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Who's Invested in Newsweek's Least-Green Companies? (Maybe You)
One aspect of Newsweek's just-released rankings of 500 leading companies' environmental policies and performance is to view the list from an investor perspective. Specifically: Who are investors in the worst-ranked companies?
You might be surprised to find that it's you.
An analysis of the publicly available data shows that the 50 largest investors in the companies receiving the lowest scores — those ranked 490 through 500 on Newsweek's list — include three leading public employee pension funds as well as major mutual funds that hold millions of Americans' retirement accounts, including (in alphabetical order) American Century, Fidelity, T. Rowe Price, TIAA-CREF, and Vanguard Group. All told, the 50 largest investors have sunk more than $55 billion into those worst-rated firms.
This is of concern on two fronts. First, the pension funds. There are three public employee pension funds on the list: the Florida State Board of Administration (which manages the Florida Retirement System Pension Plan), the New York State Common Retirement Fund, and the New York State Teachers Retirement System. Together, these three funds have invested more than $1.4 billion into Newsweek's worst on behalf of retirees. Increasingly, public employee pension funds have been active, if not activists, in engaging companies on a range of social and environmental issues. One of these three, NYSTRS, is part of the Investor Network on Climate Risk (INCR), a network of institutional investors and financial institutions "that promotes better understanding of the financial risks and investment opportunities posed by climate change."
And New York State Comptroller Thomas DiNapoli, who oversees his state's Common Retirement Fund, was a signatory to the 2009 Investor Statement on the Urgent Need for a Global Agreement on Climate Change, published last week in the run-up to the UN Climate Change Conference in Copenhagen. (All told, 5 of the top 50 investors signed this statement.) Last month, DiNapoli boasted about $200 million in new investments made from the retirement fund's Green Strategic Investment Program. Suffice to say, their investments in Newsweek's worst-ranked companies counters these well-intended efforts.
But all that's small potatoes when compared with the rest of the investors in Newsweek's worst. The top 15 investors — in decreasing order of investments: Barclays Global Investors, State Street Global Advisors, Vanguard Group, Capital World Investors, Fidelity Management & Research, T. Rowe Price Associates, Franklin Advisers, Capital Research Global Investors, BlackRock Advisors, Wellington Management, AllianceBernstein, Northern Trust Investments, Pictet Asset Management, TIAA-CREF Asset Management, and Goldman Sachs Asset Management — collectively have invested nearly $39 billion in the bottom-ranked companies. Three of these institutional investors — BlackRock, State Street Global Advisors, and TIAA-CREF — are also part of INCR. Some of these firms operate large mutual funds that are the bedrock of many retirement accounts; the 25 largest mutual funds holding these bottom-ranked companies had $11.5 billion invested. Others manage the money of institutional investors, a broad class of organizations that pool large sums of money to invest in companies. Institutional investors include banks, insurance companies, retirement or pension funds, hedge funds, and mutual funds. Together, these firms permeate the lives of the majority of Americans.
So, where is the activism in all this — the pickets and shareholder resolutions and research reports analyzing the dirtiest portfolios? The activists are there, but some don't appear to be paying full attention.
Cary Krosinsky, vice president of Trucost, and one of Newsweek's partners in creating the Green Rankings, called these findings "quite stunning."
"Few of the shares of these companies are owned by founders, company executives or other insiders," he told me. "Large institutions and asset owners appear to be stuck with long-term positions in these companies. There's clearly still much room for education and enlightenment on what it means to own environmentally sensitive companies."
Krosinsky added that some pension funds and index investors will argue that they feel obligated to be "universal owners" — that is, that their stock holdings are highly diversified and, typically, held long term. But, he adds, "That's not an excuse for passive ownership of the most polluting and least-green companies. Such investing creates an unwitting block of inertia that discourages companies such as these from changing their ways for the better."
Seems there's a lot more to do to clean up the world's largest financial institutions' balance sheets.
September 21, 2009 in Business Practices, Climate Change | Permalink | Comments (1)
Inside Newsweek's Green Corporate Rankings
Today, Newsweek magazine unveils its first annual Green Rankings, the fruits of a near-Herculean endeavor: rating and ranking the environmental performance, achievements, and reputation of the S&P 500. The list, published today in a 12-page special section in the magazine as well as online, is the culmination of an 18-month journey.
The resulting rankings are straightforward, almost elegant, but it wasn't a straight or easy path. Like most such rankings, they're imperfect. They'll likely be challenged and debated, especially by some of the lower-ranking companies, not to mention the activist/blogosphere community. But it may well be the best effort yet to rigorously and comprehensively assess the mainstream corporate marketplace — at least in the U.S.
Over the past week, I've spoken with the creators of the rankings to understand the story behind this effort: their methodology as well as the challenges they faced, and how they faced them. As the creator of the annual State of Green Business report, I know these challenges well: creating a defensible, easy-to-understand set of metrics on business and the environment in a world in which data can be sketchy, inconsistent, or simply nonexistent.
