Inside the 2011 Newsweek Green Rankings
Audience Question: Tell us about the corporate disclosure score. Could we also get a little bit more from Sustainalytics and know what they looked at and was there any overlapping? It sounded like you guys did a great job making sure there wasn’t overlap in other areas.
Dr. James Salo: For the disclosure component of the Newsweek Green Rankings this year, which made up about 10% of that overall score, half of that score came from Trucost analysis on our side. This really had to do with how well companies were disclosing their environmental impact, so as per our research process, if companies were disclosing their overall greenhouse gas emissions, their overall water use, and waste etc., particularly in line with the elements we were looking for their particular company, that was really what was going to drive that disclosure score from our side. The other 50% came from Sustainalytics and I will let Annie and Heather go into more detail on that from their side.
Heather Lang: So from Sustainalytics we looked at whether the company produced a CSR report in the most recent accounting year; we looked at whether that report was verified according to the Global Reporting Initiative standards; we looked at whether the report was externally verified; and we looked at if the company participated in the most recent carbon disclosure service.
Q: How are companies actually selected for inclusion and what sort of criteria did you use and how are they weighted to come up with the 500 companies that are in the set of the rankings?
Dr. James Salo: As was the case for all three years for the Newsweek Green Rankings, there was a combination of three factors that really led to the beginning universe for the Newsweek Green Rankings both in the U.S. and in the global categories. Those three factors were the company’s overall market cap, the company’s overall revenues, and the company’s overall head count. That is really what established the starting point for our total universe.
Q: I was wondering if you could give recommendations on the best ways for companies to interact with each of you to verify their data and to provide updates to their data?
Annie White: You can just email me at greenrankings@Sustainalytics.com and that address is on the last slide of my presentation and we can go from there to set up a call or a meeting if that works best.
Heather Lang: Part of our research process is actually sending out to companies a draft profile. They’re given an opportunity to review and provide extensive feedback. There you will see that we provide all of the different sources that we use in that report. You can see where we are getting the information from the starting point is always your publicly disclosed company documents. So again, you can contact us at this time at the email address that Annie put on the screen, but also our analysis involves reaching out to companies. Through the new Newsweek Green Ranking process we have a clear understand in some cases of who the appropriate goto people are at companies and we will contact you and give you an opportunity throughout the year to verify information that is included and considered as part of the Newsweek Rankings.
Cary Krosinsky: We have been very proactive, as I’m sure you all know, trying to reach the right people with our information over the nine years we have been tracking companies and especially proactive with this Newsweek universe, so if you are looking to reach out to us, similarly there is an email address you can always use when it pertains to the Green Rankings. It is email@example.com or you can feel free to reach out to me directly and just send me an email. We also have a 1-800 number listed at our website, so most of our staff is in London but there are four full timers here in North America for Turcost including the two of us.
Q: This is a question for Annie. Annie you mentioned that one-third of the top 500 companies are tech companies. I’m interested on how you compare tech companies with extractive industries or more energy intensive-industries such as extractive industries, and could you for example see an extractive industry making a number-one ranking? Is that even possible with the way things are analyzed?
Heather Lang: So just to be clear, your question is what is the difference between how a tech company as an extractive company was evaluated and is it possible for an extractive company to be number one?
Annie White: Yes, I think at Sustainalytics a lot of that is captured through our weighting matrix, and there what we are doing is assigning the most weight to the indicator where a company is most exposed and has impact. What we are looking for is companies who do the best job in managing and mitigating any potential exposure that they face as an industry. So the company has the strong management systems in place and it is not involved in major controversies, then it is certainly possible to see even extractive companies that are involved in controversial sectors ranking quite well. I think of ten that is where we see some of the strongest management and disclosure, whereas in a lot of cases you have low-impact industries that are just saying, “Well we don’t really need to worry about that because we don’t have a substantial environmental footprint.” So for those industries, we are seeing to companies that are still taking that initiative. We are seeing in the top quartile, in the top 10 percent, an insurance company coming in the top in Europe, also a number of software companies that even though their impact isn’t so considerable they are still taking the onus of managing and disclosing and innovating in the area of sustainability. So I think it is possible among all the different sectors.
