2015 Newsweek Green Rankings: FAQ and Advisory Council

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The Newsweek Green Rankings is one of the world’s most recognized assessments of corporate environmental performance. Toby Melville/Reuters

The Newsweek Green Rankings are one of the world’s most recognized assessments of corporate environmental performance.

Based on research from Corporate Knights Capital, along with a “Green Revenue” score powered by HIP (Human Impact + Profit)  Investor Inc., the 2015 iteration of the project features eight indicators that are used to assess and measure the environmental performance of the world’s largest publicly traded companies.

This document serves as a roadmap for the Newsweek Green Rankings and helps address many of the most commonly-asked questions.

Which companies are covered by the Newsweek Green Rankings?

The Newsweek Green Rankings consist of two separate rankings. The U.S. 500 ranks the 500 largest publicly-traded companies in the United States by market capitalization, while the Global 500 looks at the 500 largest publicly-traded companies globally by market capitalization as determined by Bloomberg as of March 4, 2015.

Who are Newsweek’s research partners?

Newsweek partnered with Corporate Knights Capital and HIP Investor to complete the 2015 Newsweek Green Rankings. Corporate Knights Capital is an independent investment research company based in Toronto, Canada. The company’s parent, Corporate Knights, has been conducting corporate sustainability rankings for over a decade, including, since 2005, the world’s first global corporate sustainability ranking (“The Global 100 Most Sustainable Corporations in the World”). HIP Investor is a leading firm rating companies and investments for their benefit or cost to society, and the associated risks or opportunities for investors.

How are companies scored?

Companies are scored based on their performance on eight specific indicators. The indicators are described below. A more detailed description of the methodology can be found online here.

Indicator 1: Combined Energy Productivity

Weight: 15%
Methodology: 
In the first step, each company's Energy Productivity is calculated for 2013 (which is the most recently reported period), with Energy Productivity defined as Revenue ($US) / Total Energy Consumption (GJ). Each company’s Energy Productivity is then percent-ranked against that of all Industry Group peers in the CKC research universe and multiplied by 0.75. The Global Industry Classification Standard (GICS) definition of “Industry Group” will be used.

In the second step, the change in each company’s Energy Productivity from 2011-2013 is calculated and percent-ranked against that of all same-Industry Group peers within the CKC research universe. If the company’s percent-ranked 2013 Energy Productivity is top quartile, their percent-ranked change in Energy Productivity for 2011-2013 is multiplied by 1 and then by 0.25. If the company’s percent-ranked 2013 Energy Productivity is second quartile, their percent-ranked change in Energy Productivity for 2011-2013 is multiplied by 0.75 and then by 0.25. If the company’s percent-ranked 2013 Energy Productivity is third quartile, their percent-ranked change in Energy Productivity for 2011-2013 is multiplied by 0.5 and then by 0.25. If the company’s percent-ranked 2013 Energy Productivity is bottom quartile, their percent-ranked change in Energy Productivity for 2011-2013 is multiplied by 0.25 and then by 0.25.

In the third step, the values from the first and second steps are totaled.

Indicator 2: Combined Greenhouse Gas (GHG) Productivity
Weight: 15%
MethodologyIn the first step, each company's GHG Productivity is calculated for 2013, with GHG Productivity defined as Revenue ($US) / Total Greenhouse gas (GHG) Emissions (CO2e). Only Scope 1 and Scope 2 emissions are included according to the GHG Protocol. Each company’s GHG Productivity is then percent-ranked against that of all Industry Group peers in the CKC research universe and multiplied by 0.75.

In the second step, the change in each company’s GHG Productivity from 2011-2013 is calculated and percent-ranked against that of all same-industry group peers within the CKC research universe. If the company’s percent-ranked 2013 GHG Productivity is top quartile, their percent-ranked change in GHG Productivity for 2011-2013 is multiplied by 1 and then by 0.25. If the company’s percent-ranked 2013 GHG Productivity is second quartile, their percent-ranked change in GHG Productivity for 2011-2013 is multiplied by 0.75 and then by 0.25. If the company’s percent-ranked 2013 GHG Productivity is third quartile, their percent-ranked change in GHG Productivity for 2011-2013 is multiplied by 0.5 and then by 0.25. If the company’s percent-ranked 2013 GHG Productivity is bottom quartile, their percent-ranked change in GHG Productivity for 2011-2013 is multiplied by 0.25 and then by 0.25.

In the third step, the values from the first and second steps are totaled and then multiplied by 0.9.

In the fourth step, if the company disclosed Scope 3 GHG emissions in 2013, a score of 100 percent is attributed and then multiplied by 0.1. Otherwise, a score of 0 percent is given.

In the final step, the scores from the third and fourth steps are added.

