Perception doesn't always equal reality. Especially when it comes to sustainability.
Companies best known for sustainability -- Apple Inc., FedEx Corp., Toyota Motor Corp. -- aren't the ones leading their peers on real, company-wide gauges of sustainability performance. That’s one conclusion reached in a new report published last week by Brandlogic and CRD Analytics that compares how 100 top companies perform, and are perceived to perform, on sustainability.
The report also found that most companies are making real operational improvements that key audiences are not factoring into their perceptions. Ninety-three of the 94 companies that also appeared in the 2011 report showed measurable sustainability performance improvements this year. (Six companies were replaced for the 2012 study.) Yet only a third of those companies showed improved perception scores, a possible consequence of consumers being hit with too much information that they're not in a position to evaluate.
"As people become more aware, and actually see more information, they actually become more skeptical," says James Cerutti of Brandlogic.
To find companies' “Sustainability Reality Scores,” researchers rated their performance on environmental and social issues and corporate governance, as defined by 141 metrics, ranging from energy and water use, human rights, employee diversity, and commitment to transparency and disclosure.
They then surveyed thousands of professional investors, purchasing managers and university and college students, to see how their perceptions stood up against the more objective metrics. The survey results inform the “Sustainability Perception Scores.” Purchasing managers were by far the hardest graders, although all three classes of respondents marked companies' scores down. "As people become more aware, and actually see more information, they actually become more skeptical," James Cerutti, a Brandlogic senior partner suggested in a telephone interview. "They don't know what the facts really may be… It may just be a natural reaction to say, well, I'm gonna be a little cynical, a little skeptical here."
Both the reality and perception scores are translated onto 100-point scales for each company. The methodology is explained in the full report, here. The 100 companies each fall into one of four quadrants on a "sustainability IQ matrix”: Leaders, who rate high in both performance and perception, fill the upper right quadrant; Challengers, who score well in performance and below the mean in perception, fill the upper left quadrant; Promoters, who are perceived to be sustainability leaders but who rate below the mean on actual performance, fill the lower right quadrant; and Laggards, who trail the both means for both performance and perception, fill the lower left quadrant.
The study enables comparisons between companies within a sector. United Parcel Service, Inc. (UPS), for example, earned one of the study’s highest marks for company-wide operational performance on environmental, social and corporate governance issues. Its competitor, FedEx, scored half as well on overall performance, but manages a much stronger overall perception of sustainability.
Other noteworthy results:
Apple has the highest perception rating of the 100 companies, which is surprising given that the company, “though improved, continues to rate below the mean on real performance,” Cerutti said on a conference call when the report launched last week. Technology companies such as Dell Inc., Hewlett-Packard Co., International Business Machines Corp. (IBM) and Microsoft Corp. all rated higher than Apple on their "sustainability reality score."
One explanation is that Apple’s phenomenal success in sales and branding has created a kind of halo effect that encouraged survey respondents to perceive it as a sustainable company. In reviewing their data, researchers found that companies' scores on environmental and social issues and governance account for only 50 percent or 60 percent of the perception that survey respondents had of them. In the case of a company like Apple, having wildly successful products might make people willing to overlook supply chain or environmental questions and credit it with being more sustainable, Cerutti said in our interivew.
Toyota trails Bayerische Motoren Werke AG (BMW), Volkswagen AG and Ford Motor Co. in overall sustainability performance, but leads them, substantially, in perceived performance.
Pharmaceutical companies were among the leaders on the “Sustainability Perception Score” in 2011, but fell out of that role this year.
Last year, 15 companies had perception scores that led their performance scores by more than 20 points. This year, Facebook Inc. and Amazon.com, Inc. are the only two.
Companies with high perception scores tend to embed their sustainability achievements directly in what Cerutti called overall “brand communication.” Sustainability reports may now be routine for most global companies, but that doesn’t mean many people read them.
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