Cary Krosinsky: So from our perspective, different rankings are looking at different things. If you are looking at a ranking of the oil and gas sector, you are going to perhaps use a different set of metrics than if you are looking at an overall ranking. A lot of it is about what are we trying to achieve with the overall ranking? So there are three components. We are happy to have moved to a disclosure component because any company can get a 100 percent score on that. Any company could in theory get a 100 percent score on Sustainalitics’ side of things; we are just strictly looking at the quantitative environmental impacts objectively without value judgments. For the purpose of what this ranking is trying to do, looking at the overall environmental suitability, we feel this has helped give the rankings maximum credibility. There are other ways of looking at this. As I mentioned, we are going to be looking at the positive benefits of the food sector, and of course what some companies do that help
that along, of course could be considered a positive depending on how you look at the equation, so a lot of it comes down to what are you looking at, what are you trying to look at and I think the rankings are attempting to be a look at the overall environmental sustainability of the world and how companies fit into that.
Annie White: It is also great to use that online filter that Newsweek provided this year, so you can really see industry-specific rankings, you will be able to see companies that are evaluated along the same weight matrix, and then how they really compare to each other.
Q: Hi, my question had to do with the conversation Cary that you had earlier about the three years that this has been done, the methodology has been different all three years, and that really you’re recommending that companies don’t go back and compare historically. I’m a little bit of a skeptic on that because that is kind of what we heard last year, and you know I think from a company perspective that especially given that a lot of the information that you guys are looking for, especially engaging with the companies you can get some of the context or additional information for, as long as we have a head up for what you are looking at, and so I will throw out a request, so if going forward, there is any change in methodology, I don’t know what the best ways to go after the companies, but I think sometimes you might get some better data or context for those categories.
Cary Krosinsky: Thanks for that question. We completely share your sentiment. A number of things happened out of our control that basically put us in this position collectively. You know switching from NSCI to Sustainalitics was very much a positive for these rankings--by definition, meant there had to be some change. That also meant that we could take a look and set a baseline for the future for the first time that was not what our previous partners allowed us to do. And most importantly, perhaps in some ways, Newsweek themselves went through some changes which I’m sure you are aware, they were sold for a dollar to a 92-year-old gentleman who passed away. They merged with the Daily Beast and frankly this project came together just in time for us to do a quality job-- not enough time perhaps to give you guys a heads up on what to expect--but two months of notice which is what it was in the end. We’re hoping to go forward this year with the ability to announce much earlier what is going to happen in 2012 to avoid that.
Dr. James Salo: I just wanted to follow up on a couple points. I think that we are, after being involved in this process for the last three years, we are extremely aware and extremely keen on trying to maximize the transparency and utility of the rankings. So this year, for the first time, we really had an opportunity to alter the rankings in a way where results would be comparably year after year. Cary chatted about this briefly during his presentation about the actual calculation of rankings, but just to kind of reiterate this point, the rankings went from being an absolutely relatively scored system (that is to say, that the U.S. 500 list, the Global 100 list last year was completely based on its relative performance to other companies in that list). So, it would not be comparable intrinsically and would not be comparable year-on-year. In fact, the global universe and the U.S. universe were not comparable. So IBM for example has a different score, overall scores and component scores to each of the components, so we thought that was a major issue with the rankings which we strongly advocated to amend, so that was a major improvement this year, an essence that we were able to bring forward to allow the rankings to be a much more absolute form so the rankings will be not just comparable across the U.S. and global universe this year, but in fact would be directly comparable in subsequent years. So, that is going to be a major improvement going forward. As far as the consistency year-on-year moving forward, I think that we are all absolutely agreed on that and all I can say is, I would also suggest that you also raise those concerns to Newsweek directly because we would certainly like to see it stay consistent year on year and that where we positioned it to be this year.
Q: I tried to raise this during the review of data this year, but Cary had mentioned it also in his remarks about the timing of the CDP data and so the CDP data is released kind of after the fact when the analysis is done. To me that seems just like a timing issue and I know that Newsweek has done the rankings in mid-October every year, but would it make more sense to push it back to November or whatever date so that the data truly can be compared, because if I heard it correctly, those that submitted current year’s CDP data were reviewed based on that but otherwise everything had to go based on prior CDP data. So, it almost sounds like we are comparing some companies on current year other companies on prior year.
