Wednesday, January 27, 2010

Opaque Transparency

The Global Sustainability Research Alliance, led by the Canadian Corporate Knights, have published their Global 100 Most Sustainable Corporations in the World list. It's a fabulous piece of work, examining a wide range of  sustainability indicators. Congratulations to CorporateKnights for developing this ranking, and to the 100 Companies that made it onto the list.  Here are the top ten:
  1. GE 
  2. PG&E Corp
  3. TNT nv
  4. H&M Hennes and Mauritz
  5. Nokia Corporation
  6. Siemens AG
  7. Unilever plc
  8. Vodafone Group plc
  9. Smiths Group plc
  10. Geberit
A couple of surprises , I suspect, on that list, but it's a great piece of research and analysis. Each Company result is supported by a page of data summary, and what's GREAT is that you can download an Excel file of all the analysis data.

Of course, being passionate about reporting and transparency , I was interested to note which Companies came out tops aganist this parameter. Here are the top ten transparent Companies according to this ranking:

  1. Atlas Copco ab  (Rank34, Transparency 96%)
  2. BT Group plc (Rank 35, Transparency 93%)
  3. Roche Holdings (Rank 58, Transparency 92%)
  4. Diageo plc  (Rank 18, Transparency 90%)
  5. Iberdrola Sa (Rank 55, Transparency 90%) 
  6. Omv Ag (Rank 76, Transparency 89%) 
  7. Kesko Oyj (Rank 33, Transparency 88%) 
  8. Novozymes A/s (Rank 41, Transparency 88%)
  9. Statoilhydro Asa (Rank67, Transparency 88%)
  10. Umicore Sa (Rank 44, Transparency 86%)

Isn't it fascinating that there is absolutely no overlap in these two lists?
The most sustainable Companies are not the most transparent Companies.
The Transparency Levels of the 10 most sustainable Companies are all lower than the most transparent Companies, ranging between 25% and 81% transparency. The number 2 most sustainable Company has a Transparency score of only 25%.  The corollary of this is that the most transparent companies are not rewarded for being transparent in this ranking. This is disappointing, especially given the presence of Ernst Ligteringen, the CEO of the GRI, champion of transparency, on the
Global Council of Experts who oversaw the ranking. Whilst I understand that the methodology aggregates a number of factors, and that not everything has the same degree of weighting in calculating an overall sustainability quotient, I fail to understand how Companies can be sustainable without being transparent.

For me, and perhaps I am a little extreme, or obsessive, or passionate, or stupid, transparency is an essential core element  in sustainability which serves to leverage and drive performance in many different ways.  Where there is low transparency, there is low trust, low dialogue, low openness to innovation, and low attention to stakeholder needs. When a Company is not transparent about its performance, I wonder how committed that Company is to improving performance. Whilst I do not expect such a ranking to be based on transparency alone, I believe that some degree of overlap would make this ranking more credible.

Anyway, rant over. It's still a good initiative. You should be pleased I didn't do an analysis of sustainability relative to leadership diversity . Ha Ha.  That would have been a much longer post .... (for starters: two of the most sustainable Companies have ZERO women on the Board of Directors and only 7 of the Global 100 Most Sustainables have over 25% women directors.)

elaine cohen is the joint CEO of BeyondBusiness, a leading reporting and social-environmental consulting firm. Visit our website at: www.b-yond.biz/en

6 comments:

hiyamaya said...

Interesting analysis Elaine. It is certainly striking that that none on of the top 10 'most sustainable' companies are in the top 10 of the 'most transparent'.

If you take this at face value it seems to indicate that, despite what CSR reporting advocates like us believe (however pasionately) sustainability reporting is not driving performance amd better outcomes.

You can't fix this by asking the ranking system to 'reward' transparency by giving it a bigger weighting. That's cheating. What you can say is...

1) Maybe there is something wrong with the way they are assessing transparency (maybe they are weighing reports?) so that the leading edge dialogue, openness to innovation, and attention to stakeholder needs of the top sustainability performers isn't captured?

2) Maybe there is something wrong with the way they are measuring performance?

3)Maybe transparency preceeds performance - "keep an eye on today's top 10 most transparent companies, because they will be knocking GE, PG&E and TNT off the top spots next year?"

4) Maybe there is something wrong with reporting? Maybe we need to take a hard look at 'best practice' CSR reporting orthodoxy and see what is really working?

