What sustainability rankings say, and don’t, about oil and gas
Rating agencies are vying to be the arbiters of good
They’re hard to miss. Eco-labels of all sorts increasingly adorn almost every type of consumer product. A Rainforest Alliance sticker can tell you a Gibson guitar didn’t harm an endangered tropical forest. Or the Marine Stewardship Council’s little blue label, found on some 13,000 seafood products, says your mussels presumably weren’t raked off the ocean floor by Chinese trawlers.
There are, according to the Ecolabel Index, 430 eco-labels covering 25 industrial sectors around the world. But there’s evidence the plethora of green designations is leaving us dazed, not edified.
We don’t see – not yet, anyway – gigantic eco-labels plastered on the sides of the corporate headquarters of even the most environmentally and socially responsible companies such as the Co-Operators (ranked number one by Corporate Knights’ 50 Best Corporate Citizens in 2011). Nevertheless, corporations – like individual products – are increasingly subjected to a barrage of ratings and certifications agencies all striving to be arbiter of who’s green and socially responsible and who’s not. That’s especially critical for companies in perpetually sensitive sectors such as oil and gas.
According to the consulting firm SustainAbility, there are 108 ratings organizations in the world sifting through corporate data such as annual and sustainable reports to rate corporations on environmental, social and governance performance indicators, or ESG for short. In the year 2000 there were 21.
But a shakeout may be nigh as corporations and consumers grow overwhelmed by the number of raters and certifiers and become increasingly skeptical of just how transparent or ethical some raters are themselves. “To some degree you get a bit of a fatigue on the consumer’s part, and confusion,” says Celesa Horvath, co-owner and principal consultant with Ventus Development Services. Horvath helped Encana Corp. design its corporate social responsibility strategy when it was formed in 2002 and has worked in sustainability for 20 years.
There’s been talk for the past decade, she says, about the need for consolidation among ratings agencies focused on evaluating corporate goodness. There’s also been a growing push for standardization of the methodologies raters use to rank companies on their sustainable or social performance. Many publicly traded corporations themselves have adopted the voluntary Global Reporting Initiative (GRI) standards to try and unify how they issue data to raters and the public. But as raters try to carve out their own specialized niches, things seem to be getting more, not less, complicated.
In a report called Rate the Raters, SustainAbility, whose clients include Chevron, DuPont and Nestlé, recently conducted an in-depth analysis of rating firms that included Ethisphere’s World’s Most Ethical Companies, Thomson Reuters’ ASSET4 Index, Corporate Knights’ Global 100 and CSRHub. While lauding the value to society of ratings organizations in general – which can prompt companies to look inward and address their shortcomings – SustainAbility took issue with some raters’ “black box” mentality. For commercial advantages, some conceal their own methodologies while demanding transparency from industry. The report revealed that nearly a quarter of ranking groups hid all information on their methods and most offered only partial disclosure.
SustainAbility also noted another problem: most raters rely on arm’s-length assessments of corporate performance. It decried the reliance on trusting media sources, reports authored by non-government organizations and annual corporate social responsibility reports without having them vetted by a third party. “We expect this approach won’t fly in the future as users of ratings go mainstream,” the report said.
Gord Lambert, vice-president of sustainable development at Suncor Energy Inc., handles the surfeit of requests for corporate data – financial and otherwise – the oil sands mining giant gets from ratings agencies. He says compared to the intense research that financial rating companies do, which often involves meeting directly with senior executives, sustainability raters have yet to reach a similar level of reliability and “maturity.”
Some, he says, like the Dow Jones Sustainability Indices (DJSI), have a well-tested methodology he trusts. The DJSI has been around since 1999. It assesses corporate economic, environmental and social performance, and supposedly rejects companies that do not operate in a sustainable or ethical manner. (Yet even the DJSI has not escaped criticism: BP was listed highly as an environmentally conscientious company on the DJSI before its Gulf of Mexico oil spill revealed a troubling pattern of putting profit ahead of regard for safety).
To Suncor’s consternation, Lambert says some magazine rankings and sustainability rating agencies change their methodologies frequently and without explanation. “You can go from being really high one year to being low another without a whole lot of clarity as to what the rationale might be. And I guess our reflections on that are, quite simply, we take any of these ratings with a bit of a grain of salt.”
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