Wednesday, September 26, 2012

Accolades for Tricks

DowJones Sustainability Index (DJSI) released its Annual Review this week. According to Marc Gunther, Senior Writer for GreenBiz.Com, there are about $6 billion worth of financial investments that track the DJSI including mutual funds and ETFs from Barclay’s Capital and Credit Suisse. But considering the scale of our total financial investment market, $6 billion hardly justifies the urgency we need to focus on sustainability. Yet, it is “clearly better to be in the DJSI than to be out.

Sure, DJSI matters mostly because of a certain “prestige” in the eyes of the beholden shoppers, but who should really care if the global companies are in or out of the Index?

Consumers ought to care. They need to be informed and make decisions that are healthy for themselves as well as the human ecology. Without the comparison index, they would have to amass the comparison data on their own. They are the least capable of burdening the cost of such a task. If things should be left in the consumer’s hand, no one would act unless they should decide to pool their resources and wiki a consumer driven index. Still, that would require a large investment from the crowd in terms of time. But hey, crowd sourcing seems to be reinventing every wheel humans ever managed to invent recently and I should expect no less from the wisdom of the crowd on the Internet-steroid.

But what about the companies that are listed or de-listed from the DJSI each year? Should they really care or should their responsibility end with some middle management filling out all those reports to compile the data, perhaps selectively, just so they can get a “Carbon Disclosure Project Salute” or a “Sustainability Accolades”?

[Accolades: plural of ac·co·lade (Noun); an award or privilege granted as a special honor or as an acknowledgment of merit. Synonyms: tribute, commendation, acclaim, applause, ovation, acclamation, approval, admiration, approbation, testimonial, praise welcome, flattery, kudos, adulation, homage, compliment, pat on the back, encomium . . . .]

I’d say the companies should really care. In fact, I would go as far as to say these companies should care more than the consumers should. Because these companies can absorb more easily the cost of composing such an index and these companies stand to benefit most from creating such marketing frenzy to help sell their product or services. They are also the most capable to influence a paradigm shift to responsible consumption. Sure, the overall consumption level will balance and the proverbial pie is not infinite for the human race to gobble up resources ad infinitum; but let those companies who would be early birds to the sustainability fad take advantage of its eager followers. As far as fads go, sustainability is a much classier one than the Kardashians.  

Jokes aside, the DJSI, or any sort of industry index, should help companies gauge not only their internal performance in comparison to other companies, but should also help them weigh the amorphous value society assigns to the idea of a longer lasting human experience. Is it really only worth $6 billion? Or is our great expectation to exist on this planet worth a bit more? That, I leave to your existential judgments.

Let’s get back to the DJSI then. This year, the Index included Target, Hewlett Packard, Canadian National Railway Co. and Enbridge Inc., a Canadian oil & gas company that is best known in the U.S. for spilling 20,000 barrels of oil into Michigan’s Kalamazoo River in the most costly onshore spill in U.S. history. Appalling, yes; apparently, the DJSI follows a “best in class” approach so everyone gets a trophy. There are also ample reasons to reward best efforts here, plus it would be difficult to compare sustainable practices across industries. So a "class" approach does make sense. But does this suggest a rather low bar in the oil and gas “class” in general? Or better yet, isn’t there also some kind of internal consistency problem of including oil and gas market in a sustainability index?

Those are insignificant rhetorical questions.  The bigger issue is not whether the DJSI includes or excludes a company or a class of companies, but that there are very few evidence suggesting that the DJSI really matters to companies or investors. Comparing to the MSCI World Index, which benchmarks market performance, the DJSI under performs. The under-achievers seem rampant in the industry. According to GreenBiz.Com, companies reporting to the Carbon Disclosure Project (CDP) announced plans to reduce their CO2 emissions by 1 percent a year. This is far short of the 4 percent goal agreed upon at the UN negotiations.

So, as we celebrate our annual "Accolades" of sustainable fads with the DJSI, the CDP, and others (including the Top 20 corporate users of solar power in the US, the 2012 Good Company Index, and the annual Newsweek “green” rankings), let us remember that fall is also a season when we hand out candies and treats to little monsters with tricks.

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