Newsweek's Green Rankings: What They Mean ... and Don't

Today, Newsweek releases its 2010 Green Rankings, its second annual effort to rate and rank the largest companies in the U.S. and the world. Dell and HP switched places for #1 and #2, and after that, who really cares?

The other 498 companies, that’s who.

A couple weeks ago, when about 30 senior sustainability executives gathered in Milwaukee for a meeting of our GreenBiz Executive Network, I asked members how many knew their company's 2009 Newsweek Green Ranking. Damn near every one could cite it blindly. The rankings, it seems, have become a major metric in corporate America.

But it’s important to put the rankings in perspective ahead of what I expect will be another surge of horserace-type analysis: who’s ahead, who’s behind, who’s catching up, who’s falling back. As these things often are, there is both more and less going on here than meets the eye.

This year’s 2.0 release represented an opportunity for Newsweek and its partners to tweak the methodology from last year’s maiden voyage. Not that there was a lot that needed tweaking. As I wrote a year ago, the rankings “may well be the best effort yet to rigorously and comprehensively assess the mainstream corporate marketplace.”

Indeed, the basic methodology remains pretty much unchanged. Newsweek’s rankings assess the 500 largest publicly held companies, determined by a combination of market cap, revenue, and number of employees. Each company gets a Green Score derived from three separate metrics:

• an "Environmental Impact Score," compiled by Trucost, based on more than 700 metrics of company performance, including greenhouse-gas emissions, water use, and solid-waste disposal; 

• a "Green Policies Score," from MSCI's RiskMetrics Group, reflecting an analytical assessment of a company’s environmental policies and initiatives; and

• a "Reputation Survey Score," resulting from a survey of CEOs, corporate environmental officers, and academics conducted by CorporateRegister.com.

The first two — Environmental Impact and Green Policies — each account for 45% of the total score, with Reputation making up the final 10%.

So, who won? Dell edged out HP for the top spot this year, changing places from last year, when HP was #1. In fact, the top five companies — rounded out with IBM, Johnson & Johnson, and Intel — were exactly the same as last year, except in a slightly different order. Nike and Applied Materials kept their place among the top 10, joined this year by Sprint Nextel, Adobe Systems, and Yahoo! That last of those, Yahoo!, may have been the biggest gainer, with the Internet portal moving up 60 slots to #9, from #69 last year. Meanwhile, the #500 company of 2009, Peabody Energy, didn’t budge; the world's largest private-sector coal company remained dead last in 2010.

This year, Newsweek added a second ranking, of the top 100 global companies, using the same methodology. The top 10: IBM, Hewlett-Packard, Johnson & Johnson, Sony, GlaxoSmithKline, Novartis, Deutsche Telekom, Panasonic, HSBC Holdings, and Toshiba. Some of the top companies in the U.S. ranking didn’t make the list because their size didn’t put them in the top 100 globally. For example, Nike and Intel, for all their heft, just weren’t big enough to qualify among the world's 100 biggest companies.

As I said, all of this needs some perspective. Four key points:

• The differences among the top-ranked companies are pretty minor — and in some cases razor thin. After all, the overall rankings cram 500 companies into a 100-point scale. The top 19 companies all scored 90 or higher, and the top 87 companies scored 80 or higher. Only the bottom 5 received fewer than 30 points.

• The methodology changed a bit between this year and last, so year-over-year comparisons aren’t really possible. (This shouldn’t be as much of a problem going forward.) No doubt, this won’t stop companies from scrutinizing how they and their competitors fared over the past year, but unless there were wild swings in standings, such analyses won’t be meaningful.

• The work that goes into some of the rankings’ components is subjective, meaning that individual judgment calls are turned into numeric scores that ultimately determine a company’s ranking. Given the closeness of the scores, one misinterpretation by an analyst having a bad day could make a material difference in a company’s score and ranking. That subjectivity is important to keep in mind, especially given that less than 1 point separates the top four companies — Dell, HP, IBM, and J&J.

• All of the scores are relative, not absolute. That is, companies are judged not on how well they do, but on how they fare in comparison to their peers. So, Dell’s top score of “100” doesn’t mean it is perfect any more than HP’s “100” score did last year. It just means that of the 500 companies assessed, it scored the highest.

I have no doubt that such subtleties will be lost on most people, who will view the rankings as Gospel, especially when comparing competitors — e.g., declaring that Dell (#1) is better than HP (#2), Pepsi (#135) is better than Coca-Cola (#141), UPS (#62) is better than Fedex (#105), McDonald’s (#79) is better than Wendy’s (#313), Wells Fargo (#41) is better than Bank of America (#124), and Walmart (#51) is better than Target (#61). There’s great sport in all this, but there can also be both unearned gloating by the winners and needless self-flagellation by the losers, especially when the differences are fairly small.

