The Factor Environmental Ratings Miss

There’s a problem with most major environmental rankings of businesses: Too often, the ratings fail to incorporate advocacy activities that influence environmental regulation.

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News corporation’s climate change performance was recently rated AAA by one rating organization — yet Rolling Stone magazine named News corp. CEO Rupert Murdoch No. 1 in its list of “politicians or execs blocking progress on global warming.”

Image courtesy of Flickr user the euskadi 11.

News Corporation’s CEO Rupert Murdoch recently announced that the media conglomerate and parent company of Fox News Channel had become carbon neutral, meaning its operations yielded net zero carbon emissions. His move garnered praise from EPA Administrator Lisa Jackson, and represents what is broadly considered to be best practice for how corporations should respond to climate change. But just two months earlier, Rolling Stone magazine named Murdoch No. 1 in its list of “politicians or execs blocking progress on global warming.” “No one does more to spread dangerous disinformation about global warming than Murdoch,” the article noted, highlighting News Corp.-owned publications like The Wall Street Journal for dismissing climate change as “an apocalyptic scare” and influential Fox News commentators such as Sean Hannity and Glenn Beck for rejecting climate science.

Despite all this, and largely because of the carbon neutrality of its physical operations, News Corp.’s climate change performance was recently rated AAA, the highest possible score in the Global Socrates database produced by MSCI ESG Research, a leading rating organization. In fact, most major corporate environmental rankings, including the Dow Jones Sustainability Index, focus on operational impacts such as pollution levels and regulatory compliance, as well as the presence or absence of environmental management practices affecting operations (such as environmental auditing) and stakeholder engagement (such as environmental reporting).

The problem with nearly all major environmental rating schemes, one that threatens their validity in assessing environmental leadership, is that they fail to incorporate advocacy activities that influence environmental regulation. More than one thousand business leaders have joined We Can Lead, a group that advocates strong climate policy. Twenty companies (including Aspen Skiing Company) have joined Business for Innovative Climate & Energy Policy, a leading corporate policy advocacy group. Meanwhile, according to The Independent, a London newspaper, “anti-climate change think tanks” have received hundreds of thousands of dollars from ExxonMobil. But none of these important acts affect company ratings. Along similar lines, Apple publicly quit the U.S. Chamber of Commerce, the largest lobbying group in the U.S., believing its efforts to quash binding climate regulations were an affront to Apple’s corporate values. Despite Apple’s aggressive leadership, Newsweek’s green rankings continue to place Apple below its industry peers.

Compared with companies’ efforts to green their operations, corporate political actions such as lobbying or campaign funding can have more influence on environmental protection, and arguably represent the greatest impact a company can have on protecting — or harming — the environment. In fact, the very existence of a debate on climate science in the United States and consequent lack of policy action have been attributed to massive corporate support for the “denial industry,” as detailed in Naomi Oreskes and Erik Conway’s book Merchants of Doubt. The U.S. Chamber of Commerce, for example, spent $132 million on lobbying in 2010 and opposed all climate legislation. Corporate influence on government policy will only increase after the Citizens United Supreme Court case, which allows corporations to spend unlimited amounts on elections.

Given the scope and scale of the climate crisis, the pressing need for broad policy solutions can’t be overemphasized. According to NASA climatologist James Hansen, climate change “almost surely” will be “the predominant moral problem of the 21st century.” The Intergovernmental Panel on Climate Change — the leading international scientific body studying climate — calls for CO2 reductions of 80-95% below 1990 levels by 2050. And even that aggressive target offers just a 50/50 chance of limiting the global average temperature rise to less than 2?C, beyond which millions of people will be at risk of drought, hunger and flooding, according to the IPCC. Therefore, focusing exclusively on voluntary operational greening including carbon neutrality distracts from the more pressing need for climate regulation to achieve the necessary overall reductions called for by climate scientists.

The primacy of policy in solving the world’s environmental problems suggests that corporate activism should be considered in a much broader set of environmental rankings. Why shouldn’t ratings that tell consumers which products are healthy, green and socially responsible consider whether a manufacturer’s political activities support or undermine climate action? Why shouldn’t standards that purport to identify environmental leaders, like the ISO 14001 environmental management system adopted by more than a quarter million organizations worldwide, require engagement in the political process to promote climate change regulation? Point-based programs such as the LEED green building standard could give credit for advocating such policies.

Third party corporate responsibility ratings matter. They help consumers vote with their wallets, aid jobseekers with employment decisions, affect employee morale, guide socially responsible investors and pension funds and generate good — or bad — PR for businesses. Research has shown that poorly rated firms respond by improving their performance. Even Bloomberg terminals, widely used by financial analysts, have begun providing Bloomberg’s own environmental, social and governance ratings (as well as others’), a move that sparked a number of large banks to create divisions to analyze their ratings.

As currently structured, many sustainability ratings risk seriously misleading consumers and shareholders; they can even enable greenwashing by allowing corporations to game the system, gaining high rankings while avoiding controversial policy advocacy that takes courage, invites attack and actually drives real change.

Fixing this problem isn’t all that complicated. Rating systems should factor in political contributions, CEO advocacy work and engagement with nongovernmental organizations among other actions. Just as rating agencies make many subjective decisions about which criteria to incorporate, identifying merit-worthy activism is a subjective task. Rating agencies needn’t take on this new task alone; they could partner with environmental nonprofits to identify which activities and organizations promote or undermine climate policy. Incorporating corporate advocacy can strengthen the competitiveness of ranking systems and enhance their differentiation in a crowded field of company ratings and rankings.

As a result of these changes, the new rankings could also do something remarkable: They could spur corporate activism and, in the process, help solve one of the world’s most pressing problems.

Topics

Leading Sustainable Organizations

Corporate adoption of sustainable business practices is essential to a strong market environment and an enduring society. What does it mean to become a sustainable business and what steps must leaders take to integrate sustainability into their organization?
See All Articles in This Section

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Comment (1)
Bruce_Klafter
I happen to agree with the sentiment of this article, but it is also a classic "slippery slope" in that it looks to punish advocacy and speech.  ESG ratings are focused upon performance and corporate advocacy is certainly an element of performance.  On the other hand, I'm sure ESG firms are wary of creating a screen for advocacy since it requires them to judge what's "good" and what's "bad".  Ratings and rankings need to be more objective and injecting further subjectivity into the process is undesirable.