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Perception Versus Reality in Sustainability Performance
December 18, 2012
A new study casts doubt on the notion that corporations will improve their reputations by becoming more sustainable. The global study, by Brandlogic, a branding firm, and CRD Analytics, an ESG analytics provider, found that a group of companies increased their “real sustainability performance” but nonetheless suffered a decline in their reputations for corporate citizenship. The authors speculate that sustainability performance at many companies “has exceeded their ability or efforts to communicate this improved performance effectively.” Alternatively, they posit, the reputational decline could be due to greater scrutiny and skepticism on the part of the public. Enhancing corporate reputation has long been an element of the business case for investing in corporate sustainability. This finding could weaken that case. Or it could be used to justify a shift in investment from improving performance to improving communication about performance.
When first conducted in 2011, and then again in 2012, the study found that social factors are twice as important as environmental or governance factors in determining perceptions of good corporate citizenship. The authors say this reaffirms the idea that “sustainability is bigger than ‘green.’ ” But it also perpetuates a long-running and tedious debate about the definition of “sustainability.” There is no consensus, after all, that good social performance is the primary determinant of the sustainability of a business.
The study ranked companies along two dimensions: perception and “reality.” Perception was measured by a survey of 2500 individuals in six countries (US, UK, Germany, China, India and Japan). The individuals surveyed fell roughly evenly into three groups: investment professionals, purchasing managers and graduating university students. Performance “reality” was determined by analyzing over 140 measures of corporate environmental, social and governance performance. The study classified companies with above-average performance on both dimensions as “leaders.” “Challengers” are those with above-average real performance whose perception score is below average. Six companies — AXA, Coca-Cola, Deutsche Bank, EADS/Airbus, GE and L’Oréalmoved from the “challengers” quadrant in 2011 to the “leaders” quadrant in 2012, reflecting improved perceptions of their already above-average real performance. Five firms (AstraZeneca, Bayer, HP, Nike and Merck) moved in the reverse direction — from “leader” to “challenger” — reflecting a decline in their reputations despite still strong performance as measured by the CRD Analytics data.
Green Research Insight
The study is a thought-provoking look at the relationship between corporate reputation and sustainability. Reputation is both a measure and a driver of value for corporations, but only one of many drivers. As corporations review their sustainability strategies, they need to incorporate an appropriately nuanced view of reputation both as an element of the business case and as an area for investment.
Other Studies Featured This Month
Environmental Consulting Market Growing Modestly, Consolidating
UK research firm Environment Analyst, which tracks the environmental consulting industry, released a global study of the industry based in part on a survey of practitioners. It found that spending on environmental consulting grew 4.1 percent to $26.5 billion in 2011, following a contraction of 2.9 percent in 2009 and a rebound of 8.1 percent in 2010. Revenue at the largest firms grew faster than average, at a rate of 10.4 percent, partly as a consequence of acquisitions but also due to stronger organic growth than that experienced by the smaller firms. According to the study, the ten largest firms by revenue globally are CH2M Hill, Tetra Tech, URS, Golder Associates, AECOM, Environmental Resources Management (ERM), Arcadis, AMEC Environment & Infrastructure, MWH Global and Grontmij NV. The top revenue-generating services in 2011 were:
- water and waste management (30 percent of the total)
- contaminated land (29 percent)
- environmental management, compliance and due diligence (14 percent)
- environmental impact assessment & sustainable development (14 percent)
- climate change & energy (7.5 percent)
Environmental Business International recently published its analysis of the “global environmental market.” Although it defined the market more broadly than the Environment Analyst study it found a similar overall growth rate. That study can be found here.
Green Research Insight
This market is experiencing solid, but not stellar growth. It is highly dependent on spending from government and regulated sectors such as energy, utilities and mining, along with manufacturing. Broader macro trends would support the contention of the Environment Analyst report that strategic growth plans at the largest firms center on “resource-led economies of Asia-Pacific, Latin America, Africa and the Middle East, with these regions currently attracting significant levels of investment.”
Environmental Risks May Affect National Credit Ratings
A country’s credit rating could suffer if it fails to manage environmental risks adequately. This is the central message of a new analysis by the United Nations Environment Programme (UNEP) Finance Initiative and the Global Footprint Network. The analysis shows that risks related to natural resource constraints and their broader environmental consequences can have significant near- and medium-term impacts on national economies. This, in turn, affects the risks associated with sovereign bonds, which make up an enormous financial market. According to the study, outstanding sovereign debt was equal to $41 trillion at the end of 2010. The analysis found that a 10 percent variation in commodity prices can lead to changes in a country’s trade balance equivalent to between 0.2 and 0.5 per cent of the country’s GDP. A 10 percent reduction in the productive capacity of renewable, biological resources could lead to a reduction in trade balance equivalent to between 1 and over 4 percent of GDP. Though a growing body of research and analysis has sought to establish a link between environmental practices and financial risk at the corporate level, little analysis has been done so far at the country level.