Green Certifications & Metrics: What are they, and how should consumers interpret them?

If you pay any attention to green business, you've probably heard of LEED, a green building standard and certification, created by the U.S. Green Building Council.  LEED specifies building materials, designs, and benchmarks for buildings, and also certifies professionals in the building industry (architects, contractors, etc...).



But did you know that there are also a large and growing number of organizations that purport to measure the "sustainability" of corporations, and certify those companies as "green" or "socially responsible"?  When I was working for a small green VC fund, we worked closely with a few of these organizations.  There is a lot of pressure on VC funds and other investment managers to report on the sustainability of their portfolios, and this is especially true for groups that claim to invest only in "responsible" businesses, such as the fund I worked for.

But there's something inherently flawed in the act of quantifying a company's greenness.  First of all, any system of metrics used to measure companies must be based on values determined by the designers of the metrics, whether they be values based on outside research of past events, or the gut feeling of the designers.  Secondly, the ecosystem of businesses and markets today is as diverse as any forest or coral reef or human organization, making comparisons between companies based on their scores on a single set of metrics unwittingly specious at best.  Finally, there is the danger that at some point in the future, benefits or penalties may be conferred upon companies based on some set of metrics, which will almost certainly fail to describe the true environmental impact of nearly every company measured. 

When our fund asked the companies in our portfolio to take two tests from two different rating groups, many of them found the metrics in the surveys to be irrelevant, and appropriate measures absent.  One company CEO, who is by any subjective measure a green business pioneer, was particularly angered by the fact that the surveys were behind the times, and penalized his company for failing to adhere to certain practices that were very recently determined to be "bad practices" rather than "best practices", as they were at the time the surveys were created.

I don't see the value of trying to get Wine on Deck certified by any of these groups.  Even the Forest Stewardship Council (FSC), which theoretically certifies forests and foresters as "sustainable", is known for failing to audit certified entities, thereby allowing foresters to break the rules but keep their certification, often to the horror of local people who know the real story.  Besides that, there is very little FSC-certified hardwood available.  Usually, the only FSC-certified lumber available in New England is plywood and occasionally oak or poplar.  Our solution is to know where our lumber comes from, and do our own due diligence on the forest and the lumbermen involved, and make our own assessment.

My third point - the chance that companies may be penalized for low scores on metrics that don't apply to their business is already happening.  I can't talk here (it's confidential) about the excellent company that our investor group couldn't consider for capital, in part because it failed to score highly enough on surveys by two leading certifying organizations.  But I can tell you that this company was so small, and its core business model so game-changing, that neither survey asked relevant questions, and both surveys failed to measure the potential impact of the company's mission & model.

I remember the day, when our fund was considering adopting one or more of these metrics to assess our portfolio, the fund's GP and I met with the founder and CEO of a green research group, to get his opinion on the idea of quantifying and comparing different companies' sustainability.  This guy had been assessing and reporting on the environmental impact of companies in dozens of industries for nearly twenty years.  His company was one of the first to do such things, and remains a leading source of intelligence for investors and other interested parties.

We talked for a couple of hours.  The CEO described how their internal reports were thick, nuanced narratives about company culture, new experimental practices, and assessments not only of what was known about the impact of a company on the planet, but also what was not known, and what needed to be know before an accurate assessment could be made.  These reports, however, were so specific to the company in question, they didn't provide a quantitative basis for comparing any two companies to each other.  The CEO didn't mind this fact.  After all, it's a fact: you can't quantitatively compare two companies' "greenness", because supply chains are too complicated and too many things change from week to week in any marketplace.

But the CEO's customers DID mind.  The thick, 10,000 word reports weren't what his clients wanted.  They wanted a "red light, green light", up or down verdict on a given company.  They also wanted to be able to compare companies to each other, even if they operated in different industries.  The CEO, knowing that you have to give the customer what he wants, had all his company's reports start including a summary page, with a score and an up or down vote on each company they researched.

But this CEO knew the scores and comparisons were, in his words, B.S.  So did I.  And so did my GP.  He was careful to insist that any trials of metrics within our fund be trials only, and the results non-binding. 

Recently, Wine on Deck applied to be listed on a green wedding website.  I had to fill out a survey, the result of which would determine whether Wine on Deck was green enough to be listed on the site.  Among the questions was a section asking me to indicate whether Wine on Deck was certified by any of the organizations in a list.  The survey also asked if we used biodegradable utensils, and if we did any composting, but didn't ask about how much wood gets wasted during manufacturing (I've been able to reduce waste to less than 10%.  Most woodworkers waste 40-50% of the lumber stock used to make furniture and other wooden items).  I wonder if we'll qualify.