Indicator 3: Combined Water Productivity
Weight: 15%
Methodology: In the first step, each company's Water Productivity is calculated for 2013. Water Productivity is defined as Revenue ($US) / Total water use (m3). Each company’s Water Productivity is then percent-ranked against that of all Industry Group peers in the CKC research universe and multiplied by 0.75.

In the second step, the change in each company’s Water Productivity from 2011-2013 is calculated and percent-ranked against that of all same-industry group peers within the CKC research universe. If the company’s percent-ranked 2013 Water Productivity is top quartile, their percent-ranked change in Water Productivity for 2011-2013 is multiplied by 1 and then by 0.25. If the company’ percent-ranked 2013 Water Productivity is second quartile, their percent-ranked change in Water Productivity for 2011-2013 is multiplied by 0.75 and then by 0.25. If the company’s percent-ranked 2013 Water Productivity is third quartile, their percent-ranked change in Water Productivity for 2011-2013 is multiplied by 0.5 and then by 0.25. If the company’s percent-ranked 2013 Water Productivity is bottom quartile, their percent-ranked change in Water Productivity for 2011- 2013 is multiplied by 0.25 and then by 0.25.

the third step, the values from the first and second steps are totaled.

Indicator 4: Combined Waste Productivity
Weight: 15%
Methodology: In the first step, each company's Waste Productivity is calculated for 2013. Waste Productivity is defined as Revenue ($US) / [Total waste generated (metric tonnes) – waste recycled/reused (metric tonnes)]. Each company’s Waste Productivity is then percent-ranked against that of all Industry Group peers in the CKC research universe and multiplied by 0.75.

In the second step, the change in each company’s Waste Productivity from 2011-2013 is calculated and percent-ranked against that of all same-industry group peers within the CKC research universe. If the company’s percent-ranked 2013 Waste Productivity is top quartile, their percent-ranked change in Waste Productivity for 2011-2013 is multiplied by 1 and then by 0.25. If the company’s percent-ranked 2013 Waste Productivity is second quartile, their percent-ranked change in Waste Productivity for 2011-2013 is multiplied by 0.75 and then by 0.25. If the company’s percent-ranked 2013 Waste Productivity is third quartile, their percent-ranked change in Waste Productivity for 2011-2013 is multiplied by 0.5 and then by 0.25. If the company’s percent-ranked 2013 Waste Productivity is bottom quartile, their percent-ranked change in Waste Productivity for 2011- 2013 is multiplied by 0.25 and then by 0.25.

In the third step, the values from the first and second steps are totaled.

Indicator 5: Green Revenue Score
Weight: 20%
Methodology

The Green Revenue Score is calculated by HIP Investor.

The Green Revenue Score is obtained by breaking down a given company’s revenue into its various segments (according to its FTSE Industry Classification Benchmark, a widely used standard for listed companies) to determine the percentage of a company's revenue that is green — i.e., derived from products and services that contribute positively to environmental sustainability and societal health.

For example, if Company A’s revenue is broken down as Medical Equipment (60 percent) and Pharmaceuticals (40 percent) and the Segment Green Rating for Medical Equipment is 0.75 and Pharmaceuticals is 0.7, Company A’s Green Revenue Score is (60 percent x 0.75 + 40 percent x 0.7) = 73 percent.

Indicator 6: Green Pay Link
Weight:
10%
Methodology: Mechanisms that link senior executive pay to corporate environmental performance. Yes =10 percent. No = 0 percent.

Indicator 7: Sustainability Board Committee
Weight: 5%
Methodology: A committee at the Board of Directors level whose mandate is related to the sustainability of the company, including but not limited to environmental matters. Yes =10 percent. No = 0 percent.

Indicator 8: Audited Environmental Metrics
Weight: 5%
Methodology: Audit of 2013 environmental metrics by a third party. Yes =10 percent. No = 0 percent.

Are all companies assessed using the same methodology?

Yes. Companies are scored against their global industry groups peers on each of the eight indicators used in the project. To arrive at an overall placement, companies in each ranking (the U.S. 500 and the Global 500) are then sorted in descending order based on their final score.

Can companies opt out?

No. Companies can choose not to work with Newsweek and Corporate Knights Capital in terms of responding to requests for data verification or contact details, but all companies in the U.S. 500 and the Global 500 are automatically considered based on data disclosed in the public domain.

Was any type of oversight body used during the project?

Yes. Corporate Knights Capital assembled an advisory panel of experts for the 2015 Newsweek Green Rankings. The panel reviewed all aspects of the methodology used in the project, and is made up of the following members:

Robert G. Eccles is a Professor of Management Practice at the Harvard Business School. He is the author of One Report: Integrated Reporting for a Sustainable Society (2010) and The Integrated Reporting Movement: Meaning, Momentum, Motives, and Materiality ( 2014).

