Author: Pablo Rodas-Martini, senior associate, SQ Consult B.V.
In June 2019, CDP, an institution that in its logo has the words Disclosure Insight Action, published a report called “A sea change,” which was not transparent at all. The report was widely covered not just by the mainstream media but also by the shipping media, creating waves across the sector. At that time, I wanted to write an article about the report, but how was I going to criticise an institution widely reputed as one of the top world institutions in the field of disclosure of climate change information? I restrained myself. In the last two weeks, because of my work, however, I have reviewed with great detail the Sustainability Reports of 15 shipping companies, and I could not restrain myself any longer. What I have found -I am well aware that the sustainability reports exaggerate the sustainable efforts of every company- combined with my knowledge of the industry and of many of the shipping companies, clashes in many points with the report by CDP. I do not go into the construction of an alternative ranking since that would be very arrogant from my side, mainly after the work of only two weeks. Let´s see the main issues.
First, the “transparent” CDP released one of the least transparent reports I have seen in my life (and I have seen at least a couple of hundreds of them since the moment I started to cooperate with the Human Development Report about twenty years ago). The “report” provides a devastating table in a barely… two-page report. That is absolutely absurd. You cannot claim, for instance, that Yang Min, Teekay, Euronav, NS United KK, and COSCO S.ET are the worst shipping companies among the 18 companies analysed when you only present the main findings in one page, and the table and a graph in another. By the way, I would have also taken out two companies from the top five. The report has five pages, but one is the cover (a picture), another is a brief introduction (almost the size of a tweet), and the last one only lists the names of the leadership team of CDP, the members of the board, and the analysists involved. Here is the table by CDP:
Second, CDP should have released at least the methodology and the components of the weighted ranking. CDP claims that the full report is only released to the companies involved. I fully understand that since surely companies had to provide plenty of confidential information. However, when you build an index (in this case, the weighted rank that was the criteria to arrive at the hierarchy of companies), you always, but always provide two things: the methodology (mainly which are the primary variables and if you have done or not some statistical work on them) and the weight you are assigning to each of the components of the weighted average (the sub-indexes that you build from the primary variables). That is the pattern you see in the construction of almost any index in the world: you must provide the methodology and the results of the components of the weighted average. That applies to the Human Development Index, Corruption Perception Index, Competitiveness Index, Doing Business Indexes, Innovation Index, Fiscal Performance Index, Gender Gap Index and, believe me, there are at least twenty or thirty of additional indexes since almost anything that you want to measure, either quantitative or qualitative, has been indexed in one way or another, and that without taking into account hundreds of indexes that are built for particular countries such as the Leading of Economic Indicators, Housing Market Index, Consumer Confidence Index, Consumer Comfort Index, just to mention four of the most influential economic indexes in the US. The institutions that build indexes may reserve the primary data, but they always release two things: the methodology and the components (and the weight given to each component). And why? Because any institution that builds an index knows that it will always be asked the following: “tell me how did you construct it: which were your primary variables, and which were the sub-indexes and the weights you gave to each of them, and I will tell you how strong is your index and which are its flaws.” And why again? Because no index is perfect: any index tries to proxy the reality, which means that some indexes will give a quite clear picture of reality (almost like a mirror) while others will fail miserably (almost like an elongated shadow in the evening).
Third, CDP is taking advantage of its worldwide credibility to make us accept its results blindly. As I said, I have been analysing the sustainability reports of 15 shipping companies. You do not to be a genius to see that all companies exaggerate a bit or more than a bit in those reports since, in those documents the companies tell their version of the sustainable story for a particular year. However, if you are into shipping, and if you are into the environmental issues of shipping (I have focused my attention on the environmental part of those sustainability reports, not in other sections that are beyond my field of expertise such as labor, safety, governance, CSR, or others) you know how much of each story you can believe and, to be honest, I find different results in at least half of the cases to what CDP was reporting. Of course, I did this just by myself (not with a team as CDP), and I have spent only two weeks (and not entirely, of course, on that) in scrutinising sentence by sentence the environmental section of the reports and evaluating with what I know of each company (while the CDP team may spend weeks on the report), but I am pretty confident of my knowledge and appreciation of the results. And, by the way, some of the sustainability reports were audited by DNV GL, which, as we know, is the top classification society in the world. Did DNV GL or any other classification society (all of them with great expertise on maritime issues) audit the table by CDP? Of course not.
Fourth, could a generalist that deals with almost any sector attest about the ranking of the shipping companies? Just for the sake of curiosity, I looked at a few other sectoral reports by CDP. What I found is that the authors of the shipping report were also writing about the cement sector, the chemical sector, the consumer goods sectors, and I better stopped there. You must know the particular industry before jumping into an analysis of it even if it is only to evaluate a series of indexes. You cannot come out of the blue to say that X company is the first one, that Y is the fourth, that V is the eight, that W is the twelfth, and that Z is the last one if you do not know the sector. That is something very serious: it could impact on the decisions of shippers and forwarders about which company to book, in the satisfaction of the employees about working for a particular company, in the price of the shares in the stock market, and more. The shipping sector is extremely sui generis (any sector is), just to cover the environmental area you must know what shipping companies are doing on decarbonisation and mainly on issues like the following: retrofitting of bulbous bow or propellers, air lubrication, alternative fuels, new designs, speed of the ships, scrapping, IMO 2020, etc. However, if you have no clue about what these topics are: how could you presume to know about the progress or lack of progress on the battle against climate change by the shipping companies? By the way, I would add that even if you focus only on climate change issues, as background knowledge you must know about what companies are doing with ballast water, bilge water, dark and gray water, scrapping, and a few more, since the decarbonisation of the sector is, in the end, part of the environmental challenge of the shipping companies.
In summary, let’s be serious CDP. What you have done is absolutely the opposite of what a disclosure institution should do. Release the methodology and the components and weights of the final index, and then let´s discuss. Your report is opaque, and in the world of indexes there are also opacity indexes, but even in those cases, the reports provide the methodology and the weight given to each component.
Here you find the CDP “A Sea Change.”
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