The press’s latest attempt to quantify and categorize the environmental track records of myriad businesses attempting burnish their eco-credentials is the most ambitious to date. But the emerald paint is still wet in a couple places.
On Monday, Newsweek released its “inaugural” Green Rankings for the 500 largest companies in the United States. The magazine spent more than a year working with three environmental research firms to produce the list, which is the cover story of its Sept. 28, 2009 issue. The three consultants helped Newsweek assign an Environmental Impact score, a Green Policies score, and a Reputation score for each company, which were then used to compute an overall Green Score.
The entire spread covers twelve full pages in the magazine, including introductory articles explaining why and how the list was produced. Hewlett-Packard ranks first, along with a number of other technology companies in the top ten. Peabody Energy sits at the very bottom beside a number of other energy and utilities companies.
Newsweek is not the first to undertake the monstrous challenge of ranking companies’ efforts to ride the green wave that has swept over global business in the last few years. Fortune, The Independent, CNBC, and others have all attempted the same. Yet the shortcoming with all of these has generally been a limited set of evaluation criteria applied to a small subset of companies. As Marc Gunther, who worked on Fortune’s “Green Giants” list in 2007, noted in a blog post shortly thereafter, the rankings were “a bunch of frankly subjective picks.”
Newsweek’s global business editor, Kathleen Deveny, echoed that point in a press-release statement that attempted to set apart the work of her publication:
This is the first time a media organization has ranked companies in this way. Most green lists are anecdotal—ours is the result of a massive database research project conducted in collaboration with three of the leading players in environmental research: KLD, Trucost and Corporate Register.
That’s probably overstating its case. The Independent, for instance, consulted with Ethical Investment Research Services, which investigates companies’ “ethical performance,” to develop its rankings, and took a number of evaluation criteria under consideration. Still, Newsweek deserves credit for being even more ambitious and strategic.
According to an online article explaining its methodology (which is more complete than the one published in the magazine), the 500 companies included in Newsweek’s ranking are the largest U.S. companies as measured by revenue, market capitalization, and number of employees. Trucost, KLD Research & Analytics, and CorporateRegister.com assigned the environmental score, green policies score, and reputation survey score, respectively, to each company. The Environmental Impact score—which, it seems, most accurately reflects a company’s actual performance—is based on more than 700 metrics, including greenhouse-gas emission, water use, and solid waste disposal. The Policies score is based on the projects, initiatives, guidelines, and rules that a company has on paper. And the Reputation score is based on surveys from 808 experts inside and outside the U.S.
Each company’s overall Green Score is based the weighted sum of these three scores: 45 percent for the Environmental Impact score, 45 percent for the Green Policies score, and 10 percent for the Reputation score. It may seem odd or irrational that over half of the overall ranking should be based on what the companies themselves and others say they will do in the future, rather than on actual environmental performance. But there is method to the madness.
Each of the companies Newsweek ranked was grouped into one of fifteen “industry sectors.” Because certain industries like banking and health care have much smaller environmental impacts than industries like oil and gas and transport and aerospace, the magazine had to correct for a certain apples-to-oranges factor. The greatest (and most innovative) feat of its rankings is that it standardized all of its sub-scores, as well as the overall score, in order to compare companies in different industries. Measuring policies and reputations as well as actual impact also helped even the playing field.