17 June 2010

Myths revisited - Sustainability Indices

On April 15th I wrote about 6 recent myths of Sustainability Reporting. One of those myths is that Sustainability Indices list sustainable companies.

My specific comments from that post are at the bottom of this one, or you can read about all 6 recent myths here: 6 recent myths about sustainability reporting

Well "I told you so" is such a horrible thing to have to say, but the disaster in the Gulf of Mexico has proved the point, and at the beginning of June, BP was removed from the Dow Jones Sustainability Index. Now we just need to see the other Unsustainable Companies removed, or a new category created: The Dow Jones Would Love To See These Companies Actually Be Sustainable Index (the DJWLTSTCABSI - but then, that is probably a bit of a mouthful).

Grist got it right last September, when they asked Joel Makower (of GreenBiz.com) and Auden Schendler (of Aspec Skiing Co) the question - "Is the Dow Jones Sustainabilitiy Index worth a damn?" From my own perspective, the answer is clear - the DJSI (and many/most others), like many/most Sustainability reporting standards, are great for companies that want to put the effort into appearing to be sustainable, eco-friendly, worker/society friendly, etc.

Frankly, I'll be convinced when companies start providing reports fully linked to the DVFA/EFFAS set of key performance indicators for ESG. The guys at DVFA have done a great job of creating a set of metrics that actually do, at an industry level, help report on the range or ESG issues. Will this make them "sustainable companies"? No. But it will help investors, the media and the public gain real insights into the priorities and activities, metrics and performance of companies.

=== Extract from the 6 myths ===

Sustainability Indices list sustainable companies

Every week there seems to be another release of the winners, or top-100, or top-something list of sustainable businesses. There are also the various indices such as the FTSE4Good, Dow Jones Sustainability Index, or any number of mainstream sustainability indices. And every time I look at the lists, they are populated with companies that have produced great CSR reports, not "sustainable" businesses.

As a classic example, in 2009 a press release touted a list of the top 100 global sustainable companies. "The Global 100 includes companies from 15 countries encompassing all sectors of the economy that were evaluated according to how effectively they manage environmental, social and governance risks and opportunities, relative to their industry peers." Thank goodness they declared that this was in comparison to their industry peers.

After all, who would consider Air France to be one of the top 100 sustainable businesses in the world? It is an airline for goodness sakes, a mass producer of high altitude CO2 and high consumer of fuel, in an industry that survives in part on major subsidies such as exemptions from fuel taxes. However, I guess they must be pretty good, when compared to their peers in their industry. But that does not make Air France a “sustainable” business.

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