by extension, companies will benefit from following these or reviewing the metrics and seeing how they align. We want them to be consistent and align with what GRI is achieving so that disclosure can be rewarded.
GT: But wouldn’t an ESG research firm object to a standard? After all, it’s the secret sauce…Why would they want to use a single framework if it means eroding their proprietary edge?
MT: If the pension funds, the asset owners, say ‘We want research that’s aligned with the framework,’ then the research companies are likely to embrace that. And we’re not trying to say there’s one way to do it; maybe there’s 15 ways to evaluate companies. Everyone has their own qualitative best practice as to how to do this. The reason we’re calling it a framework is because it provides direction, it provides specificity, but it doesn’t say, ‘This is the only way to do it.’ So I think it’s going to provide the compass and others will find ways to do it and create businesses around it.
GT: Who will be participating?
MT:We’ll reveal the full list of stakeholders at our launch in Washington, D.C. on June 9, but I can tell you that it’s a partnership between Ceres and the Tellus Institute, and that we’ll be joined by asset managers, pension funds and companies stakeholders as well.
Mark Tulay is founder and CEO of Sustainability Risk Advisors and a leader in the Global Initiative for Sustainability Ratings. He will be joining NAEM as part of the ‘Measuring Corporate Sustainability’ stakeholder dialogue on May 4 in Fort Lauderdale, Fla.
