The article Rate my green business was originally published in Business in Vacouver.

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Lack of transparency in sustainability ratings is resulting in investor confusion and public cynicism

In January 2013, Calgary-based energy company Enbridge (TSX:ENB) appeared on a Corporate Knights list of the 100 most sustainable companies.

But only a few months earlier, Vancity had divested the Enbridge shares it held in several socially responsible investing (SRI) funds, citing the company's poor handling of a 2010 oil spill in Michigan.

That contradiction illustrates a problem one group is trying to solve: there is currently no one accepted standard that can be used to determine what makes a truly sustainable business.

While there are many different rating systems, those standards aren't very transparent.

"It creates a lot of confusion for businesses being rated, because they have to report on a whole bunch [of metrics]," said Pong Leung (pictured here), director of programs with the Natural Step Canada.

"Stakeholders that are concerned about this issue, they don't know which businesses to support."

The Natural Step, a global organization that promotes sustainability, is now in the early stages of developing that gold standard of sustainability, to be used by large businesses, investors and capital markets.

"This is an imperative, because by 2015 there will be nine billion people on the planet and companies will have to re-engineer their business models," said Coro Strandberg, a business sustainability consultant who has been working in the field for 20 years.

That overarching tool is sorely needed, said Strandberg.

"There are guides for how to become more sustainable or how to become less bad," she said. "There aren't any global guidelines on how to be truly sustainable."

Current sustainability ratings try to measure performance in three ways, said Leung: by measuring performance against the company's past performance, against competitors or peers, or against the organization's goals for sustainability.

But there's an important fourth consideration: what is sustainability, and how do organizations actually achieve it?

"It's not to say we can't use the first three, but the fourth one is most important and we don't have that one yet," said Leung.

Defining that standard could be a big benefit to businesses, said Bob Willard, an author, speaker and board member of the Natural Step Canada. Those benefits include cost savings (for instance, a company might use less electricity after putting an energy conservation program in place).

It could also result in more investment in a business, not only from SRI-focused investors, but from mainstream investors who see the business is well prepared for future risk.

"There's quite a nice correlation between sustainability and long-term issues that businesses need to prepare for," Leung agreed.

In addition, Willard expects the standard to spur innovation and to speed up the rate of change, something he believes is badly needed.

"They have goals for the waste and their energy and their water and materials, but their progress is pretty slow. ... This will help them to understand they're a long, long way from where they need to be," he said.

He has seen businesses become more focused on sustainability over the past three to five years as the effects of climate change have become more obvious.

"Severe weather events from climate change are starting to impact [businesses], because their own operations or their supplier's operations are increasingly experiencing floods or droughts or other severe weather," Willard said.

"The risk of not doing something is higher than it used to be."

The Natural Step will continue to hold meetings throughout 2014 and also plans to collect public comments. Corporate Knights, MaRS Centre for Impact Investment and B-Lab are also involved in the project.

Source: Business in Vancouver