But the differences can be real — and instructive. Consider the HP-Dell flip-flop. I asked Kathy Deveny, Newsweek’s Deputy Editor, who headed up the project for the magazine, to break down what happened with those two companies.

Here’s what she told me:

• Dell’s Environment Management System score both increased and surpassed HP’s this year. Dell’s Product Impact score also increased, while HP’s score slightly decreased. The Product Impact component of the Green Policies Score is weighted very heavily for tech companies, giving Dell a boost.

• There was no change to either Dell’s or HP’s Climate Change scores. However, Dell’s score already was higher than HP’s. The climate component is also weighted heavily for tech companies.

• Finally, Dell’s Environmental Stewardship score increased dramatically (by 22 points) this year, whereas HP’s also increased, but only by 6 points.

So, both companies did better this year than last. But Dell’s Green Policies Score increased by 3 points, whereas HP’s increased only by 1 point, allowing Dell to slip by HP. And the rest is history.

“It was a complicated process last year and we made it even more complicated this year,” concedes Deveny, referring to the adjustments in how metrics were normalized, calculated, and weighed. There was also a harder push to get the companies to review their data before the final scores were calculated; about 40% did, roughly double last year. An analysis was added in assessing financial services companies to include the ecosystem damage of their investments.

“When you do these kinds of rankings you have a choice between doing something that’s really easy to understand but kind of superficial, or doing the most comprehensive job you can and making it pretty complicated,” Deveny told me. She explained that the process of comparing 500 companies across different industries wasn’t easy given that they used data sets created in different units: Trucost tracks environmental impacts as dollar amounts, MSCI uses a 1-100 scale based on 70 measures of policy and initiatives, and CorporateRegister.com conducts a survey of experts.

Said Devany: “For a mass-market publication like us, it was a conundrum: Do we make it simpler, but not as good, or as comprehensive as possible but really complicated so that some people don’t understand it?” She said they chose the latter path, adding, “The burden is on us to explain it.” She said this year the magazine has put an expanded methodology section online.

But here’s the real bottom line: There appears to be a correlation between high-scoring companies and well-performing stocks, according to Cary Krosinsky, vice president of Trucost. His analysis found that the top 100 companies in this year’s Newsweek rankings outperformed the Standard & Poor's 500 Index (on an equally weighted basis) by 6.8% for the 12-month period ending September 1, 2010. That, as they say, is real money.

Correlation isn’t causality, of course, but Krosinsky’s findings are encouraging. It’s one thing for a company to know that its sustainability measures are helping lift its stock price. But it’s altogether another thing when its shareholders know that.

In the end, making that link may be the biggest contribution the Newsweek's ranking make to the field of sustainable business.

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Lifting the Lid on Stonyfield's New Plant-Based Packaging

Today, Stonyfield Farm, the organic yogurt company, is unveiling a new packaging solution: A yogurt cup made from corn.

It's not the first revolution in yogurt cups, or the first packaging innovation made from corn. But Stonyfield's journey to today is a case study in sustainability, innovation, persistence, and systems thinking that I think is worth sharing.

First, the basics. Stonyfield's new cup — now being used in its multipack Yo-Baby products and a few others — replaces polystyrene with a plant-based plastic called polylactic acid, or PLA. Essentially, it's a plastic made from corn.

The PLA is made by NatureWorks in Nebraska, which is owned by Cargill, then sent to Clear Lam Packaging in Illinois, where it is mixed with colorings and other additives and turned into rolls of plastic that are formed into cups at the Stonyfield Yogurt Works. The new package is 93 percent plant-based, with the balance being nontoxic colorings and additives.

The cups offer a number of advantages. Aside from the obvious — substituting plants for petroleum — PLA uses less energy and releases fewer greenhouse gas emissions than polystyrene over its lifecycle. 

PLA is made from corn, which captures carbon as it grows, so PLA releases 48 percent less carbon into the atmosphere than polystyrene does from cradle to grave. For Stonyfield's 200 million-odd cups that translates to reducing its carbon footprint by 1,875 metric tons a year. That's no small number, since packaging represents Stonyfield's second-largest carbon footprint, after cows.