Dr. James Salo: Well, if I could start on this one. We suggest that you contact CDP and everyone on this call contact CDP and ask them why don’t they simply release the data disclosed to them on a timely basis. It is very baffling to us that they don’t do that and so we specifically asked every company for that disclosure. Some companies actually put it up on their website now. I don’t really understand that and again feel free to contact Newsweek about their editorial calendar. This is what makes sense for them and we actually talked about January as an alternative possibility and we are happy to do that but it is not in our control.
Annie White: Just to also provide assurances from our end because we have an indicator that looks specifically at CDP disclosure, we were able to access that information about whether or not a company publically disclosed to CDP. We were able to access that for this year prior to its release and to take that into consideration and in fact we didn’t include other indicators that we typically track based on the scope and quality of the disclosure, given the timeline because we simply didn’t have the time to process that information. But for the indicator that directly address that it was for 2011 release.
Q: And I promise this is my last question, but what is the date range of information that both of you look at? Is it rolling twelve months, based on the Newsweek deadlines, is it calendar year?
Annie White: For Sustainalytics, and this is probably true for Trucost as well, for the purpose of Newsweek it is rolling. So when we start in the summer we are gathering everything that is available at that point all the way into mid-September, I think we were gathering our data.
Cary Krosinsky: Let me answer this on the Trucost side. So, basically I think what you are seeing in the Newsweek rankings is an attempt by both Sustainalytics and ourselves to provide the most recent and consistent data. I say consistent, because in our case we calculate relative efficiency using annual revenue. We need that time point to line up between availability and a company’s revenue and its environmental metrics. So for almost every case we were looking at fiscal year 2010 (because that is the data that would be most robustly available across the board) both the financial data and the environmental data was important for us to have one time point to compare all the companies, so that we were looking at apples-to-apples as much as possible.
Q: I had a question on mainly Trucost. I saw a slide that showed the 721 different indicators because in the sample that you showed some of them are air and water and some of those underneath as you look at those similar pollution data. So I was wondering that, for instance because I happen to notice acid rain was under water and soil and air and all of those things. Does that mean if you look at those data it can sometimes hit different categories and have more weight if it hits more than one category such as air and soil and water?
Cary Krosinsky: That was just provided for illustration, we don’t do any double counting.
Q: That was my question because if we give some data, I didn’t know if it actually is being weighted more than once.
Cary Krosinsky: No, we would not do that. We are looking at the company’s impact across the 700 individual categories of impact, we definitely don’t double count, but some of them happen to be in different categories, but we would only count each of those impacts once. For the cost of society on them and do the relative efficiency measurement.
Dr. James Salo: The only other follow -up thing to say on this is, clearly not all of these impacts are going to be relevant for each company and so clearly we do not include all of those into every company’s profile.
Q: So I know you guys touched on a little bit here on the reputation survey score was replaced with the disclosure score, and that was really helpful for me to understand the difference there and how this year had a different methodology. But what you guys hadn’t touched on, which I was hoping you could further explain, is how the Green Policies was then replaced with the Environmental Management and what is the distinction there and is there a different weighting?
Heather Lang: So Green Policies is essentially the same as Environmental Management, and I think overall we are looking at a lot of the same types of information. We are looking at policy, we’re looking at management programs, certifications, programs, targets, etc. You know beyond that I think the best that we can do is explain to you from Sustainalytics side, as Annie did in her presentation, what it is that we are looking at under that bucket and it is weighted differently and there are some different indicators than what the previous research provider, MSCI included in the past. So yes, there are some differences indeed, it is a different research process.
But at the same time I think in our findings that also the results will lob consistency and how a number of these companies ranked, particularly among the leaders and the laggards there was a lot of overlapping consistency there.