First, the basics. The Newsweek rankings assess the S&P 500 — the 500 largest publicly held companies that trade on either the New York Stock Exchange or NASDAQ, the two largest American stock markets — on three metrics:
- an "environmental impact score," based on more than 700 metrics, compiled by Trucost, a leading provider of data and analysis on company emissions and natural resource use;
- a "green policies score," an analysis of corporate policies and initiatives by KLD Research & Analytics, one of the pioneers in socially responsible investing research; and
- a "reputation survey score" resulting from a survey of CEOs, corporate environmental officers, and academics conducted by CorporateRegister.com, an online directory of company-issued CSR, sustainability, and environment reports from around the world.
Each company's score, and thus its ranking, was based on a weighted average of those three components: 45% for the impact score, 45% for the policies score, and 10% for the reputation score.
The overall winner: Hewlett Packard, which edged out its rival Dell for the number-one spot. Rounding out the top 10 after Dell were Johnson & Johnson, Intel, IBM, State Street, Nike, Bristol-Myers Squibb, Applied Materials, and Starbucks.
The bottom 10 companies — those ranked 491 through 500 — are FirstEnergy, Southern, Bunge, American Electric Power, Ameren, Consol Energy, ConAgra Foods, Allegheny Energy, NRG Energy, and . . . in last place: Peabody Energy.
Only one oil company made the top 100, Marathon Oil, squeaking by at number 100. The majors didn't fare so well: ConocoPhillips (238), Chevron (371), ExxonMobil (395); BP and Shell aren't part of the S&P 500, so weren't ranked.
It's interesting to peruse high-profile companies. Examples: McDonald's ranked 22, Microsoft 31, Walmart 59, Clorox 77, Google 79, General Electric 82, Kimberly Clark 120, Apple 133, Halliburton 169, Tyson Foods 479, Monsanto 485, Duke Energy 490. I encourage you to dive into the full rankings and do your own comparisons and analysis. (The online version has some great detailed data.)
It may not be surprising that half of the top-10 rated companies (as well as half of the top 20) are technology firms, and that 8 of the 10 lowest-rated are energy utility or coal-mining companies. That makes sense: Most tech companies don't actually manufacture anything themselves these days — they mostly purchase components from other manufacturers — while utilities and mining companies are known to make quite a mess, in terms of emissions and other impacts.
Therein lies one of the big questions of such an effort: What do the rankings really mean?
"We regard this as a best first effort," Peter Bernstein told me last week. Bernstein and his partner, Annalyn Swan, operate ASAP Media, a "publishing and content development firm," and collaborated with Newsweek to produce the rankings. Both Bernstein and Swan have served as senior editors at Newsweek, U.S. News, and Fortune, among other places.
The ASAP-Newsweek team, along with a small advisory panel — including Yale's Dan Esty; John Steelman of NRDC; Marjorie Kelly of Tellus Institute; Climate Counts executive director Wood Turner; and David Vidal of the Conference Board — wrestled with issues like the one described above, ultimately creating a system that tried to account for the different industries' footprints. As Swan explained: "The advisory panel asked all the relevant questions you would ask: How do you calibrate and fine-tune the weightings between the actual environmental footprint of companies and positive reputations and initiatives and policies. That took several months of discussions. We convened the panel on numerous occasions. This was not a light undertaking."
Added Bernstein: "If you rank companies solely on their environmental footprint or impact, certain industries would dominate that list — technology, health care, banking — they all don't have as great as environmental impact as other industries. So, we had to adjust that with intentions and an industry bias. That was the subject of discussions concerning the weighting between these various data points, something all of our data partners debated. It was the single most time-consuming subject that we went back and forth on with the advisory panel."
The fate of corporate rankings rest on any number of such institutionalized biases, but that's par for the course. If you peel back the methodology of any massive undertaking like this — Fortune magazine's annual ranking of the World's Most Admired Companies, is one of many such examples — you'll find minuscule differences between companies that, depending on how things are scored and weighted, can rocket any given firm up or down the rankings.
And then there's the quality of data, about which I know more than a little, having attempted various analyses over the years using other organizations' research. As Bernstein put it: "This is a field in which, across the board, a lot of the data isn't as good as one would hope, or isn't as fully exposed, or doesn't exist. In each of these areas, greenhouse gas emissions being the most obvious, not everyone has data. Concerning the [U.S. government's] Toxic Release Inventory, some companies have to disclose by law and some don't. All of these factors were a balance. We hope that both disclosure and measurement will get better over time. This is a first stake in the ground."