Moreover, the new packaging is stronger than the oil-based plastic it replaces, and offers some other performance characteristics. For example, it reduces breakage during shipping and forms a tighter seal with the lid. The plastic is stronger than polystyrene, so less is needed, making packages lighter. (One downside: PLA's strength dulls industrial cutting blades on packaging machines more quickly.) Because of PLA's higher efficiencies and lower losses, the shift to plant-based plastics can be done at no net cost increase to Stonyfield.

So far, so good.

But it's never that simple.

While PLA can be made from a range of materials, in the U.S. it is made from corn. And 70 percent of U.S.-grown corn contains genetically modified organisms, or GMOs, according to the U.S. Department of Agriculture's Economic Research Service. That means that in using PLA, Stonyfield, a company maniacally committed to organic farming, is supporting GMOs. And therein was a dilemma.

Stonyfield is not the first company to grapple with such issues. Sustainably minded apparel and footwear companies, for example, have looked at using PLA in their products and have become stymied, fearing backlash from consumers and activists for supporting GMO crops.

Many of the objections to GM technology stem from its potential use to create unnatural organisms -- for example, a plant modified with genes from another species of plant, or even an animal. 

Another concern is that genes used to modify crops could escape into wild plants, creating "superweeds" highly resistant to pests, or alter plants in other ways that might cause damage to the environment. It is possible, this argument goes, that plants emitting their own toxins could lead to insects and other pests mutating into bigger, stronger, more resistant beasts. 

A further concern is that GM crops themselves might prove to be harmful to either wildlife or the people who eat food harvested from the crops. Still another key concern is that genes escaping from the crops could pollinate non-GM crops that are being grown organically.

Stonyfield found what it determined to be an acceptable workaround: GMO offsets.

The company worked with the Institute for Agriculture and Trade Policy and its Working Landscapes Certificate program. The goal of Working Landscapes is to reduce the environmental impact of corn and other crops grown for industrial purposes, such as plastic and ethanol production.

Working Landscapes pays farmers who agree to grow the corn we need according to very strict sustainable production standards — things like strengthening soil, protection air and water, and promoting biological diversity. Working Landscapes also ensures that non-GMO corn is used. It's seen as a win-win situation for farmers and the environment, and we hope other companies follow their lead.

This "offset" program means that the amount of corn produced using sustainable corn production practices through Working Landscapes will be equivalent to the amount used for Stonyfield's packaging needs — about 500 acres' worth in 2010 — although the sustainable corn itself may or may not actually show up in the final Stonyfield packaging.

Working Landscape meshed well with Stonyfield's longtime support for family farming.

"It's critical to us that the farmers get most of the money," Nancy Hirshberg, vice president for Natural Resources at Stonyfield, told me recently. "This is using the market to transform farming to what we believe are more sustainable practices."

She added: "We could bring over lactic acid made from non-GMO beets in Europe, or tapioca in Asia, or sugar cane in South America. But we really felt that moving American farmers to more sustainable practices was a better route to go."

Offsets are a decidedly imperfect solution, one not embraced by all environmental advocates, but Gary Hirshberg, Stonyfield's "CE-Yo" (and Nancy's brother), a longtime environmental advocate himself, saw no other viable option. "Obviously, we wish it were not corn," he told me. But, he added, "We can't afford to hang out in the black or white space — we've got to lunge into the gray here."

But there's an even greater good here that Stonyfield is pursuing: growing the market for PLA to reach a volume that makes eliminates the need for corn to make PLA. That's long been the ultimate dream of companies like Stonyfield: sourcing plastics from agricultural waste or high-yield perennial crops grown on marginal land unsuitable for food crops. According to the U.S. Department of Energy, the market for these so-called cellulosic feedstocks will be commercially viable within five years. But Stonyfield thinks it — and its competitors — can accelerate this.

Toward that goal, the company has decided to make this technology, on which it's been working for years — open-source, available to its competitors.

"We had the opportunity for exclusivity on this, and it was not an option that we thought was ethical," said Nancy Hirshberg. "So, we're putting all of our studies on the Internet. We're welcoming other companies to come in to see how it runs. We'll be out speaking to others. We're really encouraging others to do this."

Said Gary: "The big win, as I've come to understand this, is that the only thing that the only impediment to getting to agricultural waste or algal waste PLA is volume. Every chemist I know on both sides of the Atlantic says it's only one thing that makes it five years instead of one year, that's volume. It's simple."

"That's why we're being really open-sourced about this," he added. "If Yoplait wants to do this, we're going to be thoroughly open-book."

It's a book whose final chapters have yet to be written, but the story line is promising: a forward-thinking company combining technical expertise, market savvy, and sustainability commitment to transform an industry, and maybe other industries, by breaking through barriers and taking a risk.

