The „Sustainability Ranking of Organisations” is a new initiative by KÖVET. Based on site visits, interviews, documents and the opinions of stakeholders, it evaluates how the company is related to sustainability on an easy-to-understand scale. The method has two main innovations. First, it works as a rating, i.e. it gives an evaluation and not a vast array of indicators. As a final result it classifies the company on a five-grade scale (1. sustaining; 2. public-spirited; 3. compliant; 4. self-interested; 5. destructive) from the perspective of the effects on local economy, environmental responsibility and social responsibility. Second, the rating opens questions that require value judgement. This can be always argued, but by sticking to only „objective” information, we might lose the most critical sustainability issues. Such issues are the effects of the product on sustainability, the ratio of local control vs. the size of the company, or the effect on just distribution.

The triple interpretation of corporate sustainability

Based on the wildly accepted interpretation a „sustainable corporation” performs well in three fields: economically, environmentally and socially.
Whilst environmental performance can be rather well measured, since environmental management has 10-20 years of tradition, corporate social responsibility became the “magic word” only a couple of years ago. Despite of its rapid spread, it is not yet well translated to practical means. Based on a fresh Hungarian survey, for most of the people social responsibility means the same as the sponsoring or supporting activities of the company. This is like as if our position on the scale of “good person - bad person” would only be measured by our willingness to contribute money, not considering aspects like how we behave with our family, how we work or how we act with our colleagues, etc. Interesting enough, the phrasing and measurement of economic performance of companies is the least developed, from a sustainability point of view. It is for sure, that it goes well beyond profit rate, EBITDA, market share, return indices, and is more related to the company’s role in the local economy. Despite of the above methodological uncertainties, more and more attempts can be observed to assess the “triple bottom line”. The best known internationally is the Global Reporting Initiative (GRI), whose aim is to unify sustainability reporting, providing dozens of indicators in all three categories.
The “Sustainability rating of organisations” developed by KÖVET is in harmony with the above approaches, but at certain points it goes even beyond.

Critical issues – beyond the triple bottom line

Nowadays – as a result of external pressure or self-commitment – more and more top managers aim to make their company more sustainable. Many possible actions exist, that improve the economical and environmental performance in parallel, though these actions undoubtedly require more attention. Such steps might include environmental savings (actions that bring both environmental and economic benefits – see “Money back through the window” case studies), or actions that improve working conditions resulting in increased employee satisfaction and lower fluctuation.

Sooner or later, however, we run out of win-win solutions, or their efficiency decreases dramatically. Did our company become sustainable by harvesting these solutions? The answer greatly depends on our activities, our product, the size of the company and the ownership structure. With most of the economic activities today, we can easily reach the point, where on the way to sustainability, after the win-win type actions, we have to ask questions that concern the fundamental operations of the company. Three examples:

(1)  The nature of the activity. Under the nature of the activity we understand - among others- the depletion of non-renewable energy sources (within the time frame of human generations), the production and trade of products harmful for human health or moral, and in the wider sense even activities related to products that have no real function.

(2) Size of the organisation. Too large-scale structures are not sustainable. Presumably there exists a certain size for organisations, when the company gets separated from the local community, floats rootless above the nations,absorbing more and more money and power. Moreover, oversized companies are more vulnerable, and more difficult to manage, than smaller ones. This might not be true, or could be just the other way round, if we compare one large organisation with one small one. But if we compare the total mass - let’s say a company with hundred thousand employee or with a turnover of one billion euro and a vast number of small ones – than the possibility for the former one to go bankrupt or go through regression is much higher than for the smaller ones to have the problems all at the same time, even if the large ones have various activities.

(3) Question of equal distribution. Inequalities are more and more striking globally: while in 1980, a North-American CEO earned as much as 42 factory workers, in 1998 the earnings equal same as 419 workers’. 96% of the global consumption is by 5% of the global population, and 1.3 billion people live from under $1 a day. Numbers showing the ever-increasing inequality of distribution could be listed long.

It is not easy to answer the questions above. As much though can be suspected, whether a company has positive, negative or neutral effect on such angles of sustainable development. Another counter-argument might sound right: the only aim of a company is to maximise profit, not to save the world. This one-dimensional approach did not cause any problems, until companies were much smaller, and the economy behaved as sub-system of the society. Nowadays, however, enterprises dominate the society, and growing rights must be accompanied by growing obligations. It depends more and more on the business sphere, whether our planet will be suitable for living for the next generations. Natural disasters and depleted natural resources might cause more destructive economical crisis than any stock scandal whatsoever. Today, a company should meet not only the requirements of its shareholders, but also the requirements of its stakeholders. Michael Hopkins (MHC International), a leading expert on corporate social responsibility suggests an easy-to-conduct test. Let’s type into an internet search engine the phrases Corporate Profit and Corporate Social Responsibility, – we will get hits from similar order of magnitude.

The graphical design of the Sustainability Rating, and the result of Denso Hungary, which was ranked first.

Corporate sustainability evaluation system of KÖVET

The organisation is evaluated from 15 aspects on a 5-grade scale (see the table below). It can be seen, that in all three dimensions, only four are fix, the fifth is subjective, based on the impressions and the reliability of information.

Rating an organisation without visiting it or collecting data is possible, but a responsible approach requires more caution. Information needed for rating is gained above all from interviews with the managers and employees of the company, site visits and data collection and random control. This all is then compared with the best practices within the industrial sector, and finally, rating is carried out by involving stakeholders or experts knowing the company.

Neutrality is an important question. Since the rating – and its former version the “Environmental Merit for Companies” – have been applied as part of the verification procedure of environmental and sustainability reports, the company assigned KÖVET to rank it. Based on our value commitment, the clear categories and the involvement external stakeholders, we believe that the result of rating does not depend on our relation to the company or how much we charge, but reflects reality.

Until present, five Hungarian companies (a power plant, a car parts manufacturer, an electricity company, an airport, and a tobacco firm) have been ranked multiple times by KÖVET. According to our opinion, based on the results most of these companies can be considered as leaders in the sustainability reporting field.  We also made recommendations for further development, that can be implemented on the long term, and that require great determination.  KÖVET verified reports of companies that have shared the first places in the CEERA (Central European Environmental Reporting Award) in 2001 and 2003.  Denso Manufacturing Hungary Ltd., which was first ranked with the new system, won the prestigious EU Award for the Environment in the management category, out of 100 enterprises from whole Europe, who all qualified as the most pioneering at the national level. KÖVET would like to continue the rating of companies through “sustainability glasses”.