I (and many of you) could pick apart the Newsweek rankings — for example, they don't include some of the more admirable privately held companies, such as Patagonia; Interface, the iconic green carpet company, isn't included in the S&P 500, even though it's listed on NASDAQ (not sure why). But I'll leave the picayune stuff to others. I'd rather step back and admire this first effort, however imperfect, and salute the team for doing what hadn't previously been done, or done well: brought together a wealth of data on a broad spectrum of the world's biggest companies to provide a snapshot of the green business world.
There's also the bigger picture beyond the numbers. As Bernstein told me: "You can't help but be struck by the enormous range of efforts and programs across the board that so many of these companies are engaged in their environmental efforts. Whether they're the most effective programs that will have their intended effects, or whether they're just good public relations, remains to be seen. But to the extent to which these large companies are engaging in efforts to look at their own emissions and their own environmental footprint — and coming up with imaginative, creative programs that are addressing climate concerns, water usage concerns, supplier concerns — it's rather staggering."
I suspect that as you read this, scores of senior sustainability professionals are getting calls from their overlords in the C-suite, asking tough questions about why their companies fared more poorly than hoped, and demanding answers.
And for that reason alone Newsweek's rankings are a beautiful thing.
September 21, 2009 in Business Practices, State of the Art | Permalink | Comments (5)
Northern Exposure, Scandinavian Style
How does one explain U.S. environmental and climate policies and related corporate practices to audiences in the progressive countries of Norway and Denmark?
Pondering that question became a near obsession for me over the summer, as I anticipated my recent weeklong speaking tour in those two countries, just now concluded. The tour came at the invitation (and sponsorship) of the U.S. State Department, whose Office of International Information Programs sends a range of speakers to various countries, often at the host countries' request. I'd done such a tour in the past, in India in 2000.
According to the State Department's invitation, there was an interest among companies in Norway and Denmark to learn how, and how much, U.S. companies were engaged in addressing their climate and other environmental challenges. So, I was sent to Scandinavia to offer my perspective, unadulterated by State Department officials or others who might have wanted to "shape" my message. (There was none of that: no stated agenda, no talking points, barely a pre-trip briefing.) Speaking engagements were arranged by staff in each country's respective U.S. embassy.
I spent three days each in Oslo and Copenhagen giving roughly a dozen speeches — at business schools, trade associations, government agencies, and companies — along with a handful of media interviews. In Oslo, I lunched at the embassy with senior executives from the Norwegian offices of Coca-Cola, IBM, McDonald's, Microsoft, Pfizer, and other companies, an event organized by the American Chamber of Commerce.
I arrived on European soil with my own set of assumptions. First and foremost: Norwegian and Danish opinions of U.S. companies weren't very high, at least from the perspective of environmental leadership. American firms, I assumed, were seen as reactive and disengaged when it came to matters green, lobbying against change legislation and digging in their heels on most other environmental issues, lest their profits and share prices might suffer. I girded myself for criticism — criticisms that I, to varying degrees, shared.
In Copenhagen, where Danes are excitedly gearing up for the COP15 climate change conference in December (the successor to the 1997 conference in Japan that gave way to the Kyoto Treaty) I assumed that there would be disdain for the U.S.A., whose corporate and governmental leaders hadn't managed to come up with even a tepid climate change strategy. As much as I looked forward to the opportunity, I dreaded the questions.
It was all in vain. The questions, the criticism didn't come.
Norwegian and Danish companies, it seems, aren't much further ahead than their North American counterparts in addressing environmental issues. Indeed, the state of the art of green business in those two countries seems relatively on a par with that in the U.S. The challenges they described were eerily familiar: How to make the business case, engage and motivate employees, identify the low-hanging fruit in efficiency improvements, stimulate customer demand, align supply chains with environmental goals, work effectively with activist groups, get public recognition for environmental achievements — and on and on.
The feeling was similarly familiar at the four business schools where I lectured. They were concerned about how to integrate sustainability themes into the curriculum — whether there should be separate classes on environmental and social responsibility, or whether it should be integrated into the overall curriculum. They wondered how they compared with other business schools in the green arena and how use environmental topics to differentiate themselves.
It was a long way to go to feel as if I'd never left home.
This wasn't the first time this has happened. I'd been similarly surprised on previous trips to Europe and, as I've written, to Japan and Australia and New Zealand. Somehow, I keep being surprised how much things are pretty much the same all over, and how that never seems to change.
One thing that has changed: a newfound respect and excitement for America since Barack Obama entered office. Pretty much everyone I met volunteered that their, and their countrymen's, opinions of the U.S. had risen sharply over the past few months. So, too, had their hopes for a newfound American engagement in Copenhagen in December.
I tried to temper their expectations, given the rough road that climate change has traveled in American politics. But they could not be deterred. Europeans seem to be convinced there's a new dawn in America — that our government, and the country as a whole, has undergone a profound change. A change, as the old campaign slogan goes, they can believe in — perhaps even more than we do.
September 13, 2009 in Business Practices, Climate Change | Permalink | Comments (1)
