You can find out just which companies are leading the pack in Corporate Knights 2012 Global 100 ranking of the world’s most sustainable corporations.

If you look closely, you’ll see that some countries are home to more clean capitalism leaders than others. In this year’s ranking, the countries with the most leaders include the United Kingdom, with 16; Japan, with 12; the U.S. and France, each with eight; and Australia and Canada, tied at six. And Scandinavian firms made up five of the top 10, including the No. 1 most sustainable corporation, Danish healthcare company Novo Nordisk.

Why do some countries do better? One of the most obvious answers is regulation. All of the Top 5 countries require large emitters (at least) to report their carbon emissions. In addition, the European Union has run a mandatory cap-and-trade program since 2005, and has committed to reducing carbon emissions 20 per cent below 1990 levels by 2020. Japan pledged to cut carbon 25 per cent below 1990 levels by 2020, although it’s reconsidering that commitment after the Fukushima nuclear disaster. In August, the Japanese parliament also passed renewable-energy incentives aimed at boosting its solar, wind and geothermal power. And Australia in November passed legislation that fixes a price for carbon emissions and sets up an emissions cap-and-trade program starting in 2015.

But regulation is hardly the whole story. After all, many countries with strict regulations got few companies on the Corporate Knights list. The U.S. has little in the way of mandatory regulation. And, amid economic concerns, governments in the U.S., Europe and Japan have lowered their sights on stronger climate-change regulation in the last few years, said Aron Cramer, chief executive officer of BSR, a corporate responsibility consulting firm based in San Francisco, California.

Instead of cutting back their sustainability efforts in response, Cramer has seen many businesses in these countries step up. “As governments have gotten more timid, companies have gotten more aggressive,” he said.

Companies take the driver’s seat

The trend surprised Nick Main, Deloitte’s global sustainability and climate change leader. When he started his job three years ago, he thought regulation would be the driving force behind corporate sustainability. Since then, he’s seen chief executives take the wheel in places where government policies remain weak. Innovative companies truly see sustainability as a competitive advantage, he said: “It’s a way that they can attract new customers and staff and drive new products, and they want to do this.”

A 2011 survey of 2,874 corporate managers and executives across 113 countries, conducted as part of a study for MIT Sloan Management Review and the Boston Consulting Group, found that two-thirds of respondents considered sustainability critical to remaining competitive in the marketplace. That’s up from 55 per cent in 2010.

Success stories – such as Marks & Spencer, which reaped £70 million from its sustainability program in the 2011 fiscal year – have helped drive home that point. Businesses know they can cut costs – and reduce the risk of supply disruptions – by using their resources more efficiently. Meanwhile, the concept of sustainability has become more popular among consumers, and companies have found that their sustainability policies can significantly help or hurt their brands, said BSR’s Cramer.

“It’s simply not an option any more for companies with a strong consumer-facing brand not to take sustainability seriously, because their customers expect it,” said Cramer. “This is what the public expects, what strengthens a company’s future, what helps a company innovate. Sustainability is no longer something a company does on the side, but is one of the main features of business success, when you look at the many changes to the way business is done around the world.”

If companies really see sustainability as a competitive tool, one might expect to see more of it in more competitive markets. That’s certainly what’s happening in the U.S., where Wal-Mart is requiring its suppliers to help it reduce greenhouse-gas emissions, said Deloitte’s Main.

Culture wars

Social culture plays a big role in determining where corporate sustainability takes hold, according to Peter Asmus, senior analyst with Pike Research. Efficiency has long been part of European culture, for example. “In Europe, I’m always struck by how small everything is,” he said. “They have small cars and small homes. They’re just used to doing more with less and being resource efficient. It’s just part of the culture.”

In some cases, the environment also helps define culture. In Australia, an intense drought shoved sustainability to the top of the public agenda a decade ago, Main said. In Scandinavian countries, the cold and harsh environment has historically encouraged efficiency, as well as a culture that’s more community-oriented than, say, the United States, Asmus said. “In Scandinavia, homeless people left on the street would freeze,” he said. “There tends to be more of a shared common purpose in their societal values.”

Meanwhile, Japan has few natural resources, and that vulnerability prompted it to become efficient, he said. The country was an early leader in the solar industry and the world’s largest solar market until 2004. “Japan is totally devoted to efficiency,” Asmus said. The attitude fits in with broader Asian corporate culture, which often favors a longer-term view of profit maximization, Main adds.

In both Scandinavia and in Japan, a relatively small and homogenous population also helps bring about community and stronger government mandates. “With more homogenous societies, it can be easier to get things done, and you can see more environmental values and more social care,” Asmus said. In contrast, the U.S.’s strength – and challenge – is that it’s so diverse, he said, which can make it more difficult to pass strong government mandates, but also may help it attract some of the best and brightest entrepreneurs in the world.

