Guess who just won an award from the Dow Jones Sustainability Index? Volkswagen...
Wait, what?If I had to take a wild guess, I'd say that the people at the Dow Jones Sustainability Index (launched in 1999 to evaluating the sustainability performance of 2,500 of the world's largest companies) picked the winners of this year's sustainability prizes, which are awarded this September, before the recent revelations about Volkswagen. At the top of the list, winning in the 'Automobiles & Components' category, is Volkswagen AG...
This seal of approval for investors who are concerned about sustainability is a big problem and will no doubt bring many to question just how reliable those ratings are, especially those that are based mostly on voluntary reporting by companies rather than on due diligence from independent third parties. Linda Greer says it well:
Not yet in the headline news is the broad effect that the Volkswagen cheating scandal may have on the corporate social responsibility movement - a movement that has taken at least ten long years to gain any credibility at all and is now vulnerable to losing it in ten short minutes. Volkswagen may not go down alone here. It will probably severely tarnish this entire movement and may take a few environmental certification and sustainability ranking systems down with it.
Cynics of the social corporate responsibility movement, which has boomed over the past decade, have long questioned the depth, breadth, and sincerity of these voluntary efforts, which generally seem much more like PR advertisements than professional environmental protection programs.
The problem is that it's hard to find third parties who have the resources to dig up the dirt on all those massive global companies. Even when the companies are trying to help and be transparent, it's still a huge undertaking with massive costs. Where is the money supposed to be coming from?
I think we have a market failure, and the solution is probably to have government regulators that are better funded and more able to enforce the existing rules with more first-hand inspections and testing and less relying on companies to self-report (if you let the fox in the hen house, you are to blame too).
Here's a large screenshot of the list of winners in case the Dow Jones Sustainability Index changes its mind and removes VW from the list (which I'm expecting to happen at any moment now):
Here are VW's scores in the DJSI report that explains why they received the prize: