The business of rating business

Is Coca Cola a more sustainable company than PepsiCo? Which company is greener, Dell or Hewlett Packard? Both UPS and FedEx say they are environmental leaders—who’s right?

Underwriters Laboratories (UL) — one of the world’s oldest and most respected standard-setting organizations — is going to help settle some of those arguments.

In cooperation with Greener World Media – the publisher of Greenbiz.com, where I’m a senior writer — UL plans to launch a ratings system for companies by the end of the year. This is a big deal because it could help bring credibility and clarity to the very crowded and confused business of sustainability ratings, rankings and eco-labels.

The news that Greener World Media and UL are working together on a sustainability standard surfaced last week when Marcello Manca, the vice president and general manager of UL Environment, spoke on a panel at the Amsterdam Global Conference on Sustainability and Transparency convened by the Global Reporting Initiative (GRI). At the same time, my friend Joel Makower, the founder of Greener World Media, wrote a detailed blogpost, explaining the origins of the project, which go back to the early 2000s.  Joel calls the new venture “LEED for companies,” saying:

We’ve long described this in shorthand as “LEED for Companies” — that is, a point-based rating system along with good-better-best levels of certification. We have been inspired by the success of the U.S. Green Building Council’s LEED green building rating systems, which created definitions of “green building” where there were none. Those ratings systems were critical catalysts in spurring the green-building market. Similarly, we believe this new standard and rating system will help define sustainability at the enterprise level, growing markets for certified companies.

If all goes according to plan, the new ratings system will rise above the crowd because it combines the knowledge and networks of Joel and Rory Bakke, director of sustainability at Greener World Media, who has worked extensively with government purchasing agencies, with the brand and credibility of UL, a global nonprofit that has been ratings products for safety for more than 115 years. UL has 6,700 employees and 65,000 customers around the world.

The UL-Greener World Media product–it doesn’t have a name yet–could also complement the data on products being compiled by the Sustainability Consortium organized by Wal-Mart, whose members now include retailers Safeway and Best Buy, and consumer products giants P&G, Disney, General Mills, PepsiCo, S.C. Johnson and Unilever. Jon Johnson, co-director of the consortium, was also at the GRI panel, and he said that UL’s company ratings would be a good fit with the consortium’s product data.  “Walmart has reached out to ULE,” Johnson said.

For  now, the business of rating and ranking products and companies around sustainability is an ungodly mess–although not for lack of efforts. Media companies such as Newsweek and CRO Magazine have tried to rank the greenest, most sustainable or responsible companies but their efforts have generated as much derision as respect. (See 100 Best Corporate Citizens? What a CROck!) A startup called Good Guide that rates products on health, environmental and social criteria has won adherents but also criticism from corporations. Claus Conzelmann of Nestle complained at the GRI event that Good Guide doesn’t have enough specific product data–Nestle alone makes 100,000 different products–to do a reliable job, calling some of its ratings “grossly misleading.” Socially responsible mutual funds and financial indexes like the Dow Jones Sustainability Index rank companies, but most don’t make their standards or criteria public. Most recently, Fast Company magazine online has  published “sustainability faceoffs” (they should have called them “sustainability smackdowns”) comparing Apple to  Microsoft, McDonald’s to  Starbucks, and Coke to Pepsi, using data and methodology from a book called The HIP Investor. (See How to be a HIP investor.)

Allen White of the Tellus Institute,  a co-founder of GRI, said: “The quantity of information is exploding. Is the quality keeping up? Is the usability there?…It does, at times, become very confusing, overwhelming.”

Marcello Manca

Many details of the UL-Greener World Media approach remain to be determined. The companies have begun talking  with companies and NGOs about their approach, which will combine, as Joel indicated, a point system with good-better-best ratings, mostly likely giving companies a silver, gold or platinum seal, or no rating at all, meaning they have work to do.

The ratings will go beyond “green.” Said Manca: “We’re looking at governance. We’re looking at workplace. We’re looking at supply chain. We’re looking at community engagement. It’s a holistic approach, and it’s all based on verifiable data.”

Several questions remain:

Will the results be made public? “This is still under discussion,” Manca said. “Our strong desire is that all of our clients will accept full disclosure.” If companies resist, UL and Greener World Media will be in a tough spot–they intend to make money by charging the companies that will be rated.

Why would companies pay for ratings? Partly because they want  third-party snapshot of their sustainability performance but mostly because their customers — Walmart, other retailers, governments — will insist that they get rated.

Isn’t it a conflict of interest for companies to pay for their own ratings? The evidence is mixed. Bond-rating agencies Moody’s and Standard & Poors did a dismal job rating financial products, giving AAA ratings to bonds that turned out to be junk because they wanted the business. But UL’s safety ratings are respected even though they are paid for by the companies.

I can’t be objective about the UL-Greener World Media venture, not only because I work closely with Greenbiz but also because I have so much respect for Joel and his colleagues. I like to tease Joel that he’s the “guru of green business” (AP once called him that) but the truth is that he has thought more about this set of issues than anyone I know. So I’m betting that the UL-Greener World Media will bring clarity, rather than clutter, to the business of rating business.

Tagged as: Greener World Media, Joel Makower, Marcello Manca, UL, UL Environment, Underwriters Laboratories