As Main puts it, “Many of the early adopters and thought leaders in sustainability are based in the U.S., even though you don’t have a big regulatory framework to help back it up there. The fact that [sustainability] is seen as an effective business strategy in a place where you don’t have regulation demonstrates the power of the idea.”

And, even though the thought of U.S. culture still is more apt to conjure excess than efficiency, U.S. corporations contend with a strong activist community at home. The power of protest has helped convince corporations such as Gap and Nike, which previously fell out of favor amid sweatshop allegations, to make sustainability a key piece of their brand identities, Asmus said.

Structured for sustainability

Some countries have more sustainable corporations than others because of company structures, which vary widely around the world. In the U.S. and Europe, for example, the large majority of big companies are publicly traded, making it easier to find sustainable corporations there, Cramer said. Big multinationals have to comply with overseas regulations in the markets where they operate. Because they have a broad range of laws to contend with, it pays for these companies to come up with a single policy that works around the globe, Cramer adds.

In contrast, in countries such as Brazil and India, many big companies are family owned, rather than publicly held, he said, reducing the pool of corporations to select from. (Three Brazilian companies and one Indian company made the Global 100 list.) And China’s biggest companies are government controlled, he said. This could help explain why the country – the second or third largest economy in the world, depending on whose numbers you believe – has not a single publicly traded company on the list.

Of course, China also has less corporate transparency, looser labor laws and higher corporate subsidies than higher-ranking countries on the list, as well as few pollution controls. “There’s a closed corporate culture there – it’s non-transparent – and in terms of how you treat your employees and communities, I would imagine the Chinese companies wouldn’t rate,” Asmus said. But as international pressure mounts, Chinese businesses are growing more sustainable, he said.

Main suggests China could show up in the rankings soon. “My guess is, if you looked at this in three years’ time, you’d find a lot of corporate-sustainability leaders in China,” Main said. Growing the economy and the gross domestic product may have been the main priority in the past, but all that growth has raised environmental concerns, he said, adding that he’s seen a “significant change” in Chinese corporations’ attitude toward sustainability in the last year.

Overall, corporations around the globe are becoming more sustainable, and not just those in the top countries, Cramer said. “It’s possible that some countries’ companies are outperforming others, but the corporate community as a whole is doing more than it was five years ago,” he said. “Performance levels are rising globally.”

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This integrated approach to reporting reflects the way business is done at Novo Nordisk, the world leader in diabetes care and the No. 1 firm on the 2012 list of Corporate Knights Global 100 Most Sustainable Corporations. Novo Nordisk has pursued a triple bottom line of financial, social and environmental gains since the 1990s, when the phrase was coined by writer John Elkington, and it incorporated the concept into the company’s legal structure nearly a decade ago.

“The main foundation for Novo Nordisk is the triple bottom line because that is what’s protecting our license to operate,” says Lars Rebien Sorensen, the firm’s president and CEO. “That begs and obliges everybody in the company not only to see that we become a good business – that’s the financial bottom line – but that we do so in a way that is socially and environmentally responsible.”

Lise Kingo, who has worked on sustainability issues since joining Novo Nordisk in 1988, says the company’s business case for corporate responsibility goes well beyond protecting its license to operate. Today, she says, the firm envisions sustainability as a way to drive innovation, and finds that engaging with stakeholders helps spot business opportunities as well as avert trouble. One sign of the value that the company places on sustainability is the fact that Kingo, 50, has been part of Novo Nordisk’s five-person executive management team since 2002.

How, though, does the pursuit of the triple bottom line affect Novo Nordisk? Here are three ways:

Climate and energy: Manufacturing insulin, which is core to Novo Nordisk, is an energy intensive process. But after joining the Climate Savers Program of the World Wildlife Fund (WWF), Novo Nordisk pledged in 2004 to reduce CO2 emissions from global production by 10 per cent in absolute terms by 2014. Because the company expected to grow, this was the equivalent of reducing emissions by 68 per cent per unit of production. Adding to the difficulty of the task was a promise to WWF to not rely on carbon offsets or buy power from existing renewable sources. “It was a very ambitious target,” Kingo says. “We knew it would require innovation.”

Novo Nordisk invested US$20 million in a global energy-efficiency campaign that required all sites to appoint energy stewards and conduct energy screenings every three years.

Then the company turned for help to DONG Energy, Denmark’s biggest utility, which had begun to expand in offshore wind turbines. DONG helped Novo Nordisk identify further efficiencies, and in return Novo Nordisk signed what was then an unprecedented 20-year contract to buy electricity from a wind farm then under development in the North Sea. The power purchase agreement gave DONG the financial wherewithal to go forward with the project. “We created a new energy model for Denmark,” Kingo says. Since then, about 100 other companies have signedsimilar agreements, driving the growth of renewable power. In 2010, Novo Nordisk announced that it had met its carbon reduction target five years ahead of schedule, despite 30 consecutive quarters of double-digit growth.

