Yesterday branding consultancy Brandlogic released its 2012 Sustainability Leadership Report comparing what it terms as real versus perceived sustainability performance for 100 leading companies. Brandlogic’s report found that any gap between a company’s real performance and its perception among consumers and stakeholders poses risks to its competitive health.
In a press briefing attended by ThomasNet.com Green & Clean, James Cerruti, senior partner for strategy and research at Brandlogic, and one of the co-authors of the report, said the study’s two-pronged approach of measuring real versus perceived performance sets it apart from other studies on corporate sustainability. Cerruti stressed that Brandlogic’s report is “not just another green study, not just a broad consumer perception study, not another one-dimensional ranking of corporate brands.” The report “wasn’t just about creating a ranking but creating a strategic decision-making tool,” he said, to “help executive teams identify investment priorities around sustainability.”
Brandlogic noted that its report “highlights the critical role of brand communications, especially to highly attentive audiences that make critical decisions based on sustainability perceptions.” It said that a company that does well in reality but fails to convey that information to its stakeholders “may lose out on a golden opportunity to influence decisions. Conversely, it said, “there is considerable risk if an enterprise is unable to live up to its perceived performance.”
The report publishes so-called Sustainability Reality Scores (SRS) and Sustainability Perception Scores (SPS), as well as a Sustainability IQ Matrix that identifies leaders out of the 100 companies Brandlogic studied. For determining SRS, the study employed sustainability performance measurement systems developed by CRD Analytics. SPS scores come from Brandlogic’s Sustainability Brand Perception Survey.
Brandlogic’s Sustainability IQ Matrix and its definitions are shown below. Perception (SPS) is charted on the X axis, and reality (SRS) on the Y axis. Companies with high marks in both SPS and SRS occupy the “Leaders” quadrant; “Laggards” score low in both respects. Companies that are not getting enough credit for their performance are labeled “Challengers”; those getting perhaps more credit than they deserve are “Promoters.” The report warns that Laggards “are vulnerable to erosion of market position as competitors raise the bar for acceptable performance.” Meanwhile, Promoters “may be putting significant value at risk if investments to improve real performance are not made.”
Note that companies’ bubbles appear in different sizes on the matrix. These sizes, Cerruti said in the press briefing, represent “the size of the alignment gap between perception and reality.” A large tan circle indicates that the company’s sustainability reality (SRS) is more than 20 points higher than its sustainability perception (SPS). A larger blue circle indicates that a company’s perception score is 20 points higher than its reality score. “The larger the gap, the greater the opportunity or risk,” Cerruti said.
In his presentation, Cerruti pointed to some interesting insights resulting from analysis of the matrix. For example, he said, “UPS is one of the highest real performers, yet FedEx’s perceived performance is well ahead of UPS.” He also highlighted Apple, “which has the highest perceived performance in the study but continues to rate below the mean in real performance.” Again, these gaps present potential threats or opportunities for the companies and their competitors.
The SRS scores for the companies in the report were obtained by measuring each company according to key performance indicators (KPIs) in the three basic ESG dimensions:
- Environmental — waste, energy, water, emissions and risk mitigation
- Social — product responsibility, community, human rights, diversity and opportunity and employment quality
- Governance — board functions and structure, compensation, vision and strategy and stakeholder rights
The perceived-performance, or SPS, portion of the study polled 2,529 respondents, including 804 investment professionals, 810 purchasing and supply management professionals and 915 graduating university students. In the press briefing, Cerruti remarked that these groups are “highly attentive” to issues around corporate citizenship, which makes them more important as survey respondents than average consumers, who are not overwhelmingly influenced by such issues. Cerruti said these three audiences are “all crucial ones to large corporations who compete for natural, financial and human resources.”
During the subsequent question-and-answer session, I asked Cerruti how the questions for the perception survey were formulated. He responded that Brandlogic “tried very hard to parallel” the SRS portion of the study based on CRD Analytics criteria. He said, “On the environmental side, we looked at usage of resources — energy and water — and also emissions and waste reduction. On the social side, we covered a number of issues like product responsibility, human rights and diversity. One the governance side, we rated companies in terms of their commitment to reporting and on their actual reporting practices.”
During the 2012 Sustainability Leadership Report’s introduction, Cerruti and co-author Hampton Bridwell, managing partner at Brandlogic, discussed what they have learned since their previous report in June 2011. The authors said they were surprised to find that, while actual sustainability performance among companies rose, overall perceptions fell. This was contrary to Brandlogic’s expectations. The report read, “Given the greater focus on sustainability, we expected the reality scores to improve, but the decline in perception was a surprise.”
Brandlogic believes this disconnect means that “most of the 100 companies’ real ESG performance has outstripped their ability or efforts to communicate this improved performance effectively, at least to the three highly attentive stakeholder groups covered by our study.” Another possible factor is increased scrutiny and skepticism by stakeholder groups that have “become tougher critics on an issue seen as more important than ever.” Brandlogic believes the results underscore the importance of finding “the appropriate channels, messaging and forms of engagement to reach crucial stakeholders and tell their stories effectively.”
I asked Cerruti on recommended actions for companies that want to improve their perception performance and bring it in line with their actual sustainability performance and thus move from the Challengers quadrant to the Leaders quadrant in Brandlogic’s Sustainability IQ Matrix. He said, “The reason we got involved in this study is that companies find it difficult to make decisions about how and where to communicate about sustainability.” Nearly all large companies now issue sustainability reports, and “that’s all good,” Cerruti said, “but the reality is that unless there’s a really interested audience that wants to go find those reports, the information isn’t going to get out broadly.”
Cerruti said Brandlogic has found that the companies that are doing best at communicating their sustainability have “moved beyond simple reporting of their myriad initiatives.” He noted that the most effective companies “have consolidated all their initiatives under two or three key themes in a way that allows them to communicate those initiatives to different stakeholders, to make it easier to understand the company’s commitment at the get-go, rather than having to plow through reports.”