The Big Flaw in Corporate Sustainability Rankings

Newsweek just released its fourth annual Green Rankings, grading the "greenness" of the 500 largest publicly-traded companies in the world. In partnership with research firms Trucost and Sustainalytics, companies are ranked based on their management, performance, and transparency in the environmental domain.

One of us (Toffel) was a member of Newsweek's advisory panel. Thanks to that involvement and our research on green ratings, we understand the many challenges of rating firms' environmental performance. While leading assessments like Newsweek's are admirably rigorous and comprehensive, all major green rankings have an important blind spot: They do not account for corporate lobbying and campaign contributions around environmental policy. After all, no matter how green a company's operations and supply chains are, political efforts aimed at weakening environmental laws and regulations can have far greater environmental impact.

Unfortunately, we know little about corporate political activities since much of it occurs behind closed doors. So whether companies are pushing to strengthen environmental regulations or lobbying to weaken them, none of this crucial information is incorporated into green rankings. You might think that companies that are transparent on environmental issues would also be forthcoming about their political activities. But perhaps not.

To find out, we turned to political and business ethics research from the Center for Political Accountability (CPA) and the University of Pennsylvania's Zicklin Center for Business Ethics Research. We compared their analysis of the political accountability and disclosure of the top 200 U.S. public companies — their CPA-Ziplin Index — to Newsweek's environmental transparency scores. We found extremely low correlation (0.2) between environmental transparency and political transparency. In other words, while the environmental and political transparency scores both range from 0 to 100, a company's environmental transparency score tells you very little about how transparent it is regarding its attempts to influence environmental policies and regulations.

Of particular concern is when this mismatch occurs in environmentally-intensive sectors such as energy and mining. Oil giant Halliburton, for example, scored a 75 on environmental disclosure but a mere 10 on political disclosure. Meanwhile, Newmont Mining earned a near perfect 98 on environmental disclosure but just 17 on political disclosure. (A full list of our comparisons is reported in our recent Newsweek/Daily Beast article "What Green Rankings Don't Tell You.")

This finding is unfortunate. Corporations can be incredibly influential on environmental policy issues and, especially since the Citizens United Supreme Court decision in 2010, are able to spend large amounts of money anonymously. Green ratings ought to include political transparency scores to get a fuller picture of corporate greenness, especially since our analysis indicates that companies are making very different decisions about disclosing their environmental indicators versus their environmental policy advocacy. Only then will we be confident that we are celebrating — or condemning — the right companies for their environmental efforts and performance.