Should oil and gas companies be excluded from sustainability rankings?

Bob WillardDid you notice anything strange about the latest Global 100 rankings and the Climate Counts rankings? The January 2014 Global 100 ranking of the world’s 100 most sustainable large publically traded companies included ten oil and gas companies. The December 2013 Climate Counts rankings of corporations with the most sustainable carbon emissions included five oil and gas companies. What the …?! There are 3 reasons that inclusion of oil and gas companies in these rankings doesn’t pass the gut check.

1.   Oil and gas companies’ products harm / kill people

Corporate Knights is wonderfully transparent about its Global 100 methodology. It begins with all publicly traded companies with a market capitalization of at least $2 billion, and subjects them to four screens. The third one is a negative screen that removes weapons manufacturing companies and tobacco companies from consideration. Why? Because their products knowingly directly or indirectly harm or kill people. It makes sense that tobacco and weapons companies should not make the cut when looking for the most sustainable companies in the world.

sustainability championBut don’t oil and gas companies produce fossil fuels which cause climate destabilization, which causes severe weather events, which harm or kill people? Climate destabilization is ranked by the World Economic Forum as one of the Top 5 most likely and impactful sustainability risks to countries and companies. Including oil and gas companies in the list of the most sustainable companies is more than an oxymoron—it is a travesty. Rankings should divest themselves of fossil fuel companies. They should be negatively-screened out of consideration.

2.   Their Scope 3 emissions are not counted

The Greenhouse Gas (GHG) Protocol categorizes carbon emissions into three broad categories: Scope 1 emissions are all direct GHG emissions from the company’s operations; Scope 2 are indirect GHG emissions from consumption of purchased electricity, heat or steam; Scope 3 are indirect emissions in the company’s upstream and downstream value chain, including emissions generated when their products are used.

At least 80% of oil and gas company emissions are Scope 3 upstream and downstream emissions. That’s a big omission.

Why do Global 100 and Climate Counts methodologies not include Scope 3 emissions? Because publically traded companies do not have to be open and transparent with that data. Oil and gas companies not only keep their Scope 3 emissions secret; they don’t even acknowledge their accountability for them in their annual sustainability reports..

Scope 3 emissions are usually larger than Scope 1 and 2 emissions combined. Companies that do not disclose them should be scored zero on their carbon emissions performance. To do otherwise rewards non-disclosure, gives oil and gas companies a huge escape hatch on carbon emissions, and enables them to receive a very questionable sustainability halo.

GHG-Protocol

3.   Ranking methodologies are flawed

The Climate Counts methodology uses contribution to GDP in its carbon intensity calculation. GPD is a convenient metric and one for which data is wonderfully available, but it is a fatally flawed measure of progress. Nature doesn’t care whether a company’s GHG emissions look good relative to its contribution to GDP; it cares about the company’s absolute emissions that are destabilizing the climate. Nature would not agree that any oil and gas company has “sustainable” GHG emissions. The methodology is flawed.

The Global 100 methodology rates companies on their carbon productivity. This metric divides a company’s total revenue by its total GHG emissions, so if a company has very large revenues, it has high “carbon productivity.” Oil and gas companies like Exxon Mobil, Chevron, and Phillips 66 are in the top five on the Fortune 500 list of companies by revenue. Their carbon productivity ratio benefits from their huge revenue streams. Nature doesn’t care if the company is making a lot of money while it destabilizes the climate; it cares if it has high absolute GHG emissions. A sustainability ranking methodology that celebrates companies that are doing well while they trash the planet is flawed.

In November 2013, The Guardian published this article: “Just 90 companies caused two-thirds of man-made global warming emissions.” Most of the fifteen oil and companies in the Global 100 and Climate Counts rankings are among the 90 companies that are most responsible for climate change since the industrial revolution. By definition, they are among the world’s most unsustainable companies. Any ranking of sustainable companies that includes oil and gas companies is jeopardizing its credibility.

This article was originally published on Bob Willard’s personal blog
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Bob Willard is a leading expert on quantifying and selling the business value of corporate sustainability strategies.  Please click here to visit his website.

  • ~R

    Hi Bob,

    While I think it’s important to score and rank companies according to their industry, I agree with your comments that including oil and gas companies is a bit odd. Actually, if you look at many of the ‘best’ companies rankings providing by various organizations, they almost all include companies from the oil & gas industry. So, although a perfect ranking, I still think it’s interesting and provides a springboard for trying to improve current methodologies in ranking tools.

