Green Rankings 2009: Methodology

NEWSWEEK collaborated with three research partners to compile the rankings: KLD Research & Analytics, which tracks environmental, social and governance data on companies worldwide and served as lead partner; Trucost, which specializes in quantitative environmental performance measurement; and CorporateRegister.com, the world's largest online directory of social responsibility, sustainability and environmental reporting. Our goal was to assess each company's actual resource use and emissions and its policies and strategies, along with its reputation among its peers. The 500 companies included in the ranking are the largest U.S. companies as measured by revenue, market capitalization and number of employees. The companies are broken out into 15 sectors, based on the FTSE/Dow Jones Industry Classification Benchmark (ICB).

The GREEN SCORE for each company is based on three components:

*The ENVIRONMENTAL IMPACT SCORE, based on data compiled by Trucost, is a comprehensive and standardized quantitative performance measurement that captures the total cost of all environmental impacts of a corporation's global operations. Over 700 variables are summarized in the EIS. This figure is normalized against a company's annual revenues, so that companies of all sizes and industries can be compared.

*The GREEN POLICIES SCORE, derived from data collected by KLD, reflects an analytical assessment of a company's environmental policies and performance. Its scoring model captures best-in-class policies, programs and initiatives, as well as regulatory infractions, lawsuits and community impacts, among other indicators.

*The REPUTATION SCORE is based on an opinion survey of corporate social responsibility (CSR) professionals, academics and other environmental experts who subscribe to CorporateRegister.com. CEOs or high-ranking officials in all companies on the Newsweek 500 list were also invited to participate.

KLD, Trucost and CorporateRegister.com scored each company according to their specific methodologies, then converted the results to Z-scores, a widely accepted statistical technique that measures how well a firm compares to the average score of the collective group. The overall Newsweek Green Score was calculated as the weighted sum of the three component Z-scores: 45 percent for the Environmental Impact Score, 45 percent for the Green Policies Score, which takes into consideration sector differences, so that various industries can be judged against each other, and 10 percent for the Reputation Score, which also reflects sector analysis.

The rankings also contain a column reporting each company's emissions of greenhouse gases (GHGs)—a reflection of the importance of GHGs as a key component in a corporation's environmental footprint. The GHG data for the rankings comes from Trucost.  Newsweek.com contains additional GHG data reported by companies to KLD, Trucost and the Carbon Disclosure Project, which collects GHG data on over 2,500 companies worldwide.

This methodology and weightings were created in consultation with an independent advisory panel. The panel's members include: Daniel Esty, Hillhouse Professor of Environmental Law and Policy at Yale University; Marjorie Kelly, Senior Associate at the Tellus Institute and co-founder of Business Ethics; John Steelman, Climate Center, National Resources Defense Council; Wood Turner, executive director of Climate Counts; and David Vidal, Global Corporate Citizenship Research Director, the Conference Board. Newsweek's editorial partner on the Green Rankings project is ASAP Media. Founded by journalists and editors Peter Bernstein and Annalyn Swan, ASAP Media specializes in magazine, book and web content development.

Environmental Impact Score

Four of the major elements that contribute to the overall EIS score (and which are broken out into separate columns) are: greenhouse gas emissions (including nine gases in total, with carbon dioxide the most important in many cases), water use (including direct, purchased and cooling), solid waste disposed, and acid rain emissions (sulfur dioxide, nitrogen oxide and ammonia), all normalized by revenue. All data included in the four columns comes from Trucost based on: standardized company reported data, fuel/resource use, and production based company estimates.

Additionally, separate columns on toxic waste emissions and emissions normalized against a company's annual revenues are included. Emissions data is derived from the Toxic Release Inventory, a U.S. Environmental Protection Agency database of information on toxic chemical releases and waste management activities.

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Green Policies Score
The main elements incorporated in the GPS score (which are displayed in separate  columns) are: climate change policies and performance, pollution policies and performance, product impacts, environmental stewardship and environmental management.

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Reputation Score
The opinion survey, which was done exclusively for Newsweek, went out to 13,000 CorporateRegister.com users, of whom 6,600 are located in the U.S. and 6,400 are based internationally. Of those surveyed, 4,500 were identified as "sector specialists''—those having a specific working knowledge of environmental issues within their industry—and were only asked to score their sector peers. Additionally, CEOs or high-ranking officials in all companies on the Newsweek 500 list were invited to participate. CEO scores were given a weight of "3," sector specialists a weight of "2," and other participants a weight of "1." Any scores given to a company by its own employees were disregarded: CorporateRegister.com uses a number of measures to verify user identification and details.

The survey asked respondents to rate companies as "leaders" or "laggards" in five key "green" areas: green performance, commitment, communications, track record and ambassadors.

There were a total of 808 respondents or a six percent response rate, a far higher response than is typical of most public opinion polls reported in the media.   

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Z-scores
For presentation purposes, KLD mapped both the overall Green Score, the Green Policies Score and the Reputation Survey Z-scores to a 100 point scale, with the Environmental Impact Score mapped to a 100 point scale using Trucost's underlying environmental impact ratio scores. It is important to note that because of the mapping to a 100-point scale, a 45-45-10 weighting applied to each individual component will not result in the overall Green Score.

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Greenhouse Gases
Greenhouse Gases were the focus of the U.N. Kyoto Protocol, the 1997 international treaty--never ratified by the U.S.— which says, in essence, that if the world's environment is to be preserved, then industrialized countries need collectively to reduce the amount of greenhouse gases being emitted into the earth's atmosphere. (The leading nations of the world will meet in Copenhagen this December to reconsider the Kyoto Protocol.)

All data in the GHG column in the magazine (and that is footnoted on the web with a "1") comes from Trucost, which has the world's largest database of corporate GHG emissions. Trucost's standardized emissions data ensures that disclosed data includes each company's global operations and covers both CO2 and other significant GHG emissions. Data footnoted with a "2" on the web comes from individual company public disclosures collected by Trucost and KLD. Data footnoted with a "3" on the web was reported directly by companies to the Carbon Disclosure Project (CDP).

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Sectors
The 15 sectors include: banks and insurance; basic materials; financial services; food and beverage; general industrials; health care; industrial goods; transport and aerospace; media, travel and leisure; oil and gas; consumer products/cars; pharmaceuticals; retail; technology; and utilities. In some cases, the ICB designation may seem counter-intuitive. For example, a company such as McDonald's or Starbucks is classified as "media, travel and leisure" because restaurants are included in that sector, rather than in food and beverage. The ICB classification has become a global standard for grouping companies by sector (www.icbenchmark.com).

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