Drug pricing: The company says access to essential medicines is a human right, and it sells human insulin (the most basic kind) to 33 of the world’s poorest countries at no more than 20 per cent of the average price in the western world. “We see it as a social investment in these countries,” explains Kingo. The company is building trust, relationships and its reputation to prepare for the day, however distant, when countries like Bangladesh and Tanzania become more profitable markets. But when the Greek government sought in 2010 to cut the prices it paid for Novo Nordisk’s modern insulin (a more advanced form) by up to 27 per cent, the company pulled the drug out of Greece even though it could have continued to profit at the lower price. Novo Nordisk said it needed to charge full price to finance research into new diabetes treatments. Says Kingo: “We felt we had to put our foot down.”

A China strategy: Novo Nordisk began selling diabetes drugs in China a half-century ago and stepped up its involvement (and investments) in the mid-1990s – opening a production plant in Tianjin, supporting the training of an estimated 55,000 doctors and financing education on diabetes prevention and treatment. The payback took time, but today the company has 63 per cent of the market share for insulin in China. It says it has directly or indirectly created 14,600 jobs and saved 140,000 “life years” as of 2010, providing social as well as financial value.

Each example reflects the company’s willingness to take a broad and long-term view of its business. Peder Michael Pruzan Jorgensen, managing director of Business for Social Responsibility’s Europe, Middle East and Africa regions, says Novo Nordisk has managed to imbue a strong sense of purpose into its business. He’s impressed by the way the company tracks its social and environmental impact, using an internal corps of values auditors who measure adherence to the triple bottom line.

That sends a strong message, he says. “They have embedded sustainability thinking and ethics and values throughout the business for a long time.”

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1. The Global 400 Sustainability leaders are selected from a universe of 4,000 developed and emerging market stocks, based on their integrated sustainability ratings from the world’s largest sustainability research consortium, The Global Sustainability Research Alliance (GSRA), and on their performance on a financial stress test administered by Legg Mason.

2. The Global 400 Sustainability leaders are then percentile ranked against their industry peers on the 11 KPIs used in Corporate Knights Capital’s research model (data are collected by Corporate Knights Capital and verified with the BLOOMBERG PROFESSIONAL® service). Industry representation in the Global 100 is adjusted to match industry representation in the MSCI All Country World Index (ACWI).

The 11 proven KPIs

Energy Productivity: Revenue per gigajoule of energy consumption.

Carbon Productivity: Revenue per metric tonne of direct/indirect GHG emissions.

Water Productivity: Revenue per cubic meter of water withdrawal.

Waste Productivity: Revenue per metric tonne of produced waste.

Leadership Diversity: Percentage of women and visible minority on board of directors.

Clean Capitalism Pay Link: At least one senior executive’s compensation tied to clean capitalism-themed performance targets.

% Tax Paid: Percentage of reported tax obligation paid in tax.

CEO-Average Worker Pay: How much more CEO gets paid (expressed as a multiple) compared to average worker.

Safety Productivity: Revenue divided by (lost-time incidents * $1K + fatalities * $1M)

Innovation Capacity: Revenue per R&D dollar spent (3-year average)

Employee Turnover: Percentage of employees that voluntarily leave the company

Behind our clean capitalism metrics

Whenever Corporate Knights releases its rankings of corporations, we inevitably receive letters complaining that companies selling “sin” products made the cut. The inclusion of certain mining and petroleum companies draws the ire of some global citizens. And so it should. But it’s important to emphasize that our rankings are intentionally designed to be product- and service-agnostic. This means no subjective indicators or exclusionary screens are used to separate the so-called sinful from the virtuous.

Corporate Knights believes a much more instructive and ultimately impactful approach is to use resource- and social-productivity metrics, increasingly available through corporate disclosure, to rank the world’s clean capitalism leaders. This means a company is measured by how efficiently it uses energy and water, how much waste and greenhouse gas emissions it generates relative to the economic wealth it creates, and whether its leadership structure reflects the diversity of the society and marketplace in which it operates.

We look at employee turnover rates, which are an indication of worker happiness, and we look at what CEOs are getting paid relative to the average worker. Is workplace safety an issue? Are firms paying their taxes and keeping up with their pension fund obligations? Is the compensation of senior officers tied to these metrics?

If such metrics are not disclosed, corporations in our rankings are penalized. Maybe next year they’ll think twice. Corporate Knights believes that even resource-productive and responsible companies should only be rewarded if they choose to be transparent about these metrics in the public realm.

“If you can objectively score companies on meaningful criteria and those scores can be used to influence market forces, it will be possible to divert capital away from inefficient, irresponsible firms and toward more resource-productive and responsible ones,” says Corporate Knights president Toby Heaps.

This approach isn’t perfect. It doesn’t capture contamination of ecosystems, land grabs in Africa, underhanded lobbying tactics, or poor treatment of civilians in foreign countries (not yet, anyway). But we can always shine a light on those behaving badly in different areas. What the approach does is set some objective and transparent ground rules on which to measure progress.

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