Ratings, rankings and the world’s most sustainable company

I’m skeptical about efforts to rank and rate green or sustainable companies, and I have been for a time. [See 100 Best Corporate Citizens? What a CROck!] It’s terribly difficult to compare big and small companies, retailers with manufacturers, software firms with oil companies, etc. We once tried at FORTUNE, and gave up because we decided it couldn’t be done right.

Having said that, I’m impressed with the rigor and methodology used by a Canadian magazine called Corporate Knights to produce its 8th annual list of Global 100 Most Sustainable Companies, which it calls “the most extensive data-driven corporate sustainability assessment in existence.” The ratings are transparent and they encompass social as well as environmental metrics, among them energy, carbon, waste and water productivity, diversity and employee turnover, safety and, interestingly, the ratio between CEO and average worker pay–a revealing metric that most such rankings do not include. Disclousre: While I played no part in putting the list together, I did write a profile of Novo Nordisk, the top-ranked company, for Corporate Knights.

A couple of things to note about the list. First, US companies perform poorly. There’s not one US-based company in the top 10. Intel (No. 18) Life Technologies (No. 15) is the highest ranked US-based firm, followed by Intel (18), Agilent (59), Johnson Controls (64), Procter & Gamble (66) and IBM (69). Lest you suspect a Canadian bias, our neighbors to the north did no better. The top-ranked Canadian firm was Suncor (48), which calls itself an “oil sands pioneer. Go figure.

Of the 22 countries with companies that made the list,  the UK led the way with 16 Global 100 companies, followed by Japan with 11 and France and the US with eight. Northern European countries (Denmark, Netherlands, Norway, Sweden) punched above their weight, which isn’t surprising.

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Barack, Paul Newman and me

Magazines love lists. FORTUNE has its 500 biggest companies, Forbes has its 400 richest people, Cosmopolitan has 75 Crazy-Hot Sex Moves and Ethisphere has the 100 Most Influential People in Business Ethics in 2008. President Obama (No. 14), the late Paul Newman (No. 91) and I (No. 39) all made the Ethisphere list because we were judged by the magazine to have “greatly influenced the business ethics realm over the past year.”

Others on the list included CEOs Lee Scott of Wal-Mart (6), Dave Steiner of Waste Management (11), Jeff Immelt of GE (16), Anne Mulcahy of Xerox (22), Neville Isdell (40) who’s just stepped down at Coca-Cola, Eric Schmidt of Google (41) and Howard Schultz of Starbucks (63). Tom Friedman (20) and Paul Krugman (31) of The Times made the list, as did social-investment leaders Peter Kinder of KLD Research (67), Joe Keefe of Pax World (69), Barbara Krumsiek of Calvert (92) and Amy Domini of the Domini Social Invements (93). Of course I’m flattered to be in such good company.

The name to watch on the list is, of course, Obama. He will have more influence on business than anyone in the year ahead, and he seems likely to use it. He has been in office for less a week and has already made two decisions that will have significant impact.

On his first day in office, Obama issued a presidential memorandum on transparency that directs federal agencies to be more open and to invite participation from citizens. It says, among other things:

Information maintained by the Federal Government is a national asset. My Administration will take appropriate action, consistent with law and policy, to disclose information rapidly in forms that the public can readily find and use. Executive departments and agencies should harness new technologies to put information about their operations and decisions online and readily available to the public.

This won’t affect business directly, but it sets an example that big companies will feel pressure to follow. Right now, I’m working on a story about lobbying by a big Washington trade association and finding that companies won’t tell their own shareholders what they spend on the association and its lobbying. That’s not right, and it probably won’t last.

Second, Obama is going to direct federal regulators today to let California and 13 other states set stricter fuel economy and emissions standards for cars, according to The Times. This is a big deal, and it comes over the opposition of the auto industry. I’m not persuaded that higher CAFÉ standards are the best way to raise the fuel efficiency of the U.S automobile fleet—I’d prefer a revenue-neutral gasoline tax, with the monies raised used to lower payroll taxes—but Obama’s decision is a strong and swift signal to business that companies had better get ready for tougher environmental rules.

The most important thing Obama and the new SEC can do to improve business ethics is to force reforms in corporate governance, giving shareholders the right to nominate directors for boards and giving them more influence over executive pay.

As Carl Icahn wrote last week in The Wall Street Journal:

Faltering companies are now soaking up hundreds of billions of tax dollars, and they are not substantially changing their management structures as a price for taking this money.

How does it serve the economy when we subsidize managements that got their companies into trouble? Where is the accountability? More importantly, where are the results?

The CEOs on Ethisphere’s list, or at least the ones I know, run their businesses for the benefit of shareholders, as well as for the good of the broader society. But many other do not, and right now there is no way shareholders can get rid of overpaid, self-aggrandizing CEOs.

I’m thinking in particular of Merill Lynche’s former CEO, John Thain, who even as he was preparing to lay off thousands of people, spent $1.22 million of company money to refurbish his office. As CNBC’s Charles Gasparino reported:

Big ticket items Thain purchased include: $87,000 for an area rug in Thain’s conference room and another area rug for $44,000; a “mahogany pedestal table” for $25,000; a “19th Century Credenza” in Thain’s office for $68,000; a sofa for $15,000; four pairs of curtains for $28,000; a pair of guest chairs for $87,000; a “George IV Desk” for $18,000; six wall sconces for $2,700; six chairs in his private dining room for $37,000; a mirror in his private dining room for $5,000; a chandelier in the private dining room for $13,000; fabric for a “Roman Shade” for $11,000; a “custom coffee table” for $16,000; something called a “commode on legs” for $35,000; a “Regency Chairs” for $24,000; “40 yards of fabric for wall panels,” for $5,000 and a “parchment waste can” for $1,400.

I would have put Thain on the Ethisphere list. If we’re lucky, his behavior will influence business ethics—for the better—in 2009.