    • ~R

      Oops! should have typed “although NOT a perfect ranking …”

  • Keith

    Have you seen aerial photos of the destruction in Northern Alberta caused by the oil sands industry? There we have the world’s largest oil slick. It is hard for me to grasp the idea that somehow these companies are making a positive contribution to our planet.

  • Hopefield

    Hi Bob

    Here’s a piece I wrote for Corporate Knights a few years ago asking how Enbridge could be considered a sustainable company. The piece focuses on social sustainability issues and honouring Indigenous visions of prosperity. http://corporateknights.com/blog/northern-gateway-opportunity-whom-10-ways-appraise-corporate-responsibility

    Bear in mind, I wrote this as a young, idealistic student!

    Have a great day.

    Natalie Robinson
    http://hopefieldsustainability.ca/

  • Bob Willard

    Thanks for your comment, Natalie and for the link to your earlier CK article. Building on the “Extended Boundaries” point in your article, my blog acknowledges companies’ accountability boundaries now include their value chains. That is, the boundaries include impacts from suppliers in their upstream value chains and from users in their
    downstream value chains. Companies may not like this more inclusive
    accountability but if they are going to protect their social license to operate with important stakeholders on this crowded finite planet, they need to accept this fiduciary imperative. Bob

  • Mike B

    Bob,

    Interesting piece here. As you might imagine, your blog spurred a great deal of internal discussion at Climate Counts. To be sure, the decision on whether or not to include oil and gas companies in our latest context-based analysis was not taken lightly. In the end, however, we chose to use our project as an opportunity to showcase why extractive industries (oil, coal, etc.) are hardly the sole culprit when discussing carbon pollution.

    You mention in your article that 80% of oil and gas company emissions result from upstream and downstream activities (primarily the burning of their product). Doesn’t logic then dictate that only some blame falls to the oil company for supplying the fuel, while the rest falls on the shoulders of companies that demand the fuel to run their operations? Better yet, would it not be considered hypocritical of me as a car owner and consumer of goods to point my finger at Big Oil as the sole cause of climate change?

    Make no mistake, Big Oil deserves its role as villain and archenemy to future generations when considering the amount spent lobbying against clean energy and carbon regulations. Moreover, it is parasites like the Koch Brothers who line their pockets by retarding the American mind on the merits of climate science. But all that aside, when asked who should be held accountable for burning the fuel that emitted the carbon, well sir, it must surely be the man who pulled the trigger and not he who sold the gun. We must all bear responsibility for our actions, whether it be as manufacturers, as voters, as consumers, or as neighbors (congrats to Canada on winning hockey gold by the way).

    One final note: you mention that the methodology used in
    our analysis is flawed because we use contribution to GDP as a determinant of a company’s carbon intensity. This is not
    the case. We only use contribution to GDP in our methodology as a mechanism for allocating a carbon budget at the company level. The reason we need to do this lies in the fact that most climate stabilization scenarios, including the Tellus Polestar model used in our analysis, offer a road-map for reducing atmospheric carbon to safe levels, but they do not prescribe a method for applying these reductions to industry.

    While I agree that GDP is a heavily flawed indicator of societal progress, it remains a widely accepted measure of economic
    health. Contribution to GDP, therefore, offers arguably our best chance at allocating carbon fairly across multiple
    companies in multiple industries.

    Respectfully,

    Mike Bellamente
    Executive Director, Climate Counts

  • Thanks for this thought provoking post, Bob. It’s important to keep focus on our overall goals, which we sometimes lose track of as we dive into the details of our work and life. Numerous studies have shown that, to avoid dangerous climate change, we need to keep between 60 – 80% of current fossil fuel reserves (i.e., those that are technically and economically viable today) in the ground. The business model of every fossil fuel company in the world contravenes this requirement. When an industry wide business model contravenes a fundamental sustainability requirement, that seems a good reason to exclude that industry from a list of “the most sustainable companies”.

    Your post reminded me of something several years ago, when an earlier version of the Corporate Knights rankings included a Tobacco company as a top Sustainability performer. I and many others objected strongly. I’m happy to hear that CK listened and now screens out tobacco companies. Perhaps they will screen out Oil & Gas companies soon.