Amidst a fanfare one would expect from anything announced at the World Economic Forum in Davos, the Canadian firm Corporate Knights announced its tenth annual list of the world’s most sustainable companies, also known as the Global 100, on Wednesday last week.
A quick glance at the list: http://global100.org/global-100-index/ reveals some surprising constituents. The world’s most sustainable company, apparently, is Westpac, the Australian bank. Coming in at number four is Statoil, the Norwegian oil major. Indeed, oil companies feature heavily in the list, which includes Royal Dutch Shell at no. 51.
A look at the methodology explains a lot: As it says on the website, Corporate Knights ‘unpackage “corporate sustainability” into its component parts, and stick to the numbers.’ Those ‘numbers’ focus on twelve quantitative key performance indicators that range from water use to safety performance to CEO versus average worker pay. Many of these indicators are akin to those used by us at WHEB in our assessment of a company’s quality.
However, where our methodology differs markedly from that used by Corporate Knights and a number of similar sustainability rating agencies, is that we believe that the starting point of assessing a company’s sustainability must be what it does rather than how it does it. If the focus is the ‘how’ rather than the ‘what’, it is possible to include oil majors in your top 100, even if one of your criteria is Carbon Productivity, defined thus: ‘this metric divides a company’s total revenue by total GHG emissions and gives us a sense of how companies are exposed to the new GHG regulatory environment.’ In order to include a company such as Shell in the top 100, one must assume that this criterion looks at a company’s greenhouse gas emissions in the extraction and distribution of their oil reserves, not – emphatically not – in the greenhouse gas emissions created by combusting that oil.
The extent to which this does not capture the complete picture of a company’s sustainability is misleading, not just because it lauds companies which are continuing to cause rather than solve the most serious problems facing the planet, but if an index like this directs investment towards those companies, investors will be misled into believing that a company such as Shell will be a beneficiary of ‘the new GHG regulatory environment’ when this is far from the case – unless Shell substantially changes its business model and leaves its oil reserves untouched in the ground and unburned.
It is surprising that indices such as the Global 100 still continue to get so much attention and coverage (presumably it is the companies they celebrate who love them so much). We have surely moved on from the days of ‘best in class’ where companies making efforts in how they operate were applauded, while ignoring what it is that they actually sell. These days, good corporate responsibility is simply part of good business. The companies who should be top of the ratings tables are those who are actually – and often without much fanfare – getting on with the serious business of providing solutions to our major crises of climate change, water shortages and pollution.
