The 100 'Most Sustainable Companies,' 2006 Edition

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by: Joel Makower

The 2006 Global 100 Most Sustainable Corporations, the second annual such rankings, has just been released at the World Economic Forum conference in Davos, Switzerland. The list was compiled by Corporate Knights and Innovest Strategic Value Advisors.

I was critical of last year's initial rankings — not the rankings themselves, but aspects of the methodology, and the transparency behind them. Among the questions I raised:

Were the Global 100 companies really all that much better than the next 100? Were some of the Global 100 (beyond the three companies singled out) far better than some of the others? (Should it really have been, say, a Global 63?) What about sectors — did some of the sectors perform much better than others? Are there some that are missing altogether?

Not all of these questions have been answered in the 2006 version, but I think the organizers have done a better job in providing context.

Say the organizers, in a helpful FAQ section:

The Global 100 companies are therefore sustainable in the sense that they have displayed a better ability than most of their industry peers to identify and effectively manage material environmental, social and governance factors impacting the up (opportunity) and down (risk) sides of their business.

Innovest says its methodology compares companies to their sector peers on a "best-in-class basis," rather than appraise them on absolute performance. For the Global 100, it selected 100 leaders from the MSCI World Index "that demonstrate exceptional capacity to address their sector-specific environmental, social and governance risks and opportunities." Innovest says that the Global 100 represent "approximately the top five per cent performers in each of the industry groups making up the MSCI World Index."

It's still far from perfect. For starters, there are lots of great leadership companies not included in the MSCI index, especially smaller firms that are setting high bars on sustainability. And it's unclear how a single "best of" list can include a bank, a mining company, a food retailer, and an electronics manufacturer, even though each was rated relative to others in its own sector. Each of these companies has different environmental and social impacts and different pressures from stakeholders, the two main drivers of companies' sustainability efforts.

Still, I'm feeling less critical this year. There's more background information, some interesting insight on who was added and deleted from last year, and some other useful information. With all their imperfections, the Global 100 ratings are probably the best indicator of which large companies around the world are leading the race to the top.

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