Corporate sustainability ratings are becoming the gold standard that business leaders, investors, and the general public look for whether it is analyzing a company or simply getting a first impression. The main reason why people look to these corporate sustainability ratings is because they desire to distinguish the sustainably invested corporations from those that are not. However, using these corporate sustainability ratings to do so does not, in fact, allow people to truly see that difference.
What do sustainability ratings do? They evaluate companies based on key performance indicators (KPIs) that address different economic, environmental, and social issues. Some examples of these triple-bottom-line characterized KPIs include energy productivity, carbon productivity, water productivity, waste productivity, innovation capacity, percentage tax paid, CEO to average worker pay, pension fund status, safety performance, employee turnover, and leadership diversity. However, all of these sustainability ratings have one flaw and that is not connecting these KPIs to the broader sustainability context in which companies operate. For real value and results to be revealed from measuring corporate sustainability, there needs to be a clear connection between a company’s performance and nature and society’s capacity to indefinitely support its activities and operations.
How can sustainability ratings me made useful? Right now, many companies are only reporting their KPIs and sustainability ratings through absolute and relative measurements that only give the results of the KPIs themselves and no information on how they relates to whether the specific levels of performance for a given KPI are sustainable or not. What needs to be answered is “does the earth have the ability to support these companies’ levels of performance?” The solution to this is the standardization of KPIs, where standardized targets will be created across the board for all KPIs and bonuses and penalties will be applied to scores that exceed or fail to adhere to the required standard. Each KPI will be given a specific weight and will be amalgamated to form an overall corporate sustainability rating.
Now that there is a clear connection between the corporate sustainability rating and the earth’s ability to support companies’ activities, the questions that now remain are “how do we decide how much weight to put on each KPI? How will we accommodate and standardize new KPIs across the board? How should we penalize companies that do not meet the standard for its corporate sustainability rating? And how will we get more companies to join in this initiative?