Are corporate social responsibility rankings irresponsible?
Corporate social and environmental performance is all the rage in today鈥檚 investment environment. With increasing frequency, analysts are monitoring, evaluating, and ranking that performance. Corporate social responsibility (CSR) lists 鈥� ranging from Corporate Knight鈥檚 to Ethisphere Institute鈥檚 and Corporate Responsibility magazine鈥檚 鈥� grow more plentiful and visible each day. Publishers now vie to position their lists as strategic holy grails for corporations making the cut, and Wall Street has taken notice. Nearly one out of every nine dollars of professionally managed assets in the United States 鈥� valued at an estimated $2.71 trillion 鈥� has been invested in companies that perform well in CSR rankings.
鈥淐ompany stakeholders from investors to customers to employees to regulators watch the 100 Best Corporate Citizens List closely, and are using it now more than ever to make important decisions,鈥� said Corporate Responsibility magazine publisher Jay Whitehead in a recent . 鈥淎s a result, making the List is worth millions or even billions in increased shareholder and brand value.鈥�
This should be good news for Citigroup, Goldman Sachs, ExxonMobil, Chevron and Monsanto which, despite their notoriety, have been counted as 鈥淏est Citizens鈥� by Corporate Responsibility numerous times. 鈥淲hen someone asks you to define corporate transparency, show them this list,鈥� touts the magazine. But to an increasing number of observers, the transparency seems elusive 鈥� as does a clear indication of what the CSR industry stands for.
鈥淐orporate Responsibility magazine鈥檚 so-called transparency only extends one layer deep,鈥� observes executive director Bill Baue. 鈥淲e can see the categories and weightings, but we can鈥檛 see the rationale behind the decisions on actual scoring of company performance.鈥� Baue notes that organizations including Corporate Responsibility collect data from business executives whose names and positions are not revealed, leaving questions about a company鈥檚 true impact on society unanswered. 鈥淚nput from external stakeholders would make the methodology much more robust and credible,鈥� he says.
Baue isn鈥檛 the only one questioning the value of CSR performance rankings. As evidenced by and across the web, a growing number of people are frustrated by CSR industry lists and the manner in which they are constructed. Some even perceive a pattern of favoritism. 鈥淯nlike programs like the Nobel prizes, Macarthur Fellowships, or Economist Innovation awards, the companies that run CSR awards and lists often have an incentive to fix the results,鈥� says Martin Smith, founder and CEO of CSR industry website . 鈥淔or instance, Corporate Responsibility magazine makes money from the companies that it rates in its annual list (through sponsorship, registration fees for events, and brand licensing arrangements). This, in any industry, would be seen as a conflict of interest, but in the realm of CSR and business ethics it is purely hypocritical.鈥�
The backlash against CSR industry lists is nothing new. Last year, financial news site warned global equity investors to take Ethisphere鈥檚 results with a grain of salt, indicating: 鈥渢he basis on which [the list] was put together is a bit naive and it appears to be troubled by several conflicts of interest.鈥� In 2005, green business writer criticized Corporate Knight鈥檚 approach, saying: 鈥淭he rankings only go so far. The whole exercise raises as many questions as it answers.鈥� And when Corporate Responsibility magazine (previously called Ethical Corporation) first released its list, green media company complained: 鈥淲hen one looks at this list, it is easy to be baffled at the real meaning of CSR. It is riddled with companies that have significant blemishes on their record when it comes to environmental matters, labor practices or treatment of customers. The likes of Wal-Mart and Big Oil have not yet made the cut, but that may be only a matter of time.鈥�
Clearly the time has come, as many of the world鈥檚 most profitable oil, food, agriculture, pharmaceutical and retail companies are featured on the latest 鈥渕ost ethical,鈥� 鈥渂est citizen,鈥� 鈥済reenest,鈥� and 鈥渕ost sustainable鈥� company lists. Given this fact, one has to wonder: Is the CSR industry completely missing the point? And if so, then so what?
Critics see several downsides to the muddle. 鈥淐SR is often too hard for the average consumer to grasp when making a purchasing decision, so companies use lists as stamps of approval,鈥� says Smith. 鈥淏ut unfortunately, not only are the lists misleading for consumers, they actually bring an overall lack of credibility to the entire field of sustainable business.鈥�
Given the importance of sustainable business practices to the future of the planet and its people, this lost credibility is a real concern. 鈥淭he most vital CSR issue to measure is whether a company is operating sustainably, in the scientific sense,鈥� says Baue. 鈥淓nvironmentally, for example, is the company using natural resources at a rate that allows for the planet to regenerate them sufficiently to provide for future generations? Unfortunately, almost no companies [on the lists] fully integrate sustainability into their business models, and almost no CSR industry lists consider the sustainability context.鈥�
What Next?
If inclusion on a CSR list translates to 鈥渕illions or even billions in shareholder and brand value鈥� as Corporate Responsibility magazine indicates, then it stands to reason that some investor and consumer wealth is being channeled in the wrong direction 鈥� toward companies that, to Baue鈥檚 point, may invest a few pennies in CSR, but make millions or billions of dollars in profits by selling things in ways that take a huge toll on society. This isn鈥檛 right. But are CSR industry lists entirely wrong? Not according to some profiled companies.
Dave Stangis, vice president of CSR and sustainability at (which ranked number 12 on Corporate Responsibility magazine鈥檚 2010 list) sees both an underlying purpose and a path forward. 鈥淣o matter how bad a list is, there is something inherently useful about it,鈥� he says. 鈥淚t is easy to look at a list and poke holes in it, but what I鈥檓 trying to do is use the methodology and questions asked to determine what strategic elements I need to improve inside my company.鈥�
Corporate Responsibility鈥檚 analysis, conducted by investment firm IW Financial, assesses 360 data points of public information across seven categories, including human rights, philanthropy and environment. But unfortunately, the same breadth of field that helps companies like Campbell鈥檚 to identify strategic weaknesses allows controversial companies to slip through the cracks. 鈥淧eople were up in arms this year, wondering how an oil company like could be considered the tenth best corporate citizen,鈥� says Stangis. 鈥淏ut in terms of the questions IW Financial asks, such as: Does the company measure its carbon footprint? What violations occurred? How many people were injured? Hess fared well, since they got credit on the disclosures.鈥�
Disclosures aside, many are wondering when CSR industry lists will get around to rewarding companies for creating positive value rather than merely mitigating risk. 鈥淭hese lists should showcase companies that are helping us innovative away from industries like oil, vertically integrated agriculture, and so forth,鈥� Smith says. Stangis agrees: 鈥淚 think the lists of the future are going to have to better address the issue of strategic opportunity. The real question is: can we finally come up with a list that rewards companies for producing products and services that meet unmet [social and environmental] needs, rather than just minimizing potential damage?鈥�
Surely, that would be something worth recognizing.
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