Saturday, September 18, 2010

The Race to Rank

The Global 1000 Sustainable Performance Leaders ranking for 2009 was unveiled this week by CRD Analytics, made public for the first time, and hosted exclusively in a searchable, filterable data base on Justmeans. I wrote an editorial for, examining some aspects of this ranking which you can read here. In brief, this is a comprehensive ranking of Financial, Environmental, Social and Governance (FESG) performance of publicly traded companies with over $1billion in market capitalization and having produced a CSR or Sustainability report. The top 1,000 companies are selected from a total pool of over 5,000 potentials.  The ranking factors in performance data using GRI G3 indicators, and more, with 200 individual metrics. The methodology which underpins the G1000 is called Smartview(TM) and is also used to power the Nasdaq OMX CRD Global Sustainability 50 Index which was launched in June 2009.  Martin Smith, CEO of Justmeans, who co-hosted the Justmeans-CRD Analytics  webinar held on Wednesday said " This is the most robust methodology I have seen" (for ranking sustainability performance), and I agree with him. The purpose of hosting this ranking on the Justmeans platform is, according to Martin, to "speed up the rate of disclosure" With everybody's data out there for everyone to review, the expectation is that, in addition to the attention given to these rankings by the investor communitty, Companies will start to realize that transparency as well as performance is the name of the game for all stakeholders, and will be anxious to ensure that  their place in the rankings continues to improve. This is the essence of the race to rank. Whether you like it or not, if you are a publicly traded company, you are in the race. 

The Smartview(TM) methodology uses the four FESG dimensions, 20 key performance indicators and 200 individual metrics. The performance of each company is presented on a 360 spiders-web wheel , giving a visual representation of a company's total performance, and clearly highlighting areas where a company shows leadership or areas that need more work. One of the important factors in this methodology is the integration of actual performance as well as disclosure. If a company has not reported, they dont get a look in. And that's good, because responsiblilty without transparency is a non sequitur (That's Latin for oops!).

Michael Muyot, President and CEO of CRD Analytics, who developed the Smartview methodology,  shared  some interesting data  about the improved performance over time of Companies who have been evaluated  using this methodology.

This shows, in a rigorous, verified analysis, that global companies that improved on ESG performance from 2006 to 2008 outperformed the MSCI World Index by over 11.6% from 2008 to 2009. That's  pretty persuasive, and something investors are understanding how to work into their analyses and evaluations.

The value of presenting this ranking data for all to view, together with subsequent updates, serves to heighten awareness of the performance of companies, both for stakeholders and for the companies themselves who are looking to improve their performance and position in the rankings. CRD analytics do not consult to Companies who want to improve their position, in order to remain totally independent as they do their analytics stuff. Instead, CRD work with a range of consultants who know the GRI  framework and the Smartview(TM) methodology well and who can advise Companies on what they need to do to improve their performance against the required performance metrics. (Disclosure: My Company is one of those consultants). CRD's core service provided to companies is reports - company reports, industry or  sector reports, deep dive custom built reports etc which give companies a powerful set of analyses which can be used for planning, proritization and performance improvement.

At present, the plan for the G1000 on Justmeans  is twice-yearly updates aligned with the timings in the year that most companies tend to publish most of their data. However, the potential is to update more frequently - say  quarterly or even monthly. The ultimate would be to update the list day-by-day, whenever companies publish new data, giving an absolute real-time view of where individual companies are and how they stack up against peers. This would certainly quicken the pace of the race. The faster you disclose performance, the faster companies will compete for top rank, just as they compete for investor attention, shelf-space in a supermarket or air-time in the media. This is a good thing, as to improve rank, you need to improve performance. The faster this can be done, the faster we realise our global goals of sustainability.

Rankings are not just random or futile exercises. There are many which are not terribly scientific and not reliable as a reflection or predictor of sustainable performance. I am convinced that the Smartview methodology is different. And moreover, I am convinced that a professional, credible ranking drives companies to improve performance. Just looking at the Smartview data, which underlies the G1000 ranking, once can see the year-on-year progression of both transparent disclosure and quality of action.

I looked at the Company who has most improved its  position in the 2009 rankings: MOL Hungarian Oil and Gas plc, one of the leading Hungarian chemical companies, which jumped from  976 out of 1000  rank in 2008 right up to rank 153 in 2009. This Company  did not make the top 1000 in 2007. This is the result of a concerted effort on behalf of this Company to perform and report. This is what the Chariman and CEO say in their 2009 Annual (integrated fiancial and non-financial) report:

Our efforts towards Sustainable Development were also viewed positively by the capital markets, as MOL – exclusively in the Central-Eastern-Europe region – has become eligible for inclusion in the Sustainability Yearbook 2010 (bronze class), published by Dow Jones Sustainability Index’s analyst, SAM. The acknowledgement that MOL is among the top 15% of Sustainability performers in the oil and gas industry is the direct result of our long-term focus on those environmental and social areas that are critical to our sector such as climate change, transparency, occupational health and safety,attracting and retaining top talent and customer relationship management. In addition, our managers’incentive bonus scheme is partly based on performance indicators related to their individual SustainableDevelopment targets.

This strong position is reflected appropriately in the 2009 Global 1000 ranking. The 264-page 2009 annual report includes 34 pages on sustainability performance (assured) and a further 25 pages on governance. The report conforms to application level A+ of the GRI Reporting framework, an increase in transparency versus 2008 (B+), and 2007 (undeclared level). The improvement in the G1000 ranking position reflects stronger performance and stronger reporting in all ESG categories, whilst improving overall financial strength in 2009 versus 2008. Whilst achieving a higher ranking specifically in the G1000 may not have been top of mind for this Company, a focus on improving sustainability performance and disclosure was. As a  result, this Company is now on the radar and very much in the race.

Being in the race to rank delivers  reputational benefits and is a catalyst for performance improvement. Competing in the race is a sure-fire way to get stakeholders to sit up and notice, and even engage. Hah! And that is where accelerated positive impact on sustainability will be created.  

elaine cohen, CSR consultant, Sustainabilty Reporter, HR Professional, Ice Cream Addict. Author of : CSR for HR: A necessary partnership for advancing responsible business practices. Contact me via  on Twitter or via my business website  (BeyondBusiness, an inspired CSR consulting and Sustainability Reporting firm)

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