Jessica Fries is the Executive Chairman of The Prince’s Accounting for Sustainability Project (A4S), established by The Prince of Wales to “help ensure that we are not battling to meet 21st Century problems with what are, at best, 20th Century decision-making and reporting systems.” While at A4S, Fries has been responsible for establishing and running the International Integrated Reporting Council during its first 18 months, as well as establishing A4S’s CFO Leadership Network and engagement with the capital markets.

Michael Meehan is the Chief Executive of the Global Reporting Initiative (GRI), the global standard-setter in sustainability reporting.

L. Hunter Lovins is President of Natural Capitalism Solutions. Consultant to heads of state, corporate leaders and communities around the world, she is a Professor of Sustainable Management at Bard MBA.

William McDonough is founding principle of William McDonough + Partners and co-author of the widely influential Cradle to Cradle: Remaking the Way We Make Things.

Doug Miller is Chairman of GlobeScan, a public opinion research consultancy company with offices in London, San Francisco, and Toronto. He is one of the pioneers of global public opinion polling and is also a respected advisor and practitioner in the field of stakeholder engagement and collaborative action.

Jessica Robinson is Chief Executive of the Association for Sustainable and Responsible Investment in Asia (ASrIA), Asia’s leading association working to promote sustainable finance and responsible investment across the region through providing research, thought leadership, industry engagement and advocacy support. In her role, Robinson also has responsibility for the Asia Investor Group on Climate Change, an ASrIA initiative to assist Asia’s institutional

Kathleen Rogers is President of The Earth Day Network. She has worked for more than 20 years as an environmental attorney and advocate, focusing on international and domestic environmental public policy and law. Under Rogers’ leadership, Earth Day Network has developed a significant role in advancing the new green economy and has emerged as a dynamic year-round policy and activist organization.

Sean Flannery is the Chief Operating Officer and Director of Sustainable Investment Strategies at Meister Consultants Group, and a former Chief Investment Officer at SSgA Americas, where he was responsible for $2 trillion in assets under management.

Can companies participate in the research process?

Yes. All companies in the U.S. 500 and Global 500 were contacted with a data verification request by Newsweek and Corporate Knights Capital.

Can the ranking results and scores be compared year to year?

Yes, but there is one difference: the replacement of the Reputation Score by the Green Revenue Score. The other seven indicators and weighting scheme are unchanged.

How is each company classified by industry?

Each company is classified using the Global Industry Classification Standard (GICS) “industries.” The GICS structure consists of 10 sectors, 24 industry groups, 68 industries and 154 sub-industries, into which all major public companies have been categorized.

When will the 2015 Green Rankings be released?

Newsweek publicly announced the 2015 Newsweek Green Rankings on Newsweek.com on June 4, 2015, followed by the publication in the print edition on newsstands on June 5, 2015.

Where do you get your data?

All the data used in the 2015 Newsweek Green Rankings was pulled from Bloomberg’s Professional Service, which includes sustainability information on over 15,000 public securities and the CDP, formerly known as the Carbon Disclosure Project. The Green Revenue Score was informed by analytics provided by HIP Investor.

What happens if a company doesn’t disclose a particular indicator?

Companies are effectively penalized if they fail to disclose any of the indicators used in the Newsweek Green Rankings. For instance, if a company fails to disclose its energy use, which is information required by Corporate Knights Capital to calculate the Energy Productivity indicator, the company would receive a score of “0”, thus negatively affecting its overall performance in the ranking.

What year’s data is considered in your rankings?

The 2015 Newsweek Green Rankings uses 2013 performance year data, as there is a time-lag for environmental data; for instance 2013 environmental data is generally reported by companies in late 2014 or early 2015.

Can I be sure the rankings are fully accurate and reliable?

Corporate Knights Capital uses a variety of techniques to ensure that the data collected and used in the Newsweek Green Rankings is accurate and reliable. These techniques include statistical analysis of industry trends and year over year shifts in performance, as well as investigations of outliers.

What are the weaknesses in the methodology?

Like any rankings system, the Newsweek Green Rankings are imperfect. There are several main blind spots we have identified. Because companies, for the most part, do not report their impacts on biodiversity or the impact of their suppliers, it is possible for a company to outsource or push these environmental impacts “off the balance sheet.” In addition, due to a lack of data, there is an inherent lack of context as to the use of certain environmental resources. For instance, it matters a lot more if you are using water in drought-stricken California than beside a Great Lake. And what is a sustainable level of greenhouse gas pollution? We do address this to some extent by factoring in the rate of improvement on each of the four resource metrics.

The other weakness for any assessment based on voluntary data is that there are significant data gaps and most of the data is not held to strict audit protocols. We deal with this by penalizing non-disclosure with a score of “0” and requiring any data point used in the ranking to be shared in the public domain, as a sign of the company’s confidence in the number. The one significant improvement made to the rankings this year is to shed light on the impact of a company’s products and services, via the “”Green Revenue” score generated by HIP Investor.

Newsweek Green 2015 Section

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