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Varying criteria complicates green rankings
January 15 2013

Sustainability rankings are still in their infancy, but as more companies disclose information uniformly, standardization in scoring methodology will evolve.

Highlights
  • The issues of green, sustainability and corporate responsibility carry a multitude of topics within themselves.
  • Publicly traded companies are required to provide more information on ESG topics because of investor pressures, while private companies are not.
  • In general, companies that currently provide more information receive higher scores regardless of whether their actual performance or programs are better.
By Eric Ricaurte
HNN columnist
eric@gviewadvisors.com

As 2012 came to end and “Best of” lists saturated the media, there were only a few scattered announcements made about leading companies in green and sustainability rankings. I did a little of my own research to try to determine which hotel company was the greenest or top performer of 2012. And the winner is … the safe answer, of course: It depends. This article explores why.

Before trying to determine the greenest hotel company, it is important to step back and ask a broader question: Which is the best hotel company overall? This will vary inevitably depending on the criteria and the viewpoint of the person judging. Even the question, “Which is the world’s largest hotel company?” varies.

With that in mind, three factors need to be considered. First, the issues of green, sustainability and corporate responsibility carry a multitude of topics within themselves. Depending on what is included in the criteria, the score will change. Some rankings only consider climate change disclosure, some encompass environmental rankings, while others focus on ethics or community, or on environmental and social. And yet, the more prominent ones encompass all topics under the umbrella of environmental, social and governance issues. Even when the same topics are considered, the criteria within specific topics and the weighing of different criteria within the topics are not uniform.

Second, the competitive set often varies depending on the rating or ranking entity. This could be limited by company size. For example, the Saunders Hotel Group was the top-scorer within hotels in the Climate Counts Company Scorecard. Yet with only six hotels in the portfolio, Saunders is inevitably left out of other ratings that focus on multinational corporations and publicly traded companies. Wyndham Hotels and Resorts, for example, is the highest ranking hotel company in the Newsweek’s 2012 U.S. Green Rankings. However, the company does not qualify for Newsweek’s Global Green Rankings, while Marriott International does (and therefore carries the highest Global Green Ranking for a hotel company). Some rankings are country or region specific, which might be why Accor and InterContinental Hotels Group were left off the Climate Counts Scorecard.

Further complicating the comp set is the nature of the hotel business as part of hospitality and tourism, as well as real estate. Depending on a rating, the subsectors of hotels, casinos, restaurants, real estate (owners), cruise lines, airlines and tour operators can either be lumped together or separated out in a number of configurations. Though this won’t affect an overall score, it may affect a relative score or ranking.

Third, the credibility of the information gathered and the competency of the entity performing the scoring to analyze the information could be skewed. Companies that currently provide more information receive higher scores regardless of whether their actual performance or programs are better. In general, publicly traded companies are required to provide more information on ESG topics because of investor pressures, while private companies are not. This explains why private companies Hilton Worldwide and Carlson Rezidor Hotel Group are left out of some of the ratings.

Company structures might be unknown. For example, should Carlson be getting credit for the work that Rezidor has done? What about the real estate investment trusts that have approved operational budgets with ESG programs? Aside from information gathering comes the question of evaluation and analysis. Entities that are quick to turn out a rating may be equally quick to extrapolate, estimate or use non-industry knowledge to fill in gaps. How an entity estimates environmental performance and compares metrics, such as the carbon footprint of companies, without having real data or industry expertise is questionable, especially because we have been working for years (and are still years away) toward a fair and accurate comparison method within the industry. Also, the undeniable reality of the scoring is that it comes from information that a company provides either publicly or in response to a survey, and due diligence may be dubious. Also curious is the scenario that occasionally exists where professional services firms will undertake the analysis and scoring, then provide consulting services to companies to help them improve those scores.

Now with that back story, it is interesting to look at the different ratings. The table below compiles a sampling of ratings, rankings, and scores for the largest hotel companies.

In quick review a few numbers pop out. IHG was the top scorer in the Goldman Sachs GS Sustain score under the ESG category, yet had the lowest disclosure score with the Carbon Disclosure Project (which is based on an organization’s disclosure, approach and performance regarding climate change). Wyndham is routinely a high scorer across the board, yet it received a relatively lower overall score from CSRHub, which calculates an average score from aggregating other ratings, scores, awards and listings across environment, employee, community and governance categories.

On the other hand, Hilton received the highest overall rating on CSRHub while being left off other scores and reporting relatively little environmental information publicly. Most interesting to me is how Accor received low scores, when Accor has consistently been listed on the Dow Jones Sustainability Index and FTSE4Good—the only hotel company to be included on both lists this year—which are two of the most credible ESG indexes. Also interesting is the perception of a company that is left off a certain rating. Is it better to be left off entirely or to receive a very low score?

Obviously ESG ratings and scores themselves are only in their infancy. But the overall trends are interesting. First, as more companies disclose information uniformly, the ability to compare and analyze will evolve. Standardization in scoring methodology will also become more finely tuned. For example the Global Initiative for Sustainability Ratings aims to do just that.

Regardless of external competency to accurately compare, more important is the sense of competition building in corporate responsibility and sustainability that is spawned by the comparisons. As companies strive to be the greenest or most sustainable for various motives, in 2013, one can see more innovation, more improvement of tangible performance and more mainstreaming of the concepts involved. So let’s cheer to that for 2013.

Eric Ricaurte works with the hotel industry and its leading companies to advance sustainability through reporting and measurement. His current activities include consulting, industry engagement, academic fellowship, column writing and publication authoring.

The opinions expressed in this column do not necessarily reflect the opinions of HotelNewsNow.com or its parent company, STR and its affiliated companies. Columnists published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.

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