We need many more such stories.

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What the New Green Marketing Guidelines Really Mean

At long last — after 35 months, three public hearings, hundreds of public comments, two presidential administrations, and 17,536 utterings of the phrase, "It isn't easy being green" — they've arrived: The U.S. Federal Trade Commission's proposed "Green Guides," the federal government's definitive guides to green marketing.

The document, released today (a summary can be downloaded here - PDF), is an update to the original "Green Guides," published in 1992, then updated in 1996 and 1998. A lot has happened since then, marketing-wise: claims related to carbon-neutral and other greenhouse gas emissions; biobased materials, including packaging and textiles from bamboo and other plant matter; renewable energy; and the introduction of hundreds of eco-logos and certifications, some highly authoritative and credible, others decidedly less so.

The FTC is seeking public comments on the proposed changes until December 10, 2010, "after which it will decide which changes to make final."

The updating of these guides for the first time in 12 years has been greatly anticipated, seen as a watershed event, one aimed at curbing what some see as a veritable tsunami of greenwashing. (I'm not one of those. See my thoughts on greenwashing here and here.) Nonetheless, “We’ve seen an explosion of green claims,” as FTC Chairman Jon Leibowitz put it in today’s press conference.

In brief: The guides are a common-sense set of rules about what claims a company can and can't make, and what kind of substantiation and disclaimers are required for specific types of marketing messages. The original guides were intended to prohibit or clarify vague claims ("all-natural," "non-toxic," "safe for the environment") and curb the use of claims that, while technically true, were generally misleading — a "recyclable" product or package that hardly anyone could actually recycle, for example.

Some of this has been clarified or more fully defined in the new version. It also adds guidance on three new claims: “made with renewable materials,” “made with renewable energy” and “carbon offsets.”

Like their predecessors, the proposed updated guides represent a low bar, intended to eliminate outright misrepresentation and fabrications. Their updating do not herald a new era of green marketing. Despite some near-hysterical predictions, they aren't likely to "radically reshape how far marketers can go in painting their products, packaging or even corporate images green," as Advertising Age recently speculated.

For green marketers, it is not the end of the world as we know it. They won't likely change the landscape much, and most definitely won't eliminate critics' charges of "greenwashing."

It still isn't easy being -- well, you know.

The new guidelines, while in great need of a freshening up, don't really keep up with the world of sustainable business practices. I had a brief window into this in early 2008, a few months after the FTC first announced that it would update the guidelines. I was invited by the commission to meet in DC. At the time, the commission staff was focusing on packaging, in preparation for a workshop to be held in late April of that year.

In our meeting, FTC staffers described their focus on packaging — how they wanted to update the guidelines to reflect developments since 1998 — things like bio-based packaging, which wasn't addressed in the guidelines, compostable packaging, plant-based plastics, and other newfangled materials.

At one point I asked: "How do you plan to address claims about reduced packaging — or eliminating packaging altogether?" (And where would you put such claims if there's no packaging!)

The FTC folks hadn't considered this — and the proposed guidelines issued today don't mention it.

That brings up another shortcoming of today's guidelines. They don't address some of the more potent claims a company can make about its product or packaging. Cradle to Cradle, a standard that certifies products whose ingredients can be recycled back into nature or industrial processes — it's not mentioned. Biomimicry — products inspired by nature that use less energy and whose designs or materials mimic plants, bugs, sea life, and other critters — you won't find guidance for that. Green chemistry — the next-gen substitutes for some of the world's most toxic chemicals? It's nowhere to be found.

There's no guidance on the word "sustainable" or "sustainably." Or "green."

And so it goes. The FTC guidelines address only a tiny fraction of what companies are doing — the overt, relatively minor improvements companies make to their products and processes.

That's to be expected. The FTC was created to give consumers a voice in the marketplace. It's principal mission is consumer protection. And so the guidelines reflect only what companies choose to share with consumers.

But that's far from everything. There are 1,001 other things — the behind-the-scenes innovations that variously, and sometimes significantly, reduce water, energy, and materials intensity of so many of the everyday products we buy, sometimes far disproportionately to the relatively minor enhancements claimed by green marketers. The FTC offers no map for that.

Some activists and consumer advocates will no doubt be celebrating the new guidelines, while others will be bemoaning its low-common-denominator perspective. That's all fine. Both parties are right. It's not likely to alter the lives of green consumers much.

The "Green Guides" are finally out. Now, let's get on with our lives.

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