Q: I have one other question to ask here real quickly. I know that you guys have mentioned throughout the year that you could contact, you could send emails to update us and provide us additional information. But is the actual website that we were able to submit information to, even if it wasn’t live, in terms of putting in information. Would that be available to us throughout the year so that I can go back and refer to how is it being tracked and measured form the Newsweek Green rankings so that I can go back to my company and say, ‘Here is what they are looking for in the next year, 2012, Green Rankings and here is how we need to supply this information?’
Cary Krosinsky: Speaking for Trucost on that front, we have had this chance with Sustainalytics, and we are all hoping that Newsweek will, as soon as possible, make clear that they want to proceed once again in 2012. We are happy to get back in touch earlier then we did last year here on the research side so that you have even more
time and opportunity to review the data that we have. So, let’s hope we pick that up soon. We definitely want to have more time for this engagement cycle this year.
Q: As of now, that website which I submitted information to, is that still live where I can continue to go back through and look at the different questions?
Cary Krosinsky: That was just for the Newsweek research process this year, but we are happy to chat offline about how we can get that to you again so you can have it.
Annie White: And just to verify from the Sustainalytics side, our research process and indicators do not change from one year to the next. Similarly to how companies find an important need for consistency in how they are evaluated from one year to the next, our clients in the investment community really value consistent sets of information. So the way we are evaluating companies now will be the same as the way we evaluate them in years moving forward. So being engaged in this process now, and having an opportunity to review your profile, there won’t be surprises next year in terms of how we evaluate companies.
Q: Question for you both: Trucost and Sustainalytics follow a much larger universe of companies then the 500 included in this study. Some of us fell a little bit short of your cutoff this year, and lost the benefit of the benchmarking data. Is there any realistic chance that Newsweek will expand the universe of companies ranked in the study going forward?
Cary Krosinsky: I don’t think we can speak for Newsweek. At this point it’s possible they would look to expand that universe. I think one thing that we could do is chat offline and provide an indication of any company, who was not in the rankings, might have more or less come out to be if something was done in the past that are not. There are a number of companies who are “bubble” companies given the criteria of one-third market cap, onethird revenue, and one-third number of employees. There are a number of companies that have come in and out of rankings just because they have to be within the largest 500 or not and we are happy to give an indication offline about what you would have been if you didn’t quite manage to make it in this year, or even a company that has never been in the rankings. So those are things we would be happy to discuss.
Annie White: If there are companies on the call that were not part of the ranking, but are interested in knowing more about that data, the same goes for Sustainalytics. Feel free to get in touch with us and we would be more than happy to share that data with you.
Q: I read in the methodology that Newsweek identifies the environmental impact that a company is responsible for and then assigns a dollar value to the potential cost of society of resulting damage to the environment. How does Newsweek determine what that dollar value should be?
Cary Krosinisky: That’s something we do at Trucost, and we are happy to chat about that offline, but it is a cost of society that is constantly being determined by our leading academic advisory panel of ecological economists. He depicts a cost in order to do a consistent calculation of relative efficiency. The real costs to a company today versus what it might cost a company in the future is really scenario analysis work that has to be done.
Q: Our question is a clarification question in the closure category. If you could tell me if this is correct, that disclosure of certain categories, for instince waste management and other similar environmental operations issues are not included if they are no published in a CSR. Is that correct?
Annie White: From our side, from Sustainalytics, it has to be a robust sustainability analysis. We also check the company’s website and read their CDP reports from the previous year. So that is not the place that we can access information. However the indicators that we used this year to assess companies’ disclosure were very much focused on release of an externally verified environmental sustainability report, particularly in accordance with Global Reporting Initiative (GRI).
Q: So it is really a question of external audit confirmation, not which context it is published in? So if it is published in a sustainability report that would be acceptable if the data are externally verified?
Annie White: Yes, and I think we recognize that there is a shift happening in the ways companies report and best practices right now are moving towards an integrated type of reporting. We certainly recognize that companies have different ways of reporting their sustainability initiatives, and we give a lot of credit to companies who do so in their regular financial filing and other reports that they release to their investors.
Q: My main question was last year, and I know things aren’t comparable year over year, but there was a tech industry report and there has been a few questions here relating to whether or not sectors should be compared or how sectors are compared against each other. Is there any move within the Newsweek Green Rankings to go from an overall ranking to an industry-specific ranking considering that move in the general sustainable investing space?
