To produce the 2011 Green Rankings, Newsweek collaborated with leading environmental research providers, Trucost, and Sustainalytics to assess each company’s environmental footprint, management of that footprint, and transparency. The Green Rankings focus on the largest publicly traded companies in America (the U.S. 500 list) and worldwide (the Global 500 list). Each list consists of the largest 500 companies by revenue (most recent fiscal year), market capitalization, and number of employees as of June 30, 2011. A number of the largest U.S.-based companies appear on both lists.
Companies on each list—the U.S. 500 and the Global 500—are ranked by their overall Green Score. This score is derived from three component scores: an Environmental Impact Score, an Environmental Management Score, and an Environmental Disclosure Score; weighted at 45 percent, 45 percent, and 10 percent, respectively. All scores are out of a possible 100.
ENVIRONMENTAL IMPACT SCORE
Based on data compiled by Trucost, this is a comprehensive, quantitative, and standardized measurement of the overall environmental impact of a company’s global operations. More than 700 metrics—including emissions of nine key greenhouse gases, water use, solid waste disposal, and emissions that contribute to acid rain and smog—are factored into the Environmental Impact Score.
Trucost uses publicly disclosed environmental data to evaluate company performance for each impact metric whenever possible, and uses a proprietary economic input-output model to calculate direct-company and supply-chain impacts in cases where data is unavailable. To fairly assess the impacts of companies operating in more than one industry, Trucost uses a benchmarking system. First, it calculates the total environmental impacts per total economic output (usually in dollars of revenue) for 464 industry sectors. Then, it evaluates the proportion of a company’s revenue that is derived from each sector in which it does business. This research is fed into the model, which uses the benchmarks for each of those sectors (for example, total water use of the oil industry per its total economic output) to estimate the company’s impacts (in this case, its water use.) Trucost draws on any relevant data that’s available, such as the EPA Toxics Release Inventory, to further refine the model. Equity investment under management is also considered for each company: if a firm owns a percentage of an oil and gas company, for example, they are apportioned the impact associated with that percentage, consistent with the latest accounting and reporting standards. Any outside data that Trucost considers is first scrutinized to ensure it is of good quality, and then standardized before being used.
Once the specific impacts of a company have been quantitatively assessed, Trucost calculates an environmental damage cost for each—a dollar value representing the potential cost to society of resulting damage to the environment—based on a standardized cost per quantity of each environmental input or output that Trucost has developed from valuation studies and other academic literature. The costs for each individual metric are added up to produce a dollar estimate of the company’s total environmental impact. Finally, this figure is normalized by company fiscal-year revenue (to account for company size) and expressed on a 100-point scale as the Environmental Impact Score.
ENVIRONMENTAL MANAGEMENT SCORE
Based on an analysis of companies tracked in Sustainalytics’ Global Platform, the Environmental Management Score is an assessment of how a company manages its environmental performance through policies, programs, targets, certifications, and the like. To account for a company’s overall environmental footprint, Sustainalytics’ focuses on three distinct spheres of influence: company operations, contractors and suppliers, and products and services. An analysis of positive performance-related criteria is counterbalanced by a detailed assessment of environmental controversies and incidents, which often indicate the extent to which management systems are effectively implemented.
Approximately a dozen core environmental indicators are assigned to all sectors, addressing environmental policies, management systems, certifications and programs and targets to reduce emissions and increase the use of renewables. These core indicators are supplemented by over 40 sector-specific indicators addressing issues such as biodiversity protection, water use, hazardous waste reduction, supply-chain initiatives and a range of sustainability-related products and services. As such, the composition of indicators and weightings used to evaluate a company vary by industry, on the basis of industry-specific impact and exposure. This methodology is underpinned by Sustainalytics’ best-of-sector approach to benchmarking company performance relative to industry peers.
Sustainalytics’ research process includes a thorough examination of company documents, media sources, online databases, government sources, NGO research, and other industry sources, as well as direct communication with key stakeholders. As part of its standard research cycle, all profiles are peer reviewed internally and sent to companies for verification.
ENVIRONMENTAL DISCLOSURE SCORE
For the first time this year, environmental disclosure was included as a stand-alone score to assess each company’s transparency with regard to its environmental performance. Specifically, this score evaluates the breadth and quality of company environmental reporting of their material impacts, as determined by Trucost, as well as company involvement in key transparency initiatives such as the Global Reporting Initiative and Carbon Disclosure Project, as tracked by Sustainalytics.
CONFIRMING THE DATA
All companies included in these rankings were notified by electronic mail in mid-July and given the opportunity to submit any relevant data and engage in the research process. Over 50 percent of the companies responded, up from around 42% last year. Information provided after the rankings were assembled could not be taken into consideration.
IMPROVEMENTS THIS YEAR
This year, the global Green Rankings list has been expanded from 100 to 500 companies, many of which are from emerging markets such as China, India and Brazil.
To reflect trends in the sustainability arena, we’ve introduced the Disclosure Score in place of the Reputation Score used in previous years. A company’s environmental disclosure to key stakeholders is considered to be a noteworthy signal of its commitment to sustainability.
Finally, this year’s methodology has been improved to increase the transparency of the ranking calculation. While they remain on a 100-point scale, the individual component scores and overall green score are now expressed in absolute terms, allowing for direct comparison with future Green Rankings lists. Furthermore, a simple 45-45-10 weighted average of the three component scores will result in the Green Score—unlike in previous years where the actual calculations were carried out on underlying z-scores that were not publicly available. This year’s scores also better reflect where there is room for companies to further improve: the highest green score on the U.S. list, for example, is 83—not 100, as it would have appeared in past years.
PANEL OF ADVISERS
The Green Rankings methodology and weightings were formulated in consultation with an advisory panel convened by NEWSWEEK, whose members served independently of their respective organizations. This year’s advisory panel includes:
· Tom Murray, managing director of the Environmental Defense Fund’s corporate partnerships program
· Michael Toffel, associate professor of business administration at Harvard Business School