5)Or maybe top 100 rankings are not all they're cracked up to be?

Which do you think it is?

elaine said...

Hi Maya, thanks for your considered and challenging points. My gut feel is that the Global100 Methodology does not give enough weighting to transparency Whilst sustainability performance is primarily what counts, doing so without reporting is like getting on the train and never getting off. If you don’t get out and listen to the people, take stock, act, report, gather feedback and get back on at the next station, you just keep going in what might be the wrong direction or at the wrong pace. A truly sustainable Company must be transparent and this element deserves a much stronger place in the ranking methodology, in my view. Similarly, I think rewarding transparency is not cheating. It is recognition for the fact that transparency is for most Companies the hardest part of sustainability. Anyone can turn of lights or buy offsets and get a better Carbon Footprint. This doesn’t generate too much pain or sacrifice. Not every Company can muster the required boldness to be transparent. As to your 5 options, I suspect there is a little truth in all of the suggested answers. And certainly, I may be a committed reporter, but I do believe that reporting quality needs to improve. Reporting quality is as diverse as the number of reports published and we should indeed take a hard look and see what's working both with regards to reporting quality and reporting processes in Companies. Finally, the big shortfall in the G100 sustainability ranking is that it assesses only direct impacts. With most companies, true sustainability comes with positive management of indirect impacts. So as with most of these rankings, I feel their greatest value is not in pronouncing who is number one but in the quality of debate they generate.
Thanks again! elaine

Mehrdad Nazari said...

Very interesting observations, Elaine. I took a look at the list and noted also the following. In the energy sector, the selection of oil sands producers amongst the top 100 most sustainability companies seems surprising. But perhaps this demonstrates the assertive leadership of oil sands producers in the sustainability debate and embracing of related tools. They managed to become recognized amongst the most sustainable companies (at least based of Corporate Knights’ methodology) without exiting one of the more controversial segments of the oil & gas sector.

Also, looking at the nine Canadian companies which made the list (see table below), it was probably not surprising to note the dominance of the extractive and financial sectors. Five extractive related companies made it to the list, but this did not include any of the prominent Canadian mining companies. The financial sector was also well represented and includes the Royal Bank of Canada. During the same week, RBC also managed a third place ranking in the ‘Public Eye Award’, which takes Davos as a platform with its “shame-on-you-awards” given to the “nastiest corporate players of the year.” RBC’s was nominated for its prominent financing role of the Canadian oil sands sector.

Go figure!

elaine said...

hi mehrdad, thank you for reading and commenting! My belief is that all rankings serve primarily the interest of those publishing the ranking. There is no single sustainability measure which stands the true test of objective benchmarked holistic and balanced assessment. Nonethless, the debates that are generated with each ranking such as this are valuable and serve to raise awareness. As long as we all know where we stand, it could be a good thing!

regards, elaine

Toby Heaps said...

Hi Elaine
Thank you for your thoughtful analysis. We struggled with how to deal with companies that chose not to report certain key metrics. We had three broad choices:
A. Apply a zero score (penalize harshly)
B. Apply a null score (neutral/no penalty)
C. Apply a null score and include a separate score for transparency, which is weighted in inverse proportion to the extent of ESG/CSR disclosure (ie. the less a company reports, the more the transparency score is worth).

We chose C, and it is interesting to note that 9 of the top 10 Global 100 are GRI reporters. We look forward to refining the art of presenting a new balance sheet for corporate social/environmental performance--with input from insightful observers like yourself.

Cheers,
Toby

elaine said...

Thank you Toby for your comment and explanation. I see transparency as an essential baseline of accountability. I believe Companies who take transparency seriously deserve to be rewarded. So my approach would be to incentivise rather than penalise. This means, FIRST look at level of transparency and award a score. Then look at the rest and score accordingly. Those with the highest levels of transparency will always do better than those with same weightings in actual programs. This is the methodology I use when we do an annual review of Israeli Companies which we call the Transparency Index. Those who have produced CSR reports, rated according to the transparency level of the report itself, get a higher score than those who havent. I find it rather odd in your methodology that, if 9 of the top ten are (high quality) GRI reporters, they score low on transparency. Perhaps because you score only certain indicators which will always show differences. If i report on 10 indicators, but not on the 10 you look for, am I being less transparent ? Good points to debate. thanks, Warm regards, elaine

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