Cary Krosinsky: I seriously doubt you will see that because, again, as I mentioned many times on this call, you can just go to Newsweek.com/green and choose the sector you are interested in and see only those companies. So that is already available.
Q: They are definitely available, but they are not quite as compared or as visible as the overall rankings.
Annie White: The challenge is that we are trying to cater to a number of different types of readers and so the average Newsweek subscriber isn’t necessarily looking for that level of distinction and nuance, whereas the more sophisticated user typically goes to the website and will be using that type of functionality.
Cary Krosinsky: I think the other thing to say about all of this is that this ranking is a cross-sectoral analysis and it has some advantages in that it is trying to bring together a number of sectors and a number of companies and compare them, but it also has a lot of challenges and we are well aware of where some sectors are going to be innately more environmentally impactful then others. Some sectors there is going to be a much longer history of having dealt with these issues than others, but that is the kind of nature of how these particular rankings were put together. I think things might have been done completely differently if you were looking just at doing a ranking of, say, the tech sector or say healthcare or something like that. Or, if it was the utility sector because the specific metrics and the specific ratings you are using might actually be different.
Dr. James Salo: And one of the great things about this ranking, I think, is that there are actually multiple providers, but you guys again are bombarded by requests by all sorts of individual folks looking for information. This is actually a ranking that takes the best of a number of leading players and puts them together, and that’s what the industry is asking us to do is be more collaborative in the rankings. So we feel this is a step forward in that regard. It would be foolish to move backwards. And the other thing I have to say is that we’re quite excited that the ranking has gone global to the Global 500. It reflects the global nature of the economy and these things are now extremely important from a competitive standpoint. As we go forwards they will only become more important; so it great to be trying to do that in an objective manner.
Q: How do you account for the fact that many companies now outsource their manufacturing and it seems to penalize companies who manufacture their own products?
Cary Krosinsky: We actually try to account for that as much as we can, so maybe James you want to talk about that?
Dr. James Salo: This is going to have to do much with specific data verification processes, but on Trucost side, (and I’m sure this also falls into the Sustainlitics campus) you notice their metrics go across direct operations products and supply chains, the effort is to try to incorporate as much of this outsourced activity as possible. So, where there is specific information available on outsourcing, that is applied directly into companies’ profiles. Some notable examples of things like this would be in the case of intellectual property for companies such as Nike, for whom a lot of their manufacturing is directly outsourced, or in the case of the tech industry, in organizations like AMD, who have spun off their manufacturing. For these companies, we know directly what is in their supply chain and can therefore incorporate into the profile to make it a more even playing field, because that is clearly the way we are going. I think that the research moving forward certainly will continue to expand the use of supply chain in the research. As many of you probably know, the World Resource Institute and the World Business Council for Sustainable Development just launched a reporting protocol for the whole value chain for greenhouse gas admissions, so help reporting both upstream supply chain emissions and downstream product and use emissions. So I think with that and more companies going out and publically measuring this, I think that will certainly be an area of growth in the future.
Q: Do your respective companies have standards that you use to inform sources? And we were interested to know if you have established standards that you use to inform your analysts as to which sources they can and cannot use for purposes of finding the information that you then can provide to us as that initial draft.
Heather Lang: Well here at Sustainalytics, we have a quality management team that screens all of the different NGO sources. For example to ensure that the quality is sound and to make sure exactly that it is reliable, we do that process internally in addition to other sources that we might have looked at.
Annie White: In addition, we also drove down a bit more regionally too, so what works in North America might not be as reliable in an emerging market for example. So we try to get as specific as possible.
Heather Lang: And the same goes for the media sources as well of course.
Dr. James Salo: On the Trucost side we have an annual review process to review our methodology and the current calculation techniques that are applied, so that is certainly taken on board before going out and cooperating with a public disclosure and then providing information back to companies.
Cary Krosinsky: And we certainly follow the GAC protocol, James mentioned that has been literally in development to this day. Scope 1 and 2 coalesce a time ago and scope 3 is only coming into clear focus now. So again I think it is great that we have a partner that is looking at the quality of supply chain management and that is going to be really important for companies to take seriously.