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Methodology: How the marks were determined Add to ...

Corporate Knights assessed the environmental, social, and governance (ESG) practices of Canada's largest companies in the S&P/TSX 60 index using measures drawn from similar criteria used to mark the Global 100, an international ranking of companies with the world's best ESG practices. Because some companies have not yet reported their ESG data for 2009, the marking is based on 2008 data for environmental and social measures and 2009 data for all data points that fall under regulatory reporting requirements.

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The 12 indicators assessed by Corporate Knights are given different weightings in the final score, depending on the industry sector each company operates within because some indicators are more critical in some industries than others. For example, companies in energy, mining, industrials and utilities get a greater proportion of their marks from their environmental measures, such as their energy consumption, carbon-dioxide emissions and total water usage. Sectors such as consumer products and financial services, by comparison, have less of their marks based on environmental measures and more based on employee and governance issues. A chart below shows how the categories are weighted for each industry sector.

The rating system is designed to be as transparent and standardized as possible, and to rely exclusively on criteria that can be measured and quantified. This means the marking system cannot capture every sort of social or environmental issue a company may confront, and it means some companies have faced problems that are not captured by the marking system. Rather than assign arbitrary deductions for these controversies, Corporate Knights has instead "red flagged" the issues. Links below explain recent controversies that have arisen at some companies.

One key issue with the ESG data in Canada is that there is no universal disclosure standard used by companies on all elements related to environmental and social reporting. The result is that a minority of companies provide data in some categories, such as waste production, water usage and workplace injuries. Because of these gaps, companies are scored only on the categories where data is disclosed, which means some companies' scores are based on a smaller number of data points. However, there is also a "modifier" applied to the final score to reflect the quality of a company's disclosure. Further details of the disclosure scoring are provided below.



ENVIRONMENTAL INDICATORS



(Data source: ASSET4, a Thomson Reuters business)

Energy productivity: Annual sales ($US) divided by total direct and indirect energy consumption (measured in gigajoules), compared with the average of other companies in the same GICS Industry Group (from a universe of 3,000 global large-cap stocks). The score is expressed as a percentile rank based on how the company compares with others in its industry group. A rank of 100 per cent means the company is the top performer compared with all peers in the same industry group, while 50 per cent means the company meets the industry average and zero per cent means the company is at the bottom of comparable peers.

Carbon productivity: Annual sales ($US) divided by total carbon dioxide and CO2 equivalents emitted (measured in tonnes), compared with the average of other companies in the same GICS Industry Group. The score is expressed as a percentile rank based on how the company compares with others in its industry group. A rank of 100 per cent means it is the top performer compared with all peers in the same industry group, while 50 per cent means the company meets the industry average and zero per cent means the company is at the bottom of comparable peers.

Water productivity: Annual sales ($US) divided by total water use, not including recycled water (measured in cubic metres), compared with the average of other companies in the same GICS Industry Group. The score is expressed as a percentile rank based on how the company compares with others in its industry group. A rank of 100 per cent means it is the top performer compared with all peers in the same industry group, while 50 per cent means the company meets the industry average and zero per cent means it is at the bottom of comparable peers.

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